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FEDERATED HIGH YIELD TRUST
PROSPECTUS
A no-load, open-end, diversified management investment company (a mutual fund)
that seeks high current income by investing 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.
The Trust may invest primarily in lower rated bonds, commonly referred to as
"junk bonds." Investments of this type are subject to a greater risk of loss of
principal and interest than investments in higher rated securities. Purchasers
should carefully assess the risks associated with an investment in this Trust.
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,
1997, with the Securities and Exchange Commission (the "SEC"). 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 1-800-341-7400. To
obtain other information or to make inquiries about the Trust, contact the Trust
at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Trust is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1997
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 5
Investment Limitations 7
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 10
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Share Purchases 10
Minimum Investment Required 11
What Shares Cost 11
Certificates and Confirmations 11
Dividends 11
Capital Gains 11
Retirement Plans 12
REDEEMING SHARES 12
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Telephone Redemption 12
Written Requests 12
Accounts with Low Balances 13
SHAREHOLDER INFORMATION 13
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Voting Rights 13
TAX INFORMATION 13
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Federal Income Tax 13
State and Local Taxes 14
PERFORMANCE INFORMATION 14
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FINANCIAL STATEMENTS 15
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 38
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APPENDIX 39
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ADDRESSES 41
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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)...................................................... 0.52%
12b-1 Fee............................................................................. None
Total Other Expenses.................................................................. 0.36%
Shareholder Services Fee (after waiver)(2)............................ 0.20%
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 shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.16% 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 "Trust Information" and "Investing in the Trust." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period......... $9 $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 38.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
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1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.09 $ 8.57 $ 9.48 $ 9.10 $ 8.91 $ 6.99 $ 8.02 $ 9.96 $10.21 $11.25
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INCOME FROM INVESTMENT
OPERATIONS
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Net investment income 0.85 0.85 0.84 0.84 0.93 1.03 1.04 1.30 1.30 1.26
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Net realized and
unrealized gain (loss) on
investments 0.33 0.51 (0.90) 0.40 0.19 1.90 (0.92) (1.96) (0.25) (0.98)
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from investment
operations 1.18 1.36 (0.06) 1.24 1.12 2.93 0.12 (0.66) 1.05 0.28
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LESS DISTRIBUTIONS
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Distributions from net
investment income (0.85) (0.84) (0.84) (0.86) (0.93) (1.01) (1.06) (1.28) (1.30) (1.26)
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Distributions in excess
of net investment
income(a) (0.01) -- (0.01) -- -- -- (0.09) -- -- --
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Distributions from net
realized gain on
investment transactions -- -- -- -- -- -- -- -- -- (0.06)
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions (0.86) (0.84) (0.85) (0.86) (0.93) (1.01) (1.15) (1.28) (1.30) (1.32)
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD $ 9.41 $ 9.09 $ 8.57 $ 9.48 $ 9.10 $ 8.91 $ 6.99 $ 8.02 $ 9.96 $10.21
- --------------------------- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN(B) 13.74% 16.47% (0.32)% 14.16% 13.28% 44.15% 3.12% (7.50)% 10.92% 3.08%
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RATIOS TO AVERAGE NET
ASSETS
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Expenses 0.88% 0.88% 0.85% 0.83% 0.77% 0.76% 0.78% 0.76% 0.75% 0.75%
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Net investment income 9.45% 9.53% 9.70% 9.17% 10.54% 12.73% 14.82% 13.87% 12.89% 12.25%
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Expense waiver/
reimbursement(c) 0.28% 0.30% 0.22% 0.13% 0.22% 0.33% 0.49% 0.33% 0.32% 0.24%
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SUPPLEMENTAL DATA
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Net assets, end of period
(000 omitted) $938,363 $673,779 $464,604 $432,045 $354,383 $222,937 $103,647 $134,242 $235,208 $246,745
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Portfolio turnover 81% 87% 99% 112% 93% 61% 31% 24% 51% 73%
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</TABLE>
(a) Distributions in excess of net investment income for the periods ended
February 28, 1997, 1995 and 1991 were a result of certain book and tax
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 28, 1997, which can be obtained
free of charge.
2
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 ("IRAs")), 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 ("NRSROs");
- commercial paper;
- obligations of the United States;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities;
- 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 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 NRSROs 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.") 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 Board of Trustees (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 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.
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 an NRSRO (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 are regarded as predominantly 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 28, 1997. The
credit rating categories are those provided by S&P, which is an NRSRO. The
percentages in the column titled "Rated" reflect the percentage of bonds in the
portfolio which received a rating from at least one NRSRO. 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
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NOT
CREDIT RATING RATED RATED TOTAL
---------------------------------------------- ----- ----- ------
<S> <C> <C> <C>
BB & BBB 16.84% 0.00% 16.84%
----------------------------------------------
B 73.55 5.74 79.29
----------------------------------------------
CCC 3.57 0.00 3.57
----------------------------------------------
D 0.30 0.00 0.30
---------------------------------------------- ----- ----- ------
94.26% 5.74% 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 NRSROs 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 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 (the "Adviser"), subject to direction
by the Trustees. The 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 Adviser receives an annual investment advisory
fee equal to .75% of the Trust's average daily net assets. The 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 Adviser can terminate this voluntary
reimbursement of expenses at any time in its sole discretion.
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 $110 billion invested across
over 300 funds under management and/or administration by its subsidiaries,
as of
December 31, 1996, Federated Investors is one of the largest mutual fund
investment managers in the United States. With more than 2,000 employees,
Federated continues to be led by the management who founded the company in
1955. Federated funds are presently at work in and through 4,500 financial
institutions nationwide.
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.
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 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 Adviser or its affiliates.
ADMINISTRATION OF THE TRUST
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 for which affiliates of Federated Investors serve as
investment adviser and principal underwriter (the "Federated Funds") as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
- ------------------ ------------------------------------
<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% 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 and Trust Company, 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 financial
intermediary'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 financial
intermediary 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 financial intermediary may be charged a service fee by
that financial intermediary.
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. Investors who redeem shares through a
financial intermediary may be charged a service fee by that financial
intermediary. 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 or in writing. Redemption proceeds will normally be sent the
following day. However, in order to protect shareholders of the Trust from
possible detrimental effects of redemptions, the Adviser may cause a delay of
two to seven days in sending redemption proceeds during certain periods of
market volatility or for certain shareholders. Dividends are paid up to the day
redemption proceeds are sent.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Trust before 4:00 p.m.
(Eastern time). All proceeds will be wired 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.
Redemption proceeds will be sent by check.
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 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.
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 of April 2, 1997, Charles
Schwab & Co., Inc., San Francisco, California, acting in various capacities for
numerous accounts, was the owner of record of approximately 42,193,372 shares
(48.17%) of the Trust, and therefore, may, for certain purposes, be deemed to
control the Trust and be able to affect the outcome of certain matters presented
for a vote of shareholders.
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 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--91.5%
- ----------------------------------------------------------------------------------
AEROSPACE & DEFENSE--0.7%
-------------------------------------------------------------
$ 4,925,000 Tracor, Inc., Sr. Sub. Note, 10.875%, 8/15/2001 $ 5,257,438
-------------------------------------------------------------
1,325,000 (a) Tracor, Inc., Sr. Sub. Note, 8.50%, 3/1/2007 1,331,625
------------------------------------------------------------- ------------
Total 6,589,063
------------------------------------------------------------- ------------
AUTOMOTIVE--2.7%
-------------------------------------------------------------
3,563,000 Aftermarket Technology Co., Sr. Sub. Note, 12.00%, 8/1/2004 4,017,282
-------------------------------------------------------------
750,000 Aftermarket Technology Co., Sr. Sub. Note, Series D, 12.00%,
8/1/2004 845,625
-------------------------------------------------------------
750,000 Blue Bird Body Co., Sr. Sub. Note, 10.75%, 11/15/2006 806,250
-------------------------------------------------------------
6,275,000 Collins & Aikman Products Co., Sr. Sub. Note, 11.50%,
4/15/2006 7,075,062
-------------------------------------------------------------
3,250,000 Exide Corp., Sr. Note, 10.00%, 4/15/2005 3,412,500
-------------------------------------------------------------
2,500,000 JPS Automotive Products Corp. , Sr. Note, 11.125%, 6/15/2001 2,756,250
-------------------------------------------------------------
5,900,000 Lear Corp., Sub. Note, 9.50%, 7/15/2006 6,335,125
-------------------------------------------------------------
450,000 Lear Seating Corp., Sr. Sub. Note, 11.25%, 7/15/2000 461,250
------------------------------------------------------------- ------------
Total 25,709,344
------------------------------------------------------------- ------------
BANKING--1.4%
-------------------------------------------------------------
5,750,000 (a) First Nationwide Escrow Corp., Sr. Sub. Note, 10.625%,
10/1/2003 6,382,500
-------------------------------------------------------------
5,825,000 First Nationwide Holdings, Inc., Sr. Note, 12.25%, 5/15/2001 6,669,625
------------------------------------------------------------- ------------
Total 13,052,125
------------------------------------------------------------- ------------
BEVERAGE & TOBACCO--1.2%
-------------------------------------------------------------
2,075,000 (a) Delta Beverage Group, Inc., Sr. Note, 9.75%, 12/15/2003 2,183,937
-------------------------------------------------------------
3,950,000 Dimon, Inc., Sr. Note, 8.875%, 6/1/2006 4,142,562
-------------------------------------------------------------
5,100,000 Dr. Pepper Bottling Holdings Co., Sr. Disc. Note, 0/11.625%,
2/15/2003 4,921,500
------------------------------------------------------------- ------------
Total 11,247,999
------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
BROADCAST RADIO & TV--6.4%
-------------------------------------------------------------
$ 2,700,000 Chancellor Radio Broadcasting Co., Sr. Sub. Note, 12.50%,
10/1/2004 $ 3,064,500
-------------------------------------------------------------
5,000,000 Chancellor Radio Broadcasting Co., Sr. Sub. Note, 9.375%,
10/1/2004 5,156,250
-------------------------------------------------------------
2,000,000 Granite Broadcasting Corp., Sr. Sub. Deb., 12.75%, 9/1/2002 2,185,000
-------------------------------------------------------------
8,750,000 Heritage Media Corp., Sr. Sub. Note, 8.75%, 2/15/2006 8,618,750
-------------------------------------------------------------
825,000 Jacor Communications, Inc., Sr. Sub. Note, 9.75%, 12/15/2006 874,500
-------------------------------------------------------------
3,500,000 Lamar Advertising Co., Sr. Sub. Note, 9.625%, 12/1/2006 3,675,000
-------------------------------------------------------------
3,300,000 Pegasus Media, Note, 12.50%, 7/1/2005 3,646,500
-------------------------------------------------------------
5,000,000 SCI Television, Inc., Sr. Secd. Note, 11.00%, 6/30/2005 5,375,000
-------------------------------------------------------------
6,900,000 SFX Broadcasting, Inc., Sr. Sub. Note, 10.75%, 5/15/2006 7,512,375
-------------------------------------------------------------
5,550,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 12/15/2003 5,799,750
-------------------------------------------------------------
3,300,000 Sinclair Broadcast Group, Sr. Sub. Note, 10.00%, 9/30/2005 3,448,500
-------------------------------------------------------------
750,000 Sullivan Broadcast Holdings Inc., Deb., 13.25%, 12/15/2006 733,125
-------------------------------------------------------------
3,825,000 Sullivan Broadcast Holdings Inc., Sr. Sub. Note, 10.25%,
12/15/2005 3,920,625
-------------------------------------------------------------
1,500,000 Young Broadcasting, Inc., Sr. Sub. Note, 10.125%, 2/15/2005 1,582,500
-------------------------------------------------------------
1,250,000 Young Broadcasting, Inc., Sr. Sub. Note, 11.75%, 11/15/2004 1,387,500
-------------------------------------------------------------
3,000,000 Young Broadcasting, Inc., Sr. Sub. Note, 9.00%, 1/15/2006 2,985,000
------------------------------------------------------------- ------------
Total 59,964,875
------------------------------------------------------------- ------------
BUILDING & DEVELOPMENT--0.1%
-------------------------------------------------------------
1,000,000 (a) Building Materials Corp. of America, Sr. Note, 8.625%,
12/15/2006 1,022,500
------------------------------------------------------------- ------------
BUSINESS EQUIPMENT & SERVICES--2.5%
-------------------------------------------------------------
3,725,000 (a) Electronic Retailing Systems International, Inc., Unit,
0/13.25%, 2/1/2004 2,588,875
-------------------------------------------------------------
6,000,000 Knoll Inc., Sr. Sub. Note, 10.875%, 3/15/2006 6,660,000
-------------------------------------------------------------
4,300,000 Monarch Acquisition Corp., Sr. Note, 12.50%, 7/1/2003 5,052,500
-------------------------------------------------------------
2,675,000 (a) Outsourcing Solutions, Inc., Sr. Sub. Note, 11.00%, 11/1/2006 2,902,375
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
BUSINESS EQUIPMENT & SERVICES--CONTINUED
-------------------------------------------------------------
$ 901,300 San Jacinto Holdings, Inc., Sr. Sub. Deb., 12.00%, 12/31/2002 $ 671,469
-------------------------------------------------------------
5,225,000 United Stationers Supply Co., Sr. Sub. Note, 12.75%, 5/1/2005 5,943,438
------------------------------------------------------------- ------------
Total 23,818,657
------------------------------------------------------------- ------------
CABLE TELEVISION--11.3%
-------------------------------------------------------------
3,100,000 (a) Australis Holdings Limited, Unit, 0/15.00%, 11/1/2002 1,798,000
-------------------------------------------------------------
3,950,000 Australis Media Limited, Unit, 0/14.00%, 5/15/2003 2,310,750
-------------------------------------------------------------
3,050,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.875%, 9/15/2005 2,493,375
-------------------------------------------------------------
1,325,000 Bell Cablemedia PLC, Sr. Disc. Note, 0/11.95%, 7/15/2004 1,166,000
-------------------------------------------------------------
4,000,000 Cablevision Systems Corp., Sr. Sub. Deb., 9.875%, 2/15/2013 4,050,000
-------------------------------------------------------------
1,250,000 Cablevision Systems Corp., Sr. Sub. Note, 10.50%, 5/15/2016 1,325,000
-------------------------------------------------------------
2,875,000 Cablevision Systems Corp., Sr. Sub. Note, 9.25%, 11/1/2005 2,882,187
-------------------------------------------------------------
4,300,000 Cablevision Systems Corp., Sr. Sub. Note, 9.875%, 5/15/2006 4,498,875
-------------------------------------------------------------
2,000,000 Charter Communications Holdings, Inc., Sr. Disc. Note,
0/14.00%, 3/15/2007 1,322,500
-------------------------------------------------------------
4,750,000 Charter Communications Southeast, L.P., Sr. Note, 11.25%,
3/15/2006 5,130,000
-------------------------------------------------------------
2,800,000 Comcast Corp., Sr. Sub. Deb., 9.375%, 5/15/2005 2,947,000
-------------------------------------------------------------
10,475,000 Comcast UK Cable, Deb., 0/11.20%, 11/15/2007 7,515,812
-------------------------------------------------------------
5,750,000 (a) Diamond Cable Communications PLC, Sr. Disc. Note, 0/10.75%,
2/15/2007 3,464,375
-------------------------------------------------------------
2,000,000 Diamond Cable Communications PLC, Sr. Disc. Note, 0/13.25%,
9/30/2004 1,650,000
-------------------------------------------------------------
7,600,000 EchoStar Satellite Broadcasting Corp., Sr. Disc. Note,
0/13.125%, 3/15/2004 6,175,000
-------------------------------------------------------------
2,000,000 Insight Communication Co., Sr. Sub. Note, 11.25%, 3/1/2000 2,060,000
-------------------------------------------------------------
5,250,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/10.875%,
10/15/2003 4,455,937
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
CABLE TELEVISION--CONTINUED
-------------------------------------------------------------
$ 3,350,000 International Cabletel, Inc., Sr. Defd. Cpn. Note, 0/11.50%,
2/1/2006 $ 2,315,687
-------------------------------------------------------------
6,375,000 International Cabletel, Inc., Sr. Disc. Note, 0/12.75%,
4/15/2005 4,749,375
-------------------------------------------------------------
2,500,000 Lenfest Communications Inc., Sr. Note, 8.375%, 11/1/2005 2,450,000
-------------------------------------------------------------
1,000,000 Lenfest Communications Inc., Sr. Sub. Note, 10.50%, 6/15/2006 1,082,500
-------------------------------------------------------------
6,425,000 Peoples Choice TV Corp., Unit, 0/13.125%, 6/1/2004 2,987,625
-------------------------------------------------------------
2,850,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 12/1/2007 3,045,938
-------------------------------------------------------------
1,000,000 Rogers Cablesystems Ltd., Sr. Secd. 2nd Priority Note,
10.00%, 3/15/2005 1,080,000
-------------------------------------------------------------
3,000,000 Rogers Cablesystems Ltd., Sr. Sub. Gtd. Note, 11.00%,
12/1/2015 3,247,500
-------------------------------------------------------------
6,325,000 (a) TCI Satellite Entertainment, Inc., Sr. Sub. Disc. Note,
12.25% 2/15/2007 3,542,000
-------------------------------------------------------------
2,500,000 (a) TCI Satellite Entertainment, Inc., Sr. Sub. Note, 10.875%,
2/15/2007 2,546,875
-------------------------------------------------------------
21,575,000 TeleWest PLC, Sr. Disc. Deb., 0/11.00%, 10/1/2007 15,399,156
-------------------------------------------------------------
8,425,000 UIH Australia/Pacific, Sr. Disc. Note, 0/14.00%, 5/15/2006 4,602,156
-------------------------------------------------------------
3,000,000 Wireless One, Inc., Sr. Note, 13.00%, 10/15/2003 2,805,000
-------------------------------------------------------------
3,000,000 Wireless One, Inc., Sr. Disc. Note, 0/13.50%, 8/1/2006 1,305,000
------------------------------------------------------------- ------------
Total 106,403,623
------------------------------------------------------------- ------------
CHEMICALS & PLASTICS--5.0%
-------------------------------------------------------------
3,800,000 Arcadian Partners L.P., Sr. Note, Series B, 10.75%, 5/1/2005 4,218,000
-------------------------------------------------------------
3,400,000 Astor Corp., Sr. Sub. Note, 10.50%, 10/15/2006 3,574,250
-------------------------------------------------------------
500,000 Buckeye Cellulose Corp., Sr. Sub. Note, 8.50%, 12/15/2005 510,000
-------------------------------------------------------------
3,250,000 Crain Industries, Inc., Sr. Sub. Note, 13.50%, 8/15/2005 3,721,250
-------------------------------------------------------------
4,450,000 Foamex L.P., Sr. Sub. Deb., 11.875%, 10/1/2004 4,828,250
-------------------------------------------------------------
6,200,000 Harris Chemical North America, Inc., Sr. Note, 10.25%,
7/15/2001 6,525,500
-------------------------------------------------------------
1,475,000 (a) ISP Holding, Inc., Sr. Note, 9.00%, 10/15/2003 1,522,937
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
CHEMICALS & PLASTICS--CONTINUED
-------------------------------------------------------------
$ 3,788,000 (a) ISP Holding, Inc., Sr. Note, 9.75%, 2/15/2002 $ 4,010,545
-------------------------------------------------------------
4,667,000 Polymer Group, Inc., Sr. Note, 12.25%, 7/15/2002 5,180,370
-------------------------------------------------------------
4,900,000 RBX Corp., Sr. Sub. Note, Series B, 11.25%, 10/15/2005 3,699,500
-------------------------------------------------------------
5,950,000 Sterling Chemicals Holdings, Inc., Sr. Disc. Note, 0/13.50%,
8/15/2008 3,912,125
-------------------------------------------------------------
1,350,000 Sterling Chemicals, Inc., Sr. Sub. Note, 11.75%, 8/15/2006 1,481,625
-------------------------------------------------------------
3,400,000 Uniroyal Technology Corp., Sr. Secd. Note, 11.75%, 6/1/2003 3,442,500
------------------------------------------------------------- ------------
Total 46,626,852
------------------------------------------------------------- ------------
CLOTHING & TEXTILES--2.2%
-------------------------------------------------------------
2,375,000 (a) Collins & Aikman Floorcoverings, Inc., Sr. Sub. Note, 10.00%,
1/15/2007 2,458,125
-------------------------------------------------------------
2,150,000 (a) GFSI, Inc., Sr. Sub. Note, 9.625%, 3/1/2007 2,203,750
-------------------------------------------------------------
2,000,000 (a) Pillowtex Corp., Sr. Sub. Note, 10.00%, 11/15/2006 2,130,000
-------------------------------------------------------------
12,975,000 WestPoint Stevens, Inc., Sr. Sub. Deb., 9.375%, 12/15/2005 13,558,875
------------------------------------------------------------- ------------
Total 20,350,750
------------------------------------------------------------- ------------
CONSUMER PRODUCTS--4.1%
-------------------------------------------------------------
3,150,000 American Safety Razor Co., Sr. Note, 9.875%, 8/1/2005 3,339,000
-------------------------------------------------------------
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 3,911,250
-------------------------------------------------------------
5,300,000 (a) ICON Health & Fitness, Inc., Sr. Disc. Note, 0/14.00%,
11/15/2006 2,921,625
-------------------------------------------------------------
4,000,000 ICON Health & Fitness, Inc., Sr. Sub. Note, 13.00%, 7/15/2002 4,565,000
-------------------------------------------------------------
7,300,000 Playtex Family Products Corp., Sr. Sub. Note, 9.00%,
12/15/2003 7,391,250
-------------------------------------------------------------
5,000,000 (a) Renaissance Cosmetics, Inc., Sr. Note, 11.75%, 2/15/2004 5,181,250
-------------------------------------------------------------
200,000 Revlon Consumer Products Corp., Note, 9.375%, 4/1/2001 207,500
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
CONSUMER PRODUCTS--CONTINUED
-------------------------------------------------------------
$ 2,750,000 Revlon Consumer Products Corp., Sr. Sub. Note, 10.50%,
2/15/2003 $ 2,942,500
-------------------------------------------------------------
4,500,000 Simmons Co., Sr. Sub. Note, 10.75%, 4/15/2006 4,803,750
------------------------------------------------------------- ------------
Total 38,097,125
------------------------------------------------------------- ------------
CONTAINER & GLASS PRODUCTS--2.5%
-------------------------------------------------------------
1,260,000 (a)(b) 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 1,740,750
-------------------------------------------------------------
4,750,000 Owens-Illinois, Inc., Sr. Amort. Deb., 11.00%, 12/1/2003 5,325,938
-------------------------------------------------------------
250,000 Owens-Illinois, Inc., Sr. Sub. Note, 10.50%, 6/15/2002 265,625
-------------------------------------------------------------
5,550,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.75%, 8/15/2004 5,862,188
-------------------------------------------------------------
3,950,000 Owens-Illinois, Inc., Sr. Sub. Note, 9.95%, 10/15/2004 4,196,875
-------------------------------------------------------------
3,350,000 Packaging Resources Inc., Sr. Note, 11.625%, 5/1/2003 3,580,313
-------------------------------------------------------------
1,000,000 (a) Plastic Containers, Inc., Sr. Secd. Note, 10.00%, 12/15/2006 1,045,000
-------------------------------------------------------------
1,300,000 (a) U.S. Can Corp., Sr. Sub. Note, 10.125%, 10/15/2006 1,391,000
------------------------------------------------------------- ------------
Total 23,407,689
------------------------------------------------------------- ------------
ECOLOGICAL SERVICES & EQUIPMENT--1.4%
-------------------------------------------------------------
5,600,000 (a) Allied Waste North America, Inc., Sr. Sub. Note, 10.25%,
12/1/2006 6,069,000
-------------------------------------------------------------
4,250,000 ICF Kaiser International, Inc., Sr. Sub. Note, 13.00%,
12/31/2003 4,080,000
-------------------------------------------------------------
5,350,000 (b) Mid-American Waste Systems, Inc., Sr. Sub. Note, 12.25%,
2/15/2003 2,541,250
------------------------------------------------------------- ------------
Total 12,690,250
------------------------------------------------------------- ------------
ELECTRONICS--0.4%
-------------------------------------------------------------
3,000,000 Advanced Micro Devices, Inc., Sr. Secd. Note, 11.00%,
8/1/2003 3,371,250
------------------------------------------------------------- ------------
FINANCIAL INTERMEDIARIES--0.7%
-------------------------------------------------------------
6,000,000 ContiFinancial Corp., Sr. Note, 8.375%, 8/15/2003 6,165,000
------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--1.9%
-------------------------------------------------------------
$ 3,650,000 Carr-Gottstein Foods Co., Sr. Sub. Note, 12.00%, 11/15/2005 $ 4,037,812
-------------------------------------------------------------
6,200,000 Ralph's Grocery Co., Sr. Note, 10.45%, 6/15/2004 6,634,000
-------------------------------------------------------------
3,425,000 Ralph's Grocery Co., Sr. Sub. Note, 11.00%, 6/15/2005 3,664,750
-------------------------------------------------------------
3,500,000 Smith's Food & Drug Centers, Inc., Sr. Sub. Note, 11.25%,
5/15/2007 3,963,750
------------------------------------------------------------- ------------
Total 18,300,312
------------------------------------------------------------- ------------
FOOD PRODUCTS--3.3%
-------------------------------------------------------------
4,350,000 Curtice-Burns Foods, Inc., Sr. Sub. Note, 12.25%, 2/1/2005 4,698,000
-------------------------------------------------------------
7,250,000 (a) International Home Foods, Inc., Sr. Sub. Note, 10.375%,
11/1/2006 7,576,250
-------------------------------------------------------------
3,000,000 (a) MBW Foods Inc., Sr. Sub. Note, 9.875%, 2/15/2007 3,067,500
-------------------------------------------------------------
4,350,000 PMI Acquisition Corp., Sr. Sub. Note, 10.25%, 9/1/2003 4,567,500
-------------------------------------------------------------
6,000,000 Specialty Foods Acquisition Corp., Sr. Secd. Disc. Deb.,
0/13.00%, 8/15/2005 2,415,000
-------------------------------------------------------------
1,100,000 Specialty Foods Corp., Sr. Note, 11.125%, 10/1/2002 1,094,500
-------------------------------------------------------------
3,000,000 Specialty Foods Corp., Sr. Sub. Note, 11.25%, 8/15/2003 2,550,000
-------------------------------------------------------------
4,050,000 Van de Kamp's, Inc., Sr. Sub. Note, 12.00%, 9/15/2005 4,536,000
------------------------------------------------------------- ------------
Total 30,504,750
------------------------------------------------------------- ------------
FOREST PRODUCTS--3.3%
-------------------------------------------------------------
4,125,000 Container Corp. of America, Sr. Note, 11.25%, 5/1/2004 4,511,719
-------------------------------------------------------------
5,250,000 Four M Corp., Sr. Note, 12.00%, 6/1/2006 5,643,750
-------------------------------------------------------------
2,300,000 Repap New Brunswick, 2nd Priority Sr. Secd. Note, 10.625%,
4/15/2005 2,288,500
-------------------------------------------------------------
5,325,000 Riverwood International Corp., Sr. Sub. Note, 10.875%,
4/1/2008 4,552,875
-------------------------------------------------------------
5,350,000 S. D. Warren Co., Sr. Sub. Note, 12.00%, 12/15/2004 5,891,688
-------------------------------------------------------------
4,975,000 Stone Container Corp., Sr. Note, 11.50%, 10/1/2004 5,248,625
-------------------------------------------------------------
3,300,000 (a) Uniforet Inc., Sr. Note, 11.125%, 10/15/2006 3,102,000
------------------------------------------------------------- ------------
Total 31,239,157
------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
HEALTHCARE--2.3%
-------------------------------------------------------------
$ 5,725,000 Dade International, Inc., Sr. Sub. Note, 11.125%, 5/1/2006 $ 6,326,125
-------------------------------------------------------------
2,000,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.25%,
10/1/2006 2,070,000
-------------------------------------------------------------
500,000 Genesis Health Ventures, Inc., Sr. Sub. Note, 9.75%,
6/15/2005 527,500
-------------------------------------------------------------
900,000 Tenet Healthcare Corp., Sr. Note, 8.00%, 1/15/2005 911,250
-------------------------------------------------------------
9,250,000 Tenet Healthcare Corp., Sr. Sub. Note, 10.125%, 3/1/2005 10,221,250
-------------------------------------------------------------
1,650,000 Tenet Healthcare Corp., Sr. Sub. Note, 8.625%, 1/15/2007 1,707,750
------------------------------------------------------------- ------------
Total 21,763,875
------------------------------------------------------------- ------------
HOME PRODUCTS & FURNISHINGS--0.3%
-------------------------------------------------------------
2,550,000 Triangle Pacific Corp., Sr. Note, 10.50%, 8/1/2003 2,757,188
------------------------------------------------------------- ------------
HOTELS, MOTELS, INNS & CASINOS--0.6%
-------------------------------------------------------------
4,900,000 Courtyard by Marriott II LP, Sr. Note, 10.75%, 2/1/2008 5,243,000
------------------------------------------------------------- ------------
INDUSTRIAL PRODUCTS & EQUIPMENT--3.5%
-------------------------------------------------------------
4,800,000 Cabot Safety Acquisition Corp., Sr. Sub. Note, 12.50%,
7/15/2005 5,304,000
-------------------------------------------------------------
4,325,000 (a) Euramax International PLC, Sr. Sub. Note, 11.25%, 10/1/2006 4,654,781
-------------------------------------------------------------
4,000,000 Fairfield Manufacturing Co., Inc., Sr. Sub. Note, 11.375%,
7/1/2001 4,290,000
-------------------------------------------------------------
2,750,000 (a) Hawk Corp., Sr. Note, 10.25%, 12/1/2003 2,866,875
-------------------------------------------------------------
3,500,000 IMO Industries, Inc., Sr. Sub. Note, 11.75%, 5/1/2006 3,508,750
-------------------------------------------------------------
3,500,000 (a) International Knife & Saw, Inc., Sr. Sub. Note, 11.375%,
11/15/2006 3,718,750
-------------------------------------------------------------
1,800,000 Johnstown America Industries, Inc., Sr. Sub. Note, 11.75%,
8/15/2005 1,809,000
-------------------------------------------------------------
3,900,000 Mettler-Toledo, Inc., Sr. Sub. Note, 9.75%, 10/1/2006 4,114,500
-------------------------------------------------------------
2,250,000 Unifrax Investment Corp., Sr. Note, 10.50%, 11/1/2003 2,345,625
------------------------------------------------------------- ------------
Total 32,612,281
------------------------------------------------------------- ------------
LEISURE & ENTERTAINMENT--4.6%
-------------------------------------------------------------
7,700,000 AMF Group, Inc., Sr. Sub. Disc. Note, 0/12.25%, 3/15/2006 5,515,125
-------------------------------------------------------------
2,600,000 AMF Group, Inc., Sr. Sub. Note, 10.875%, 3/15/2006 2,850,250
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--CONTINUED
-------------------------------------------------------------
$ 1,150,000 Affinity Group, Inc., Sr. Sub. Note, 11.50%, 10/15/2003 $ 1,201,750
-------------------------------------------------------------
3,550,000 Cobblestone Golf Group, Inc., Sr. Note, 11.50%, 6/1/2003 3,771,875
-------------------------------------------------------------
3,100,000 Premier Parks, Inc., Sr. Note, 12.00%, 8/15/2003 3,510,750
-------------------------------------------------------------
500,000 Premier Parks, Inc., Sr. Note, 9.75%, 1/15/2007 525,000
-------------------------------------------------------------
13,100,000 Six Flags Theme Parks, Sr. Sub. Disc. Note, 0/12.25%,
6/15/2005 13,034,500
-------------------------------------------------------------
12,850,000 Viacom, Inc., Sub. Deb., 8.00%, 7/7/2006 12,753,625
------------------------------------------------------------- ------------
Total 43,162,875
------------------------------------------------------------- ------------
MACHINERY & EQUIPMENT--1.9%
-------------------------------------------------------------
4,275,000 Alvey Systems, Inc., Sr. Sub. Note, 11.375%, 1/31/2003 4,574,250
-------------------------------------------------------------
5,025,000 (a) Clark Material Handling Corp., Sr. Note, 10.75%, 11/15/2006 5,364,187
-------------------------------------------------------------
3,202,000 Primeco Inc., Sr. Sub. Note, 12.75%, 3/1/2005 3,682,300
-------------------------------------------------------------
4,050,000 Tokheim Corp., Sr. Sub. Note, 11.50%, 8/1/2006 4,414,500
------------------------------------------------------------- ------------
Total 18,035,237
------------------------------------------------------------- ------------
METALS & MINING--0.6%
-------------------------------------------------------------
5,375,000 Royal Oak Mines, Inc., Sr. Sub. Note, 11.00%, 8/15/2006 5,482,500
------------------------------------------------------------- ------------
OIL & GAS--3.1%
-------------------------------------------------------------
5,700,000 (a) Abraxas Petroleum Corp., Sr. Note, 11.50%, 11/1/2004 6,213,000
-------------------------------------------------------------
500,000 Dawson Production Services, Inc., Sr. Note, 9.375%, 2/1/2007 521,250
-------------------------------------------------------------
2,000,000 Falcon Drilling Co., Inc., Sr. Sub. Note, 12.50%, 3/15/2005 2,242,500
-------------------------------------------------------------
4,200,000 (a) Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 8.50%,
2/15/2007 4,221,000
-------------------------------------------------------------
4,250,000 Forcenergy Gas Exploration, Inc., Sr. Sub. Note, 9.50%,
11/1/2006 4,515,625
-------------------------------------------------------------
2,500,000 Giant Industries, Inc., Sr. Sub. Note, 9.75%, 11/15/2003 2,612,500
-------------------------------------------------------------
350,000 (a) HS Resources, Inc., Sr. Sub. Note, 9.25%, 11/15/2006 362,250
-------------------------------------------------------------
1,250,000 HS Resources, Inc., Sr. Sub. Note, 9.875%, 12/1/2003 1,315,625
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
OIL & GAS--CONTINUED
-------------------------------------------------------------
$ 3,375,000 Mesa Operating Co., Sr. Sub. Disc. Note, 0/11.625%, 7/1/2006 $ 2,463,750
-------------------------------------------------------------
375,000 Mesa Operating Co., Sr. Sub. Note, 10.625%, 7/1/2006 415,313
-------------------------------------------------------------
4,000,000 United Meridian Corp., Sr. Sub. Note, 10.375%, 10/15/2005 4,480,000
------------------------------------------------------------- ------------
Total 29,362,813
------------------------------------------------------------- ------------
PRINTING & PUBLISHING--2.2%
-------------------------------------------------------------
7,350,000 Affiliated Newspaper, Sr. Disc. Note, 0/13.25%, 7/1/2006 6,284,250
-------------------------------------------------------------
2,975,000 Garden State Newspapers, Inc., Sr. Sub. Note, 12.00%,
7/1/2004 3,287,375
-------------------------------------------------------------
2,100,000 Hollinger International Publishing, Inc., Sr. Sub. Note,
9.25%, 2/1/2006 2,134,125
-------------------------------------------------------------
4,700,000 K-III Communications Corp., Company Guarantee, Series B,
8.50%, 2/1/2006 4,700,000
-------------------------------------------------------------
3,900,000 (a) Petersen Publishing Co., LLC, Sr. Sub. Note, 11.125%,
11/15/2006 4,260,750
------------------------------------------------------------- ------------
Total 20,666,500
------------------------------------------------------------- ------------
REAL ESTATE--0.7%
-------------------------------------------------------------
5,900,000 Trizec Finance Ltd., Sr. Note, 10.875%, 10/15/2005 6,578,500
------------------------------------------------------------- ------------
RETAILERS--0.6%
-------------------------------------------------------------
5,600,000 Brylane Capital Corp., Sr. Sub. Note, 10.00%, 9/1/2003 5,866,000
------------------------------------------------------------- ------------
SERVICES--1.8%
-------------------------------------------------------------
5,843,625 Coinmach Corp., Sr. Note, 11.75%, 11/15/2005 6,464,510
-------------------------------------------------------------
2,600,000 (a) Intertek Finance PLC, Sr. Sub. Note, 10.25%, 11/1/2006 2,739,750
-------------------------------------------------------------
4,500,000 (a) KinderCare Learning Centers, Inc., Sr. Sub. Note, 9.50%,
2/15/2009 4,556,250
-------------------------------------------------------------
3,150,000 (a) Ryder TRS, Inc., Sr. Sub. Note, 10.00%, 12/1/2006 3,299,625
------------------------------------------------------------- ------------
Total 17,060,135
------------------------------------------------------------- ------------
STEEL--2.6%
-------------------------------------------------------------
5,400,000 Acme Metals, Inc., Sr. Secd. Disc. Note, 0/13.50%, 8/1/2004 5,778,000
-------------------------------------------------------------
3,000,000 Bayou Steel Corp., 1st Mtg. Note, 10.25%, 3/1/2001 2,947,500
-------------------------------------------------------------
5,925,000 EnviroSource, Inc., Sr. Note, 9.75%, 6/15/2003 5,850,937
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
STEEL--CONTINUED
-------------------------------------------------------------
$ 5,900,000 GS Technologies Operating Co., Inc., Sr. Note, 12.00%,
9/1/2004 $ 6,276,125
-------------------------------------------------------------
725,000 GS Technologies Operating Co., Inc., Sr. Note, 12.25%,
10/1/2005 781,187
-------------------------------------------------------------
3,450,000 Republic Engineered Steel, Inc., 1st Mtg. Note, 9.875%,
12/15/2001 3,143,813
------------------------------------------------------------- ------------
Total 24,777,562
------------------------------------------------------------- ------------
SURFACE TRANSPORTATION--3.1%
-------------------------------------------------------------
4,400,000 AmeriTruck Distribution Corp., Sr. Sub. Note, 12.25%,
11/15/2005 4,554,000
-------------------------------------------------------------
6,000,000 Gearbulk Holding Limited, Sr. Note, 11.25%, 12/1/2004 6,720,000
-------------------------------------------------------------
7,050,000 (a) Statia Terminals International N.V., 1st Mtg. Note, 11.75%,
11/15/2003 7,543,500
-------------------------------------------------------------
6,400,000 Stena AB, Sr. Note, 10.50%, 12/15/2005 7,120,000
-------------------------------------------------------------
3,100,000 Trism, Inc., Sr. Sub. Note, 10.75%, 12/15/2000 2,875,250
------------------------------------------------------------- ------------
Total 28,812,750
------------------------------------------------------------- ------------
TELECOMMUNICATIONS & CELLULAR--10.5%
-------------------------------------------------------------
5,650,000 American Communications Services Inc., Sr. Disc. Note,
0/12.75%, 4/1/2006 3,517,125
-------------------------------------------------------------
1,700,000 Arch Communications Group, Inc., Sr. Disc. Note, 0/10.875%,
3/15/2008 871,250
-------------------------------------------------------------
8,325,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/10.875%,
3/1/2006 5,702,625
-------------------------------------------------------------
5,800,000 Brooks Fiber Properties, Inc., Sr. Disc. Note, 0/11.875%,
11/1/2006 3,799,000
-------------------------------------------------------------
7,025,000 Cellular Communications International, Inc., Sr. Disc. Note,
13.25% accrual, 8/15/2000 5,128,250
-------------------------------------------------------------
4,700,000 (a) Cellular Communications of Puerto Rico, Inc., Sr. Sub.,
10.00%, 2/1/2007 4,741,125
-------------------------------------------------------------
2,900,000 (a) Dobson Communications Corp., Sr. Note, 11.75%, 4/15/2007 2,936,250
-------------------------------------------------------------
1,400,000 Fonorola, Inc., Sr. Secd. Note, 12.50%, 8/15/2002 1,582,000
-------------------------------------------------------------
7,725,000 Intermedia Communications of Florida, Inc., Sr. Disc. Note,
0/12.50%, 5/15/2006 5,253,000
-------------------------------------------------------------
3,000,000 (a) McLeod, Inc., Sr. Disc. Note, 0/10.50%, 3/1/2007 1,818,750
-------------------------------------------------------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- ----------------------------------------------------------------------------------
TELECOMMUNICATIONS & CELLULAR--CONTINUED
-------------------------------------------------------------
$11,000,000 Millicom International Cellular S. A., Sr. Disc. Note,
0/13.50%, 6/1/2006 $ 7,480,000
-------------------------------------------------------------
3,000,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/11.50%,
9/1/2003 2,520,000
-------------------------------------------------------------
4,550,000 NEXTEL Communications, Inc., Sr. Disc. Note, 0/9.75%,
8/15/2004 3,412,500
-------------------------------------------------------------
5,400,000 Nextlink Communications, LLC, Sr. Note, Series AI, 12.50%,
4/15/2006 5,899,500
-------------------------------------------------------------
5,900,000 Paging Network, Inc., Sr. Sub. Note, 10.00%, 10/15/2008 5,877,875
-------------------------------------------------------------
4,000,000 Paging Network, Inc., Sr. Sub. Note, 10.125%, 8/1/2007 4,025,000
-------------------------------------------------------------
6,850,000 PanAmSat, L.P., Sr. Sub. Disc. Note, 0/11.375%, 8/1/2003 6,464,688
-------------------------------------------------------------
1,250,000 PhoneTel Technologies, Inc., Sr. Note, 12.00%, 12/15/2006 1,334,375
-------------------------------------------------------------
4,850,000 Sygnet Wireless, Inc., Sr. Note, 11.50%, 10/1/2006 5,159,188
-------------------------------------------------------------
8,325,000 Teleport Communications Group, Inc., Sr. Disc. Note,
0/11.125%, 7/1/2007 5,952,375
-------------------------------------------------------------
1,400,000 Teleport Communications Group, Inc., Sr. Note, 9.875%,
7/1/2006 1,494,500
-------------------------------------------------------------
4,325,000 USA Mobile Communications, Inc., Sr. Note, 9.50%, 2/1/2004 3,979,000
-------------------------------------------------------------
9,375,000 Vanguard Cellular Systems, Inc., Deb., 9.375%, 4/15/2006 9,750,000
------------------------------------------------------------- ------------
Total 98,698,376
------------------------------------------------------------- ------------
UTILITIES--2.0%
-------------------------------------------------------------
2,200,000 CalEnergy Co., Inc., Sr. Note, 9.50%, 9/15/2006 2,376,000
-------------------------------------------------------------
9,000,000 California Energy Co., Inc., Sr. Note, 10.25%, 1/15/2004 9,900,000
-------------------------------------------------------------
6,250,000 El Paso Electric Co., 1st Mtg. Note, 9.40%, 5/1/2011 6,792,813
------------------------------------------------------------- ------------
Total 19,068,813
------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $825,191,650) 858,509,726
------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--0.6%
- ----------------------------------------------------------------------------------
BROADCAST RADIO & TV--0.1%
-------------------------------------------------------------
26,000 Park Communications, Inc., Warrants $ 513,500
-------------------------------------------------------------
6,994 Pegasus Communications Corp. 83,064
-------------------------------------------------------------
12,000 Sullivan Broadcast Holdings Inc., Class B 129,000
------------------------------------------------------------- ------------
Total 725,564
------------------------------------------------------------- ------------
BUILDING & DEVELOPMENT--0.0%
-------------------------------------------------------------
3,080 Atlantic Gulf Communities Corp. 17,710
------------------------------------------------------------- ------------
BUSINESS EQUIPMENT & SERVICES--0.0%
-------------------------------------------------------------
6,177 (a) San Jacinto Holdings, Inc. 27,798
------------------------------------------------------------- ------------
CABLE TELEVISION--0.0%
-------------------------------------------------------------
68 (a) CS Wireless Systems, Inc. 0
-------------------------------------------------------------
9,000 Wireless One, Inc., Warrants 9,000
------------------------------------------------------------- ------------
Total 9,000
------------------------------------------------------------- ------------
CHEMICALS & PLASTICS--0.0%
-------------------------------------------------------------
4,675 Sterling Chemicals Holdings, Inc., Warrants 163,625
-------------------------------------------------------------
27,500 Uniroyal Technology Corp., Warrants 41,250
------------------------------------------------------------- ------------
Total 204,875
------------------------------------------------------------- ------------
CONGLOMERATES--0.4%
-------------------------------------------------------------
722,871 Triton Group Ltd. 632,512
-------------------------------------------------------------
181,487 Walter Industries, Inc. 2,756,334
------------------------------------------------------------- ------------
Total 3,388,846
------------------------------------------------------------- ------------
CONSUMER PRODUCTS--0.0%
-------------------------------------------------------------
3,000 Hosiery Corp. of America, Inc. 21,000
-------------------------------------------------------------
5,000 (a) IHF Capital, Inc., Warrants 383,125
------------------------------------------------------------- ------------
Total 404,125
------------------------------------------------------------- ------------
CONTAINER & GLASS PRODUCTS--0.0%
-------------------------------------------------------------
53,400 (a)(b) Kane Industries, Inc., Warrants 0
------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- ----------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--0.1%
-------------------------------------------------------------
150,231 Grand Union Co. $ 553,977
------------------------------------------------------------- ------------
PRINTING & PUBLISHING--0.0%
-------------------------------------------------------------
5,350 Affiliated Newspaper Investments, Inc. 323,675
------------------------------------------------------------- ------------
STEEL--0.0%
-------------------------------------------------------------
1,800 (a) Bar Technologies, Inc., Warrants 108,000
------------------------------------------------------------- ------------
TELECOMMUNICATIONS & CELLULAR--0.0%
-------------------------------------------------------------
6,325 Cellular Communications International, Inc., Warrants 126,500
------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST $17,970,419) 5,890,070
------------------------------------------------------------- ------------
PREFERRED STOCKS--2.0%
- ----------------------------------------------------------------------------------
BANKING--0.2%
-------------------------------------------------------------
72,000 California Federal Preferred Capital Corp., REIT Perpetual
Pfd. Stock, Series A, $2.28 1,845,000
------------------------------------------------------------- ------------
BROADCAST RADIO & TV--0.9%
-------------------------------------------------------------
15,750 (a) American Radio Systems Corp., Cumulative Exchangeable Pfd.
Stock, $11.38 1,638,000
-------------------------------------------------------------
35,000 (a) Chancellor Broadcasting Co., Exchangeable Pfd. Stock, $12.00 3,622,500
-------------------------------------------------------------
2,800 Pegasus Communications Corp., Unit, Series A, 12.75% 2,786,000
-------------------------------------------------------------
6,000 SFX Broadcasting, Inc., Exchangeable Pfd. Stock, Series E
12.625% 621,000
------------------------------------------------------------- ------------
Total 8,667,500
------------------------------------------------------------- ------------
PRINTING & PUBLISHING--0.5%
-------------------------------------------------------------
46,308 K-III Communications Corp., Cumulative PIK Pfd., Series B,
11.625% 4,746,570
------------------------------------------------------------- ------------
TELECOMMUNICATIONS & CELLULAR--0.4%
-------------------------------------------------------------
2,796 PanAmSat Corp., PIK Pfd., 12.75% 3,453,060
------------------------------------------------------------- ------------
TOTAL PREFERRED STOCKS (IDENTIFIED COST $17,666,901) 18,712,130
------------------------------------------------------------- ------------
</TABLE>
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------- ------------
<C> <C> <S> <C>
U.S. TREASURY--2.6%
- ----------------------------------------------------------------------------------
TREASURY NOTES--2.6%
-------------------------------------------------------------
$10,000,000 United States Treasury Note, 5.75%, 8/15/2003 $ 9,636,300
-------------------------------------------------------------
5,000,000 United States Treasury Note, 5.875%, 2/15/2004 4,833,600
-------------------------------------------------------------
10,000,000 United States Treasury Note, 6.50%, 10/15/2006 9,941,200
------------------------------------------------------------- ------------
TOTAL U.S. TREASURY (IDENTIFIED COST $24,510,937) 24,411,100
------------------------------------------------------------- ------------
(C) REPURCHASE AGREEMENT--1.3%
- ----------------------------------------------------------------------------------
11,835,000 BT Securities Corporation, 5.38%, dated 2/28/1997, due
3/3/1997 (AT AMORTIZED COST) 11,835,000
------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST $897,174,907)(D) $919,358,026
------------------------------------------------------------- ------------
</TABLE>
(a) Denotes a private placement security. At February 28, 1997, these securities
amounted to $135,518,310 which represents 14.4% of total net assets.
(b) Non-income producing security. Mid-American Waste Systems, Inc.: On January
22, 1997, Mid-American filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The company has agreed to be acquired by USA Waste
Services, Inc. The timing and outcome of this potential transaction is
uncertain. Mid-American has been deemed illiquid as a result of contractual
agreements relating to litigation. Kane Industries, Inc., on March 18, 1994,
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.
(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 $897,861,263.
The net unrealized appreciation of investments on a federal tax basis
amounts to $21,496,763 which is comprised of $50,615,731 appreciation and
$29,118,968 depreciation at February 28, 1997.
Note: The categories of investments are shown as a percentage of net assets
($938,362,777) at February 28, 1997.
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
The following acronyms 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
REIT -- Real Estate Investment Trust
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified cost $897,174,907, and
tax cost $897,861,263) $919,358,026
- --------------------------------------------------------------------------------
Income receivable 17,848,315
- --------------------------------------------------------------------------------
Receivable for investments sold 11,878,136
- --------------------------------------------------------------------------------
Receivable for shares sold 4,650,352
- -------------------------------------------------------------------------------- ------------
Total assets 953,734,829
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $ 3,741,005
- ------------------------------------------------------------------
Payable for shares redeemed 8,952,332
- ------------------------------------------------------------------
Income distribution payable 1,507,935
- ------------------------------------------------------------------
Payable to bank 889,868
- ------------------------------------------------------------------
Accrued expenses 280,912
- ------------------------------------------------------------------ -----------
Total liabilities 15,372,052
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 99,752,365 shares outstanding $938,362,777
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital $935,014,675
- --------------------------------------------------------------------------------
Net unrealized appreciation of investments 22,183,119
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (18,126,486)
- --------------------------------------------------------------------------------
Distributions in excess of net investment income (708,531)
- -------------------------------------------------------------------------------- ------------
Total Net Assets $938,362,777
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$938,362,777 / 99,752,365 shares outstanding) $9.41
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Dividends $ 1,019,112
- -------------------------------------------------------------------------------------------------
Interest 78,059,819
- ------------------------------------------------------------------------------------------------- -----------
Total Income 79,078,931
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee $ 5,738,180
- ----------------------------------------------------------------------------------
Administrative personnel and services fee 578,155
- ----------------------------------------------------------------------------------
Custodian fees 109,239
- ----------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 173,623
- ----------------------------------------------------------------------------------
Directors'/Trustees' fees 13,001
- ----------------------------------------------------------------------------------
Auditing fees 24,132
- ----------------------------------------------------------------------------------
Legal fees 4,830
- ----------------------------------------------------------------------------------
Portfolio accounting fees 142,532
- ----------------------------------------------------------------------------------
Shareholder services fee 1,912,727
- ----------------------------------------------------------------------------------
Share registration costs 123,486
- ----------------------------------------------------------------------------------
Printing and postage 63,659
- ----------------------------------------------------------------------------------
Insurance premiums 7,674
- ----------------------------------------------------------------------------------
Taxes 6,425
- ----------------------------------------------------------------------------------
Miscellaneous 13,675
- ---------------------------------------------------------------------------------- ----------
Total expenses 8,911,338
- ----------------------------------------------------------------------------------
Waivers--
- ----------------------------------------------------------------------------------
Waiver of investment advisory fee $(1,773,042)
- --------------------------------------------------------------------
Waiver of shareholder services fee (382,545)
- -------------------------------------------------------------------- ----------
Total waivers (2,155,587)
- ---------------------------------------------------------------------------------- ----------
Net expenses 6,755,751
- ------------------------------------------------------------------------------------------------- -----------
Net investment income 72,323,180
- ------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------------------
Net realized gain on investments 5,800,495
- -------------------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 26,326,072
- ------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 32,126,567
- ------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $104,449,747
- ------------------------------------------------------------------------------------------------- -----------
</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 28, FEBRUARY 29,
1997 1996
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------
Net investment income $ 72,323,180 $ 53,662,657
- ---------------------------------------------------------
Net realized gain on investments ($6,021,942 and
$796,412, net gains respectively, as computed for federal
tax purposes) 5,800,495 4,263,986
- ---------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments 26,326,072 27,446,647
- --------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 104,449,747 85,373,290
- --------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------
Distributions from net investment income (72,323,180) (53,311,137)
- ---------------------------------------------------------
Distributions in excess of net investment income (520,035) --
- --------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to
shareholders (72,843,215) (53,311,137)
- --------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------
Proceeds from sale of shares 860,932,809 836,596,356
- ---------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 55,383,889 37,254,443
- ---------------------------------------------------------
Cost of shares redeemed (683,339,454) (696,738,256)
- --------------------------------------------------------- ------------- -------------
Change in net assets resulting from share
transactions 232,977,244 177,112,543
- --------------------------------------------------------- ------------- -------------
Change in net assets 264,583,776 209,174,696
- ---------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------
Beginning of period 673,779,001 464,604,305
- --------------------------------------------------------- ------------- -------------
End of period $ 938,362,777 $ 673,779,001
- --------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED HIGH YIELD TRUST
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
(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 investment objective is to seek high
current income by investing primarily in a professionally managed, diversified
portfolio of 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 respect 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.
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 28, 1997, the Trust, for federal tax purposes, had a capital
loss carryforward of $17,555,889, which will reduce the Trust's taxable
income arising from future net realized capital gain on investments, if
any, to the extent permitted by the Code, and thus 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>
1999 $9,269,587
2000 $6,829,698
2003 $1,456,604
</TABLE>
Additionally, net capital losses of $279,762, attributable to security
transactions incurred after October 31, 1996, are treated as arising on the
first day of the Trust's next taxable year (March 1, 1997).
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 ("FCs") are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank. The Trust does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
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 28, 1997 FEBRUARY 29, 1996
- ------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Shares sold 94,942,662 94,114,448
- ------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 6,072,728 4,184,055
- ------------------------------------------------------
Shares redeemed (75,398,302) (78,383,729)
- ------------------------------------------------------ --------------- ---------------
Net change resulting from share transactions 25,617,088 19,914,774
- ------------------------------------------------------ --------------- ---------------
</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 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.
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
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 average daily 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
subsidiary, Federated Shareholder Services Company ("FSSC") serves as transfer
and dividend disbursing agent for the Trust. The fee paid to FSSC is 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 28, 1997, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
PURCHASES $824,911,353
- ------------------------------------------------------------------------------ ------------
SALES $600,950,261
- ------------------------------------------------------------------------------ ------------
</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 28,
1997, 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 this 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 audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated High Yield Trust at February 28, 1997, 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 18, 1997
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 rated "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, 1997
LOGO
Cusip 314197104
8040401A (4/97)
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, 1997. 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 1-800-341-
7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1997
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Fund
and is a subsidiary of Federated Investors.
Cusip 314197104
8040401B (4/97)
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
Trust Ownership 9
Trustees Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Adviser to the Trust 10
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Trust Administration 11
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 12
PURCHASING SHARES 12
Shareholder Services 12
Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
Determining Market Value of Securities 12
REDEEMING SHARES 12
Redemption in Kind 13
MASSACHUSETTS PARTNERSHIP LAW 13
TAX STATUS 13
The Trust's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 14
YIELD 14
PERFORMANCE COMPARISONS 14
Economic and Market Information 15
Duration 15
ABOUT FEDERATED INVESTORS 16
Mutual Fund Market 16
Institutional Clients 16
Bank Marketing 16
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 16
GENERAL INFORMATION ABOUT THE TRUST
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated April 17, 1984.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to seek high current income 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 (the `SEC'') 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:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe 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:
oStudent Loan Marketing Association;
oFederal Home Loan Mortgage Corporation;
oFederal Home Loan Banks; and
oFederal National Mortgage Association.
RESTRICTED SECURITIES
The Trust expects that any restricted securities would be acquired either
from institutional investors who originally acquired the securities in
private placements or directly from the issuers of the securities in
private placements. Restricted securities and securities that are not
readily marketable may sell at a discount from the price they would bring
if freely marketable.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust engages in when-issued and delayed delivery transactions only for
the purpose of acquiring portfolio securities consistent with the Trust's
investment objective and policies, and not for investment leverage. These
transactions are made to secure what is considered to be an advantageous
price or yield for the Trust. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Trust
sufficient to make payment for the securities to be purchased are
segregated on the Trust's records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Trust does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Trust, the Trust could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Trust might be delayed pending court action. The Trust
believes that under the regular procedures normally in effect for custody
of the Trust's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Trust and allow
retention or disposition of such securities. The Trust will only enter into
repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Trust's
investment adviser to be creditworthy pursuant to guidelines established by
the Board of Trustees (the "Trustees").
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Trust may lend its portfolio
securities to broker/dealers, banks, or other institutional borrowers of
securities. The Trust will only enter into loan arrangements with
broker/dealers, banks, or other institutions which the Trust's investment
adviser has determined are creditworthy under guidelines established by the
Trustees.
The collateral received when the Trust lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Trust.
During the time portfolio securities are on loan, the borrower pays the
Trust any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Trust or the borrower. The Trust may
pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker. The Trust does not
have the right to vote securities on loan, but would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
REVERSE REPURCHASE AGREEMENTS
The Trust may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase agreement
the Trust transfers possession of a portfolio instrument to another person,
such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Trust will repurchase the portfolio
instrument by remitting the original consideration plus interest at an
agreed upon rate. The use of reverse repurchase agreements may enable the
Trust to avoid selling portfolio instruments at a time when a sale may be
deemed to be disadvantageous, but the ability to enter into reverse
repurchase agreements does not ensure that the Trust will be able to avoid
selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Trust,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled. During
the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase
agreements, the Trust will restrict the purchase of portfolio instruments
to money market instruments maturing on or before the expiration date of
the reverse repurchase agreements.
PORTFOLIO TURNOVER
The Trust may experience greater portfolio turnover than would be expected
with a portfolio of higher-rated securities. A high portfolio turnover will
result in increased transaction costs to the Trust. The Trust will not
attempt to set or meet a portfolio turnover rate since any turnover would
be incidental to transactions undertaken in an attempt to achieve the
Trust's investment objective. For the fiscal years ended February 28, 1997
and February 29, 1996, the portfolio turnover rates were 81% and 87%,
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 financial futures and put options on financial
futures, not including stock index 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, not including
stock index 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 or
government 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 SECURITIES NOT READILY MARKETABLE
The Trust will not invest more than 5% of the value of its total
assets in equity securities of any issuer that are not readily
marketable.
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.
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 are listed with their addresses, birthdates, present
positions with Federated High Yield Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
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, 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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Trustee
Attorney, Retired Member of Miller, Ament, Henny & Kochuba; 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; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; 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 Company.
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, Secretary and Treasurer
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; Treasurer of some 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.
* 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; 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
Investment Portfolios; Federated Investment Trust; 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.; 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; Wesmark Funds; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of April 2, 1997, the following shareholders of record owned 5% or more
of the outstanding shares of the Trust: Charles Schwab & Co., Inc., San
Francisco, California (as record owner holding shares for its clients),
owned approximately 42,193,372 shares (48.17%); and National Financial
Services, New York, New York, for the exclusive benefit of its customers,
owned approximately 8,310,124 shares (9.49%).
TRUSTEES COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM THE TOTAL COMPENSATION PAID TO THE
TRUSTEES
THE TRUST TRUST* FROM THE TRUST AND FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Trust and 56 investment
companies
Chairman and Trustee
Thomas G. Bigley, $1,634 $108,725 for the Trust and 56
investment companies
Trustee
John T. Conroy, Jr., $1,797 $119,615 for the Trust and 56
investment companies
Trustee
William J. Copeland, $1,797 $119,615 for the Trust and 56
investment companies
Trustee
James E. Dowd, $1,797 $119,615 for the Trust and 56
investment companies
Trustee
Lawrence D. Ellis, M.D., $1,634 $108,725 for the Trust and 56
investment companies
Trustee
Edward L. Flaherty, Jr., $1,797 $119,615 for the Trust and 56
investment companies
Trustee
Peter E. Madden, $1,634 $108,725 for the Trust and 56
investment companies
Trustee
Gregor F. Meyer, $1,634 $108,725 for the Trust and 56
investment companies
Trustee
John E. Murray, Jr., $1,634 $108,725 for the Trust and 56
investment companies
Trustee
Wesley W. Posvar, $1,634 $108,725 for the Trust and 56
investment companies
Trustee
Marjorie P. Smuts, $1,634 $108,725 for the Trust and 56
investment companies
Trustee
*Information is furnished for the fiscal year ended February 28, 1997.
+The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management. It is a subsidiary
of Federated Investors. All of the voting securities of Federated Investors
are owned by a trust, the trustees of which are John F. Donahue, his wife,
and his son, J. Christopher Donahue.
The Trust's investment adviser shall not be liable to the Trust or any
shareholder for any losses that may be sustained in the purchase, holding,
or sale of any security, or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, Federated Management receives an annual
investment advisory fee as described in the prospectus. During the fiscal
years ended February 28, 1997, February 29, 1996, and February 28, 1995,
the Trust's investment adviser earned $5,738,180, $4,223,631, and
$2,922,038, respectively, which were reduced by $1,773,042, $1,340,094, and
$867,430, respectively, because of undertakings to limit the Trust's
expenses.
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 February 28, 1997,
February 29, 1996, and February 28, 1995, 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 years ended February
28, 1997, February 29, 1996, and February 28, 1995, the Administrators
earned $578,155, $426,149, and $295,457, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Trust's portfolio investments. The fee paid for this service is based
upon the level of the Trust's average net assets for the period plus out-
of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered 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 28, 1997, the Trust paid shareholder
services fees in the amount of $1,912,727, of which $382,545 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:
oaccording 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;
ofor most short-term obligations, at the mean between bid and asked
prices, as provided by an independent pricing service; or
ofor 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
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 payments should be in kind.
In such cases, 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 who sell these securities could receive less than the
redemption value and could incur certain transaction costs.
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:
oderive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
oderive less than 30% of its gross income from the sale of securities
held less than three months;
oinvest in securities within certain statutory limits; and
odistribute 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, 1997, were 13.74%, 11.30% and 10.38%,
respectively.
The average annual total return for the Trust is the average annual
compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares
owned at the end of the period by the net asset value per share at the end
of the period. The number of shares owned at the end of the period is based
on the number of shares purchased at the beginning of the period with
$1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
YIELD
The Trust's yield for the thirty-day period ended February 28, 1997 was
8.60%.
The yield for the Trust is determined by dividing the net investment income
per share (as defined by the SEC) 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
SEC 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:
oportfolio quality;
oaverage portfolio maturity;
otype of instruments in which the portfolio is invested;
ochanges in interest rates and market value of portfolio securities;
ochanges in Trust expenses; and
ovarious 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:
oLEHMAN 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.
oLEHMAN 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.
oLEHMAN BROTHERS HIGH YIELD INDEX and its subcategory indices cover
the universe of fixed rate, publicly issued, noninvestment grade
debt registered with the SEC. All bonds included in the High Yield
Index must be dollar-denominated and nonconvertible and have at
least one year remaining to maturity and an outstanding par value of
at least $100 million. Generally securities must be rated Ba1 or
lower by Moody's Investors Service, Inc. (``Moody's''), including
defaulted issues. If no Moody's rating is available, bonds must be
rated BB+ or lower by Standard & Poor's Ratings Group (``S&P''); and
if no S&P rating is available, bonds must be rated below investment
grade by Fitch Investor's Service. A small number of unrated bonds
is included in the index; to be eligible they must have previously
held a high yield rating or have been associated with a high yield
issuer, and must trade accordingly.
oMERRILL 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.
oMERRILL 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.
oMERRILL 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.
oLIPPER 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.
oSALOMON 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.
oMORNINGSTAR, 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.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Trust portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
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. These traders
handle trillions of dollars in annual trading volume.
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' global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
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.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 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--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Federated Securities Corp.
*Source: Investment Company Institute
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1997
MANAGEMENT DISCUSSION AND ANALYSIS:
--------------------------------------------------------------------------
During the 12 months ended February 28, 1997, the macro-economic
environment was almost ideal from a high yield bond perspective. The
domestic economy continued to grow at a moderate rate, and inflationary
pressures remained hard to find. Equity prices reached new highs, and
interest rates on 10-year U.S. government securities rose approximately 45
basis points. The high yield market paid little attention to the modest
rise in high quality interest rates and instead focused on the good
economic environment, falling default rates on high yield securities and
rising equity prices. For example, the yield spread between the First
Boston High Yield Index* and Treasury securities narrowed 111 basis points
during the period, more than offsetting the rise in high quality interest
rates. Stated another way, high yield bond prices rose while the price for
equal duration high quality securities fell. For the one-year period, the
Lehman Brothers High Yield Index* registered a total return of 12.23%
versus a total return of 5.35% for the Lehman Brothers Aggregate Index,* a
measure of high quality bond performance.
Federated High Yield Trust generated good performance during the period,
registering a total return of 13.74%. The trust outperformed both the
Lehman Brothers High Yield Index mentioned above and the Lipper High
Current Yield Funds Average, which returned 13.38% over the period. The
trust ranked 52nd out of 154 high yield funds according to Lipper
Analytical Services, Inc. for the one-year period ended March 31, 1997.**
Several factors benefited the trust over the period. First of all, the
single B sector of the market outperformed both the double B and the
triple C sectors. The trust held a higher percentage of single B
securities relative to the Lehman Brothers High Yield Index and a lower
percentage of triple C securities relative to the other mutual funds in
the Lipper universe. Second, the trust benefited from good security
selection, avoiding most deteriorating situations such as Penn Traffic and
Marvel Comics. Also, several securities delivered outstanding returns
based on company-specific credit improvements. Companies in this group
include Affiliated Newspapers, Nextel Communications, Six Flags Theme
Parks, Brylane, Ralph's Grocery and our holdings in the United Kingdom
cable TV sector, including Bell Cablemedia, Comcast UK and Telewest. The
trust also was positively impacted when several portfolio holdings were
retired when the issuer was acquired by higher-rated companies. This would
include Motor Wheel, Sherritt Gordon, Continental Cablevision, Spreckels
Ind., Pace Industries, SCI Television and Trans Ocean Container. Several
factors did negatively affect the trust during the period. Mid America
Waste defaulted on its debt in early 1996, and the trust's securities
traded down substantially during the year. The trust's positions in the
wireless cable TV industry underperformed as technology delays slowed the
roll out of digital wireless networks. Also, the trust's holdings in
Riverwood, RBX Corp. and Uniforet underperformed the overall market as
these issuers' operating performance fell short of expectations.
* These indices are unmanaged.
** Past performance is not indicative of future results. Lipper rankings
are based on total return and do not take sales charges into account.
During the ranking periods, certain trust expenses were waived;
otherwise, total return would have been lower. The trust's 5 and 10
year rankings as of 3/31/97 were 35 out of 61 high yield funds and 10
out of 44 high yield funds, respectively.
As we look out into the rest of 1997 we remain optimistic on the outlook
for high yield securities. We believe that economic growth will continue
to be moderate, inflation will remain under control and interest rates
should remain in a trading range. From a macro-economic standpoint this is
a very attractive scenario for high yield securities, as issuer
creditworthiness should remain at acceptable levels. The technical
environment is also attractive. Demand for high yield securities should
continue to be strong. We believe these two factors will result in a
narrowing of the yield spread or risk premium between high yield bonds and
Treasuries. However, the yield spread between high yield bonds and
Treasuries is at its low point for this economic cycle. This has two
implications. First, the relative total return advantage of high yield
bonds over high quality bonds will probably not approach the roughly 680
basis points advantage experienced in the 12 months ended February 28,
1997. Second, individual companies which do not meet expectations will be
dealt with harshly by the market as current spread levels leave little
room for disappointment.
From a portfolio perspective we continue to like the cable TV sector,
especially in the United Kingdom. We believe the United Kingdom cable TV
operators (who also provide telephone service) will continue to
successfully build out their markets and increase penetration. We also
believe that industry consolidation is inevitable. In the United States we
favor large, well-clustered cable companies that are positioned to
withstand increasing competition while offering new products to their
subscribers. We also like the telecommunication sector, especially
wireless providers and competitive local access providers. We believe that
technological advances, deregulation, and secular growth bode well for
these types of issuers. Finally, we are overweight in the broadcast
sector. We think consolidation, which is being driven by regulatory
changes, will result in large, well-managed companies dominating the radio
and TV business longer term.
FEDERATED HIGH YIELD TRUST
- --------------------------------------------------------------------------------
GROWTH OF $25,000 INVESTED IN FEDERATED HIGH YIELD TRUST
The graph below illustrates the hypothetical investment of $25,000 in the
Federated High Yield Trust (the "Trust") from February 28, 1987 to February 28,
1997, compared to the Lehman Brothers Single B Rated Index (LBSBI)+ and the
Lipper High Current Yield Funds Average (LHCYA).++
GRAPHIC REPRESENTATION `A'' OMITTED. SEE APPENDIX.
<TABLE>
<CAPTION>
Lehman Brothers
Measurement Period Single B Rated Lipper High Current
(Fiscal Year Covered) The Trust Index Yield Funds Average
<S> <C> <C> <C>
2/28/87 25000 25000 25000
2/29/88 25770 26355 25580
2/28/89 28584 28355 27857
2/28/90 26440 26872 25818
2/28/91 27265 28834 26525
2/29/92 39303 38669 35703
2/28/93 44522 44477 41197
2/28/94 50827 50753 48061
2/28/95 50664 51926 46792
2/29/96 59008 59579 54363
2/28/97 67116 67819 61636
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD
ENDED FEBRUARY 28, 1997
1 Year........................................................................ 13.74%
5 Year........................................................................ 11.30%
10 Year....................................................................... 10.38%
Start of Performance (8/23/84)................................................ 11.97%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE, SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
THIS REPORT MUST BE PRECEDED OR ACCOMPANIED BY THE TRUST'S PROSPECTUS DATED
APRIL 30, 1997, AND, TOGETHER WITH FINANCIAL STATEMENTS CONTAINED THEREIN,
CONSTITUTES THE TRUST'S ANNUAL REPORT.
* The Trust's performance assumes the reinvestment of all dividends and
distributions. The LBSBI and the LHCYA have been adjusted to reflect
reinvestment of dividends on securities in the index and average.
+ The LBSBI is not adjusted to reflect sales charges, expenses, or other fees
that the SEC requires to be reflected in the Trust's performance. The index
is unmanaged.
++ The LHCYA represents the average of the total returns reported by all of the
mutual funds designated by Lipper Analytical Services, Inc. as falling in the
respective category, and is not adjusted to reflect any sales charges.
However, these total returns are reported net of expenses or other fees that
the SEC requires to be reflected in a fund's performance.
LOGO
Cusip 314197104
8040401ARS (4/97)
FEDERATED HIGH YIELD TRUST
APPENDIX
A. The graphic representation here displayed consists of a legend in the
upper left quadrant indicating the components of the corresponding line
graph. Federated High Yield Trust (the "Trust") is represented by a solid
line. Lehman Brothers Single B Rated Index ("LBSBI") is represented by a
broken line. The Lipper High Current Yield Funds Average ("LHCYA") is
represented by a line consisting of a dash followed by two dots. The line
graph is a visual representation of a comparison of change in value of a
hypothetical $25,000 purchase in the Trust, LBSBI, and LHCYA. The "y" axis
reflects the cost of the investment. The "x" axis reflects annual
computation periods from February 28, 1987 through February 28, 1997. The
right margin reflects the ending value of the hypothetical investment in
the Trust as compared to LBSBI and LHCYA; the ending values are $67,116,
$67,819, and $61,636, respectively. There is also a legend in the bottom
center which indicates the Average Annual Total Return for the one-year,
five-year, and ten-year periods ended February 28, 1997, and beginning with
the inception date of the Trust (August 23, 1984); the Average Annual Total
Returns are 13.74%, 11.30%, 10.38%, and 11.97%, respectively.
