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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,
1995, 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, 1995
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<S> <C>
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
Investment Risks 6
Investment Limitations 8
TRUST INFORMATION 8
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Management of the Trust 8
Distribution of Trust Shares 9
Administration of the Trust 10
NET ASSET VALUE 11
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INVESTING IN THE TRUST 11
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Share Purchases 11
Minimum Investment Required 12
What Shares Cost 12
Subaccounting Services 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 13
Retirement Plans 13
REDEEMING SHARES 13
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Telephone Redemption 13
Written Requests 13
Accounts with Low Balances 14
Redemption in Kind 14
SHAREHOLDER INFORMATION 15
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Voting Rights 15
Massachusetts Partnership Law 15
TAX INFORMATION 15
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Federal Income Tax 15
Pennsylvania Corporate and Personal
Property Taxes 15
PERFORMANCE INFORMATION 16
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FINANCIAL STATEMENTS 17
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS 34
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APPENDIX 35
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ADDRESSES 37
- ---------------------------------------------------
</TABLE>
I
<PAGE>
SUMMARY OF TRUST EXPENSES
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<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
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
<CAPTION>
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)................................................................. 0.52%
12b-1 Fee......................................................................................... None
Total Other Expenses.............................................................................. 0.34%
Shareholder Services Fee (after waiver) (2).......................................... 0.17%
Total Trust Operating Expenses (3)........................................................ 0.86%
<FN>
(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 services 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 29, 1996. The Total Trust
Operating Expenses were 0.85% for the fiscal year ended February 28, 1995
and would have been 1.07% absent the voluntary waiver of a portion of the
management fee.
</TABLE>
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 "Investing in the Trust" and "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
- ----------------------------------------------------------------- --------- --------- --------- ---------
<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.
1
<PAGE>
FEDERATED HIGH YIELD TRUST
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 34.
<TABLE>
<CAPTION>
PERIOD ENDED FEBRUARY 28 OR 29,
--------------------------------------------------------------
1995 1994 1993 1992 1991
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.48 $ 9.10 $ 8.91 $ 6.99 $ 8.02
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.84 0.84 0.93 1.03 1.04
- ------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.90) 0.40 0.19 1.90 (0.92)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total from investment operations (0.06) 1.24 1.12 2.93 0.12
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Distributions from net investment income (0.84) (0.86) (0.93) (1.01) (1.06)
- ------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions -- -- -- -- --
- ------------------------------------------------------------
Distributions in excess of net investment income (0.01)(a) -- -- -- (0.09)(a)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total distributions (0.85) (0.86) (0.93) (1.01) (1.15)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 8.57 $ 9.48 $ 9.10 $ 8.91 $ 6.99
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (B) (0.32%) 14.16% 13.28% 44.15% 3.12%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.85% 0.83% 0.77% 0.76% 0.78%
- ------------------------------------------------------------
Net investment income 9.70% 9.17% 10.54% 12.73% 14.82%
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Expense waiver/reimbursement (c) 0.22% 0.13% 0.22% 0.33% 0.49%
- ------------------------------------------------------------
SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $464,604 $432,045 $354,383 $222,937 $103,647
- ------------------------------------------------------------
Portfolio turnover 99% 112% 93% 61% 31%
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<CAPTION>
1990 1989 1988 1987 1986
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.96 $ 10.21 $ 11.25 $ 10.96 $ 10.02
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 1.30 1.30 1.26 1.30 1.37
- ------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.96) (0.25) (0.98) 0.32 0.95
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total from investment operations (0.66) 1.05 0.28 1.62 2.32
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Distributions from net investment income (1.28) (1.30) (1.26) (1.30) (1.37)
- ------------------------------------------------------------
Distributions to shareholders from net realized gain on
investment transactions -- -- (0.06) (0.03) (0.01)
- ------------------------------------------------------------
Distributions in excess of net investment income -- -- -- -- --
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
Total distributions (1.28) (1.30) (1.32) (1.33) (1.38)
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 8.02 $ 9.96 $ 10.21 $ 11.25 $ 10.96
- ------------------------------------------------------------ ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
TOTAL RETURN (B) (7.50%) 10.92% 3.08% 15.75% 24.70%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.76% 0.75% 0.75% 0.75% 0.75%
- ------------------------------------------------------------
Net investment income 13.87% 12.89% 12.25% 11.86% 13.25%
- ------------------------------------------------------------
Expense waiver/reimbursement (c) 0.33% 0.32% 0.24% 0.35% 0.75%
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $134,242 $235,208 $246,745 $271,148 $26,883
- ------------------------------------------------------------
Portfolio turnover 24% 51% 73% 57% 31%
- ------------------------------------------------------------
<FN>
(a) Distributions in excess of net investment income for the periods ended
February 28, 1995 and 1991 were a result of certain book and tax timing
differences. These distributions do not represent a return of capital for
federal income tax purposes.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended February 28, 1995, which can be obtained
free of charge.
2
<PAGE>
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
load 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 nationally recognized statistical rating
organizations;
- commercial paper;
- obligations of the United States;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the National
Bank for Cooperatives and Banks for Cooperatives; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; Export-Import Bank
of the United States; Commodity Credit Corporation; Federal Financing
Bank; Student Loan Marketing Association; National Credit Union
Administration and Tennessee Valley Authority;
- 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
3
<PAGE>
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 the
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 Ratings Group ("S&P") or Baa or lower by
Moody's Investors Service, Inc. ("Moody's"), or are not rated but are determined
by the Trust's investment adviser to be of comparable quality. (See "Investment
Risks" on page 6.)
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. These transactions are
arrangements in which the Trust purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
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. Accordingly, the Trust may pay more/less than the market value of the
securities on the settlement date.
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;
4
<PAGE>
- 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.
There is the risk that when the Trust lends portfolio securities, the securities
may not be available to the Trust on a timely basis and the Trust may,
therefore, lose the opportunity to sell the securities at a desirable price. In
addition, in the event that a borrower of securities would file for bankruptcy
or become insolvent, disposition of the securities may be delayed pending court
action.
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;
5
<PAGE>
- 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 S&P and Aaa, Aa, or A for Moody's) 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. Adverse publicity and the
perception of investors relating to issuers, underwriters, dealers or underlying
business conditions, whether or not warranted by fundamental analysis, may
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.
6
<PAGE>
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
receives 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, 1995. The
credit rating categories are those provided by S&P, which is a nationally
recognized statistical rating organization. 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
---------------------------
NOT
CREDIT RATING RATED RATED TOTAL
------- ------- -------
<S> <C> <C> <C>
BB & BBB..................................... 16.99 % 0.00 % 16.99 %
B............................................ 78.26 0.86 79.12
CC & CCC..................................... 3.05 0.84 3.89
------- ------- -------
98.30 % 1.70 % 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.
7
<PAGE>
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
8
<PAGE>
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.
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.
9
<PAGE>
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>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<C> <S>
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.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS.__In addition to periodic payments to
financial institutions under the Services Plan, certain financial institutions
may be compensated by the investment
10
<PAGE>
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 load on Trust shares.
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.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Ernst & Young
LLP, 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: Federated Services Company, c/o 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. Shares cannot be purchased by wire
on days on which the New York Stock Exchange is closed and on federal holidays
restricting wire transfers.
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's bank, State Street Bank, into federal funds. This is normally the next
business day after State Street Bank receives the check.
11
<PAGE>
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 load 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, upon
instruction of the transfer agent, into federal funds. Dividends
12
<PAGE>
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, 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.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
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.
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 to Federated Services Company, 500 Victory Road
- -2nd Floor, Quincy, Massachusetts 02171 with the written request.
13
<PAGE>
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.
14
<PAGE>
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 on behalf of the Trust.
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 from its assets.
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
15
<PAGE>
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities 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.
Trust shares are sold without any sales load or other similar non-recurring
charges.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
16
<PAGE>
FEDERATED HIGH YIELD TRUST
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--87.9%
- -------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.4%
-------------------------------------------------------------------
$2,000,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 $ 2,015,000
------------------------------------------------------------------- -----------
AIR TRANSPORTATION--0.6%
-------------------------------------------------------------------
3,000,000 USAir, Inc., Pass Thru Cert., Series 1993-A2, 9.625%, 9/1/2003 2,580,000
------------------------------------------------------------------- -----------
AUTOMOTIVE--2.5%
-------------------------------------------------------------------
3,250,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 3,412,500
-------------------------------------------------------------------
3,500,000 Doehler-Jarvis, Inc., Sr. Note, 11.875%, 6/1/2002 3,587,500
-------------------------------------------------------------------
1,250,000 Lear Seating Corp., Sub. Note, 8.25%, 2/1/2002 1,150,000
-------------------------------------------------------------------
4,000,000 Motor Wheel Corp., Sr. Note, 11.50%, 3/1/2000 3,530,000
------------------------------------------------------------------- -----------
Total 11,680,000
------------------------------------------------------------------- -----------
BANKING--1.0%
-------------------------------------------------------------------
4,625,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 4,786,875
------------------------------------------------------------------- -----------
BEVERAGE & TOBACCO--0.9%
-------------------------------------------------------------------
2,000,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 1,400,000
-------------------------------------------------------------------
3,750,000 Heileman Acquisition Co., Sr. Sub. Note, 9.625%, 1/31/2004 2,662,500
------------------------------------------------------------------- -----------
Total 4,062,500
------------------------------------------------------------------- -----------
BROADCAST RADIO & TV--5.2%
-------------------------------------------------------------------
3,000,000 Ackerley Communications, Inc., Sr. Secd. Note, 10.75%, 10/1/2003 3,015,000
-------------------------------------------------------------------
3,750,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 3,843,750
-------------------------------------------------------------------
3,250,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 3,266,250
-------------------------------------------------------------------
4,000,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 2,350,000
-------------------------------------------------------------------
6,750,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 6,952,500
-------------------------------------------------------------------
3,550,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 3,425,750
-------------------------------------------------------------------
1,250,000 Young Broadcasting Inc., Sr. Sub. Note, 11.75%, 11/15/2004 1,328,125
------------------------------------------------------------------- -----------
Total 24,181,375
------------------------------------------------------------------- -----------
</TABLE>
17
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--1.2%
-------------------------------------------------------------------
$1,500,000 Anacomp, Inc., Sr. Sub. Note, 15.00%, 11/1/2000 $ 1,447,500
-------------------------------------------------------------------
3,850,000 Bell & Howell Co., Sr. Sub. Note, 10.75%, 10/1/2002 3,792,250
-------------------------------------------------------------------
274,889 San Jacinto Holdings, Inc., Sr. Sub. Note, 8.00%, 12/31/2000 89,339
-------------------------------------------------------------------
545,000 San Jacinto Holdings, Inc., Sub. PIK Deb., 8.00%, 12/31/2000 327,000
------------------------------------------------------------------- -----------
Total 5,656,089
------------------------------------------------------------------- -----------
CABLE TELEVISION--6.0%
-------------------------------------------------------------------
3,000,000 CF Cable TV Inc., Sr. Secd. 2nd Priority Note, 11.625%, 2/15/2005 3,138,750
-------------------------------------------------------------------
3,000,000 Cablevision Industries Corp., Sr. Note, 9.25%, 4/1/2008 2,943,750
-------------------------------------------------------------------
3,000,000 Cablevision Systems Co., Sr. Sub. Deb., 9.875%, 2/15/2013 2,910,000
-------------------------------------------------------------------
6,000,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 5,790,000
-------------------------------------------------------------------
5,250,000 International Cabletel, Inc., Sr. Defd. Note, 0/10.875%, 10/15/2003 3,110,625
-------------------------------------------------------------------
2,100,000 Le Groupe Videotron Ltd., Sr. Note, 10.625%, 2/15/2005 2,173,500
-------------------------------------------------------------------
6,000,000 Marcus Cable Operating Co., Sr. Disc. Note, 0/13.50%, 8/1/2004 3,600,000
-------------------------------------------------------------------
7,500,000 Rogers Cablesystems Ltd., Sr. Secd. Note, 9.65%, 1/15/2014 4,391,164
------------------------------------------------------------------- -----------
Total 28,057,789
------------------------------------------------------------------- -----------
CHEMICALS & PLASTICS--7.7%
-------------------------------------------------------------------
7,000,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 6,947,500
-------------------------------------------------------------------
5,000,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 4,825,000
-------------------------------------------------------------------
12,000,000 G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 7,740,000
-------------------------------------------------------------------
2,500,000 LaRoche Industries, Inc., Sr. Sub. Note, 13.00%, 8/15/2004 2,450,000
-------------------------------------------------------------------
5,000,000 Polymer Group, Inc., Sr. Note, 12.75%, 7/15/2002 (c) 4,825,000
-------------------------------------------------------------------
3,000,000 UCC Investors Holdings, Inc., Sr. Sub. Note, 11.00%, 5/1/2003 3,022,500
-------------------------------------------------------------------
5,000,000 UCC Investors Holdings, Inc., Sub. Disc. Note, 0/12.00%, 5/1/2005 3,550,000
-------------------------------------------------------------------
2,750,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 2,323,750
------------------------------------------------------------------- -----------
Total 35,683,750
------------------------------------------------------------------- -----------
</TABLE>
18
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
CLOTHING & TEXTILES--1.6%
-------------------------------------------------------------------
$8,125,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2002 $ 7,596,875
------------------------------------------------------------------- -----------
CONGLOMERATES--2.6%
-------------------------------------------------------------------
4,000,000 Fairchild Industries, Sr. Secd. Note, 12.25%, 2/1/1999 3,960,000
-------------------------------------------------------------------
4,200,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 4,163,250
-------------------------------------------------------------------
1,000,000 Sherritt, Inc., Deb., 10.50%, 3/31/2014 990,000
-------------------------------------------------------------------
5,000,000 Walter Industries, Inc., Sub. Deb., 17.00%, 1/1/1996 (b) 3,125,000
------------------------------------------------------------------- -----------
Total 12,238,250
------------------------------------------------------------------- -----------
CONSUMER PRODUCTS--0.9%
-------------------------------------------------------------------
4,750,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%, 12/15/2003 4,364,063
------------------------------------------------------------------- -----------
CONTAINER & GLASS PRODUCTS--5.0%
-------------------------------------------------------------------
1,260,000 Kane Industries, Inc., Sr. Sub. Disc. Note, 8.00%, 2/1/1998 (b)(c) 0
-------------------------------------------------------------------
2,900,000 Owens-Illinois, Inc., Note, 10.00%, 8/1/2002 2,918,125
-------------------------------------------------------------------
1,000,000 Owens-Illinois, Inc., Sr. Amort. Deb., 11.00%, 12/1/2003 1,077,500
-------------------------------------------------------------------
5,000,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 5,125,000
-------------------------------------------------------------------
4,000,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 3,950,000
-------------------------------------------------------------------
1,000,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 992,500
-------------------------------------------------------------------
500,000 Plastic Containers, Inc., Sr. Secd. Note, 10.75%, 4/1/2001 502,500
-------------------------------------------------------------------
2,000,000 Silgan Corp., Sr. Sub. Note, 11.75%, 6/15/2002 2,092,500
-------------------------------------------------------------------
4,750,000 Silgan Holdings, Inc., Sr. Disc. Deb., 0/13.25%, 12/15/2002 4,227,500
-------------------------------------------------------------------
2,250,000 U.S. Can Co., Sr. Sub. Note, 13.50%, 1/15/2002 2,480,625
------------------------------------------------------------------- -----------
Total 23,366,250
------------------------------------------------------------------- -----------
COSMETICS & TOILETRIES--1.8%
-------------------------------------------------------------------
2,000,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%, 2/15/2003 1,880,000
-------------------------------------------------------------------
10,500,000 Revlon Worldwide Corp., Sr. Secd. Note, Series B, 12.00% accrual,
3/15/1998 6,365,625
------------------------------------------------------------------- -----------
Total 8,245,625
------------------------------------------------------------------- -----------
</TABLE>
19
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
ECOLOGICAL SERVICES & EQUIPMENT--2.8%
-------------------------------------------------------------------
$4,625,000 Allied Waste Industries, Inc., Sr. Sub. Note, 12.00%, 2/1/2004 $ 4,578,750
-------------------------------------------------------------------
4,000,000 ICF Kaiser International, Inc., Sr. Sub. Note, 12.00%, 12/31/2003 3,660,000
-------------------------------------------------------------------
4,500,000 Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%, 2/15/2003 4,623,750
------------------------------------------------------------------- -----------
Total 12,862,500
------------------------------------------------------------------- -----------
FARMING & AGRICULTURE--0.6%
-------------------------------------------------------------------
3,000,000 Spreckels Industries, Inc., Sr. Secd. Note, 11.50%, 9/1/2000 2,925,000
------------------------------------------------------------------- -----------
FOOD & DRUG RETAILERS--2.9%
-------------------------------------------------------------------
8,500,000 Grand Union Co., Sr. Sub. Note, 12.25%, 7/15/2002 (b) 2,592,500
-------------------------------------------------------------------
5,975,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 5,616,500
-------------------------------------------------------------------
5,350,000 Penn Traffic Co., Sr. Sub. Note, 9.625%, 4/15/2005 5,042,375
------------------------------------------------------------------- -----------
Total 13,251,375
------------------------------------------------------------------- -----------
FOOD PRODUCTS--3.6%
-------------------------------------------------------------------
4,725,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 4,925,813
-------------------------------------------------------------------
4,500,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 4,095,000
-------------------------------------------------------------------
1,000,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 967,500
-------------------------------------------------------------------
6,000,000 Specialty Foods Acquisition Corp., Sr. Secd. Disc. Deb., 0/13.00%,
8/15/2005 3,060,000
-------------------------------------------------------------------
3,750,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 3,618,750
------------------------------------------------------------------- -----------
Total 16,667,063
------------------------------------------------------------------- -----------
FOOD SERVICES--1.9%
-------------------------------------------------------------------
6,000,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 5,872,500
-------------------------------------------------------------------
3,250,000 Flagstar Corp., Sr. Sub. Deb., 11.25%, 11/1/2004 2,770,625
------------------------------------------------------------------- -----------
Total 8,643,125
------------------------------------------------------------------- -----------
FOREST PRODUCTS--4.2%
-------------------------------------------------------------------
1,875,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 1,982,813
-------------------------------------------------------------------
1,000,000 Container Corp. of America, Sr. Note, 9.75%, 4/1/2003 982,500
-------------------------------------------------------------------
</TABLE>
20
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
FOREST PRODUCTS--CONTINUED
-------------------------------------------------------------------
$1,000,000 Domtar, Inc., Deb., 11.25%, 9/15/2017 $ 1,030,000
-------------------------------------------------------------------
4,500,000 Domtar, Inc., Note, 12.00%, 4/15/2001 4,882,500
-------------------------------------------------------------------
1,750,000 Repap Wisconsin, Inc., 2nd Priority Sr. Secd. Note, 9.875%,
5/1/2006 1,618,750
-------------------------------------------------------------------
1,000,000 S. D. Warren Company, Sr. Sub. Note, 12.00%, 12/15/2004 (c) 1,062,500
-------------------------------------------------------------------
500,000 Stone Container Corp., 1st Mtg. Note, 10.75%, 10/1/2002 520,000
-------------------------------------------------------------------
7,500,000 Stone Container Corp., Sr. Note, 9.875%, 2/1/2001 7,378,125
------------------------------------------------------------------- -----------
Total 19,457,188
------------------------------------------------------------------- -----------
HEALTHCARE--2.9%
-------------------------------------------------------------------
3,053,572 AmeriSource Corp., Sr. PIK Deb., 11.25%, 7/15/2005 3,259,688
-------------------------------------------------------------------
1,500,000 Hillhaven Corp., Sr. Sub. Note, 10.125%, 9/1/2001 1,533,750
-------------------------------------------------------------------
1,750,000 National Medical Enterprises, Inc., Sr. Note, 9.625%, 9/1/2002 1,787,188
-------------------------------------------------------------------
4,200,000 National Medical Enterprises, Inc., Sr. Sub. Note, 10.125%,
3/1/2005 4,294,500
-------------------------------------------------------------------
2,375,000 Surgical Health Corp., Sr. Sub. Note, 11.50%, 7/15/2004 2,600,625
------------------------------------------------------------------- -----------
Total 13,475,751
------------------------------------------------------------------- -----------
HOME PRODUCTS & FURNISHINGS--3.1%
-------------------------------------------------------------------
1,250,000 American Standard, Inc., Sr. Deb., 11.375%, 5/15/2004 1,359,375
-------------------------------------------------------------------
10,500,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%, 6/1/2005 7,205,625
-------------------------------------------------------------------
2,250,000 Nortek, Inc., Sr. Sub. Note, 9.875%, 3/1/2004 2,058,750
-------------------------------------------------------------------
4,000,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 3,940,000
------------------------------------------------------------------- -----------
Total 14,563,750
------------------------------------------------------------------- -----------
HOTELS, MOTELS, INNS & CASINOS--0.7%
-------------------------------------------------------------------
3,000,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 3,075,000
------------------------------------------------------------------- -----------
INDUSTRIAL PRODUCTS & EQUIPMENT--1.9%
-------------------------------------------------------------------
3,250,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%, 7/1/2001 3,103,750
-------------------------------------------------------------------
2,250,000 Pace Industries, Inc., Sr. Note, 10.625%, 12/1/2002 2,075,625
-------------------------------------------------------------------
</TABLE>
21
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
INDUSTRIAL PRODUCTS & EQUIPMENT--CONTINUED
-------------------------------------------------------------------
$3,500,000 Truck Components, Inc., Sr. Note, 12.25%, 6/30/2001 $ 3,640,000
------------------------------------------------------------------- -----------
Total 8,819,375
------------------------------------------------------------------- -----------
LEISURE & ENTERTAINMENT--2.6%
-------------------------------------------------------------------
2,750,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 2,609,063
-------------------------------------------------------------------
10,500,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 9,476,250
------------------------------------------------------------------- -----------
Total 12,085,313
------------------------------------------------------------------- -----------
MACHINERY & EQUIPMENT--1.5%
-------------------------------------------------------------------
2,250,000 Primeco Inc., Sr. Sub. Note, 12.75%, 3/1/2005 2,289,375
-------------------------------------------------------------------
4,500,000 Waters Corp., Sr. Sub. Note, 12.75%, 9/30/2004 4,590,000
------------------------------------------------------------------- -----------
Total 6,879,375
------------------------------------------------------------------- -----------
OIL & GAS--3.4%
-------------------------------------------------------------------
3,250,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 3,107,813
-------------------------------------------------------------------
3,500,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 3,202,500
-------------------------------------------------------------------
2,250,000 H.S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 2,126,250
-------------------------------------------------------------------
2,300,000 Mesa Capital Corp., Note, 0/12.75%, 6/30/1998 2,162,000
-------------------------------------------------------------------
2,000,000 Triton Energy Corp., Sr. Sub. Disc. Note, 0/9.75%, 12/15/2000 1,615,000
-------------------------------------------------------------------
3,550,000 WRT Energy Corporation, Unit, 13.875%, 3/1/2002 3,550,000
------------------------------------------------------------------- -----------
Total 15,763,563
------------------------------------------------------------------- -----------
PRINTING & PUBLISHING--1.8%
-------------------------------------------------------------------
4,500,000 Affiliated Newspapers, Sr. Disc. Note, 0/13.25%, 7/1/2006 2,250,000
-------------------------------------------------------------------
1,250,000 American Media Operations, Inc., Sr. Sub. Note, 11.625%, 11/15/2004 1,331,250
-------------------------------------------------------------------
2,625,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 2,575,781
-------------------------------------------------------------------
2,750,000 Webcraft Technologies, Inc., Sr. Sub. Note, 9.375%, 2/15/2002 2,437,188
------------------------------------------------------------------- -----------
Total 8,594,219
------------------------------------------------------------------- -----------
RETAILERS--2.1%
-------------------------------------------------------------------
4,200,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 4,158,000
-------------------------------------------------------------------
</TABLE>
22
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
RETAILERS--CONTINUED
-------------------------------------------------------------------
$2,500,000 Hosiery Corp. of America, Inc., Unit, 13.75%, 8/1/2002 (c) $ 2,375,000
-------------------------------------------------------------------
3,000,000 ICON Health & Fitness, Inc., Unit, 13.00%, 7/15/2002 (c) 3,135,000
------------------------------------------------------------------- -----------
Total 9,668,000
------------------------------------------------------------------- -----------
SERVICES--0.8%
-------------------------------------------------------------------
3,975,000 Solon Automated Services, Inc., Sr. Note, 12.75%, 7/15/2001 3,776,250
------------------------------------------------------------------- -----------
STEEL--6.7%
-------------------------------------------------------------------
4,650,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 3,464,250
-------------------------------------------------------------------
2,250,000 Armco, Inc., Sr. Note, 11.375%, 10/15/1999 2,261,250
-------------------------------------------------------------------
3,000,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 2,775,000
-------------------------------------------------------------------
3,500,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 3,211,250
-------------------------------------------------------------------
4,250,000 Carbide/Graphite Group, Sr. Note, 11.50%, 9/1/2003 4,451,875
-------------------------------------------------------------------
5,000,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 4,475,000
-------------------------------------------------------------------
4,400,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%, 9/1/2004 4,526,500
-------------------------------------------------------------------
3,000,000 Geneva Steel Co., Sr. Note, 11.125%, 3/15/2001 2,850,000
-------------------------------------------------------------------
3,000,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 2,790,000
------------------------------------------------------------------- -----------
Total 30,805,125
------------------------------------------------------------------- -----------
SURFACE TRANSPORTATION--2.8%
-------------------------------------------------------------------
3,000,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 3,150,000
-------------------------------------------------------------------
3,500,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 3,220,000
-------------------------------------------------------------------
775,000 Sea Containers Ltd., Sr. Sub. Deb., Series B, 12.50%, 12/1/2004 809,875
-------------------------------------------------------------------
3,125,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 3,015,625
-------------------------------------------------------------------
3,000,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 2,955,000
------------------------------------------------------------------- -----------
Total 13,150,500
------------------------------------------------------------------- -----------
TECHNOLOGY SERVICES--0.4%
-------------------------------------------------------------------
2,200,000 Computervision Corp., Sr. Sub. Note, 11.375%, 8/15/1999 2,013,000
------------------------------------------------------------------- -----------
</TABLE>
23
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR--2.4%
-------------------------------------------------------------------
$3,000,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%, 9/1/2003 $ 1,312,500
-------------------------------------------------------------------
4,000,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%, 8/15/2004 1,580,000
-------------------------------------------------------------------
6,250,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 4,156,250
-------------------------------------------------------------------
4,750,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 4,096,875
------------------------------------------------------------------- -----------
Total 11,145,625
------------------------------------------------------------------- -----------
UTILITIES--1.4%
-------------------------------------------------------------------
8,500,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%, 1/15/2004 6,332,500
------------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST $432,564,540) 408,468,038
------------------------------------------------------------------- -----------
COMMON STOCKS--0.5%
- -------------------------------------------------------------------------------
BUILDING & DEVELOPMENT--0.0%
-------------------------------------------------------------------
3,080 Atlantic Gulf Communities Corp. 27,720
-------------------------------------------------------------------
2,342 Atlantic Gulf Communities Corp., Warrants 805
------------------------------------------------------------------- -----------
Total 28,525
------------------------------------------------------------------- -----------
BUSINESS EQUIPMENT & SERVICES--0.0%
-------------------------------------------------------------------
5,460 San Jacinto Holdings, Inc. (c) 2,730
------------------------------------------------------------------- -----------
CHEMICALS & PLASTICS--0.1%
-------------------------------------------------------------------
14,862 UCC Investors Holdings, Inc. (c) 178,344
-------------------------------------------------------------------
27,500 Uniroyal Technology Corp., Warrants 65,313
------------------------------------------------------------------- -----------
Total 243,657
------------------------------------------------------------------- -----------
CONGLOMERATES--0.2%
-------------------------------------------------------------------
722,871 Triton Group Ltd. 948,768
------------------------------------------------------------------- -----------
CONTAINER & GLASS PRODUCTS--0.0%
-------------------------------------------------------------------
53,400 Kane Industries, Inc., Warrants (b)(c) 0
------------------------------------------------------------------- -----------
FARMING & AGRICULTURE--0.2%
-------------------------------------------------------------------
114,545 Spreckels Industries, Inc., Class A 1,152,605
------------------------------------------------------------------- -----------
</TABLE>
24
<PAGE>
FEDERATED HIGH YIELD TRUST
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------
PRINTING & PUBLISHING--0.0%
-------------------------------------------------------------------
4,500 Affiliated Newspapers $ 112,500
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST $10,283,519) 2,488,785
------------------------------------------------------------------- -----------
U.S. TREASURY SECURITIES--6.0%
- -------------------------------------------------------------------------------
U.S. TREASURY NOTES--6.0%
-------------------------------------------------------------------
$6,000,000 United States Treasury Note, 7.25%, 2/15/1998 6,056,340
-------------------------------------------------------------------
11,000,000 United States Treasury Note, 7.50%, 1/31/1997 11,144,980
-------------------------------------------------------------------
5,000,000 United States Treasury Note, 7.75%, 1/31/2000 5,140,500
-------------------------------------------------------------------
5,000,000 United States Treasury Note, 9.00%, 5/15/1998 5,292,850
------------------------------------------------------------------- -----------
TOTAL U.S. TREASURY SECURITIES (IDENTIFIED COST $27,329,456) 27,634,670
------------------------------------------------------------------- -----------
(A) REPURCHASE AGREEMENT--7.4%
- -------------------------------------------------------------------------------
34,480,000 J.P. Morgan & Co., Inc., 6.13%, dated 2/28/1995, due 3/1/1995 (at
amortized cost) 34,480,000
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $504,657,515) $473,071,493(D)
------------------------------------------------------------------- -----------
-----------
<FN>
(a) 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 is through participation in a joint
account with other Federated funds.
(b) Non-income producing security.
(c) Indicates private placement securities held at February 28, 1995, with a
total market value of $11,578,574, which represent 2.5% of total net assets.
(d) The cost of investments for federal tax purposes amounts to $505,607,371.
The unrealized appreciation/depreciation of investments on a federal tax
basis amounts to $32,535,878 which is comprised of $4,740,962 appreciation
and $37,276,840 depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($464,604,305) at February 28, 1995.
</TABLE>
<TABLE>
<S> <C>
The following abbreviation(s) are used throughout this portfolio:
PIK --Payment in Kind
</TABLE>
(See Notes which are an integral part of the Financial Statements)
25
<PAGE>
FEDERATED HIGH YIELD TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
WALTER INDUSTRIES INC. (ALSO KNOWN AS GEORGIA MARBLE CO.; FORMERLY JIM WALTER
CORP.)
On March 17, 1995, Walter Industries exited from Chapter 11 bankruptcy
protection. The distribution of new securities in exchange for the Trust's
debentures is pending.
KANE INDUSTRIES, INC.
On March 18, 1994, Kane Industries, Inc., along with two of its affiliates,
Kane, Inc. and Alford Industries, Inc., filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. The Trust's investment adviser is unable to predict
the outcome or timing of these proceedings.
GRAND UNION COMPANY
On January 25, 1995, the Grand Union Company announced that it had filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The Trust's investment
adviser is unable to predict the outcome or timing of these proceedings.
26
<PAGE>
FEDERATED HIGH YIELD TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (identified cost $504,657,515 and tax cost
$505,607,371)) $473,071,493
- --------------------------------------------------------------------------------
Cash 88
- --------------------------------------------------------------------------------
Income receivable 8,924,409
- --------------------------------------------------------------------------------
Receivable for investments sold 1,390,000
- --------------------------------------------------------------------------------
Receivable for shares sold 2,778,794
- -------------------------------------------------------------------------------- ------------
Total assets 486,164,784
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Payable for investments purchased $18,879,319
- ----------------------------------------------------------------------
Payable for shares redeemed 1,063,678
- ----------------------------------------------------------------------
Income distribution payable 1,477,600
- ----------------------------------------------------------------------
Accrued expenses 139,882
- ---------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C> <C>
Total liabilities 21,560,479
- ----------------------------------------------------------------------------------- ------------
NET ASSETS for 54,220,503 shares outstanding $464,604,305
- ----------------------------------------------------------------------------------- ------------
------------
NET ASSETS CONSISTS OF:
- -----------------------------------------------------------------------------------
Paid in capital $524,506,965
- -----------------------------------------------------------------------------------
Net unrealized appreciation(depreciation) of investments and foreign
currency transactions (31,589,600)
- -----------------------------------------------------------------------------------
Accumulated net realized gain(loss) on investments and foreign
currency transactions (27,870,857)
- -----------------------------------------------------------------------------------
Distributions in excess of net investment income (442,203)
- ----------------------------------------------------------------------------------- ------------
Total Net Assets $464,604,305
- ----------------------------------------------------------------------------------- ------------
------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
- -----------------------------------------------------------------------------------
($464,604,305/54,220,503 SHARES OUTSTANDING) $ 8.57
- ----------------------------------------------------------------------------------- ------------
------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
27
<PAGE>
FEDERATED HIGH YIELD TRUST
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest $41,102,902
- -----------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------
Investment advisory fee $2,922,038
- ------------------------------------------------------------
Administrative personnel and services fee 295,457
- ------------------------------------------------------------
Custodian fees 133,455
- ------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and
expenses 74,111
- ------------------------------------------------------------
Trustees' fees 11,244
- ------------------------------------------------------------
Auditing fees 24,000
- ------------------------------------------------------------
Legal fees 12,980
- ------------------------------------------------------------
Portfolio accounting fees 49,839
- ------------------------------------------------------------
Shareholder services fee 586,690
- ------------------------------------------------------------
Share registration costs 19,693
- ------------------------------------------------------------
Printing and postage 29,839
- ------------------------------------------------------------
Insurance premiums 10,947
- ------------------------------------------------------------
Taxes 13,991
- ------------------------------------------------------------
Miscellaneous 7,312
- ------------------------------------------------------------ --------
Total expenses 4,191,596
- ------------------------------------------------------------
Deduct--Waiver of investment advisory fee 867,430
- ------------------------------------------------------------ --------
Net expenses 3,324,166
- ----------------------------------------------------------------------- ----------
Net investment income 37,778,736
- ----------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency
transactions (4,773,544)
- -----------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments and
foreign currency transactions (33,406,182)
- ----------------------------------------------------------------------- ----------
Net realized and unrealized gain (loss) on investments and foreign
currency transactions (38,179,726)
- ----------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ (400,990)
- ----------------------------------------------------------------------- ----------
----------
<FN>
(See Notes which are an integral part of the Financial Statements)
</TABLE>
28
<PAGE>
FEDERATED HIGH YIELD TRUST
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 37,778,736 $ 39,253,901
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign currency transactions
($1,456,604, net loss, and $6,960,443, net gain, respectively, as computed
for federal income tax purposes) (4,773,544) 8,764,555
- ---------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation on investments and
foreign currency transactions (33,406,182) 8,262,255
- --------------------------------------------------------------------------- ------------- -------------
Change in assets resulting from operations (400,990) 56,280,711
- --------------------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income (37,778,736) (39,699,282)
- ---------------------------------------------------------------------------
Distributions in excess of net investment income (428,915) 0
- --------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to shareholders (38,207,651) (39,699,282)
- ---------------------------------------------------------------------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of Shares 629,838,185 576,417,640
- ---------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 20,569,292 21,954,239
- ---------------------------------------------------------------------------
Cost of Shares redeemed (579,239,706) (537,290,888)
- --------------------------------------------------------------------------- ------------- -------------
Change in net assets resulting from share transactions 71,167,771 61,080,991
- --------------------------------------------------------------------------- ------------- -------------
Change in net assets 32,559,130 77,662,420
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 432,045,175 354,382,755
- --------------------------------------------------------------------------- ------------- -------------
End of period $ 464,604,305 $ 432,045,175
- --------------------------------------------------------------------------- ------------- -------------
------------- -------------
<FN>
(See Notes which are an integral part of the Financial Statements)
</TABLE>
29
<PAGE>
FEDERATED HIGH YIELD TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION
Federated High Yield Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), 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. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed corporate bonds (and other fixed income and
asset-backed securities), unlisted securities and short-term obligations and
private placement securities are generally valued at the prices provided by
an independent pricing service. Listed equity securities are valued at the
last sale price reported on national securities exchanges. Short-term
securities with remaining maturities of sixty days or less at the time of
purchase may be stated at amortized cost, which approximates value.
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
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
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 adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code"). Dividend
income and distributions to shareholders are recorded on the ex-dividend
date. Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
30
<PAGE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
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 substantially all of its income. Accordingly, no
provisions for federal tax are necessary. Additionally, net capital losses
of $3,325,355, attributable to security transactions incurred after October
31, 1994 are treated as arising on March 1, 1995, the first day of the
Trust's next taxable year. At February 28, 1995, the Trust, for federal tax
purposes, had a capital loss carryforward of $24,374,244, which will reduce
the Trust's taxable income arising from future net realized gain on
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), 2000 ($6,829,698) and 2003 ($1,456,604).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date 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.
FOREIGN CURRENCY--The accounting records of the Trust are maintained in U.S.
dollars. All assets and liabilities denominated in foreign currencies ("FC")
are translated into U.S. dollars based on the rate of exchange of such
currencies against U.S. dollars on the date of valuation. Purchases and
sales of securities, income and expenses are translated at the rate of
exchange quoted on the respective date that such transactions are recorded.
Differences between income and expense amounts recorded and collected or
paid are adjusted when reported by the custodian bank. The Trust does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments. Reported
net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions,
the difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Trust's books, and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in the value of assets and
liabilities other than investments in securities at fiscal year end,
resulting from changes in the exchange rate.
OTHER--Investment transactions are accounted for on the trade date.
3. 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).
31
<PAGE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------
1995 1994
- -------------------------------------------------- ------------ --------------
<S> <C> <C>
Shares sold 72,545,518 62,036,140
- --------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 2,380,438 2,356,256
- --------------------------------------------------
Shares redeemed (66,300,129) (57,724,385)
- -------------------------------------------------- ------------ --------------
Net change resulting from Share transactions 8,625,827 6,668,011
- -------------------------------------------------- ------------ --------------
------------ --------------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .75 of 1% of the Trust's average daily net assets. The Adviser may
voluntarily choose to waive portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The FAS fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average daily net assets of the Trust for the period. This fee is to
obtain certain services for shareholders and to maintain the shareholder
accounts.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Trust. The fee is based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ also maintains the Trust's accounting records,
for which it receives a fee. The fee is based on the level of the Trust's
average net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Trustees of the above companies.
32
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FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
5. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
fiscal year ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------
PURCHASES $404,755,110
- -------------------------------------------------- ------------
SALES $363,522,094
- -------------------------------------------------- ------------
</TABLE>
33
<PAGE>
REPORT OF ERNST & YOUNG LLP, 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, 1995, 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, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated High Yield Trust at February 28, 1995, 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 LLP
Pittsburgh, Pennsylvania
April 13, 1995
34
<PAGE>
APPENDIX
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STANDARD & POOR'S RATINGS GROUP ("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.
CI--The rating "CI" 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 edged." 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.
35
<PAGE>
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 in a
high 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.
36
<PAGE>
ADDRESSES
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<TABLE>
<S> <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
- -------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8602
Boston, Massachusetts 02266-8602
- -------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
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FEDERATED HIGH
YIELD TRUST
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
April 30, 1995
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
314197104
8040401A (4/95) [RECYCLED PAPER LOGO]
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, 1995. 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, 1995
Federated Securities Corp.
Distributor
A subsidiary of
FEDERATED INVESTORS
GENERAL INFORMATION ABOUT THE
TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Corporate Debt Obligations 1
Put And Call Options 1
U.S. Government Obligations 1
Restricted Securities 2
When-Issued And Delayed
Delivery
Transactions 2
Repurchase Agreements 2
Lending Of Portfolio Securities 2
Reverse Repurchase Agreements 2
Portfolio Turnover 3
Investment Risks 3
Investment Limitations 4
FEDERATED HIGH YIELD TRUST
MANAGEMENT 6
Officers And Trustees 6
Trust Ownership 10
Trustees Compensation 11
Trustee Liability 11
INVESTMENT ADVISORY SERVICES 11
Adviser To The Trust 11
Advisory Fees 12
Shareholder Services Plan 12
TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT 12
BROKERAGE TRANSACTIONS 13
PURCHASING SHARES 13
Conversion To Federal Funds 13
DETERMINING NET ASSET VALUE 13
Determining Market Value Of
Securities 13
REDEEMING SHARES 14
Redemption In Kind 14
TAX STATUS 14
The Trust's Tax Status 14
Shareholders' Tax Status 14
TOTAL RETURN 15
YIELD 15
PERFORMANCE COMPARISONS 15
Duration 16
GENERAL INFORMATION ABOUT THE TRUST
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated April 17, 1984.
INVESTMENT OBJECTIVE AND POLICIES
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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
o 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:
o Student Loan Marketing Association;
o Federal Home Loan Mortgage Corporation;
o Federal Home Loan Banks;
o Farmers Home Administration; and
o 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
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. These transactions are made to secure what is considered to be
an advantageous price or yield for the Trust. 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 on the Trust's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. The Trust does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 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, 1995 and 1994, the portfolio turnover rates
were 99% and 112%, respectively.
INVESTMENT RISKS
Adverse Legislation
Federal and state legislatures and regulators may propose 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:
o less publicly available information about foreign issuers;
o credit risks associated with certain foreign governments;
o the lack of uniform financial accounting standards applicable
to foreign issuers;
o less readily available market quotations on foreign issues;
o the likelihood that securities of foreign issuers may be less
liquid or more volatile;
o generally higher foreign brokerage commissions; and
o 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
gains, 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.
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:
o 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
o 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.
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".
FEDERATED HIGH YIELD TRUST MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, present
positions with Federated High Yield Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Direct
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center _
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center, Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center, Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or 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.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; 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
Institutional 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
Trust; 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 Funds, Inc.; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; The Virtus Funds; and World Investment
Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding
shares.
As of April 7, 1995, the following shareholders 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 22,269,162 shares (40.42%); National
Financial Services, for the exclusive benefit of its customers, owned
approximately 2,866,784 shares (5.20%); and Donaldson, Lufkin &
Jenrette, owned approximately 3,786,123 shares (6.87%).
Trustees Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM THE TOTAL COMPENSATION PAID
THE TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Trust and
Chairman and Trustee 68 other investment companies in the Fund
Complex
John T. Conroy, Jr., $1,543 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
William J. Copeland, $1,543 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
James E. Dowd, $1,543 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $1,400 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $1,543 $117,202 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Peter E. Madden, $1,188 $90,563 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Gregor F. Meyer, $1,400 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
John E. Murray, Jr., $0 $0 for the Trust and
Trustee 68 other investment companies in the Fund
Complex
Wesley W. Posvar, $1,400 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
Marjorie P. Smuts, $1,400 $106,460 for the Trust and
Trustee 64 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended February 28, 1995.
+The information is provided for the last calendar year.
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
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.
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, 1995, 1994 and 1993, the Trust's
investment adviser earned $2,922,038, $3,211,691, and $1,939,130,
respectively, which were reduced by $867,430, $535,318, and $569,405,
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.
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.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Trust's administrator. (For purposes of this Statement of
Additional Information, Federated Administrative Services and Federated
Administrative Services, Inc., may hereinafter collectively be referred
to as the "Administrators.") For the fiscal year ended February 28,
1995, the Administrators collectively earned $295,457. For the fiscal
years ended February 28, 1994 and 1993, Federated Administrative
Services, Inc. earned $495,082 and $354,785, respectively. Dr. Henry J.
Gailliot, an officer of Federated Management, the investment adviser to
the Trust, holds approximately 20% of the outstanding common stock and
serves as a director of Commercial Data Services, Inc., a company which
provides computer processing services to Federated Administrative
Services.
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. For the fiscal year ended February 28, 1995, payments in the
amount of $586,690 were made pursuant to the Shareholder Services Plan.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Trust. The fee paid to the transfer agent is
based upon the size, type and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Trust's accounting
records. The fee paid for this service is based upon the level of the
Trust's average net assets for the period plus out-of-pocket expenses.
BROKERAGE TRANSACTIONS
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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o 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, 1995, 1994 and 1993, the Trust
did not pay any brokerage commissions on brokerage transactions.
PURCHASING SHARES
Shares are sold at their net asset value without a sales load 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
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:
o 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;
o for most short-term obligations, at the mean between bid and asked
prices, as provided by an independent pricing service; or
o 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.
REDEEMING SHARES
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
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:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o 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:
o the availability of higher relative yields;
o differentials in market values;
o new investment opportunities;
o changes in creditworthiness of an issuer; or
o 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
The Trust's average annual total returns for the one-year, five-year and
ten-year periods ended February 28, 1995, were (0.32%), 13.89%, and
11.33%, 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 net asset value per share
at the end of the period. The number of shares owned at the end of the
period is based on the 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
The Trust's yield for the thirty-day period ended February 28, 1995 was
10.83%.
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
The Trust's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in Trust expenses; and
o 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 offering price 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:
o LEHMAN BROTHERS 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.
o LEHMAN BROTHERS 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.
o 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.
o 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.
o 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 Ratings Group 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.
o 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.
o 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.
o 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.
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