FEDERATED HIGH YIELD TRUST
PROSPECTUS
A no-load, open-end, diversified, management investment company (a mutual fund)
that seeks high current income by investing in a professionally managed,
diversified portfolio of fixed income securities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Federated High Yield Trust (the "Trust"). Keep this prospectus for
future reference.
SPECIAL RISKS
THE TRUST'S PORTFOLIO CONSISTS PRIMARILY OF LOWER-RATED CORPORATE DEBT
OBLIGATIONS, WHICH ARE COMMONLY REFERRED TO AS "JUNK BONDS." THESE
LOWER-RATED BONDS MAY BE MORE SUSCEPTIBLE TO REAL OR PERCEIVED ADVERSE
ECONOMIC CONDITIONS THAN INVESTMENT GRADE BONDS. THESE LOWER-RATED
BONDS ARE REGARDED AS PREDOMINANTLY SPECULATIVE WITH REGARD TO EACH
ISSUER'S CONTINUING ABILITY TO MAKE INTEREST AND PRINCIPAL PAYMENTS
(I.E., THE BONDS ARE SUBJECT TO THE RISK OF DEFAULT). IN ADDITION, THE
SECONDARY TRADING MARKET FOR LOWER-RATED BONDS MAY BE LESS LIQUID THAN
THE MARKET FOR INVESTMENT GRADE BONDS. PURCHASERS SHOULD CAREFULLY
ASSESS THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE TRUST. SEE THE
SECTIONS OF THIS PROSPECTUS ENTITLED 'INVESTMENT RISKS' AND 'REDUCING
RISKS OF LOWER-RATED SECURITIES.'
The Trust's investment adviser will endeavor to limit these risks through
diversifying the portfolio and through careful credit analysis of individual
issuers."
The Trust has also filed a Statement of Additional Information dated April 30,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Trust, contact the Trust at the address listed in the back
of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 30, 1994
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Restricted Securities 4
When-Issued and Delayed Delivery
Transactions 4
Temporary Investments 4
Repurchase Agreements 4
Put and Call Options 5
Risks 5
Lending of Portfolio Securities 5
Portfolio Turnover 5
Investment Risks 5
Reducing Risks of Lower-Rated Securities 7
Credit Research 7
Diversification 7
Economic Analysis 7
Investment Limitations 7
TRUST INFORMATION 8
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Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Other Payments to Financial
Institutions 9
Distribution of Trust Shares 9
Administrative Arrangements 9
Administration of the Trust 10
Administrative Services 10
Shareholder Services Plan 10
Custodian 10
Transfer Agent and Dividend
Disbursing Agent 10
Legal Counsel 10
Independent Auditors 10
NET ASSET VALUE 10
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INVESTING IN THE TRUST 11
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Share Purchases 11
By Wire 11
By Mail 11
Minimum Investment Required 11
What Shares Cost 11
Subaccounting Services 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Retirement Plans 12
REDEEMING SHARES 12
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Telephone Redemption 13
Written Requests 13
Signatures 13
Receiving Payment 13
Accounts with Low Balances 14
Redemption in Kind 14
SHAREHOLDER INFORMATION 14
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Voting Rights 14
Massachusetts Partnership Law 14
TAX INFORMATION 15
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Federal Income Tax 15
Pennsylvania Corporate and
Personal Property Taxes 15
PERFORMANCE INFORMATION 15
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FINANCIAL STATEMENTS 16
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REPORT OF INDEPENDENT AUDITORS 32
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APPENDIX 33
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ADDRESSES Inside Back Cover
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)............................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.64%
12b-1 Fee............................................................................. None
Other Expenses........................................................................ 0.22%
Shareholder Servicing Fee(2)............................................ 0.05%
Total Trust Operating Expenses(3)...................................... 0.86%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.75%.
(2) The maximum Shareholder Servicing Fee is 0.25%.
(3) The Total Trust Operating Expenses in the table above are based on expenses
expected during the fiscal year ending February 28, 1995. The Total Trust
Operating Expenses were 0.83% for the fiscal year ended February 28, 1994 and
would have been 0.96% absent the voluntary waiver of a portion of the management
fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "TRUST INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN
$5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period........... $9 $27 $48 $106
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED HIGH YIELD TRUST
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to Report of Ernst & Young, Independent Auditors, on page 32.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29
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1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $9.10 $8.91 $6.99 $8.02 $9.96 $10.21 $11.25 $10.96 $10.02 $10.00
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.84 0.93 1.03 1.04 1.30 1.30 1.26 1.30 1.37 0.52
- --------------------
Net realized and
unrealized gain
(loss) on
investments 0.40 0.19 1.90 (0.92) (1.96) (0.25) (0.98) 0.32 0.95 0.02
- -------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from
investment
operations 1.24 1.12 2.93 0.12 (0.66) 1.05 0.28 1.62 2.32 0.54
- --------------------
LESS DISTRIBUTIONS
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Dividends to
shareholders from
net investment
income (0.86) (0.93) (1.01) (1.06) (1.28) (1.30) (1.26) (1.30) (1.37) (0.52)
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Distributions to
shareholders from
net realized gain
on investment
transactions -- -- -- -- -- -- (0.06) (0.03) (0.01) --
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Distributions in
excess of net
investment income** -- -- -- (.09)** -- -- -- -- -- --
- -------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.86) (0.93) (1.01) (1.15) (1.28) (1.30) (1.32) (1.33) (1.38) (0.52)
- -------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END
OF PERIOD $9.48 $9.10 $8.91 $6.99 $8.02 $9.96 $10.21 $11.25 $10.96 $10.02
- -------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN(A) 14.16% 13.28% 44.15% 3.12% (7.50)% 10.92% 3.08% 15.75% 24.70% 6.39%
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RATIOS TO AVERAGE
NET ASSETS
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Expenses 0.83% 0.77% 0.76% 0.78% 0.76% 0.75% 0.75% 0.75% 0.75% 0.74%(b)
- --------------------
Net investment
income 9.17% 10.54% 12.73% 14.82% 13.87% 12.89% 12.25% 11.86% 13.25% 14.08%(b)
- --------------------
Expense waiver/
reimbursement(c) 0.13% 0.22% 0.33% 0.49% 0.33% 0.32% 0.24% 0.35% 0.75% 0.76%(b)
- --------------------
SUPPLEMENTAL DATA
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Net assets, end of
period (000
omitted) $432,045 $354,383 $222,937 $103,647 $134,242 $235,208 $246,745 $271,148 $26,883 $10,814
- --------------------
Portfolio turnover
rate 112% 93% 61% 31% 24% 51% 73% 57% 31% 7%
- --------------------
</TABLE>
*Reflects operations for the period from August 23, 1984, to February 28, 1985.
For the period from the start of business, June 29, 1984, to August 23, 1984,
net investment income per share aggregating $0.167 was distributed to the
Trust's former investment adviser. Such distribution represented the net
income of the Trust prior to the initial public offering of Trust shares,
which commenced August 23, 1984.
**Distributions in excess of net investment income for the period ended February
28, 1991 were a result of certain book and tax timing differences. This
distribution does not represent a return of capital for federal income tax
purposes.
(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
Further information about the Trust's performance is contained in the Trust's
annual report dated
February 28, 1994, which can be obtained free of charge.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 17, 1984. The Trust is designed primarily for assets held
by bank customers or by banks in a fiduciary, advisory, agency, custodial
(including Individual Retirement Accounts), or similar capacity. It is also
designed for funds held by other institutions such as corporations, trusts,
brokers, investment counselors, pension and profit-sharing plans, and insurance
companies. A minimum initial investment of $25,000 over a 90-day period is
required.
Trust shares are currently sold and redeemed at net asset value without a sales
charge imposed by the Trust.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is to seek high current income by
investing primarily in a professionally managed, diversified portfolio of fixed
income securities. The fixed income securities in which the Trust intends to
invest are expected to be lower-rated corporate debt obligations. While there is
no assurance that the Trust will achieve its investment objective, it endeavors
to do so by following the investment policies described in this prospectus. The
investment objective stated above and the investment policies and limitations
described below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Trust will invest primarily in fixed rate corporate
debt obligations. The fixed rate corporate debt obligations in which the Trust
intends to invest are expected to be lower-rated. Permitted investments
currently include, but are not limited to, the following:
- corporate debt obligations having fixed or floating rates of interest and
which are rated BBB or lower by recognized rating agencies;
- commercial paper;
- obligations of the United States;
- notes, bonds, and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Federal
Farm Credit Banks, Tennessee Valley Authority, Export-Import Bank of the
United States, Commodity Credit Corporation, Federal Financing Bank,
Student Loan Marketing Association, Federal Home Loan Mortgage
Corporation, or National Credit Union Administration;
- time and savings deposits (including certificates of deposit) in
commercial or savings banks whose deposits are insured by the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF"), including certificates of deposit issued by and other time
deposits in foreign branches of BIF-insured banks;
- bankers' acceptances issued by a BIF-insured bank, or issued by the
bank's Edge Act subsidiary and guaranteed by the bank, with remaining
maturities of nine months or less. The total acceptances of any bank held
by the Trust cannot exceed 0.25 of 1% of such bank's total deposits
according to the bank's last published statement of condition preceding
the date of acceptance; and
- general obligations of any state, territory, or possession of the United
States, or their political subdivisions, so long as they are either (1)
rated in one of the four highest grades by nationally recognized
statistical rating organizations or (2) issued by a public housing agency
and backed by the full faith and credit of the United States.
The corporate debt obligations in which the Trust may invest are generally rated
BBB or lower by Standard & Poor's Corporation or Baa or lower by Moody's
Investors Service, Inc., or are not rated but are determined by the Trust's
investment adviser to be of comparable quality. (See "Investment Risks" on page
5.)
RESTRICTED SECURITIES. The Trust may acquire securities which are subject to
legal or contractual delays, restrictions, and costs on resale. Because of time
limitations, the Trust might not be able to dispose of these securities at
reasonable prices or at times advantageous to the Trust.
As a matter of investment practice, which can be changed without shareholder
approval, the Trust will not invest more than 15% of its net assets in illiquid
securities, which include certain private placements not determined to be liquid
under criteria established by the Board of Trustees and repurchase agreements
providing for settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Trust relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Trust to miss a price
or yield considered to be advantageous.
TEMPORARY INVESTMENTS. The Trust may also invest temporarily in cash and cash
items during times of unusual market conditions for defensive purposes and to
maintain liquidity. Cash items may include, but are not limited to, obligations
such as:
- certificates of deposit;
- commercial paper (generally lower-rated);
- short-term notes;
- obligations issued or guaranteed as to principal and interest by the U.S.
government or any of its agencies or instrumentalities; and
- repurchase agreements.
REPURCHASE AGREEMENTS. Certain securities in which the Trust invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other securities to the
Trust and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the original seller does not
repurchase the securities from the Trust, the Trust could receive less than
the repurchase price on any sale of such securities.
PUT AND CALL OPTIONS. The Trust may purchase put options on portfolio
securities. The Trust may also write call options on securities either held in
its portfolio or which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration. The call options which the Trust writes must be listed
on a recognized options exchange. Purchases of puts or sales of calls by the
Trust are intended to protect against price movements in particular securities
in the Trust's portfolio. Sales of calls also generate income for the Trust. The
Trust also reserves the right to hedge the portfolio by buying financial futures
and put options on financial futures.
RISKS. Prior to exercise or expiration, an option position can only be
terminated by entering into a closing purchase or sale transaction. This
requires a secondary market on an exchange for call or put options which
may or may not exist for any particular call or put option at any specific
time. The absence of a liquid secondary market also may limit the Trust's
ability to dispose of the securities underlying an option. The inability to
close options also could have an adverse impact on the Trust's ability to
effectively hedge its portfolio.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Trust may lend its portfolio securities on a short-term or long-term basis to
broker/dealers, banks, or other institutional borrowers of securities. The Trust
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Trust's investment adviser has determined are
creditworthy under guidelines established by the Trust's Board of Trustees and
will receive collateral equal to at least 100% of the value of the securities
loaned.
PORTFOLIO TURNOVER. While the Trust does not intend to do substantial short-term
trading, from time to time it may sell portfolio securities without considering
how long they have been held. The Trust would do this:
- to take advantage of short-term differentials in yields or market values;
- to take advantage of new investment opportunities;
- to respond to changes in the creditworthiness of an issuer; or
- to try to preserve gains or limit losses.
Any such trading would increase the Trust's portfolio turnover rate and its
transaction costs. However, the Trust will not attempt to set or meet an
arbitrary turnover rate since turnover is incidental to transactions considered
necessary to achieve the Trust's investment objective.
INVESTMENT RISKS
The corporate debt obligations in which the Trust invests are usually not in the
three highest rating categories of a nationally recognized statistical rating
organization (AAA, AA, or A for Standard & Poor's Corporation and Aaa, Aa, or A
for Moody's Investors Service, Inc.) but are in the lower rating categories or
are unrated but are of comparable quality and have speculative characteristics
or are speculative. Lower-rated or unrated bonds are commonly referred to as
"junk bonds." There is no minimal acceptable rating for a security to be
purchased or held in the Trust's portfolio, and the Trust may, from time to
time, purchase or hold securities rated in the lowest rating category. A
description of the rating categories is contained in the Appendix to this
prospectus.
Lower-rated securities will usually offer higher yields than higher-rated
securities. However, there is more risk associated with these investments. This
is because of reduced creditworthiness and increased risk of default.
Lower-rated securities generally tend to reflect short-term corporate and market
developments to a greater extent than higher-rated securities which react
primarily to fluctuations in the general level of interest rates. Short-term
corporate and market developments affecting the price or liquidity of
lower-rated securities could include adverse news affecting major issuers,
underwriters, or dealers of lower-rated corporate debt obligations. In addition,
since there are fewer investors in lower-rated securities, it may be harder to
sell the securities at an optimum time.
As a result of these factors, lower-rated securities tend to have more price
volatility and carry more risk to principal and income than higher-rated
securities.
An economic downturn may adversely affect the value of some lower-rated bonds.
Such a downturn may especially affect highly leveraged companies or companies in
cyclically sensitive industries, where deterioration in a company's cash flow
may impair its ability to meet its obligation to pay principal and interest to
bondholders in a timely fashion. From time to time, as a result of changing
conditions, issuers of lower-rated bonds may seek or may be required to
restructure the terms and conditions of the securities they have issued. As a
result of these restructurings, holders of lower-rated securities may receive
less principal and interest than they had bargained for at the time such bonds
were purchased. In the event of a restructuring, the Trust may bear additional
legal or administrative expenses in order to maximize recovery from an issuer.
The secondary trading market for lower-rated bonds is generally less liquid than
the secondary trading market for higher-rated bonds. In 1989, legislation was
enacted that requires federally insured savings and loan associations to divest
their holdings of lower-rated bonds by 1994. The reduction of the number of
institutions empowered to purchase and hold lower-rated bonds could have an
adverse impact on the overall liquidity of the market. Adverse publicity and the
perception of investors relating to issuers, underwriters, dealers or underlying
business conditions, whether or not warranted by fundamental analysis, may also
affect the price or liquidity of lower-rated bonds. On occasion, therefore, it
may become difficult to price or dispose of a particular security in the
portfolio.
The Trust may, from time to time, own zero coupon bonds or pay-in-kind
securities. A zero coupon bond makes no periodic interest payments and the
entire obligation becomes due only upon maturity. Pay-in-kind securities make
periodic payments in the form of additional securities (as opposed to cash). The
price of zero coupon bonds and pay-in-kind securities are generally more
sensitive to fluctuations in interest rates than are conventional bonds.
Additionally, federal tax law requires that interest on zero coupon bonds and
pay-in-kind securities be reported as income to the Trust even though the Trust
received no cash interest until the maturity or payment date of such securities.
Many corporate debt obligations, including many lower-rated bonds, permit the
issuers to call the security and thereby redeem their obligations earlier than
the stated maturity dates. Issuers are more likely to call bonds during periods
of declining interest rates. In these cases, if the Trust owns a bond which is
called, the Trust will receive its return of principal earlier than expected and
would likely be required to reinvest the proceeds at lower interest rates, thus
reducing income to the Trust.
The table below shows the weighted average of the ratings of the bonds in the
Trust's portfolio during the Trust's fiscal year ended February 28, 1994. The
credit rating categories are those provided by
Standard & Poor's Corporation, which is a nationally recognized statistical
rating organization. A description of these ratings can be found in the Appendix
to this prospectus. The percentages in the column titled "Rated" reflect the
percentage of bonds in the portfolio which received a rating from at least one
nationally recognized statistical rating organization. The percentages in the
column titled "Not Rated" reflect the percentage of bonds in the portfolio which
are not rated but which the Trust's investment adviser has judged to be
comparable in quality to the corresponding rated bonds.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL
MARKET VALUE OF BOND HOLDINGS
CREDIT NOT
RATING RATED RATED TOTAL
------ -----
<S> <C> <C> <C>
BB & BBB................................... 15.79 % 0.00% 15.79%
B.......................................... 76.51 3.14 79.65
CC & CCC................................... 4.55 0.01 4.56
------ ----- -------
96.85 % 3.15% 100.00%
------ ----- -------
------ ----- -------
</TABLE>
REDUCING RISKS OF LOWER-RATED SECURITIES. The Trust's investment adviser
believes that the risks of investing in lower-rated securities can be reduced.
The professional portfolio management techniques used by the Trust to attempt to
reduce these risks include:
CREDIT RESEARCH. The Trust's investment adviser will perform its own credit
analysis in addition to using nationally recognized statistical rating
organizations and other sources, including discussions with the issuer's
management, the judgment of other investment analysts, and its own informed
judgment. The Trust's investment adviser's credit analysis will consider
the issuer's financial soundness, its responsiveness to changes in interest
rates and business conditions, and its anticipated cash flow, interest or
dividend coverage and earnings. In evaluating an issuer, the Trust's
investment adviser places special emphasis on the estimated current value
of the issuer's assets rather than historical costs.
DIVERSIFICATION. The Trust invests in securities of many different issuers,
industries, and economic sectors to reduce portfolio risk.
ECONOMIC ANALYSIS. The Trust's investment adviser will analyze current
developments and trends in the economy and in the financial markets. When
investing in lower-rated securities, timing and selection are critical, and
analysis of the business cycle can be important.
INVESTMENT LIMITATIONS
The Trust will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Trust may borrow up to
one-third of the value of its net assets; or
- sell securities short except, under strict limitations, the Trust may
maintain open short positions so long as not more than 10% of the value
of its net assets is held as collateral for those positions.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Board of Trustees
without shareholder approval. Shareholders will be notified before any material
changes in these limitations become effective. The Trust will not:
- invest more than 5% of its total assets in securities of issuers that
have records of less than three years of continuous operations;
- commit more than 5% of the value of its total assets to premiums on open
put option positions;
- invest more than 5% of the value of its total assets in securities of one
issuer (except cash and cash items, repurchase agreements, and U.S.
government obligations) or acquire more than 10% of any class of voting
securities of any one issuer; or
- invest more than 10% of the value of its total assets in foreign
securities which are not publicly traded in the United States.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the "Trustees").
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The investment adviser continually conducts investment research and
supervision for the Trust and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's investment adviser receives an annual investment
advisory fee equal to .75 of 1% of the Trust's average daily net assets.
The investment adviser may voluntarily choose to waive a portion of its fee
or reimburse the Trust for certain operating expenses. This does not
include reimbursement to the Trust of any expenses incurred by shareholders
who use the transfer agent's subaccounting facilities. The investment
adviser can terminate this voluntary reimbursement of expenses at any time
in its sole discretion. The investment adviser has also undertaken to
reimburse the Trust for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Mark E. Durbiano has been the Trust's portfolio manager since 1984. Mr.
Durbiano joined Federated Investors in 1982 and has been a Vice President
of the Trust's investment adviser since 1988. Mr. Durbiano is a Chartered
Financial Analyst and received his M.B.A. in Finance from the University of
Pittsburgh.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
financial institutions may be compensated by the investment adviser or its
affiliates for the continuing investment of customers' assets in certain
funds, including the Trust, advised by those entities. These payments will
be made directly by the distributor or investment adviser from their
assets, and will not be made from the assets of the Trust or by the
assessment of a sales charge on Trust shares.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATIVE ARRANGEMENTS. The distributor may select brokers and dealers to
provide distribution and administrative services. The distributor may also
select administrators (including depository institutions such as commercial
banks and savings and loan associations) to provide administrative services.
These administrative services include, but are not limited to, distributing
prospectuses and other information, providing accounting assistance and
communicating or facilitating purchases and redemptions of Trust shares.
Brokers, dealers, and administrators will receive fees from the distributor
based upon shares owned by their clients or customers. The fees are calculated
as a percentage of the average aggregate net asset value of shareholder accounts
during the period for which the brokers, dealers, and administrators provide
services. Any fees paid for these services by the distributor will be reimbursed
by the investment adviser.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees will consider appropriate changes in the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors (the "Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------------- -----------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Trust to obtain certain personal services
for shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, a
subsidiary of Federated Investors, Pittsburgh, Pennsylvania, is transfer agent
for the shares of the Trust and dividend disbursing agent for the Trust.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Ernst & Young,
Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE TRUST
- --------------------------------------------------------------------------------
SHARE PURCHASES
Trust shares are sold on days on which the New York Stock Exchange is open.
Shares may be purchased either by wire or mail.
To purchase shares of the Trust, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone. The Trust reserves the right to reject any purchase request.
BY WIRE. To purchase shares of the Trust by Federal Reserve wire, call the Trust
before 4:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: Federated High Yield Trust;
Fund Number (this number can be found on the account statement or by contacting
the Trust); Group Number or Order Number; Nominee or Institution Name; and ABA
Number 011000028.
BY MAIL. To purchase shares of the Trust by mail, send a check made payable to
Federated High Yield Trust to Federated Services Company, c/o State Street Bank
and Trust Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by
mail are considered received after payment by check is converted by the transfer
agent into federal funds. This is normally the next business day after the
transfer agent receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Trust is $25,000 plus any non-affiliated
bank or broker's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Trust. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Trust shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Trust shares through a non-affiliated bank or a broker may be charged an
additional service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Trust's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Trust shares in a fiduciary, agency, custodial, or similar capacity may charge
or pass through subaccounting fees as part of or in addition to normal trust or
agency account fees. They may also charge fees for other services provided which
may be related to the ownership of Trust shares. This prospectus should,
therefore, be read together with any agreement between the customer and the
institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for shares is placed on the
preceding business day, shares purchased by wire begin earning dividends on the
business day that wire payment is received by the transfer agent. If the order
for shares and payment by wire are received on the same day, shares begin
earning dividends on the next business day. Shares purchased by check begin
earning dividends on the business day after the check is converted by the
transfer agent into federal funds. Dividends are automatically reinvested on
payment dates in additional shares of the Trust unless cash payments are
requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, will be distributed at least once
every 12 months.
RETIREMENT PLANS
Shares of the Trust can be purchased as an investment for retirement plans or
for IRA accounts. For further details, including prototype retirement plans,
contact Federated Securities Corp. and consult a tax adviser.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Trust redeems shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Trust before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. If, at any time, the Trust shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the transfer agent to accept telephone requests
must first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
If reasonable procedures are not followed by the Trust, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
WRITTEN REQUESTS
Trust shares may also be redeemed by sending a written request to the Trust.
Call the Trust for specific instructions before redeeming by letter. The
shareholder will be asked to provide in the request his name, the Trust name,
his account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the SAIF, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Trust's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion of
the remainder of the redemption in portfolio instruments, valued in the same way
as the Trust determines net asset value. The portfolio instruments will be
selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares. No federal
income tax is due on any dividends earned in an IRA or qualified retirement plan
until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
- the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio instruments in the Trust would be subject to
such taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Trust after reinvesting all income and capital
gain distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Trust is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Trust
over a thirty-day period by the maximum offering price per share of the Trust on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Trust and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The Trust is sold without any sales load or other similar non-recurring charges.
From time to time, the Trust may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
FEDERATED HIGH YIELD TRUST
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--98.2%
- -----------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.6%
---------------------------------------------------------------
$ 2,500,000 Tracor, Sr. Sub. Note, 10.875%, 8/15/2001 $ 2,650,000
--------------------------------------------------------------- ------------
AIR TRANSPORTATION--0.9%
---------------------------------------------------------------
4,000,000 USAir, Inc., Pass Thru Cert., Series 1993-A, 10.375%, 3/1/2013 4,075,000
--------------------------------------------------------------- ------------
AUTOMOTIVE--2.0%
---------------------------------------------------------------
1,000,000 Exide Corp., Sr. Unsec. Note, 10.75%, 12/15/2002 1,105,000
---------------------------------------------------------------
3,000,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 7/15/2000 3,300,000
---------------------------------------------------------------
4,000,000 Motor Wheel Corp., Sr. Note, 11.50%, 3/1/2000 4,380,000
--------------------------------------------------------------- ------------
Total 8,785,000
--------------------------------------------------------------- ------------
BEVERAGE & TOBACCO--2.8%
---------------------------------------------------------------
6,000,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 4,305,000
---------------------------------------------------------------
4,931,000 Dr. Pepper-Seven Up Cos., Inc., Sr. Sub. Disc. Note, 0/11.50%,
11/1/2002 3,969,455
---------------------------------------------------------------
4,000,000 Heileman Acquisition Co., Sr. Sub. Note, 9.625%, 1/31/2004 4,020,000
--------------------------------------------------------------- ------------
Total 12,294,455
--------------------------------------------------------------- ------------
BROADCAST RADIO & TV--4.6%
---------------------------------------------------------------
5,000,000 Ackerly Communications, Inc., Sr. Secured Note, 10.75%,
10/1/2003 5,325,000
---------------------------------------------------------------
5,000,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 5,262,500
---------------------------------------------------------------
7,000,000 SCI Television, Inc., Sr. Sec. Note, 11.00%, 6/30/2005 7,332,500
---------------------------------------------------------------
2,000,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 2,095,000
--------------------------------------------------------------- ------------
Total 20,015,000
--------------------------------------------------------------- ------------
BUSINESS EQUIPMENT & SERVICES--2.7%
---------------------------------------------------------------
3,750,000 Anacomp, Inc., Sr. Sub. Note, 15.00%, 11/1/2000 4,350,000
---------------------------------------------------------------
5,000,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 5,450,000
---------------------------------------------------------------
2,350,000 Bell & Howell Holdings Co., Sr. Disc. Deb., 0/11.50%, 3/1/2005 1,292,500
---------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--CONTINUED
---------------------------------------------------------------
$ 545,460 San Jacinto Holdings, Inc., Sr. Sub. Note, 8.00%, 12/31/2000 $ 409,095
---------------------------------------------------------------
218,221 San Jacinto Holdings, Inc., Sub. PIK Deb., 8.00%, 12/31/2000 79,651
--------------------------------------------------------------- ------------
Total 11,581,246
--------------------------------------------------------------- ------------
CABLE TV--6.3%
---------------------------------------------------------------
3,000,000 Cablevision Industries Corp., Sr. Note, 9.25%, 4/1/2008 3,090,000
---------------------------------------------------------------
4,000,000 Cablevision Systems Co., Sr. Sub. Deb., 9.875%, 2/15/2013 4,420,000
---------------------------------------------------------------
5,000,000 Century Communications, Sr. Disc. Note, 0/9.625%, 3/15/2003 2,225,000
---------------------------------------------------------------
5,000,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 5,275,000
---------------------------------------------------------------
6,250,000 International Cabletel, Inc., Sr. Deferred Note, 0/10.875%,
10/15/2003 4,000,000
---------------------------------------------------------------
4,000,000 Marcus Cable Co., L.P., Sr. Deb., 11.875%, 10/1/2005 4,140,000
---------------------------------------------------------------
5,500,000 Rogers Cablesystems Limited, Sr. Secured Note, 9.65%, 1/15/2014 4,056,470
--------------------------------------------------------------- ------------
Total 27,206,470
--------------------------------------------------------------- ------------
CHEMICALS & PLASTICS--9.3%
---------------------------------------------------------------
7,500,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 7,893,750
---------------------------------------------------------------
6,000,000 Foamex Capital Corp., Sr. Sub. Deb., 11.875%, 10/1/2004 6,750,000
---------------------------------------------------------------
15,000,000 G-I Holdings, Inc., Sr. Disc. Note, 0/11.375%, 10/1/98* 9,975,000
---------------------------------------------------------------
7,500,000 Harris Chemical, Sr. Secured Discount Note, 0/10.25%, 7/15/2001 6,600,000
---------------------------------------------------------------
5,000,000 UCC Investors Holdings, Inc., Sr. Sub. Note, 11.00%, 5/1/2003 5,462,500
---------------------------------------------------------------
5,000,000 UCC Investors Holdings, Inc., Sub. Disc. Note, 0/12.00%,
5/1/2005 3,412,500
--------------------------------------------------------------- ------------
Total 40,093,750
--------------------------------------------------------------- ------------
CLOTHING & TEXTILES--2.4%
---------------------------------------------------------------
2,500,000 Fieldcrest Cannon, Inc., Sr. Sub. Deb., 11.25%, 6/15/2004 2,725,000
---------------------------------------------------------------
1,000,000 Ithaca Industries, Sr. Sub. Note, 11.125%, 12/15/2002 1,005,000
---------------------------------------------------------------
6,500,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 6,597,500
--------------------------------------------------------------- ------------
Total 10,327,500
--------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
CONGLOMERATES--4.5%
---------------------------------------------------------------
$ 6,500,000 Collins & Aikman Group, Sr. Sub. Deb., 11.875%, 6/1/2001 $ 6,654,375
---------------------------------------------------------------
4,000,000 Fairchild Industries, Sr. Secured Note, 12.25%, 2/1/99 4,140,000
---------------------------------------------------------------
4,000,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 4,140,000
---------------------------------------------------------------
5,000,000 (a) Walter Industries, Inc., Sub. Note, 17.00%, 1/1/96 4,350,000
--------------------------------------------------------------- ------------
Total 19,284,375
--------------------------------------------------------------- ------------
CONTAINER & PACKAGING--7.5%
---------------------------------------------------------------
3,500,000 Ivex Holdings Corp., Sr. Disc. Deb., Series A, 0/13.25%,
3/15/2005 1,837,500
---------------------------------------------------------------
3,000,000 Ivex Packaging Corp., Sr. Sub. Note, 12.50%, 12/15/2002 3,315,000
---------------------------------------------------------------
1,260,000 Kane Industries, Inc., Sr. Sub. Disc. Note, 0/8.00%, 2/1/98* 37,800
---------------------------------------------------------------
2,500,000 Owens Illinois, Inc., Note, 10.00%, 8/1/2002 2,637,500
---------------------------------------------------------------
2,000,000 Owens Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 2,170,000
---------------------------------------------------------------
3,000,000 Plastic Containers, Inc., Sr. Secured Note, 10.75%, 4/1/2001 3,202,500
---------------------------------------------------------------
3,500,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 3,583,125
---------------------------------------------------------------
775,000 Sea Containers Ltd., Sr. Sub. Deb., Series B, 12.50%, 12/1/2004 879,625
---------------------------------------------------------------
2,750,000 Sea Containers Ltd., Sr. Sub. Note, 12.50%, 12/1/2004 3,135,000
---------------------------------------------------------------
2,000,000 Silgan Corp., Sr. Sub. Note, 11.75%, 6/15/2002 2,150,000
---------------------------------------------------------------
6,250,000 Silgan Holdings, Inc., Sr. Disc. Deb., 0/13.25%, 12/15/2002 4,906,250
---------------------------------------------------------------
4,000,000 U.S. Can Co., Sr. Sub. Note, 13.50%, 1/15/2002 4,660,000
--------------------------------------------------------------- ------------
Total 32,514,300
--------------------------------------------------------------- ------------
COSMETICS & TOILETRIES--2.0%
---------------------------------------------------------------
3,000,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%,
2/15/2003 2,936,250
---------------------------------------------------------------
11,000,000 Revlon Worldwide Corp., Sr. Secured Note, Series B, 0/12.00%,
3/15/98 5,555,000
--------------------------------------------------------------- ------------
Total 8,491,250
--------------------------------------------------------------- ------------
ECOLOGICAL SERVICES & EQUIPMENT--1.8%
---------------------------------------------------------------
3,625,000 Allied Waste Industries, Inc., Sr. Sub. Note, 10.75%, 2/1/2004 3,788,125
---------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
ECOLOGICAL SERVICES & EQUIPMENT--CONTINUED
---------------------------------------------------------------
$ 4,000,000 ICF Kaiser International, Sr. Sub. Note, 12.00%, 12/31/2003 $ 4,140,000
--------------------------------------------------------------- ------------
Total 7,928,125
--------------------------------------------------------------- ------------
ELECTRONICS--0.9%
---------------------------------------------------------------
3,500,000 Harmon International Industries, Sr. Sub. Note, 12.00%,
8/1/2002 3,955,000
--------------------------------------------------------------- ------------
FARMING & AGRICULTURE--0.7%
---------------------------------------------------------------
3,000,000 Spreckles Industries, Inc., Sr. Secured Note, 11.50%, 9/1/2000 3,135,000
--------------------------------------------------------------- ------------
FINANCIAL INTERMEDIARIES--1.0%
---------------------------------------------------------------
4,000,000 Coldwell Banker Corp., Sr. Sub. Note, 10.25%, 6/30/2003* 4,340,000
--------------------------------------------------------------- ------------
FOOD PRODUCTS--6.3%
---------------------------------------------------------------
4,500,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 4,477,500
---------------------------------------------------------------
2,000,000 Flagstar Corp., Sr. Note, 10.75%, 9/15/2001 2,092,500
---------------------------------------------------------------
8,000,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 8,360,000
---------------------------------------------------------------
1,000,000 Flagstar Corp., Sr. Sub. Deb., 11.25%, 11/1/2004 1,030,000
---------------------------------------------------------------
4,000,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 4,270,000
---------------------------------------------------------------
6,000,000 Specialty Foods Acquisition Corp., Sr. Secured Disc. Deb.,
0/13.00%, 8/15/2005 3,210,000
---------------------------------------------------------------
3,750,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 3,946,875
--------------------------------------------------------------- ------------
Total 27,386,875
--------------------------------------------------------------- ------------
FOOD SERVICES--0.7%
---------------------------------------------------------------
3,000,000 Americold Corp., FMB Series B, 11.50%, 3/1/2005 3,120,000
--------------------------------------------------------------- ------------
FOOD & DRUG RETAILERS--3.6%
---------------------------------------------------------------
6,500,000 Grand Union Co., Sr. Note, 12.25%, 7/15/2002 6,873,750
---------------------------------------------------------------
5,000,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 5,087,500
---------------------------------------------------------------
3,750,000 Pueblo Xtra International, Sr. Note, 9.50%, 8/1/2003 3,778,125
--------------------------------------------------------------- ------------
Total 15,739,375
--------------------------------------------------------------- ------------
FOREST PRODUCTS--4.9%
---------------------------------------------------------------
3,000,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 3,172,500
---------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
FOREST PRODUCTS--CONTINUED
---------------------------------------------------------------
$ 4,000,000 Domtar, Inc., Note, 12.00%, 4/15/2001 $ 4,550,000
---------------------------------------------------------------
1,500,000 Repap Wisconsin, Inc., 1st Priority Sr. Secured Note, 9.25%,
2/1/2002 1,503,750
---------------------------------------------------------------
1,750,000 Repap Wisconsin, Inc., 2nd Priority Sr. Secured Note, 9.875%,
5/1/2006 1,780,625
---------------------------------------------------------------
2,500,000 Riverwood International Corp., Sr. Sub. Note, 11.25%, 6/15/2002 2,731,250
---------------------------------------------------------------
1,500,000 Stone Container Corp., Sr. Note, 11.875%, 12/1/98 1,605,000
---------------------------------------------------------------
2,500,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 2,456,250
---------------------------------------------------------------
3,450,000 Stone Savannah River Pulp & Paper Corp., Sr. Sub. Note,
14.125%, 12/15/2000 3,519,000
--------------------------------------------------------------- ------------
Total 21,318,375
--------------------------------------------------------------- ------------
HEALTHCARE--2.2%
---------------------------------------------------------------
4,737,000 Alco Health Distribution Corp., Sr. PIK Deb., 11.25%, 7/15/2005 4,973,850
---------------------------------------------------------------
1,000,000 American Medical International, Inc., Sr. Sub. Note, 13.50%,
8/15/2001 1,165,000
---------------------------------------------------------------
3,000,000 Hillhaven Corp., Sr. Sub. Note, 10.125%, 9/1/2001 3,210,000
--------------------------------------------------------------- ------------
Total 9,348,850
--------------------------------------------------------------- ------------
HOME PRODUCTS & FURNISHINGS--4.2%
---------------------------------------------------------------
2,500,000 American Standard, Inc., Sr. Deb., 11.375%, 5/15/2004 2,806,250
---------------------------------------------------------------
13,500,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%,
6/1/2005 9,078,750
---------------------------------------------------------------
2,500,000 Nortek, Inc., Sr. Sub. Note, 9.875%, 3/1/2004 2,456,250
---------------------------------------------------------------
3,500,000 Triangle Pacific Corp., 10.50%, 8/1/2003 3,692,500
--------------------------------------------------------------- ------------
Total 18,033,750
--------------------------------------------------------------- ------------
INDUSTRIAL PRODUCTS & EQUIPMENT--4.7%
---------------------------------------------------------------
4,000,000 Eagle Industries, Inc., Sr. Note Deferred Coupon, 0/10.50%,
7/15/2003 2,610,000
---------------------------------------------------------------
4,000,000 Essex Group, Inc., Sr. Note, 10.00%, 5/1/2003 4,090,000
---------------------------------------------------------------
1,500,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%,
7/1/2001 1,552,500
---------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS & EQUIPMENT--CONTINUED
---------------------------------------------------------------
$ 4,000,000 Interlake Corp., Sr. Sub. Deb., 12.125%, 3/1/2002 $ 4,230,000
---------------------------------------------------------------
3,250,000 Pace Industries, Inc., Sr. Note, 10.625%, 12/1/2002* 3,388,125
---------------------------------------------------------------
4,000,000 Wolverine Tube, Sr. Sub. Note, 10.125%, 9/1/2002 4,400,000
--------------------------------------------------------------- ------------
Total 20,270,625
--------------------------------------------------------------- ------------
LEISURE & ENTERTAINMENT--2.2%
---------------------------------------------------------------
3,000,000 Act III Theatres, Inc., Sr. Sub. Note, 11.875%, 2/1/2003 3,352,500
---------------------------------------------------------------
3,750,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 4,031,250
---------------------------------------------------------------
2,000,000 Cinemark USA, Inc., Sr. Note, 12.00%, 6/1/2002 2,220,000
--------------------------------------------------------------- ------------
Total 9,603,750
--------------------------------------------------------------- ------------
NON-FERROUS METALS & MINERALS--0.3%
---------------------------------------------------------------
1,000,000 Kaiser Aluminum, Sr. Sub. Note, 12.75%, 2/1/2003 1,075,000
--------------------------------------------------------------- ------------
OIL & GAS--3.4%
---------------------------------------------------------------
3,500,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 3,578,750
---------------------------------------------------------------
3,500,000 Giant Industries, Sr. Sub. Note, 9.75%, 11/15/2003 3,561,250
---------------------------------------------------------------
2,250,000 H. S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 2,317,500
---------------------------------------------------------------
3,500,000 Triton Energy Corp., Sr. Sub. Disc. Note, 0/12.50%, 11/1/97 2,511,250
---------------------------------------------------------------
3,250,000 Triton Energy Corp., Sr. Sub. Disc. Note, 0/9.75%, 12/15/2000 2,486,250
--------------------------------------------------------------- ------------
Total 14,455,000
--------------------------------------------------------------- ------------
PRINTING & PUBLISHING--0.5%
---------------------------------------------------------------
2,000,000 Webcraft Technologies, Inc., Sr. Sub. Note, 9.375%, 2/15/2002 1,975,000
--------------------------------------------------------------- ------------
RAIL INDUSTRY--0.4%
---------------------------------------------------------------
1,500,000 Southern Pacific Rail Corp., Sr. Note, 9.375%, 8/15/2005 1,571,250
--------------------------------------------------------------- ------------
RETAILERS--2.7%
---------------------------------------------------------------
4,000,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 4,240,000
---------------------------------------------------------------
4,000,000 Finlay Fine Jewelry, Inc., Sr. Note, 10.625%, 5/1/2003 4,210,000
---------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
CORPORATE BONDS--CONTINUED
<C> <C> <S> <C>
- -----------------------------------------------------------------------------------
3,000,000 General Host Corp., Sr. Note, 11.50%, 2/15/2002 3,037,500
--------------------------------------------------------------- ------------
Total 11,487,500
--------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
SERVICES--1.0%
---------------------------------------------------------------
$ 3,975,000 Solon Automated Services, Inc., Sr. Note, 12.75%, 7/15/2001 $ 4,382,438
--------------------------------------------------------------- ------------
STEEL--6.9%
---------------------------------------------------------------
3,000,000 Armco, Inc., Sr. Note, 11.375%, 10/15/99 3,300,000
---------------------------------------------------------------
3,000,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 3,030,000
---------------------------------------------------------------
3,500,000 Carbide-Graphite Group, Sr. Note, 11.50%, 9/1/2003 3,657,500
---------------------------------------------------------------
5,000,000 Envirosource, Inc., Sr. Note, 9.75%, 6/15/2003 5,000,000
---------------------------------------------------------------
3,000,000 Geneva Steel, Sr. Note, 11.125%, 3/15/2001 3,270,000
---------------------------------------------------------------
2,375,000 Geneva Steel, Sr. Note, 9.50%, 1/15/2004 2,422,500
---------------------------------------------------------------
2,250,000 Inland Steel Co., Unsecured Note, 12.75%, 12/15/2002 2,655,000
---------------------------------------------------------------
2,500,000 WCI Steel Inc., Sr. Secured Note, 10.50%, 3/1/2002* 2,725,000
---------------------------------------------------------------
3,500,000 Weirton Steel Corp., Sr. Note, 11.50%, 3/1/98 3,762,500
--------------------------------------------------------------- ------------
Total 29,822,500
--------------------------------------------------------------- ------------
SURFACE TRANSPORTATION--1.9%
---------------------------------------------------------------
4,000,000 Greyhound Lines, Inc., Sr. Note, 10.00%, 7/31/2001 4,090,000
---------------------------------------------------------------
4,000,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 4,260,000
--------------------------------------------------------------- ------------
Total 8,350,000
--------------------------------------------------------------- ------------
TELECOMMUNICATIONS & CELLULAR--2.3%
---------------------------------------------------------------
4,000,000 Nextel Communications, Sr. Disc. Note, 0/9.75%, 8/15/2004 2,655,000
---------------------------------------------------------------
6,250,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 4,265,625
---------------------------------------------------------------
3,000,000 USA Mobile Communications, Sr. Note, 9.50%, 2/1/2004 2,970,000
--------------------------------------------------------------- ------------
Total 9,890,625
--------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $414,367,986) 424,507,384
--------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--0.6%
- -----------------------------------------------------------------------------------
BUILDING & DEVELOPMENT--0.0%
---------------------------------------------------------------
3,080 Atlantic Gulf Communities Corp. $ 31,955
---------------------------------------------------------------
2,342 Atlantic Gulf Communities Corp., Warrants 1,756
--------------------------------------------------------------- ------------
Total 33,711
--------------------------------------------------------------- ------------
BUSINESS EQUIPMENT & SERVICES--0.0%
---------------------------------------------------------------
5,460 San Jacinto Holdings, Inc.* 21,840
--------------------------------------------------------------- ------------
CHEMICALS & PLASTICS--0.0%
---------------------------------------------------------------
14,862 UCC Investors Holdings, Inc.* 200,637
--------------------------------------------------------------- ------------
CONGLOMERATES--0.3%
---------------------------------------------------------------
664,079 Triton Group, Ltd. 1,079,128
--------------------------------------------------------------- ------------
CONTAINER & PACKAGING--0.0%
---------------------------------------------------------------
53,400 Kane Industries, Inc., Warrants* 534
--------------------------------------------------------------- ------------
FARMING & AGRICULTURE--0.3%
---------------------------------------------------------------
114,545 Spreckels Industries, Inc., Class A 1,145,340
--------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $10,804,006) 2,481,190
--------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
**REPURCHASE AGREEMENT--5.9%
- -----------------------------------------------------------------------------------
$25,430,000 J.P. Morgan Securities, Inc., 3.49%, dated 2/28/94, due 3/1/94
(at amortized cost) (Note 2B) $ 25,430,000
--------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $450,601,992) $452,418,574+
--------------------------------------------------------------- ------------
</TABLE>
PIK--Payment-in-kind
<TABLE>
<C> <S>
+ The cost of investments for federal tax purposes amounts to $451,569,433. The net unrealized
appreciation on a federal tax basis amounts to $849,141, which is comprised of $16,311,550
appreciation and $15,462,409 depreciation at February 28, 1994.
* Indicates private placement securities held at February 28, 1994, with a total market value of
$20,688,936 which represents 4.8% of total net assets.
** The repurchase agreement is fully collateralized by U.S. government and/or agency obligations
based on market prices at the date of the portfolio. The investment in the repurchase
agreement was through participation in a joint account with other Federated Funds.
</TABLE>
(a) Non-income producing.
Note: The categories of investments are shown as a percentage of net assets
($432,045,175) at February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
- --------------------------------------------------------------------------------
WALTER INDUSTRIES (ALSO KNOWN AS GEORGIA MARBLE CO.; FORMERLY JIM WALTER CORP.)
Walter Industries filed for Chapter 11 bankruptcy protection in December 1989.
The company was forced to seek protection because of pending asbestos
litigation, as well as an inability to reset the coupon on certain debt
instruments as stipulated in its indentures. The bankruptcy court terminated the
company's exclusivity, effective August 2, 1993, which should accelerate a
conclusion to the company's bankruptcy proceedings. The Trust's management is
currently unable to predict the ultimate resolution or the timing of bankruptcy
proceedings.
FEDERATED HIGH YIELD TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments (at value) (Notes 2A and 2B)
(identified cost, $450,601,992; tax cost, $451,569,433) $452,418,574
- --------------------------------------------------------------------------------
Receivable for investments sold 54,173,607
- --------------------------------------------------------------------------------
Interest receivable 8,920,733
- --------------------------------------------------------------------------------
Receivable for Trust shares sold 769,080
- -------------------------------------------------------------------------------- ------------
Total assets 516,281,994
- --------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Payable for Trust shares redeemed $82,529,970
- ------------------------------------------------------------------
Dividends payable 1,600,203
- ------------------------------------------------------------------
Accrued expenses and other liabilities 106,646
- ------------------------------------------------------------------ -----------
Total liabilities 84,236,819
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 45,594,676 shares of beneficial interest
outstanding $432,045,175
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------------
Paid-in capital $453,339,194
- --------------------------------------------------------------------------------
Unrealized appreciation of investments 1,816,582
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (23,110,601)
- -------------------------------------------------------------------------------- ------------
Total $432,045,175
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($432,045,175 / 45,594,676 shares of beneficial interest outstanding) $9.48
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income (Note 2C) $42,818,721
- ---------------------------------------------------------------------------------
Expenses--
- ---------------------------------------------------------------------------------
Investment advisory fee (Note 5) $3,211,691
- --------------------------------------------------------------------
Trustees' fees 16,292
- --------------------------------------------------------------------
Administrative personnel and services fee (Note 5) 495,082
- --------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 167,769
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 30,183
- --------------------------------------------------------------------
Trust share registration costs 81,342
- --------------------------------------------------------------------
Auditing fees 31,000
- --------------------------------------------------------------------
Legal fees 15,636
- --------------------------------------------------------------------
Printing and postage 28,423
- --------------------------------------------------------------------
Insurance premiums 10,096
- --------------------------------------------------------------------
Taxes 4,898
- --------------------------------------------------------------------
Miscellaneous 7,726
- -------------------------------------------------------------------- ----------
Total expenses 4,100,138
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 5) 535,318
- -------------------------------------------------------------------- ----------
Net expenses 3,564,820
- --------------------------------------------------------------------------------- -----------
Net investment income 39,253,901
- --------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) 8,764,555
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 8,262,255
- --------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments 17,026,810
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $56,280,711
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------------
1993
-------------
1994
-------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------
Net investment income $ 39,253,901 $ 27,249,280
- -----------------------------------------------------------
Net realized gain (loss) on investment ($6,960,443 net gain
and $4,711,688 net gain, respectively, as computed
for federal tax purposes) (Note 2D) 8,764,555 2,857,109
- -----------------------------------------------------------
Change in unrealized appreciation (depreciation) of
investments 8,262,255 4,009,408
- ----------------------------------------------------------- ------------- -------------
Change in net assets from operations 56,280,711 34,115,797
- ----------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- -----------------------------------------------------------
Dividends to shareholders from net investment income (39,699,282) (27,073,537)
- ----------------------------------------------------------- ------------- -------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)--
- -----------------------------------------------------------
Net proceeds from sale of shares 576,417,640 440,604,217
- -----------------------------------------------------------
Net asset value of shares issued to shareholders electing
to
receive payment of dividends in Trust shares 21,954,239 12,691,806
- -----------------------------------------------------------
Cost of shares redeemed (537,290,888) (328,893,332)
- ----------------------------------------------------------- ------------- -------------
Change in net assets from Trust share transactions 61,080,991 124,402,691
- ----------------------------------------------------------- ------------- -------------
Change in net assets 77,662,420 131,444,951
- -----------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------
Beginning of period 354,382,755 222,937,804
- ----------------------------------------------------------- ------------- -------------
End of period $ 432,045,175 $ 354,382,755
- ----------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
The Trust is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end, management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--Listed securities are valued at the last sale price
reported on national securities exchanges. Unlisted securities, or listed
securities in which there are no sales, and private placement securities are
valued on the basis of prices provided by independent pricing services.
Short-term obligations are valued at the mean between the bid and asked
prices as furnished by an independent pricing service; however, such issues
with maturities of sixty days or less are valued at amortized cost, which
approximates market value.
B. REPURCHASE AGREEMENTS--It is the policy of the Trust to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Trust to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying securities to ensure the existence of a proper level of
collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's investment adviser to be creditworthy pursuant to guidelines
established by the Trustees. Risks may arise from the potential inability of
counterparties to honor the terms of a repurchase agreement. Accordingly, the
Trust could receive less than the repurchase price on the sale of collateral
securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest and discount earned (net of premium) on short-term
obligations, and interest earned on all other debt securities including
original issue discount as required by the Internal Revenue Code, as amended,
(the "Code").
D. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year all of its taxable income, including any net realized
gain on investments. Accordingly, no provision for federal tax is necessary.
At February 28, 1994, the Trust, for federal tax purposes, had a capital loss
carryforward of $22,917,640, which will reduce the Trust's taxable income
arising from future net realized gain on
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
investments, if any, to the extent permitted by the Code, and thus will
reduce the amount of the distributions to shareholders which would otherwise
be necessary to relieve the Trust of any liability for federal tax. Pursuant
to the Code, such capital loss carryforward will expire in 1998 ($5,075,478),
1999 ($11,012,464), and 2000 ($6,829,698).
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities and maintains security positions such that sufficient liquid
assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked to
market daily and begin earning interest on the settlement date.
F. RECLASSIFICATIONS--During the current period, the Trust adopted Statement of
Position 93-2 Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies. Accordingly, permanent book and tax basis differences relating to
shareholder distributions have been reclassified to paid-in-capital. As of
March 1, 1993, the cumulative effect of such differences, totaling
($723,952), was reclassified from undistributed net investment income and
accumulated net realized loss on investments to paid-in capital. Net
investment income, net realized gains, and net assets were not affected by
this change.
G. OTHER--Investment transactions are accounted for on the trade date of the
transaction.
(3) DIVIDENDS AND DISTRIBUTIONS
The Trust computes its net income daily and, immediately prior to the
calculation of its net asset value at the close of business, declares and
records dividends, excluding capital gains, to shareholders of record at the
time of the previous computation of the Trust's net asset value. Payment of
dividends is made monthly in cash, or in additional shares, at the net asset
value on the payable date. Capital gains realized by the Trust are normally
distributed at least once every twelve months and are recorded on the
ex-dividend date.
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
- -----------------------------------------------------------------
Shares outstanding, beginning of period 38,926,665 25,025,575
- -----------------------------------------------------------------
Shares sold 62,036,140 49,444,284
- -----------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in Trust shares 2,356,256 1,420,280
- -----------------------------------------------------------------
Shares redeemed (57,724,385) (36,963,474)
- ----------------------------------------------------------------- ----------- -----------
Shares outstanding, end of period 45,594,676 38,926,665
- ----------------------------------------------------------------- ----------- -----------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Management, the Trust's investment adviser ("Adviser"), receives for
its services an annual investment advisory fee equal to 0.75 of 1% of the
Trust's average daily net assets. Adviser has voluntarily agreed to waive a
portion of its fee. Adviser can modify or terminate this voluntary waiver of
expense at any time at its sole discretion.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. The administrative fee received during any
fiscal year shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares. Certain of the Officers and Trustees of the Trust
are Officers and Directors of the above corporations.
(6) INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term obligations) for the
year ended February 28, 1994, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
PURCHASES-- $517,094,270
- ------------------------------------------------------------------------------ ------------
SALES-- $448,902,274
- ------------------------------------------------------------------------------ ------------
</TABLE>
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED HIGH YIELD TRUST:
We have audited the accompanying statement of assets and liabilities of
Federated High Yield Trust, including the portfolio of investments, as of
February 28, 1994, 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 (see page 2 of this prospectus)
for each of the ten years in the period then ended. These financial statements
and financial highlights are the responsibility of the Trust'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. Our procedures included confirmation of securities owned as of
February 28, 1994, by correspondence with the custodian. 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
Federated High Yield Trust at February 28, 1994, 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 ten years
in the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
April 13, 1994
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION, ("S&P") CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher-rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC, and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATING DEFINITIONS
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative to a
large degree. Such issues are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated High Yield Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
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Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
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Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
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Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
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</TABLE>
FEDERATED HIGH YIELD TRUST
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8040401A (4/94)
FEDERATED HIGH YIELD TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Federated High Yield Trust (the "Trust") dated April 30, 1994. This Statement is
not a prospectus itself. To receive a copy of the prospectus, write or call the
Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE TRUST 1
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INVESTMENT OBJECTIVE AND POLICIES 1
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Corporate Debt Obligations 1
Put and Call Options 1
U.S. Government Obligations 1
Restricted Securities 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 2
Lending of Portfolio Securities 2
Reverse Repurchase Agreements 2
Portfolio Turnover 2
Investment Risks 3
Investment Limitations 4
TRUST MANAGEMENT 6
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Officers and Trustees 6
The Funds 7
Trust Ownership 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
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Adviser to the Trust 8
Advisory Fees 8
Other Advisory Services 9
ADMINISTRATIVE ARRANGEMENTS 9
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ADMINISTRATIVE SERVICES 9
Shareholder Services Plan 9
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BROKERAGE TRANSACTIONS 10
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PURCHASING SHARES 10
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Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10
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Determining Market Value of Securities 10
REDEEMING SHARES 11
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Redemption in Kind 11
TAX STATUS 11
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The Trust's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 11
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YIELD 12
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PERFORMANCE COMPARISONS 12
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Duration 13
GENERAL INFORMATION ABOUT THE TRUST
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 17, 1984.
INVESTMENT OBJECTIVE AND POLICIES
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The Trust's investment objective is to seek high current income.
CORPORATE DEBT OBLIGATIONS
The corporate debt obligations in which the Trust invests may bear fixed,
floating, floating and contingent, or increasing rates of interest. The Trust
invests primarily in fixed rate corporate debt securities.
PUT AND CALL OPTIONS
The Trust may purchase listed put options on portfolio securities or write
covered call options to protect against price movements in particular securities
in its portfolio and to generate income. A put option gives the Trust, in return
for a premium, the right to sell the underlying security to the writer (seller)
at a specified price during the term of the option. As writer of a call option,
the Trust has the obligation upon exercise of the option during the option
period to deliver the underlying security upon payment of the exercise price.
The Trust may only: (1) buy put options which are listed on a recognized options
exchange and which are on securities held in its portfolio and (2) sell listed
call options either on securities held in its portfolio or on securities which
it has the right to obtain without payment of further consideration (or has
segregated cash in the amount of any such additional consideration). The Trust
will maintain its positions in securities, option rights, and segregated cash
subject to puts and calls until the options are exercised, closed, or expired.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Trust's
investment adviser will consider liquidity before entering into option
transactions, there is no assurance that a liquid secondary market on an
exchange will exist for any particular option, or at any particular time.
The Trust reserves the right to hedge the portfolio by buying financial futures
and put options on stock index futures and financial futures. However, the Trust
will not engage in these transactions until (1) an amendment to its Registration
Statement is filed with the U.S. Securities and Exchange Commission and becomes
effective and (2) ten days after a supplement to the prospectus disclosing this
change in policy has been mailed to the shareholders.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Trust may invest include,
but are not limited to, direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by U.S.
government agencies or instrumentalities. These securities may be backed by:
- - the full faith and credit of the U.S. Treasury;
- - the issuer's right to borrow from the U.S. Treasury;
- - the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- - the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- - Federal Farm Credit Banks;
- - Student Loan Marketing Association;
- - Federal Home Loan Mortgage Corporation;
- - Federal Home Loan Banks;
- - Farmers Home Administration; and
- - Federal National Mortgage Association.
RESTRICTED SECURITIES
The Trust expects that any restricted securities would be acquired either from
institutional investors who originally acquired the securities in private
placements or directly from the issuers of the securities in private placements.
Restricted securities and securities that are not readily marketable may sell at
a discount from the price they would bring if freely marketable.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The Trust engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Trust's investment objective and
policies, and not for investment leverage.
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These transactions are made to secure what is considered to be an advantageous
price and yield for the Trust. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Trust sufficient to make payment for the
securities to be purchased are segregated at the trade date. These securities
are marked to market daily and are maintained until the transaction is settled.
The Trust may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Trust, the Trust could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Trust might be
delayed pending court action. The Trust believes that under the regular
procedures normally in effect for custody of the Trust's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Trust and allow retention or disposition of such securities. The
Trust will only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the Trust's
investment adviser to be creditworthy pursuant to guidelines established by the
Board of Trustees (the "Trustees").
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Trust may lend its portfolio
securities to broker/dealers, banks, or other institutional borrowers of
securities. The Trust will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the Trust's investment
adviser has determined are creditworthy under guidelines established by the
Trustees.
The collateral received when the Trust lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Trust. During the time
portfolio securities are on loan, the borrower pays the Trust any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Trust or the borrower. The Trust may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Trust does not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
REVERSE REPURCHASE AGREEMENTS
The Trust may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Trust transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Trust will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Trust to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure that the
Trust will be able to avoid selling portfolio instruments at a disadvantageous
time.
When effecting reverse repurchase agreements, liquid assets of the Trust, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled. During the period any
reverse repurchase agreements are outstanding, but only to the extent necessary
to assure completion of the reverse repurchase agreements, the Trust will
restrict the purchase of portfolio instruments to money market instruments
maturing on or before the expiration date of the reverse repurchase agreements.
PORTFOLIO TURNOVER
The Trust may experience greater portfolio turnover than would be expected with
a portfolio of higher-rated securities. A high portfolio turnover will result in
increased transaction costs to the Trust. The Trust will not attempt to set or
meet a portfolio turnover rate since any turnover would be incidental to
transactions undertaken in an attempt to achieve the Trust's investment
objective. For the fiscal years ended February 28, 1994, and 1993, the portfolio
turnover rates were 112% and 93%, respectively.
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INVESTMENT RISKS
ADVERSE LEGISLATION
In 1989, legislation was enacted that required federally insured savings
and loan associations to divest their holdings of lower-rated bonds by
1994. This legislation also created the Resolution Trust Corporation (the
"RTC"), which has disposed of a substantial portion of the lower-rated
bonds held by failed savings and loan associations over the past four
years. The reduction of the number of institutions empowered to purchase
and hold lower-rated bonds, and the divestiture of bonds by these
institutions and the RTC, have had an adverse impact on the overall
liquidity of the market for such bonds.
Federal and state legislatures and regulators have and may continue to
propose new laws and regulations designed to limit the number or type of
institutions that may purchase lower-rated bonds, reduce the tax benefits
to the issuers of such bonds, or otherwise adversely impact the liquidity
of such bonds. The Trust cannot predict the likelihood that any of these
proposals will be adopted, or their potential impact on the liquidity of
lower-rated bonds.
FOREIGN SECURITIES
Investments in foreign securities involve special risks that differ from
those associated with investments in domestic securities. The risks
associated with investments in foreign securities relate to political and
economic developments abroad, as well as those that result from the
differences between the regulation of domestic securities and issuers in
contrast to foreign securities and issuers. These risks may include, but
are not limited to, expropriation, confiscatory taxation, currency
fluctuations, withholding taxes on interest, limitations on the use or
transfer of Trust assets, political or social instability and adverse
diplomatic developments. Moreover, individual foreign economies may
differ favorably or unfavorably from the domestic economy in such
respects as growth of gross national product, the rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
Additional differences exist between investing in foreign and domestic
securities. Examples of such differences include:
- less publicly available information about foreign issuers;
- credit risks associated with certain foreign governments;
- the lack of uniform financial accounting standards applicable to
foreign issuers;
- less readily available market quotations on foreign issues;
- the likelihood that securities of foreign issuers may be less liquid or
more volatile;
- generally higher foreign brokerage commissions; and
- unreliable mail service between countries.
U.S. GOVERNMENT POLICIES
In the past, U.S. government policies have discouraged or restricted
certain investments abroad by investors such as the Trust. Although the
Trust is unaware of any current restrictions, investors are advised that
such policies could be reinstituted.
CURRENCY RISK
To the extent that debt securities purchased by the Trust are denominated
in currencies other than the U.S. dollar, changes in foreign currency
exchange rates will affect the Trust's net asset value; the value of
interest earned; gains and losses realized on the sale of securities; and
net investment income and capital gain, if any, to be distributed to
shareholders by the Trust. If the value of a foreign currency rises
against the U.S. dollar, the value of the Trust assets denominated in
that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of Trust assets
denominated in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental intervention,
speculation and other economic and political conditions. Although the
Trust values its assets daily in U.S. dollars, the Trust may not convert
its holdings of foreign currencies to U.S. dollars daily. When the Trust
converts its holdings to another currency, it may incur conversion costs.
Foreign exchange dealers may realize a profit on the difference between
the price at which they buy and sell currencies.
The Trust will engage in foreign currency exchange transactions in
connection with its investments in foreign securities. The Trust will
conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or through forward contracts to purchase or sell foreign
currencies.
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INVESTMENT LIMITATIONS
CONCENTRATION OF INVESTMENTS
The Trust will not purchase securities (other than those issued or
guaranteed by the U.S. government) if, as a result of such purchase, more
than 25% of the value of its assets would be invested in any one
industry.
However, the Trust may invest more than 25% of the value of its total
assets in cash or cash items (not including certificates of deposit),
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these instruments, such as
repurchase agreements.
INVESTING IN COMMODITIES
The Trust will not purchase or sell commodities. The Trust reserves the
right to purchase put options on stock index futures and on financial
futures.
INVESTING IN REAL ESTATE
The Trust will not purchase or sell real estate although it will invest
in the securities of companies whose business involves the purchase or
sale of real estate or in securities which are secured by real estate or
interests in real estate.
BUYING ON MARGIN
The Trust will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for clearance of transactions and
may make margin payments in connection with buying financial futures and
put options on financial futures.
SELLING SHORT
The Trust will not sell securities short unless:
- during the time the short position is open it owns an equal amount of
the securities sold or securities readily and freely convertible into
or exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short; and
- not more than 10% of the Trust's net assets (taken at current value) is
held as collateral for such sales at any one time.
BORROWING MONEY
The Trust will not issue senior securities, except as permitted by the
Trust's investment objective and policies, and except that the Trust will
borrow money and engage in reverse repurchase agreements only in amounts
up to one-third of the value of the Trust's net assets including the
amounts borrowed. The Trust will not borrow money directly or through
reverse repurchase agreements except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Trust to meet redemption requests when the liquidation of
portfolio instruments would be deemed to be inconvenient or
disadvantageous. The Trust will not purchase any securities while any
such borrowings (including reverse repurchase agreements) are
outstanding.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets except portfolio securities.
This shall not prevent the purchase or holding of corporate bonds,
debentures, notes, certificates of indebtedness, or other debt securities
of an issuer, repurchase agreements, or other transactions which are
permitted by the Trust's investment objective and policies or Declaration
of Trust.
UNDERWRITING
The Trust will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN MINERALS
The Trust will not purchase interests in oil, gas, or other mineral
exploration or development programs although it may purchase the
securities of issuers which invest in or sponsor such programs.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
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INVESTING IN NEW ISSUERS OR IN SECURITIES NOT READILY MARKETABLE
The Trust will not invest more than 5% of the value of its total assets
in securities of companies, including their predecessors, that have been
in operation for less than three years and in equity securities of any
issuer that are not readily marketable.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Trust will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN PUT OPTIONS
The Trust will not purchase put options on securities unless the
securities are held in the Trust's portfolio, and not more than 5% of the
value of the Trust's total assets would be invested in premiums on open
put options.
WRITING COVERED CALL OPTIONS
The Trust will not write call options on securities unless the securities
are held in the Trust's portfolio or unless the Trust is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
DIVERSIFICATION OF INVESTMENTS
The Trust will not purchase the securities of any issuer (other than the
U.S. government, its agencies, or instrumentalities or instruments
secured by securities of such issuers, such as repurchase agreements) if
as a result more than 5% of the value of its total assets would be
invested in the securities of such issuer. For these purposes, the Trust
takes all common stock and all preferred stock of an issuer each as a
single class, regardless of priorities, series, designations, or other
differences.
ACQUIRING SECURITIES
The Trust will not purchase securities of a company for the purpose of
exercising control or management.
However, the Trust may invest in up to 10% of the voting securities of
any one issuer and may exercise its voting powers consistent with the
best interests of the Trust. In addition, the Trust, other companies
advised by the Trust's investment adviser, and other affiliated companies
may together buy and hold substantial amounts of voting stock of a
company and may vote together in regard to such company's affairs. In
some cases, the Trust and its affiliates might collectively be considered
to be in control of such company. In some such cases, Trustees and other
persons associated with the Trust and its affiliates might possibly
become directors of companies in which the Trust holds stock.
INVESTING IN FOREIGN SECURITIES
The Trust will not invest more than 10% of the value of its total assets
in foreign securities which are not publicly traded in the United States.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Trust did not borrow money, invest in reverse repurchase agreements, sell
securities short, or invest in foreign securities during the last fiscal year
and has no present intent to do so in the coming fiscal year.
In addition, in order to comply with certain state restrictions, the Trust may
not invest in real estate limited partnerships or in oil, gas, or other mineral
leases.
For purposes of its policies and limitations, the Trust considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items".
TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Management,
Federated Investors, Federated Securities Corp., Federated Administrative
Services, Federated Services Company, Federated Administrative Services, Inc.,
and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
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John F. Donahue*+ Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Trust.
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</TABLE>
<TABLE>
<S> <C> <C> <C>
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General
Associates, Inc., Realtors Partner of the Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
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William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-23rd Floor, Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
Pittsburgh, PA Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Homes, Inc.
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James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
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Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
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Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
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Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President,
Boston, MA State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
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Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
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Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management
University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman National
Advisory Council for Environmental Policy and Technology.
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</TABLE>
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<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
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Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
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Glen R. Johnson President Trustee, Federated Investors; President and/or Trustee of some of the Funds;
Federated Investors staff member, Federated Securities Corp. and Federated Administrative
Tower Services.
Pittsburgh, PA
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J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; Trustee, Federated
Tower Administrative Services; Trustee, Federated Services Company, President or
Pittsburgh, PA Vice President of the Funds; Director, Trustee, or Managing General Partner
of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman
and Trustee of the Trust.
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Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
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Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company, Chairman, Treasurer,
and Trustee, Federated Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
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John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company, Executive Vice President, Secretary, and Trustee, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
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John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
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</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.;
- --------------------------------------------------------------------------------
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund,
Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Term Trust, Inc.--1999; Liberty Utility Fund, Inc.; Liquid
Cash Trust; Managed Series Trust; Mark Twain Funds; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree
Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut
Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and
World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 30, 1994, the following shareholder of record owned 5% or more of
the outstanding shares of the Trust: Charles Schwab & Co., Inc., (as record
owner holding shares for its clients), San Francisco, California, owned
approximately 15,299,387 shares (35.85%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue. John F. Donahue, Chairman and Trustee of Federated
Management, is Chairman and Trustee of Federated Investors and Chairman and
Trustee of the Trust. John A. Staley, IV, President and Trustee of Federated
Management, is Vice President and Trustee of Federated Investors, Executive Vice
President of Federated Securities Corp., and Vice President of the Trust. J.
Christopher Donahue, Trustee of Federated Management, is President and Trustee
of Federated Investors, Trustee of Federated Administrative Services, Trustee of
Federated Services Company, and Vice President of the Trust. John W. McGonigle,
Vice President, Secretary, and Trustee of Federated Management, is Vice
President, Secretary, General Counsel and Trustee, of Federated Investors;
Executive Vice President, and Secretary, and Trustee of Federated Administrative
Services; Director and Executive Vice President of Federated Securities Corp.;
Trustee of Federated Services Company and Vice President and Secretary of the
Trust.
The Trust's investment adviser shall not be liable to the Trust or any
shareholder for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
February 28, 1994 and 1993, and February 29, 1992, the Trust's investment
adviser earned $3,211,691, $1,939,130, and $1,114,503, respectively, which were
reduced by $535,318, $569,405, and $495,809, respectively, because of
undertakings to limit the Trust's expenses.
STATE EXPENSE LIMITATIONS
The Trust's investment adviser has undertaken to comply with the expense
limitations established by certain states for investment companies whose
shares are registered for sale in those states. If the Trust's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2 1/2% per year of the first $30 million of average net
assets, 2% per year of the next $70 million of average net assets, and
1 1/2% per year of the remaining average net assets, the Trust's
investment adviser will reimburse the Trust for its expenses over the
limitation.
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If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Trust's
investment adviser will be limited, in any single fiscal year, by the
amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER ADVISORY SERVICES
Federated Research Corp. receives fees from certain depository institutions for
providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may advise
such clients to purchase or redeem shares of investment companies, such as the
Trust, which are managed, for a fee, by Federated Research Corp. or other
affiliates of Federated Investors, such as the investment adviser, and may
advise such clients to purchase and sell securities in the direct markets.
Further, Federated Research Corp., and other affiliates of the investment
adviser, may, from time to time, provide certain consulting services and
equipment to depository institutions in order to facilitate the purchase of
shares of funds offered by Federated Securities Corp.
ADMINISTRATIVE ARRANGEMENTS
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For the fiscal years ended February 28, 1994 and 1993, and February 29, 1992,
the distributor paid $633,062, $168,893, and $56,429, respectively, to brokers
and dealers for distribution and administrative services and to administrators
for administrative services. The administrative services include, but are not
limited to, providing office space, equipment, telephone facilities, and various
personnel, including clerical, supervisory, and computer, as is necessary or
beneficial to establish and maintain shareholders' accounts and records, process
purchase and redemption transactions, process automatic investments of client
account cash balances, answer routine client inquiries regarding the Trust,
assist clients in changing dividend options, account designations, and
addresses, and providing such other services as the Trust may reasonably
request.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in the
prospectus. For the fiscal years ended February 28, 1994 and 1993, and February
29, 1992, Federated Administrative Services, Inc., the Trust's former
administrator, earned $495,082, $354,785, and $298,310, respectively. John A.
Staley, IV, an officer of the Trust, and Dr. Henry J. Gailliot, an officer of
Federated Management, the investment adviser to the Trust, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as Directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. and
Federated Administrative Services. For the fiscal years ended February 28, 1994
and 1993, and February 29, 1992, Federated Administrative Services, Inc. paid
approximately $159,222, $179,920, and $202,532, respectively, for services
provided by Commercial Data Services, Inc. to the Funds.
SHAREHOLDER SERVICES PLAN
This arrangement permits the payment of fees to Federated Shareholder Services
and, indirectly, to financial institutions, to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to, providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel, as necessary
or beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Trust's investment adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the Trust's investment
adviser will generally use those who are recognized dealers in specific
portfolio instruments, except when a better price and execution of the order can
be obtained elsewhere. The Trust's investment adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
The Trust's investment adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished directly to the
Trust or to its investment adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Trust's investment adviser and its affiliates exercise reasonable business
judgment in selecting brokers who offer brokerage and research services to
execute securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers may be used by the Trust's investment
adviser or by affiliates of Federated Investors in advising the Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the Trust's investment adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
For the fiscal years ended February 28, 1994, and 1993, and February 29, 1992,
the Trust did not pay any brokerage commissions on brokerage transactions.
PURCHASING SHARES
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Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing shares of
the Trust is explained in the prospectus under "Investing in the Trust."
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from investors must be in
federal funds or be converted into federal funds. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
DETERMINING NET ASSET VALUE
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Net asset value generally changes each day. The days on which net asset value is
calculated by the Trust are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Trust's portfolio securities, other than options, are
determined as follows:
- - according to the last sale price in the market in which they are primarily
traded (either a national securities exchange or the over-the-counter market),
if available, and if not available, on the basis of prices provided by an
independent pricing service;
- - for most short-term obligations, at the mean between bid and asked prices, as
provided by an independent pricing service; or
- - for short-term obligations with remaining maturities of 60 days or less at the
time of purchase, at amortized cost, or at fair value as determined in good
faith by the Trustees.
Options are valued at the market values established by the exchanges at the
close of option trading unless the Trustees determine in good faith that another
method of valuing option positions is necessary to appraise their fair value.
REDEEMING SHARES
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The Trust redeems shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although Federated Services Company does
not charge a fee for telephone redemptions, it reserves the right to charge a
fee for the cost of wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Trust's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Trust's net
asset value during any 90-day period.
TAX STATUS
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THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Trust
must, among other requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. Only a nominal portion of any income
dividend paid by the Trust is expected to be eligible for the dividends received
deduction available to corporations. These dividends and any short-term capital
gains are taxable as ordinary income.
CAPITAL GAINS
Fixed income securities offering the high current income sought by the
Trust are often purchased at a discount from par value. Because the total
yield on such securities when held to maturity and retired may include an
element of capital gain, the Trust may achieve capital gains. However,
the Trust will not hold securities to maturity for the purpose of
realizing capital gains unless current yields on those securities remain
attractive.
Capital gains or losses may also be realized on the sale of securities.
Sales would generally be made because of:
- the availability of higher relative yields;
- differentials in market values;
- new investment opportunities;
- changes in creditworthiness of an issuer; or
- an attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
TOTAL RETURN
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The Trust's average annual total returns for the one-year and five-year periods
ended February 28, 1994, and for the period from August 23, 1984 (effective date
of the Trust's registration statement), to February 28, 1994, were 14.16%,
12.20%, and 12.70%, respectively.
The average annual total return for the Trust is the average annual compounded
rate of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable value
is computed by multiplying the number of shares owned at the end of the period
by the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the
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number of shares purchased at the beginning of the period with $1,000, adjusted
over the period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions.
YIELD
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The Trust's yield for the thirty-day period ended February 28, 1994 was 8.62%.
The yield for the Trust is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Trust
over a thirty-day period by the maximum offering price per share of the Trust on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Trust because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Trust, performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
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The Trust's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in Trust expenses; and
- - various other factors.
The Trust's performance fluctuates on a daily basis largely because net earnings
and maximum offering price per share fluctuate daily. Both net earnings and net
asset value per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Trust uses in advertising may include:
- - LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of approximately 5,000
issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine years. Tracked
by Lehman Brothers, Inc., the index calculates total returns for one-month,
three-month, twelve-month, and ten-year periods and year-to-date.
- - LEHMAN GOVERNMENT/CORPORATE (LONG-TERM) INDEX is composed of the same types of
issues as defined above. However, the average maturity of the bonds included
on this index approximates 22 years.
- - MERRILL LYNCH 7-10 YEAR TREASURY INDEX is an unmanaged index tracking U.S.
government securities with maturities between 7 and 9.99 years. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
- - MERRILL LYNCH 10-15 YEAR TREASURY INDEX is an unmanaged index tracking U.S.
government securities with maturities between 10 and 14.99 years. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
- - MERRILL LYNCH HIGH YIELD MASTER INDEX is an unmanaged index comprised of
publicly placed, non-convertible, coupon-bearing domestic debt. Issues in the
index are less than investment grade as rated by Standard & Poor's Corporation
or Moody's Investors Service, Inc., and must not be in default. Issues have a
term to maturity of at least one year. The index is produced by Merrill Lynch,
Pierce, Fenner & Smith, Inc.
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time.
From time to time, the Trust will quote its Lipper ranking in the high current
yield funds category in advertising and sales literature.
- - SALOMON BROTHERS AAA-AA CORPORATES calculates total returns of approximately
775 issues which include long-term, high grade domestic corporate taxable
bonds, rated AAA-AA, with maturities of twelve years or more; it also includes
companies in industry, public utilities, and finance.
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- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Trust may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Trust based
on monthly reinvestment of dividends over a specified period of time.
DURATION
Duration is a commonly used measure of the potential volatility in the price of
a bond, or other fixed income security, or in a portfolio of fixed income
securities, prior to maturity. Volatility is the magnitude of the change in the
price of a bond relative to a given change in the market rate of interest. A
bond's price volatility depends on three primary variables: the bond's coupon
rate; maturity date; and the level of market yields of similar fixed income
securities. Generally, bonds with lower coupons or longer maturities will be
more volatile than bonds with higher coupon or shorter maturities. Duration
combines these variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values of the
cash flows of a bond or bonds, including interest and principal payments, by the
sum of the present values of the cash flows.
8040401B (4/94)
FEDERATED HIGH YIELD TRUST
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INVESTMENT REVIEW
Federated High Yield Trust (the "Trust") invests in lower-rated
corporate bonds as it seeks to achieve its investment objective of high
current income. The Trust tends to focus its investments in the "single B
sector" of the high yield market, attempting to identify issuers that will
improve their cash flow over time, thereby improving their
creditworthiness. The Trust's management utilizes intensive fundamental
analysis in attempting to identify issuers that will achieve these
objectives.
High yield bonds delivered outstanding total returns for the year
ending February 28, 1994. For example, the Lehman Brothers High Yield Index
had a total return of 13.96% over the period, while the Lehman Brothers
Treasury Bond Index returned 5.38% and the Lehman (High Grade) Corporate
Index returned 6.65%*. High yield bonds benefited from the improvement in
economic activity that became apparent late in 1993 and in early 1994. High
yield issuers credit quality typically improves in periods of strong
economic growth. This improvement in credit quality helped offset the rise
in interest rates that negatively impacted higher quality bonds.
Federated High Yield Trust had a total return of 14.16% (on a net
basis) for the 12 months ended February 28, 1994, outperforming the Lehman
Brothers High Yield Index.** The Trust benefited from its overweight
position in cyclical industries, and specifically steel, paper and
chemicals.
Looking forward into 1994, tremendous uncertainty exists for most
financial assets, as concerns about inflation and rising interest rates are
impacting all financial assets, including high yield bonds. Absolute
returns for high yield securities will be dependent, to a large extent, on
overall movements in high quality bonds and stocks. However, the Trust's
management remains optimistic on the relative performance outlook for high
yield bonds. Credit quality is improving as a result of the continuing
strength in the U.S. economy. This should cause the spread between high
yield securities and U.S. Treasuries to narrow further as the fear of
default declines. Also, the Trust's management believes the current spread
between high yield bonds and U.S. Treasuries is attractive, especially
given the improved economic outlook. In summary, high yield bonds should
deliver good relative performance while absolute performance will depend on
the overall level of interest rates.
* These indices are unmanaged.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
PERFORMANCE COMPARISON
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COMPARISON OF CHANGE IN VALUE OF A HYPOTHETICAL $10,000 INVESTMENT
IN FEDERATED HIGH YIELD TRUST, LEHMAN BROTHERS SINGLE B RATED INDEX+, AND LIPPER
HIGH CURRENT YIELD FUNDS AVERAGE+.
"Graphic representation "A" omitted. See Appendix."
Past performance is not predictive of future performance. Your investment return
and principal value will fluctuate, so when shares are redeemed, they may be
worth more or less than their original cost. Mutual funds are not obligations of
or guaranteed by any bank and are not federally insured.
This annual report incorporates by reference and accompanies the prospectus
dated April 30, 1994.
* Reflects performance of Federated High Yield Trust from 8/23/84 through
2/28/94.
+ The Lehman Brothers Single B Rated Index is not adjusted to reflect sales
loads, expenses, or other fees that the Securities and Exchange Commission
("SEC") requires to be reflected in the Trust's performance. The Lipper High
Current Yield Funds Average is a compilation of mutual fund total returns
reported to Lipper Analytical Services, Inc. Each fund is reported net of
sales loads, expenses, or other fees that the SEC requires to be reflected in
a fund's performance. The Trust's performance assumes the reinvestment of all
dividends and distributions. The Lehman Brothers Single B Rated Index and the
Lipper High Current Yield Funds Average are adjusted to reflect reinvestment
of dividends on securities in the indices.
++ Reflects maximum applicable fees.
FEDERATED SECURITIES CORP.
(LOGO)
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Distributor
8040401-ARS (4/94)
APPENDIX
A . The graphic presentation here displayed consists of a
boxed legend in the bottom center indicating the components
of the corresponding line graph. Federated High Yield Trust
( the "Trust"), is represented by a solid line followed by
two dashes. The Lehman Brothers Single B Rated Index is
represented by a solid line followed by one dash, and the
Lipper High Current Yield Funds Average is represented by a
broken line. The line graph is a visual representation of a
comparison of change in value of a hypothetical $10,000
purchase in the Trust, the Lehman Brothers Single B Rated
Index, and Lipper High Current Yield Funds Average. The "y"
axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Trust's start of
business, 8/23/84, through 2/28/94. The right margin
reflects the ending value of the hypothetical investment in
the Trust as compared to the Lehman Brothers Single B Rated
Index and Lipper High Current Yield Funds Average; the ending
values are $31,222, $33,197 and $29,580, respectively. There
is also a legend in the upper left quadrant of the graphic
presentation which indicates the Average Annual Total Return
for the period ended 2/28/94 beginning with the inception
date of the Trust 8/23/84, and the five year and one-year
periods; the Average Annual Total Returns are 12.70%, 12.20%,
14.16% respectively.
