FEDERATED HIGH YIELD TRUST
PROSPECTUS
A no-load, open-end, diversified management investment company (a mutual fund)
that seeks high current income by investing primarily 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,
1996, 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 or
a paper copy of this prospectus, if you have received your prospectus
electronically, 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, 1996
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
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 10
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INVESTING IN THE TRUST 11
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Share Purchases 11
Minimum Investment Required 11
What Shares Cost 11
Certificates and Confirmations 12
Dividends 12
Capital Gains 12
Retirement Plans 12
REDEEMING SHARES 12
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Telephone Redemption 12
Written Requests 13
Accounts with Low Balances 13
Redemption in Kind 13
SHAREHOLDER INFORMATION 14
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Voting Rights 14
TAX INFORMATION 14
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Federal Income Tax 14
State and Local Taxes 14
PERFORMANCE INFORMATION 15
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FINANCIAL STATEMENTS 16
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 36
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APPENDIX 37
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ADDRESSES 39
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)..................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.51%
12b-1 Fee.................................................................... None
Total Other Expenses......................................................... 0.37%
Shareholder Services Fee (after waiver)(2)............................ 0.19%
Total Operating Expenses(3)............................................. 0.88%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.75%.
(2) The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.18% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Trust will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "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 $28 $49 $108
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FEDERATED HIGH YIELD TRUST
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 36.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.57 $ 9.48 $ 9.10 $ 8.91 $ 6.99 $ 8.02 $ 9.96 $10.21 $11.25 $10.96
- ---------------------------
INCOME FROM INVESTMENT
OPERATIONS
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Net investment income 0.85 0.84 0.84 0.93 1.03 1.04 1.30 1.30 1.26 1.30
- ---------------------------
Net realized and
unrealized gain (loss) on
investments and foreign
currency transactions 0.51 (0.90) 0.40 0.19 1.90 (0.92) (1.96) (0.25) (0.98) 0.32
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 1.36 (0.06) 1.24 1.12 2.93 0.12 (0.66) 1.05 0.28 1.62
- ---------------------------
LESS DISTRIBUTIONS
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Distributions from net
investment income (0.84) (0.84) (0.86) (0.93) (1.01) (1.06) (1.28) (1.30) (1.26) (1.30)
- ---------------------------
Distributions in excess
of net investment
income(a) -- (0.01) -- -- -- (0.09) -- -- -- --
- ---------------------------
Distributions from net
realized gain on
investment transactions -- -- -- -- -- -- -- -- (0.06) (0.03)
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.84) (0.85) (0.86) (0.93) (1.01) (1.15) (1.28) (1.30) (1.32) (1.33)
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD $ 9.09 $ 8.57 $ 9.48 $ 9.10 $ 8.91 $ 6.99 $ 8.02 $ 9.96 $10.21 $11.25
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN(B) 16.47% (0.32)% 14.16% 13.28% 44.15% 3.12% (7.50)% 10.92% 3.08% 15.75%
- ---------------------------
RATIOS TO AVERAGE NET
ASSETS
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Expenses 0.88% 0.85% 0.83% 0.77% 0.76% 0.78% 0.76% 0.75% 0.75% 0.75%
- ---------------------------
Net investment income 9.53% 9.70% 9.17% 10.54% 12.73% 14.82% 13.87% 12.89% 12.25% 11.86%
- ---------------------------
Expense waiver/
reimbursement(c) 0.30% 0.22% 0.13% 0.22% 0.33% 0.49% 0.33% 0.32% 0.24% 0.35%
- ---------------------------
SUPPLEMENTAL DATA
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Net assets, end of period
(000 omitted) $673,779 $464,604 $432,045 $354,383 $222,937 $103,647 $134,242 $235,208 $246,745 $271,148
- ---------------------------
Portfolio turnover 87% 99% 112% 93% 61% 31% 24% 51% 73% 57%
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</TABLE>
(a) Distributions in excess of net investment income for the periods ended
February 28, 1995 and 1991 were a result of certain book and timing
differences. These distributions did not represent a return of capital for
federal income tax purposes.
(b) Based on net asset value, which does not reflect the sales charge 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.
(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 29, 1996, which can be obtained
free of charge.
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 17, 1984. The Trust is designed primarily for assets held
by bank customers or by banks in a fiduciary, advisory, agency, custodial
(including Individual Retirement Accounts), or similar capacity. It is also
designed for funds held by other institutions such as corporations, trusts,
brokers, investment counselors, pension and profit-sharing plans, and insurance
companies. A minimum initial investment of $25,000 over a 90-day period is
required.
Trust shares are currently sold and redeemed at net asset value without a sales
charge imposed by the Trust.
INVESTMENT INFORMATION
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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. 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 income
securities. These securities are expected to be lower-rated corporate debt
obligations. 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 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;
- 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;
- preferred stock; and
- equity securities.
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.) Certain fixed rate obligations in which the Trust invests may
involve equity characteristics. The Trust may, for example, invest in unit
offerings that combine fixed rate securities and common stock or common stock
equivalents such as warrants, rights and options.
In the aggregate, the Trust may invest up to 10% of the value of its total
assets in equity securities (whether the equity securities are purchased in a
unit offering or not). This policy may be changed by the Trustees without the
approval of shareholders. Shareholders will be notified before any material
change in this policy becomes effective.
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 ("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;
- 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 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;
- 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 prices of fixed income securities fluctuate inversely to the direction of
interest rates.
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.
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 29, 1996. 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 19.18% 0.00 % 19.18%
----------------------------------------------
B 71.89 3.02 74.91
----------------------------------------------
CCC 5.31 0.00 5.31
----------------------------------------------
D 0.60 0.00 0.60
---------------------------------------------- ----- ----- ------
96.98% 3.02 % 100.00%
----- ----- ------
</TABLE>
REDUCING RISKS OF LOWER-RATED SECURITIES. The Trust's investment adviser
believes that the risks of investing in lower-rated securities can be reduced.
The professional portfolio management techniques used by the Trust to attempt to
reduce these risks include:
CREDIT RESEARCH. The Trust's investment adviser will perform its own
credit analysis in addition to using nationally recognized statistical
rating organizations and other sources, including discussions with the
issuer's management, the judgment of other investment analysts, and its own
informed judgment. The Trust's investment adviser's credit analysis will
consider the issuer's financial soundness, its responsiveness to changes in
interest rates and business conditions, and its anticipated cash flow,
interest or dividend coverage and earnings. In evaluating an issuer, the
Trust's investment adviser places special emphasis on the estimated current
value of the issuer's assets rather than historical costs.
DIVERSIFICATION. The Trust invests in securities of many different
issuers, industries, and economic sectors to reduce portfolio risk.
ECONOMIC ANALYSIS. The Trust's investment adviser will analyze current
developments and trends in the economy and in the financial markets. When
investing in lower-rated securities, timing and selection are critical, and
analysis of the business cycle can be important.
INVESTMENT LIMITATIONS
The Trust will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Trust sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) except, under certain circumstances, the Trust may borrow up to
one-third of the value of its net assets; or
- sell securities short except, under strict limitations, the Trust may
maintain open short positions so long as not more than 10% of the value
of its net assets is held as collateral for those positions.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the 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
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management, the Trust's investment adviser, subject to direction by the
Trustees. The investment adviser continually conducts investment research and
supervision for the Trust and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's investment adviser receives an annual
investment advisory fee equal to .75 of 1% of the Trust's average daily net
assets. The investment adviser may voluntarily choose to waive a portion of
its fee or reimburse the Trust for certain operating expenses. This does
not include reimbursement to the Trust of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
investment adviser can terminate this voluntary reimburse-
ment 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. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Mark E. Durbiano has been the Trust's portfolio manager since 1984. Mr.
Durbiano joined Federated Investors in 1982 and has been a Senior Vice
President of the Trust's investment adviser since January 1996. From 1988
through 1995, Mr. Durbiano was a Vice President of the Trust's investment
adviser. Mr. Durbiano is a Chartered Financial Analyst and received his
M.B.A. in Finance from the University of Pittsburgh.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interest. Among other things, the codes: require preclearance and
periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Trust; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
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. State securities laws may require
certain financial institutions such as depository institutions to register as
dealers.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25 of 1% of the
average daily net asset value of its shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under
the Shareholder Services Agreement, 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.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust.
Federated Services Company 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
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
- --------------------- -----------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
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 Shareholder Services Company, c/o State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Federated High Yield Trust; Trust 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 holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
BY MAIL. To purchase shares of the Trust by mail, send a check made payable to
Federated High Yield Trust to Federated Shareholder Services Company, c/o State
Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts 02266-8600.
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.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Trust is $25,000 plus any non-affiliated
bank or broker's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Trust. Accounts established through a
non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Trust shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Trust shares through a non-affiliated bank or a broker may be charged an
additional service fee by that bank or broker.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder 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 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. Proceeds from redemption
requests received on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement. 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
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Trust name; the account name as registered
with the Trust; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting 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 their signatures guaranteed by a commercial
or savings bank, trust company or savings and loan association whose deposits
are insured by an organization which is administered by the Federal Deposit
Insurance Corporation; a member firm of a domestic stock exchange; 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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Trust's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as the Trust determines net asset value. The
portfolio instruments will be selected in a manner that the Trustees deem fair
and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the Trust's outstanding
shares.
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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, 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 charge 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.
FEDERATED HIGH YIELD TRUST
PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--90.2%
- ----------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.9%
--------------------------------------------------------------
$ 5,600,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 $ 5,908,000
-------------------------------------------------------------- ------------
AUTOMOTIVE--2.1%
--------------------------------------------------------------
4,250,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 4,643,125
--------------------------------------------------------------
1,000,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%,
8/1/2004 1,092,500
--------------------------------------------------------------
2,250,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 2,418,750
--------------------------------------------------------------
2,500,000 JPS Automotive Products Corp., Sr. Note, 11.125%, 6/15/2001 2,525,000
--------------------------------------------------------------
4,000,000 Motor Wheel Corp., Sr. Note, 11.50%, 3/1/2000 3,600,000
-------------------------------------------------------------- ------------
Total 14,279,375
-------------------------------------------------------------- ------------
BANKING--1.4%
--------------------------------------------------------------
5,825,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 6,640,500
--------------------------------------------------------------
2,500,000 (a) First Nationwide Holdings, Inc., Sr. Sub. Note, 9.125%,
1/15/2003 2,550,000
-------------------------------------------------------------- ------------
Total 9,190,500
-------------------------------------------------------------- ------------
BEVERAGE & TOBACCO--0.3%
--------------------------------------------------------------
2,000,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 1,730,000
-------------------------------------------------------------- ------------
BROADCAST RADIO & TV--8.4%
--------------------------------------------------------------
3,000,000 Ackerley Communications, Inc., Sr. Secd. Note, 10.75%,
10/1/2003 3,210,000
--------------------------------------------------------------
4,200,000 Allbritton Communication Co., Sr. Sub. Note, 11.50%, 8/15/2004 4,462,500
--------------------------------------------------------------
2,000,000 (a) Allbritton Communication Co., Sr. Sub. Note, 9.75%, 11/30/2007 1,960,000
--------------------------------------------------------------
1,100,000 American Radio Systems Corp., Sr. Sub. Note, 9.00%, 2/1/2006 1,086,250
--------------------------------------------------------------
3,050,000 Argyle Television, Inc., Sr. Sub. Note, 9.75%, 11/1/2005 3,046,187
--------------------------------------------------------------
3,600,000 Chancellor Broadcasting Co., Sr. Sub. Note, 12.50%, 10/1/2004 4,068,000
--------------------------------------------------------------
1,750,000 Chancellor Broadcasting Co., Sr. Sub. Note, 9.375%, 10/1/2004 1,715,000
--------------------------------------------------------------
2,000,000 Granite Broadcasting Corp., Sr. Sub. Deb., 12.75%, 9/1/2002 2,245,000
--------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
BROADCAST RADIO & TV--CONTINUED
--------------------------------------------------------------
$ 3,500,000 Granite Broadcasting Corp., Sr. Sub. Note, 10.375%, 5/15/2005 $ 3,605,000
--------------------------------------------------------------
1,875,000 (a) Granite Broadcasting Corp., Sr. Sub. Note, 9.375%, 12/1/2005 1,816,406
--------------------------------------------------------------
3,000,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 2,955,000
--------------------------------------------------------------
4,000,000 NWCG Holding Corp., Sr. Disc. Note, 13.50% accrual, 6/15/1999 2,840,000
--------------------------------------------------------------
3,100,000 Pegasus Media, Note, 12.50%, 7/1/2005 3,177,500
--------------------------------------------------------------
4,500,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 4,770,000
--------------------------------------------------------------
5,550,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 5,702,625
--------------------------------------------------------------
3,300,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 3,390,750
--------------------------------------------------------------
750,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 12/15/2006 768,750
--------------------------------------------------------------
3,000,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%,
12/15/2005 3,052,500
--------------------------------------------------------------
1,500,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 1,571,250
--------------------------------------------------------------
1,250,000 Young Broadcasting, Inc., Sr. Sub. Note, 11.75%, 11/15/2004 1,400,000
-------------------------------------------------------------- ------------
Total 56,842,718
-------------------------------------------------------------- ------------
BUSINESS EQUIPMENT & SERVICES--1.8%
--------------------------------------------------------------
2,250,000 (a) Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 2,300,625
--------------------------------------------------------------
3,800,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 4,123,000
--------------------------------------------------------------
297,285 San Jacinto Holdings, Inc., Sr. Sub. Deb., 8.00%, 12/31/2000 202,154
--------------------------------------------------------------
545,000 San Jacinto Holdings, Inc., Sr. Sub. Note, 8.00%, 12/31/2000 468,700
--------------------------------------------------------------
4,200,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 4,777,500
-------------------------------------------------------------- ------------
Total 11,871,979
-------------------------------------------------------------- ------------
CABLE TELEVISION--12.1%
--------------------------------------------------------------
5,300,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 3,829,250
--------------------------------------------------------------
1,325,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 973,875
--------------------------------------------------------------
3,250,000 CAI Wireless Systems, Inc., Sr. Note, 12.25%, 9/15/2002 3,518,125
--------------------------------------------------------------
4,000,000 CF Cable TV, Inc., Sr. Secd. 2nd Priority Note, 11.625%,
2/15/2005 4,440,000
--------------------------------------------------------------
3,500,000 (a) CS Wireless Systems, Inc., Unit, 0/11.375%, 3/1/2006 1,977,500
--------------------------------------------------------------
3,000,000 Cablevision Systems Co., Sr. Sub. Deb., 9.875%, 2/15/2013 3,247,500
--------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
CABLE TELEVISION--CONTINUED
--------------------------------------------------------------
$ 2,250,000 Cablevision Systems Co., Sr. Sub. Note, 9.25%, 11/1/2005 $ 2,348,437
--------------------------------------------------------------
10,475,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 6,232,625
--------------------------------------------------------------
8,100,000 Continental Cablevision, Sr. Deb., 9.50%, 8/1/2013 9,375,750
--------------------------------------------------------------
2,000,000 Diamond Cable Co., Sr. Disc. Note, 0/13.25%, 9/30/2004 1,465,000
--------------------------------------------------------------
4,250,000 Insight Communication Co., Sr. Sub. Note, 8.25%, 3/1/2000 4,441,250
--------------------------------------------------------------
5,250,000 International Cabletel, Inc., Sr. Dfd. Cpn. Note, 0/10.875%,
10/15/2003 3,944,063
--------------------------------------------------------------
3,000,000 (a) International Cabletel, Inc., Sr. Dfd. Cpn. Note, 0/11.50%,
2/1/2006 1,800,000
--------------------------------------------------------------
6,375,000 International Cabletel, Inc., Sr. Note, 0/12.75%, 4/15/2005 4,223,438
--------------------------------------------------------------
3,100,000 Le Groupe Videotron Ltee, Sr. Note, 10.625%, 2/15/2005 3,394,500
--------------------------------------------------------------
7,250,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 4,748,750
--------------------------------------------------------------
2,900,000 (a) Rifkin Acquisition Partners, LP, Sr. Sub. Note, 11.125%,
1/15/2006 2,987,000
--------------------------------------------------------------
2,850,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
12/1/2007 3,063,750
--------------------------------------------------------------
1,000,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note, 10.00%,
3/15/2005 1,075,000
--------------------------------------------------------------
3,000,000 Rogers Cablesystems Ltd., Sr. Sub. GTD. Note, 11.00%,
12/1/2015 3,367,500
--------------------------------------------------------------
13,225,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 8,100,313
--------------------------------------------------------------
3,000,000 Wireless One, Inc., Unit, 13.00%, 10/15/2003 3,240,000
-------------------------------------------------------------- ------------
Total 81,793,626
-------------------------------------------------------------- ------------
CHEMICALS & PLASTICS--6.3%
--------------------------------------------------------------
5,800,000 Arcadian Partners LP, Sr. Note, Series B, 10.75%, 5/1/2005 6,438,000
--------------------------------------------------------------
3,250,000 (a) Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 3,396,250
--------------------------------------------------------------
6,000,000 Foamex LP, Sr. Sub. Deb., 11.875%, 10/1/2004 5,700,000
--------------------------------------------------------------
5,027,000 (a) G-I Holdings, Inc., Sr. Disc. Note, 11.375% accrual, 10/1/1998 4,071,870
--------------------------------------------------------------
4,788,000 G-I Holdings, Inc., Sr. Note, 10.00%, 2/15/2006 4,955,580
--------------------------------------------------------------
6,250,000 Harris Chemical North America, Inc., Sr. Secd. Disc. Note,
9.625%, 7/15/2001 6,359,375
--------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
CHEMICALS & PLASTICS--CONTINUED
--------------------------------------------------------------
$ 5,500,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 $ 5,692,500
--------------------------------------------------------------
2,250,000 (a) RBX Corp., Sr. Sub. Note, 11.25%, 10/15/2005 2,221,875
--------------------------------------------------------------
3,400,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 3,281,000
-------------------------------------------------------------- ------------
Total 42,116,450
-------------------------------------------------------------- ------------
CLOTHING & TEXTILES--2.3%
--------------------------------------------------------------
4,500,000 Dan River Inc., Sr. Sub. Note, 10.125%, 12/15/2003 4,297,500
--------------------------------------------------------------
11,375,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 11,431,875
-------------------------------------------------------------- ------------
Total 15,729,375
-------------------------------------------------------------- ------------
CONGLOMERATES--2.0%
--------------------------------------------------------------
4,000,000 Fairchild Industries, Inc., Sr. Secd. Note, 12.25%, 2/1/1999 4,360,000
--------------------------------------------------------------
7,700,000 Sherritt Gordon Ltd., Sr. Note, 9.75%, 4/1/2003 8,181,250
--------------------------------------------------------------
1,000,000 Sherritt, Inc., Deb., 10.50%, 3/31/2014 1,127,500
-------------------------------------------------------------- ------------
Total 13,668,750
-------------------------------------------------------------- ------------
CONSUMER PRODUCTS--3.2%
--------------------------------------------------------------
2,500,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 2,650,000
--------------------------------------------------------------
2,600,000 Herff Jones, Inc., Sr. Sub. Note, 11.00%, 8/15/2005 2,834,000
--------------------------------------------------------------
3,500,000 Hosiery Corp. of America, Inc., Sr. Sub. Note, 13.75%,
8/1/2002 3,745,000
--------------------------------------------------------------
5,000,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 5,600,000
--------------------------------------------------------------
7,300,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%,
12/15/2003 6,743,375
-------------------------------------------------------------- ------------
Total 21,572,375
-------------------------------------------------------------- ------------
CONTAINER & GLASS PRODUCTS--1.7%
--------------------------------------------------------------
1,260,000 (a) Kane Industries, Inc., Sr. Sub. Disc. Note, 8.00%, 2/1/1998 0
--------------------------------------------------------------
1,650,000 Owens-Illinois, Inc., Note, 10.00%, 8/1/2002 1,736,625
--------------------------------------------------------------
2,900,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 3,077,625
--------------------------------------------------------------
550,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 576,125
--------------------------------------------------------------
500,000 Plastic Containers, Inc., Sr. Secd. Note, 10.75%, 4/1/2001 512,500
--------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
CONTAINER & GLASS PRODUCTS--CONTINUED
--------------------------------------------------------------
$ 3,025,000 Portola Packaging Inc., Sr. Note, 10.75%, 10/1/2005 $ 3,191,375
--------------------------------------------------------------
1,900,000 Silgan Corp., Sr. Sub. Note, 11.75%, 6/15/2002 2,047,250
-------------------------------------------------------------- ------------
Total 11,141,500
-------------------------------------------------------------- ------------
COSMETICS & TOILETRIES--0.4%
--------------------------------------------------------------
200,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 203,500
--------------------------------------------------------------
2,225,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%,
2/15/2003 2,322,344
-------------------------------------------------------------- ------------
Total 2,525,844
-------------------------------------------------------------- ------------
ECOLOGICAL SERVICES & EQUIPMENT--2.0%
--------------------------------------------------------------
4,625,000 Allied Waste Industries, Inc., Sr. Sub. Note, 12.00%, 2/1/2004 5,041,250
--------------------------------------------------------------
4,250,000 ICF Kaiser International, Inc., Sr. Sub. Note, 12.00%,
12/31/2003 4,058,750
--------------------------------------------------------------
5,350,000 (b) Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 4,119,500
-------------------------------------------------------------- ------------
Total 13,219,500
-------------------------------------------------------------- ------------
FARMING & AGRICULTURE--0.5%
--------------------------------------------------------------
3,000,000 Spreckels Industries, Inc., Sr. Secd. Note, 11.50%, 9/1/2000 3,045,000
-------------------------------------------------------------- ------------
FOOD & DRUG RETAILERS--2.5%
--------------------------------------------------------------
3,100,000 (a) Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 3,216,250
--------------------------------------------------------------
3,475,000 Pathmark Stores, Inc., Sr. Sub. Note, 9.625%, 5/1/2003 3,353,375
--------------------------------------------------------------
2,600,000 Penn Traffic Co., Sr. Sub. Note, 9.625%, 4/15/2005 2,203,500
--------------------------------------------------------------
6,200,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 6,029,500
--------------------------------------------------------------
2,500,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 2,337,500
-------------------------------------------------------------- ------------
Total 17,140,125
-------------------------------------------------------------- ------------
FOOD PRODUCTS--3.8%
--------------------------------------------------------------
6,900,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 6,796,500
--------------------------------------------------------------
3,700,000 Doskocil Cos., Inc., Sr. Sub. Note, 9.75%, 7/15/2000 3,644,500
--------------------------------------------------------------
4,500,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 4,725,000
--------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
FOOD PRODUCTS--CONTINUED
--------------------------------------------------------------
$ 6,000,000 Specialty Foods Acquisition Corp., Sr. Secd. Disc. Deb.,
0/13.00%, 8/15/2005 $ 2,917,500
--------------------------------------------------------------
1,100,000 Specialty Foods Corp., Sr. Note, 11.125%, 10/1/2002 1,039,500
--------------------------------------------------------------
3,850,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 3,214,750
--------------------------------------------------------------
3,200,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 3,408,000
-------------------------------------------------------------- ------------
Total 25,745,750
-------------------------------------------------------------- ------------
FOOD SERVICES--1.4%
--------------------------------------------------------------
8,800,000 Flagstar Corp., Sr. Note, 10.875%, 12/1/2002 8,008,000
--------------------------------------------------------------
2,250,000 Flagstar Corp., Sr. Sub. Deb., 11.25%, 11/1/2004 1,549,688
-------------------------------------------------------------- ------------
Total 9,557,688
-------------------------------------------------------------- ------------
FOREST PRODUCTS--2.8%
--------------------------------------------------------------
4,125,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 4,310,625
--------------------------------------------------------------
4,300,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 4,192,500
--------------------------------------------------------------
5,350,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 5,751,250
--------------------------------------------------------------
4,975,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 4,999,875
-------------------------------------------------------------- ------------
Total 19,254,250
-------------------------------------------------------------- ------------
HEALTHCARE--1.7%
--------------------------------------------------------------
1,878,310 AmeriSource Health Corp., Sr. Deb., 11.25%, 7/15/2005 2,075,532
--------------------------------------------------------------
1,750,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%, 6/15/2005 1,881,250
--------------------------------------------------------------
7,000,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 7,752,500
-------------------------------------------------------------- ------------
Total 11,709,282
-------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
HOME PRODUCTS & FURNISHINGS--1.2%
--------------------------------------------------------------
$ 1,250,000 American Standard, Inc., Sr. Deb., 11.375%, 5/15/2004 $ 1,381,250
--------------------------------------------------------------
2,000,000 American Standard, Inc., Sr. Sub. Disc. Deb., 0/10.50%,
6/1/2005 1,735,000
--------------------------------------------------------------
4,800,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 5,136,000
-------------------------------------------------------------- ------------
Total 8,252,250
-------------------------------------------------------------- ------------
HOTELS, MOTELS, INNS & CASINOS--1.2%
--------------------------------------------------------------
4,900,000 (a) Courtyard by Marriott II LP, Sr. Secd. Note, 10.75%, 2/1/2008 4,961,250
--------------------------------------------------------------
3,000,000 Motels of America, Inc., Sr. Sub. Note, 12.00%, 4/15/2004 2,985,000
-------------------------------------------------------------- ------------
Total 7,946,250
-------------------------------------------------------------- ------------
INDUSTRIAL PRODUCTS & EQUIPMENT--1.7%
--------------------------------------------------------------
3,650,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%,
7/15/2005 4,051,500
--------------------------------------------------------------
4,000,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%,
7/1/2001 4,060,000
--------------------------------------------------------------
3,450,000 Pace Industries, Inc., Sr. Note, 10.625%, 12/1/2002 3,174,000
-------------------------------------------------------------- ------------
Total 11,285,500
-------------------------------------------------------------- ------------
LEISURE & ENTERTAINMENT--3.3%
--------------------------------------------------------------
4,900,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 5,022,500
--------------------------------------------------------------
4,000,000 Alliance Entertainment Corp., Sr. Sub. Note, 11.25%, 7/15/2005 4,040,000
--------------------------------------------------------------
600,000 (a) Cobb Theatres, LLC, Sr. Secd. Note, 10.625%, 3/1/2003 600,000
--------------------------------------------------------------
3,100,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 3,301,500
--------------------------------------------------------------
11,400,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%,
6/15/2005 9,633,000
-------------------------------------------------------------- ------------
Total 22,597,000
-------------------------------------------------------------- ------------
MACHINERY & EQUIPMENT--1.9%
--------------------------------------------------------------
3,875,000 (a) Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 4,039,687
--------------------------------------------------------------
4,300,000 Primeco Inc., Sr. Sub. Note, 12.75%, 3/1/2005 4,601,000
--------------------------------------------------------------
3,375,000 Waters Corp., Sr. Sub. Note, 12.75%, 9/30/2004 3,864,375
-------------------------------------------------------------- ------------
Total 12,505,062
-------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
OIL & GAS--3.0%
--------------------------------------------------------------
$ 6,000,000 (a) Clark USA, Inc., Sr. Note, 10.875%, 12/1/2005 $ 6,315,000
--------------------------------------------------------------
3,750,000 Falcon Drilling Co., Inc., Sr. Note, 9.75%, 1/15/2001 3,937,500
--------------------------------------------------------------
2,000,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 2,220,000
--------------------------------------------------------------
2,500,000 Giant Industries, Sr. Sub. Note, 9.75%, 11/15/2003 2,550,000
--------------------------------------------------------------
2,250,000 H.S. Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 2,227,500
--------------------------------------------------------------
2,700,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 2,889,000
-------------------------------------------------------------- ------------
Total 20,139,000
-------------------------------------------------------------- ------------
PRINTING & PUBLISHING--1.8%
--------------------------------------------------------------
5,350,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 3,638,000
--------------------------------------------------------------
2,975,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%, 7/1/2004 3,123,750
--------------------------------------------------------------
2,550,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 2/1/2006 2,550,000
--------------------------------------------------------------
2,800,000 Webcraft Technologies, Inc., Sr. Sub. Note, 9.375%, 2/15/2002 2,877,000
-------------------------------------------------------------- ------------
Total 12,188,750
-------------------------------------------------------------- ------------
REAL ESTATE--0.8%
--------------------------------------------------------------
5,300,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 5,505,375
-------------------------------------------------------------- ------------
RETAILERS--0.7%
--------------------------------------------------------------
5,200,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 4,680,000
-------------------------------------------------------------- ------------
SERVICES--0.9%
--------------------------------------------------------------
6,043,625 (a) Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 6,194,716
-------------------------------------------------------------- ------------
STEEL--3.8%
--------------------------------------------------------------
4,650,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 4,115,250
--------------------------------------------------------------
3,000,000 Armco, Inc., Sr. Note, 9.375%, 11/1/2000 3,007,500
--------------------------------------------------------------
3,500,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 3,202,500
--------------------------------------------------------------
6,000,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 5,520,000
--------------------------------------------------------------
5,900,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%,
9/1/2004 5,914,750
--------------------------------------------------------------
3,000,000 Geneva Steel Co., Sr. Note, 11.125%, 3/15/2001 2,587,500
--------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
STEEL--CONTINUED
--------------------------------------------------------------
$ 1,000,000 Northwestern Steel & Wire Co., Sr. Note, 9.50%, 6/15/2001 $ 1,000,000
-------------------------------------------------------------- ------------
Total 25,347,500
-------------------------------------------------------------- ------------
SURFACE TRANSPORTATION--4.7%
--------------------------------------------------------------
3,450,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%,
11/15/2005 3,424,125
--------------------------------------------------------------
6,000,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 6,570,000
--------------------------------------------------------------
4,300,000 Great Dane Holdings, Inc., Sr. Sub. Deb., 12.75%, 8/1/2001 4,063,500
--------------------------------------------------------------
4,600,000 Sea Containers Ltd., Sr. Note, 9.50%, 7/1/2003 4,646,000
--------------------------------------------------------------
775,000 Sea Containers Ltd., Sr. Sub. Deb., Series B, 12.50%,
12/1/2004 848,625
--------------------------------------------------------------
6,500,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 6,743,750
--------------------------------------------------------------
2,125,000 Trans Ocean Container Corp., Sr. Sub. Note, 12.25%, 7/1/2004 2,220,625
--------------------------------------------------------------
3,100,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 3,022,500
-------------------------------------------------------------- ------------
Total 31,539,125
-------------------------------------------------------------- ------------
TELECOMMUNICATIONS & CELLULAR--5.3%
--------------------------------------------------------------
4,500,000 (a) Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%,
3/1/2006 2,677,500
--------------------------------------------------------------
6,000,000 Cellular Communications International, Inc., Unit, 13.25%
accrual, 8/15/2000 3,780,000
--------------------------------------------------------------
1,400,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 1,536,500
--------------------------------------------------------------
1,750,000 MobileMedia Communications, Inc., Sr. Sub. Note, 9.375%,
11/1/2007 1,776,250
--------------------------------------------------------------
3,000,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%,
9/1/2003 2,021,250
--------------------------------------------------------------
4,000,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%,
8/15/2004 2,410,000
--------------------------------------------------------------
4,000,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 4,300,000
--------------------------------------------------------------
7,600,000 PanAmSat, LP, Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 6,422,000
--------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR--CONTINUED
--------------------------------------------------------------
$ 4,000,000 ProNet, Inc., Sr. Sub. Note, 11.875%, 6/15/2005 $ 4,340,000
--------------------------------------------------------------
6,250,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 6,281,250
-------------------------------------------------------------- ------------
Total 35,544,750
-------------------------------------------------------------- ------------
UTILITIES--2.3%
--------------------------------------------------------------
12,000,000 California Energy Co., Inc., Sr. Disc. Note, 0/10.25%,
1/15/2004 11,610,000
--------------------------------------------------------------
3,100,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 3,185,250
--------------------------------------------------------------
1,000,000 El Paso Electric Co., Mtg. Note, 8.90%, 2/1/2006 1,025,000
-------------------------------------------------------------- ------------
Total 15,820,250
-------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $599,111,336) 607,587,615
-------------------------------------------------------------- ------------
COMMON STOCKS--0.86%
- ----------------------------------------------------------------------------------
BROADCAST RADIO & TV--0.01%
--------------------------------------------------------------
310 (a) Pegasus Media, Class B 93,000
--------------------------------------------------------------
12,000 Sullivan Broadcast Holdings Inc., Class B 0
-------------------------------------------------------------- ------------
Total 93,000
-------------------------------------------------------------- ------------
BUILDING & DEVELOPMENT--0.00%
--------------------------------------------------------------
3,080 Atlantic Gulf Communities Corp. 19,250
--------------------------------------------------------------
2,342 Atlantic Gulf Communities Corp., Warrants 110
-------------------------------------------------------------- ------------
Total 19,360
-------------------------------------------------------------- ------------
BUSINESS EQUIPMENT & SERVICES--0.00%
--------------------------------------------------------------
5,460 (a) San Jacinto Holdings, Inc. 10,920
-------------------------------------------------------------- ------------
CHEMICALS & PLASTICS--0.03%
--------------------------------------------------------------
14,862 UCC Investors Holdings, Inc. 135,616
--------------------------------------------------------------
27,500 Uniroyal Technology Corp., Warrants 53,281
-------------------------------------------------------------- ------------
Total 188,897
-------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
CONGLOMERATES--0.41%
--------------------------------------------------------------
722,871 Triton Group, Ltd. $ 316,256
--------------------------------------------------------------
181,487 (b) Walter Industries, Inc. 2,472,760
-------------------------------------------------------------- ------------
Total 2,789,016
-------------------------------------------------------------- ------------
CONSUMER PRODUCTS--0.02%
--------------------------------------------------------------
3,000 Hosiery Corp. of America, Inc. 15,000
--------------------------------------------------------------
5,000 (a) IHF Capital, Inc., Warrants 150,000
-------------------------------------------------------------- ------------
Total 165,000
-------------------------------------------------------------- ------------
CONTAINER & GLASS PRODUCTS--0.00%
--------------------------------------------------------------
53,400 (b) Kane Industries, Inc., Warrants 0
-------------------------------------------------------------- ------------
FARMING & AGRICULTURE--0.23%
--------------------------------------------------------------
105,545 Spreckels Industries, Inc., Class A 1,536,999
-------------------------------------------------------------- ------------
FOOD & DRUG RETAILERS--0.14%
--------------------------------------------------------------
150,231 (b) Grand Union Co. 910,775
-------------------------------------------------------------- ------------
PRINTING & PUBLISHING--0.02%
--------------------------------------------------------------
5,350 Affiliated Newspaper 133,750
-------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST $19,670,858) 5,847,717
-------------------------------------------------------------- ------------
PREFERRED STOCKS--0.8%
- ----------------------------------------------------------------------------------
PRINTING & PUBLISHING--0.4%
--------------------------------------------------------------
26,134 K-III Communications Corp., Cumulative PIK Pfd., Series B,
11.625% 2,717,970
-------------------------------------------------------------- ------------
TELECOMMUNICATIONS & CELLULAR--0.4%
--------------------------------------------------------------
2,467 PanAmSat Corp., PIK Pfd., 12.75% 2,911,060
-------------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $4,825,921) 5,629,030
-------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- -------------------------------------------------------------- ------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--2.3%
- ----------------------------------------------------------------------------------
TREASURY NOTES--2.3%
--------------------------------------------------------------
$10,000,000 United States Treasury Note, 6.375%, 8/15/2002 $ 10,239,700
--------------------------------------------------------------
5,000,000 United States Treasury Note, 7.75%, 1/31/2000 5,357,350
-------------------------------------------------------------- ------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $15,196,250) 15,597,050
-------------------------------------------------------------- ------------
(C) REPURCHASE AGREEMENT--4.9%
- ----------------------------------------------------------------------------------
33,350,000 BT Securities Corporation, 5.45%, dated 2/29/1996, due
3/1/1996 33,350,000
-------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $672,154,365)(D) $668,011,412
-------------------------------------------------------------- ------------
</TABLE>
(a) Indicates private placement securities held at February 29, 1996, with a
total market value of $53,339,849, which represent 7.92% of total net
assets.
(b) Non-income producing securities. Mid-American Waste Systems, Inc.: On
February 15, 1996, Mid-American failed to make its scheduled interest
payment. The company is in discussion with its senior lending group
regarding a proposed asset sale and related proceeds.
(c) 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.
(d) The cost of investments for federal tax purposes amounts to $672,089,708.
The net unrealized depreciation of investments on a federal tax basis
amounts to $4,078,296 which is comprised of $24,648,836 appreciation and
$28,727,132 depreciation at February 29, 1996.
Note: The categories of investments are shown as a percentage of net assets
($673,779,001) at February 29, 1996.
The following acronym(s) are used throughout this portfolio:
<TABLE>
<S> <C>
GTD -- Guaranty
LLC -- Limited Liability Corporation
LP -- Limited Partnership
PIK -- Payment in Kind
PLC -- Public Limited Company
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
NOTES TO PORTFOLIO OF INVESTMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 June 15, 1995, Grand Union Company exited from Chapter 11 bankruptcy
protection. In exchange for the 12.25% Senior Subordinated Notes due 2002, the
Trust received 150,231 shares of common stock.
FEDERATED HIGH YIELD TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $672,154,365 and
tax cost $672,089,708) $668,011,412
- --------------------------------------------------------------------------------
Income receivable 13,336,721
- --------------------------------------------------------------------------------
Receivable for investments sold 16,672,454
- --------------------------------------------------------------------------------
Receivable for shares sold 13,873,634
- -------------------------------------------------------------------------------- ------------
Total assets 711,894,221
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $15,920,361
- ------------------------------------------------------------------
Payable for shares redeemed 15,052,160
- ------------------------------------------------------------------
Income distribution payable 1,272,989
- ------------------------------------------------------------------
Payable to bank 5,664,461
- ------------------------------------------------------------------
Accrued expenses 205,249
- ------------------------------------------------------------------ -----------
Total liabilities 38,115,220
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 74,135,277 shares outstanding $673,779,001
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $702,037,431
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments and translation of assets and
liabilities in foreign currency (4,142,953)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign currency transactions (23,926,981)
- --------------------------------------------------------------------------------
Distributions in excess of net investment income (188,496)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $673,779,001
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
($673,779,001 / 74,135,277 shares outstanding) $9.09
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------------------------
Dividends $ 288,439
- --------------------------------------------------------------------------------------------------
Interest 58,338,969
- -------------------------------------------------------------------------------------------------- ----------
Total Income 58,627,408
- --------------------------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------------------------
Investment advisory fee $ 4,223,631
- -----------------------------------------------------------------------------------
Administrative personnel and services fee 426,149
- -----------------------------------------------------------------------------------
Custodian fees 92,587
- -----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 124,814
- -----------------------------------------------------------------------------------
Directors'/Trustees' fees 10,284
- -----------------------------------------------------------------------------------
Auditing fees 19,056
- -----------------------------------------------------------------------------------
Legal fees 6,439
- -----------------------------------------------------------------------------------
Portfolio accounting fees 118,843
- -----------------------------------------------------------------------------------
Shareholder services fee 1,407,877
- -----------------------------------------------------------------------------------
Share registration costs 152,296
- -----------------------------------------------------------------------------------
Printing and postage 46,791
- -----------------------------------------------------------------------------------
Insurance premiums 10,427
- -----------------------------------------------------------------------------------
Taxes 17,699
- -----------------------------------------------------------------------------------
Miscellaneous 4,917
- ----------------------------------------------------------------------------------- ----------
Total expenses 6,661,810
- -----------------------------------------------------------------------------------
Waivers--
- -----------------------------------------------------------------------------------
Waiver of investment advisory fee $(1,340,094)
- ---------------------------------------------------------------------
Waiver of shareholder services fee (356,965)
- --------------------------------------------------------------------- ----------
Total waivers (1,697,059)
- ----------------------------------------------------------------------------------- ----------
Net expenses 4,964,751
- -------------------------------------------------------------------------------------------------- ----------
Net investment income 53,662,657
- -------------------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:
- --------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign currency transactions 4,263,986
- --------------------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments and translation of assets and
liabilities in foreign currency 27,446,647
- -------------------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments and foreign currency 31,710,633
- -------------------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations and foreign currency $85,373,290
- -------------------------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------
Net investment income $ 53,662,657 $ 37,778,736
- ---------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions ($796,412 net gain and $1,456,604
net loss, respectively, as computed for federal tax
purposes) 4,263,986 (4,773,544)
- ---------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments and translation of assets and liabilities in
foreign currency 27,446,647 (33,406,182)
- --------------------------------------------------------- ------------- -------------
Change in net assets from operations and foreign
currency transactions 85,373,290 (400,990)
- --------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------
Distributions from net investment income (53,311,137) (37,778,736)
- ---------------------------------------------------------
Distributions in excess of net investment income -- (428,915)
- --------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to
shareholders (53,311,137) (38,207,651)
- --------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------
Proceeds from sale of shares 836,596,356 629,838,185
- ---------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 37,254,443 20,569,292
- ---------------------------------------------------------
Cost of shares redeemed (696,738,256) (579,239,706)
- --------------------------------------------------------- ------------- -------------
Change in net assets resulting from share
transactions 177,112,543 71,167,771
- --------------------------------------------------------- ------------- -------------
Change in net assets 209,174,696 32,559,130
- ---------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------
Beginning of period 464,604,305 432,045,175
- --------------------------------------------------------- ------------- -------------
End of period $ 673,779,001 $ 464,604,305
- --------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
(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. The Trust's objective is to obtain high current
income by investing in fixed income securities. The Trust's portfolio of
investments consists primarily of lower rated corporate debt obligations. These
lower rated debt obligations may be more susceptible to real or perceived
adverse economic conditions than investment grade bonds. These lower rated debt
obligations are regarded as predominantly speculative with regard to each
issuer's continuing ability to make interest and principal payments (i.e., the
obligations are subject to the risk of default).
(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, (other fixed income and
asset-backed securities), and unlisted securities and private placement
securities are generally valued at the mean of the latest bid and asked
price as furnished by an independent pricing service. Listed equity
securities are valued at the last sale price reported on a national
securities exchange. Short-term securities are valued at the prices
provided by an independent pricing service. However, short-term securities
with remaining maturities of sixty days or less at the time of purchase may
be valued at amortized cost, which approximates fair market 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 under repurchase
agreement transactions. 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.
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
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.
Income and capital gain distributions are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments for
foreign currency and defaulted interest. The following reclassifications
have been made to the financial statements.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
----------------------------------------------------------------
ACCUMULATED NET UNDISTRIBUTED NET
PAID-IN-CAPITAL REALIZED GAIN/LOSS INVESTMENT INCOME
----------------- -------------------- -------------------
<S> <C> <C>
$417,923 ($320,110) ($97,813)
</TABLE>
Net investment income, net realized gain/losses, and net assets were not
affected by this reclassification.
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.
At February 29, 1996, the Trust, for federal tax purposes, had a capital
loss carryforward of $23,577,832, 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 as follows:
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
- ------------------ --------------------
<S> <C>
1998 $ 4,279,066
1999 $11,012,464
2000 $ 6,829,698
2003 $ 1,456,604
</TABLE>
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 TRANSLATION--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.
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
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 of
portfolio securities, 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.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
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).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995
----------------- -----------------
<S> <C> <C>
- -----------------------------------------------------
Shares sold 94,114,448 72,545,518
- -----------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 4,184,055 2,380,438
- -----------------------------------------------------
Shares redeemed (78,383,729) (66,300,129)
- ----------------------------------------------------- --------------- ---------------
Net change resulting from share transactions 19,914,774 8,625,827
- ----------------------------------------------------- --------------- ---------------
</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 0.75% of the Trust's average daily
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
net assets. The Adviser may voluntarily choose to waive any portion of its fee.
The Adviser can modify or terminate this voluntary waiver at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ 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 0.25%
of daily average net assets of the Trust for the period. The fee paid to FSS is
used to finance certain services for shareholders and to maintain shareholder
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
registered transfer and dividend disbursing agent, Federated Shareholder
Services Company, maintains all necessary shareholder records and receives a fee
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 29, 1996, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
Purchases $615,035,712
- ------------------------------------------------------------------------------ ------------
Sales $460,250,349
- ------------------------------------------------------------------------------ ------------
</TABLE>
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, including
the portfolio of investments, of Federated High Yield Trust as of February 29,
1996, 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 financial highlights (see page 2 of the prospectus) for the periods
presented therein. 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 audits 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 29, 1996, 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 29, 1996, and the results of its
operations for the year then ended, changes in its net assets for each of the
two years in the period then ended, and financial highlights for the periods
presented therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 12, 1996
APPENDIX
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated High Yield Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder
Services Company P.O.Box 8600
Boston, Massachusetts 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED HIGH
YIELD TRUST
PROSPECTUS
An Open-End, Diversified Management
Investment Company
April 30, 1996
LOGO
Cusip 314197104
8040401A (4/96)
[THIS PAGE INTENTIONALLY LEFT BLANK]
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, 1996. This Statement
is not a prospectus itself. You may request a copy of a prospectus or a paper
copy of this Statement of Additional Information, if you have received it
electronically, free of charge by calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1996
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
BROKERAGE TRANSACTIONS 12
OTHER SERVICES 12
TRUST ADMINISTRATION 12
CUSTODIAN AND PORTFOLIO RECORDKEEPER 12
TRANSFER AGENT 12
INDEPENDENT PUBLIC ACCOUNTANTS 12
PURCHASING SHARES 13
SHAREHOLDER SERVICES 12
CONVERSION TO FEDERAL FUNDS 13
DETERMINING NET ASSET VALUE 13
DETERMINING MARKET VALUE OF SECURITIES 13
REDEEMING SHARES 14
REDEMPTION IN KIND 14
MASSACHUSETTS PARTNERSHIP LAW 14
TAX STATUS 14
THE TRUST'S TAX STATUS 14
SHAREHOLDERS' TAX STATUS 14
TOTAL RETURN 15
YIELD 15
PERFORMANCE COMPARISONS 15
DURATION 16
ABOUT FEDERATED INVESTORS 17
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 by
investing primarily in a professionally managed diversified portfolio of
fixed income securities.
CORPORATE DEBT OBLIGATIONS
The corporate debt obligations in which the Trust invests may bear fixed,
floating, floating and contingent, or increasing rates of interest. They may
involve equity features such as conversion or exchange rights, warrants for
the acquisition of common stock of the same or a different issuer,
participations based on revenues, sales or profits, or the purchase of
common stock in a unit transaction.
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 29, 1996 and
February 28, 1995, the portfolio turnover rates were 87% and 99%,
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:
oless publicly available information about foreign issuers;
ocredit risks associated with certain foreign governments;
othe lack of uniform financial accounting standards applicable to
foreign issuers;
oless readily available market quotations on foreign issues;
othe likelihood that securities of foreign issuers may be less liquid
or more volatile;
ogenerally higher foreign brokerage commissions; and
ounreliable 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:
oduring 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
onot 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.
EQUITY SECURITIES
The Trust may invest up to 10% of total assets in equity securities
including common stocks, warrants or rights.
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 associations 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, birthdates, present
positions with Federated High Yield Trust, and principal occupations,
including those with, its affiliates, and the "Funds" described in the
Statement of Additional Information.
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. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director or Trustee of the Funds; formerly, Senior
Partner, Ernst & Young LLP.
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 or Trustee of the Funds; formerly, President,
Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director or Trustee of the Funds; formerly, Vice Chairman and Director, PNC
Bank, N.A., and PNC Bank Corp. and 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 or
Trustee of the Funds.
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 or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.
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 or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee 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.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and Secretary
of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated
GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series;Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term U.S. Government
Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated
Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S.
Government Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.;
High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of March 29, 1996, 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 32,061,906.57 shares (46.41%); and National Financial
Services, for the exclusive benefit of its customers, owned approximately
5,835,038.67 shares (8.45%).
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
Thomas G. Bigley,++ $753.00 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund Complex
John T. Conroy, Jr., $1,576.45 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
William J. Copeland, $1,576.45 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
James E. Dowd, $1,576.45 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,454.14 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., $1,576.45 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Peter E. Madden, $1,454.14 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Gregor F. Meyer, $1,454.14 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
John E. Murray, Jr., $1,454.14 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Wesley W. Posvar,$1,454.14 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,454.14 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
*Information is furnished for the fiscal year ended February 29, 1996.
+The information is provided for the last calendar year.
++Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through
September 30,1995. On October 1, 1995, he was appointed a Trustee on
15 additional Federated Funds.
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
year ended February 29, 1996 and for the fiscal years ended February 28,
1995 and 1994, the Trust's investment adviser earned $4,223,631, $2,922,038,
and $3,211,691, respectively, which were reduced by $1,340,094, $867,430,
and $535,318, 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.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the 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 adviser makes decisions on portfolio transactions and selects
brokers and dealers subject to guidelines established by the Trustees. The
adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Trust and other accounts. To
the extent that receipt of these services may supplant services for which
the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses. The 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. During the fiscal
years ended 1996, 1995 and 1994, the Trust paid no brokerage commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Trust or the size of the position
obtained or disposed of by the Trust. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Trust's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services, and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal year ended February 29, 1996 and for
the fiscal years ended February 28, 1995 and 1994, the Administrators earned
$426,149, $295,457, and $495,082, respectively. Dr. Henry J. Gailliot, an
officer of Federated Management, the 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 Services Company.
CUSTODIAN AND PORTFOLIO RECORDKEEPER
State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Trust. It
also provides certain accounting and recordkeeping services with repect to
the Trust's portfolio investments.
TRANSFER AGENT
As transfer agent, Federated Shareholder Services Company, maintains all
necessary shareholder records. For its services, the transfer agent
receives a fee based on the size, type and number of accounts and
transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
PURCHASING SHARES
Shares are sold at their net asset value without a sales charge on days the
New York Stock Exchange is open for business. The procedure for purchasing
shares of the Trust is explained in the prospectus under "Investing in the
Trust."
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided which
are necessary for the maintenance of shareholder accounts and to encourage
personal services 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 to
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.
By adopting the Shareholder Services Agreement, the Trustees expect that the
Trust will benefit by: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending February 29, 1996, the Trust paid shareholder
services fees in the amount of $1,407,877 of which $356,965 was paid to
financial institutions.
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 Shareholder
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 Shareholder
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.
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 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:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan 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, 1996, were 16.47%, 16.70% and 10.57%,
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 29, 1996 was
9.25%.
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 flow.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts,
and traders dedicated to specific market sectors.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
CUSIP 314197104
