1933 Act File No. 2-91091
1940 Act File No. 811-4018
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ......................
Post-Effective Amendment No. __27____..................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 23 ........................................... X
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FEDERATED HIGH YIELD TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7000
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
_x on April 30, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i) on _________________
pursuant to paragraph (a) (i) 75 days after filing pursuant to paragraph
(a)(ii) on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies to:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
PROSPECTUS
Federated High Yield Trust
A mutual fund seeking high current income by investing primarily in a
professionally managed, diversified portfolio of fixed income securities.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
APRIL 30, 1999
CONTENTS
Risk/Return Summary 1
What are The Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 9
Who Manages the Fund? 10
Financial Information 11
Report of Ernst & Young LLP, Independent Auditors 33
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund's investment objective 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 Fund will achieve its
investment objective, it endeavors to do so by following the strategies and
policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of high-yield, lower-rated corporate bonds (also known as
"junk bonds"). The adviser selects securities seeking high yields, low relative
credit risk, and high portfolio diversification.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, it is possible to lose money
by investing in the Fund. The primary factors that may reduce the Fund's returns
include:
* The corporate bonds in which the fund invests have a higher default risk than
investment-grade securities. Low-grade bonds are almost always uncollateralized
and subordinated to other debt that a firm has outstanding.
* Liquidity of individual corporate bonds varies considerably. Low-grade
corporate bonds have less liquidity than investment grade securities, which
means that it may be more difficult to sell or buy a security at a favorable
price or time.
* Low-grade corporate bond returns are sensitive to changes in the economy. The
value of the Fund's portfolio may decline in tandem with a drop in the overall
value of the stock market based on negative developments in the U.S. and global
economies.
* Low-grade corporate bond returns are sensitive to changes in prevailing
interest rates. An increase in interest rates may result in a decrease in the
value of Fund shares.
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 or
guaranteed by the U.S. government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Federated High Yield Trust as of the calendar year-end
for each of ten years. The `y' axis reflects the "% Total Return" beginning with
"-15%" and increasing in increments of 15% up to 60%. The `x' axis represents
calculation periods (from the earliest calendar year end of the Fund's start of
business) through the calendar year ended 1998. The light gray shaded chart
features ten distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentage for the Fund for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1989 through 1998. The percentages noted are: -1.16%, -12.57%,
52.53%, 15.02%, 17.37%, -2.41%, 18.39%, 13.49%, 13.25%, and 1.06% respectively.
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return from January 1, 1999 to March 31, 1999 was 3.34%.
Within the period shown in the Chart, the Fund's highest quarterly return was
21.35% (quarter ended March 31, 1991). Its lowest quarterly return was (7.41%)
(quarter ended September 30, 1990).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Return for the
calendar period ended December 31, 1998.
CALENDAR PERIOD FUND LBSBI LBHYBI LHCYA
1 Year 1.06% 1.27% 1.87% (0.40%)
5 Years 8.46% 8.64% 8.57% 7.42%
10 Years 10.32% 10.48% 10.55% 9.40%
The table shows the Fund's total returns averaged over a period of years
relative to the Lehman Brothers Single B Rated Index (LBSBI), the Lehman
Brothers High Yield Bond Index (LBHYBI), broad-based market indices, and the
Lipper High Current Yield Funds Average (LHCYA), an average of funds with
similar investment objectives.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
rewards.
What are The Fund's Fees and Expenses?
FEDERATED HIGH YIELD TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING
EXPENSES (Before Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.75%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.14%
Total Annual Fund Operating Expenses 1.14%
1 Although not contractually obligated to do so, the adviser and shareholder
services provider waived certain amounts. These are shown below along with the
net expenses the Fund actually paid for the fiscal year ended February 28, 1999.
Total Waiver of Fund Expenses 0.26%
Total Actual Annual Fund Operating Expenses (after waivers) 0.88%
2 The adviser voluntary waived a portion of the management fee. The adviser
can terminate this voluntary waiver at any time. The management fee paid by
the Fund (after the voluntary waiver) was 0.54% for the fiscal year ended
February 28, 1999.
3 The shareholder services fee for the Fund has been voluntarily reduced.
This voluntary reduction can be terminated at any time. The shareholder
services fee paid by the Fund (after the voluntary reduction) was 0.20% for
the fiscal year ended February 28, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your Shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses are before waivers as shown in the Table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 Year $ 116
3 Years $ 362
5 Years $ 628
10 Years $ 1,386
What are the Fund's Investment Strategies?
The Fund provides exposure to the high-yield, lower-rated corporate bond market.
At least 65 percent of the Fund's assets are invested in corporate bonds rated
BBB or lower. The adviser actively manages the Fund's portfolio seeking to
realize the potentially higher returns of high-yield bonds (also known as "junk
bonds") compared to returns of high-grade securities by seeking to minimize
default risk and other risks through careful security selection and
diversification.
The adviser selects securities seeking high yields, low relative credit risk,
and high portfolio diversification. The securities in which the Fund invests
have high yields primarily because of the market's greater uncertainty about the
issuer's ability to make all required interest and principal payments, and
therefore about the returns that will be in fact be realized by the Fund.
The adviser attempts to select bonds for investment by the Fund which offer high
potential returns for the default risks being assumed. The adviser's securities
selection process consists of a credit-intensive, fundamental analysis of the
issuing firm. The adviser's analysis focuses on the financial condition of the
issuing firm together with the issuer's business and product strength,
competitive position, and management expertise. Further, the adviser considers
current economic, financial market, and industry factors, which may affect the
issuer.
The adviser attempts to minimize the Fund's portfolio credit risk through
diversification. The adviser selects securities to maintain broad portfolio
diversification both by company and industry. The adviser does not target an
average maturity for the Fund's portfolio.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause the Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
What are the Principal Securities in Which the Fund Invests?
The Fund invests primarily in lower-rated corporate fixed income securities.
Corporate fixed income securities are debt securities issued by U.S. or foreign
businesses. Notes, bonds, debentures and commercial paper are the most prevalent
types of corporate debt securities. The Fund may also purchase interests in bank
loans to companies.
Preferred stock which is redeemable by the issuer is substantially similar to a
fixed income security. Preferred stocks have the right to receive specified
dividends or distributions before the issuer makes payments on its common stock.
Some preferred stock also participates in dividends and distributions paid on
common stock.
The Fund may invest in fixed income securities of issuers based outside the
U.S. The securities of foreign issuers in which the Fund invests are
primarily traded in the U.S. and are predominantly denominated in
U.S. dollars.
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time.
A security's current yield measures the annual income earned on a security as a
percentage of its price. The rate may be a fixed percentage of the principal or
adjusted periodically. In addition, the issuer of a fixed income security must
repay the principal amount of the security, normally within a specified time. A
security's yield to maturity will increase or decrease depending upon whether it
costs less (a discount) or more (a premium) than the principal amount.
The credit risks of corporate debt securities vary widely among issuers. In
addition, the credit risk of an issuer's debt securities may vary based on their
priority for repayment. For example, higher-ranking (senior) securities have a
higher priority than lower ranking (subordinated) securities. This means that
the issuer might not make payments on subordinated securities while continuing
to make payments on senior securities. Typically, both senior and subordinated
debt securities have a higher priority than redeemable preferred stock. Most of
the fixed income securities in which the Fund invests will be uncollateralized
and subordinated to other debt that a corporation has outstanding.
Lower rated fixed income securities are securities rated below investment grade
(i.e., BB or lower) by a Nationally Recognized Rating Service. There is no
minimal acceptable rating for a security to be purchased or held by the Fund and
the Fund may purchase or hold unrated securities and securities whose issuers
are in default.
What are the Specific Risks of Investing in the Fund?
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. The high yield bonds in which the Fund invests have a higher
default risk than investment grade securities. Low-grade bonds are almost always
uncollateralized and subordinated to other debt that a firm has outstanding.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the adviser's credit assessment.
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline relative to higher quality instruments.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that have not
received any credit ratings, have received ratings below investment grade or are
not widely held. These features may make it more difficult to sell or buy a
security at a favorable price or time. Consequently, the Fund may have to accept
a lower price to sell a security, sell other securities to raise cash or give up
an investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
RISKS RELATED TO THE ECONOMY
The prices of high yield securities are affected by the economy. The value of
the Fund's portfolio may decline in tandem with a drop in the overall value of
the stock market based on negative developments in the U.S. and global
economies.
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to the interest rate
paid by similar securities. Generally, when interest rates rise, prices of fixed
income securities fall. However, market factors, such as the demand for
particular fixed income securities, may cause the price of certain fixed income
to fall while the prices of other securites rise or remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity of a
fixed income security to changes in interest rates.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. When the Fund receives your transaction request in proper form, it is
processed at the next calculated net asset value (NAV). The Fund does not charge
a front-end sales charge. NAV is determined at the end of regular trading
(normally 4:00 p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $25,000. There is no
required minimum subsequent investment amount.
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 is
calculated by combining all accounts it maintains with the Fund. Accounts
established through investment professionals may be subject to a smaller minimum
investment amount. Keep in mind that investment professionals may charge you
fees for their services in connection with your Share transactions.
How is the Fund Sold?
The Fund's Distributor markets the Shares described in this prospectus to bank
customers or banks acting in a fiduciary, advisory, agency, custodial (including
Individual Retirement Accounts), or similar capacity or individuals, directly or
through investment professionals. 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.
The Distributor and its affiliates may pay out of their assets other
amounts (including items of material value) to investment professionals
for marketing and servicing Shares. The Distributor is a subsidiary of
Federated Investors, Inc. (Federated).
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will receive
the next calculated NAV if the investment professional forwards the order to the
Fund on the same day and the Fund receives payment within one business day. You
will become the owner of Shares and receive dividends when the Fund receives
your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares and your Shares will be priced at the next
calculated NAV after the Fund receives your wire or your check. If your check
does not clear, your purchase will be canceled and you could be liable for any
losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and the Shares will be priced at the next calculated NAV after the Fund receives
the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund
will not accept third-party checks (checks originally payable to someone
other than you or The Federated Funds).
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions. If you call before
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time) you
will receive a redemption amount based on that day's NAV.
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the
Fund receives your written request in proper form. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases and redemptions. In addition, you
will receive periodic statements reporting all account activity, including
dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments. If you
purchase Shares just before a Fund declares a capital gain distribution, you
will pay the full price for the Shares and then receive a portion of the price
back in the form of a taxable distribution, whether or not you reinvest the
distribution in Shares. Therefore, you should consider the tax implications of
purchasing Shares shortly before the Fund declares a capital gain. Contact your
investment professional or the Fund for information concerning when dividends
and capital gains will be paid. ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non- retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which total approximately $111 billion in assets as
of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
THE FUND'S PORTFOLIO MANAGERS ARE:
MARK E. DURBIANO
Mark E. Durbiano has been the Fund's portfolio manager since August 1984.
Mr. Durbiano joined Federated in 1982 and has been a Senior Vice President
of the Fund's Adviser since January 1996. From 1988 through 1995,
Mr. Durbiano was a Vice President of the Fund's Adviser. Mr. Durbiano is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Pittsburgh.
CONSTANTINE KARTSONAS
Constantine Kartsonas has been the Fund's portfolio manager since
April 1998. Mr. Kartsonas joined Federated in 1994 as an Investment
Analyst and has been an Assistant Vice President of the Fund's Adviser
since January 1997. From 1990 to 1993, he served as an Operations Analyst
at Lehman Brothers. Mr. Kartsonas earned his M.B.A. with a concentration in
Finance, from the University of Pittsburgh in 1994.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.75% of the Fund's
average daily net. The Adviser may voluntarily waive a portion of its fee or
reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems.. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities will have
difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in the Fund, assuming reinvestment of any dividends and capital
gains.
This information has been audited by Ernst & Young LLP, whose report, along with
the Fund's audited financial statements, is included in this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors on
page 33.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.73 $ 9.41 $ 9.09 $ 8.57 $ 9.48
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.83 0.82 0.85 0.85 0.84
Net realized and unrealized
gain (loss) on investments (0.81) 0.32 0.33 0.51 (0.90)
TOTAL FROM INVESTMENT OPERATIONS 0.02 1.14 1.18 1.36 (0.06)
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.83) (0.82) (0.85) (0.84) (0.84)
Distributions in excess
of net investment income 1 - - (0.01) - (0.01)
TOTAL DISTRIBUTIONS (0.83) (0.82) (0.86) (0.84) (0.85)
NET ASSET VALUE, END OF PERIOD $ 8.92 $ 9.73 $ 9.41 $ 9.09 $ 8.57
TOTAL RETURN 2 0.33% 12.74% 13.74% 16.47% (0.32)%
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.88% 0.88% 0.88% 0.88% 0.85%
Net investment income 9.02% 8.73% 9.45% 9.53% 9.70%
Expense waiver/reimbursement 3 0.26% 0.27% 0.28% 0.30% 0.22%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $1,069,840 $1,199,063 $938,363 $673,779 $464,604
Portfolio turnover 47% 84% 81% 87% 99%
</TABLE>
1 Distributions in excess of net investment income for the periods ended
February 28, 1997, and 1995, were a result of certain book and tax timing
differences. These distributions did not represent a return of capital for
federal income tax purposes.
2 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
3 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
Portfolio of Investments
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-95.4%
AUTO/TRUCK-0.2%
$ 2,425,000 1 HDA Parts System, Inc.,
Sr. Sub. Note, 12.00%,
8/1/2005 $ 2,297,687
AUTOMOBILE-1.8%
3,563,000 Aftermarket Technology
Co., Sr. Sub. Note,
12.00%, 8/1/2004 3,669,890
9,800,000 Collins & Aikman
Products Co., Sr. Sub.
Note, 11.50%, 4/15/2006 10,363,500
1,000,000 Lear Corp., Sub. Note,
9.50%, 7/15/2006 1,097,500
3,700,000 Oxford Automotive, Inc.,
Sr. Sub. Note, 10.125%,
6/15/2007 3,829,500
TOTAL 18,960,390
AUTOMOTIVE-0.4%
4,050,000 Accuride Corp., Sr. Sub.
Note, 9.25%, 2/1/2008 4,080,375
BANKING-1.1%
11,675,000 GS Escrow Corp., Sr.
Note, 7.125%, 8/1/2005 11,362,577
BEVERAGE & TOBACCO-0.0%
550,000 1 National Wine & Spirits,
Inc., Sr. Note, 10.125%,
1/15/2009 559,625
BROADCAST RADIO & TV-
8.5%
7,250,000 ACME Television, LLC,
Sr. Disc. Note,
0/10.875%, 9/30/2004 6,162,500
1,250,000 Benedek Communications
Corp., Sr. Sub. Disc.
Note, 0/13.25%,
5/15/2006 906,250
7,350,000 Big City Radio, Inc.,
Company Guarantee,
0/11.25%, 3/15/2005 5,181,750
3,000,000 Capstar Broadcasting
Partners, Inc., Sr. Sub.
Note, 9.25%, 7/1/2007 3,165,000
3,758,300 CBS Radio, Inc., Sub.
Deb., 11.375%, 1/15/2009 4,378,419
3,000,000 Chancellor Media Corp.,
Company Guarantee,
10.50%, 1/15/2007 3,326,250
7,500,000 Chancellor Media Corp.,
Sr. Sub. Note, 8.125%,
12/15/2007 7,687,500
3,925,000 Chancellor Media Corp.,
Sr. Sub. Note, 8.75%,
6/15/2007 4,101,625
8,250,000 Chancellor Media Corp.,
Sr. Sub. Note, 9.375%,
10/1/2004 8,662,500
3,000,000 1 Chancellor Media Corp.,
Sr. Unsecd. Note, 8.00%,
11/1/2008 3,142,500
4,000,000 Cumulus Media, Inc., Sr.
Sub. Note, 10.375%,
7/1/2008 4,360,000
13,125,000 Fox/Liberty Networks,
LLC, Sr. Disc. Note,
0/9.75%, 8/15/2007 9,712,500
3,200,000 Fox/Liberty Networks,
LLC, Sr. Note, 8.875%,
8/15/2007 3,360,000
1,175,000 Lamar Advertising Co.,
Sr. Sub. Note, 8.625%,
9/15/2007 1,251,375
1,100,000 Lamar Advertising Co.,
Sr. Sub. Note, 9.625%,
12/1/2006 1,204,500
4,575,000 Outdoor Systems, Inc.,
Sr. Sub. Note, 8.875%,
6/15/2007 4,918,125
2,000,000 Outdoor Systems, Inc.,
Sr. Sub. Note, 9.375%,
10/15/2006 2,170,000
3,300,000 Sinclair Broadcast
Group, Inc., Sr. Sub.
Note, 10.00%, 9/30/2005 3,481,500
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
BROADCAST RADIO & TV-
CONTINUED
$ 7,000,000 Sinclair Broadcast
Group, Inc., Sr. Sub.
Note, 8.75%, 12/15/2007 $ 7,157,500
3,100,000 Sinclair Broadcast
Group, Inc., Sr. Sub.
Note, 9.00%, 7/15/2007 3,185,250
2,225,000 Young Broadcasting,
Inc., Sr. Sub. Note,
10.125%, 2/15/2005 2,347,375
1,425,000 Young Broadcasting,
Inc., Sr. Sub. Note,
9.00%, 1/15/2006 1,496,250
TOTAL 91,358,669
BUILDING & DEVELOPMENT-
1.8%
1,700,000 American Architectural
Products Corp., Sr.
Note, 11.75%, 12/1/2007 1,453,500
4,625,000 American Builders &
Contractors Supply Co.,
Inc., Sr. Sub. Note,
10.625%, 5/15/2007 4,266,562
4,625,000 Building Materials Corp.
of America, Sr. Note,
8.00%, 10/15/2007 4,578,750
8,825,000 Falcon Building
Products, Inc., Sr. Sub.
Disc. Note, 0/10.50%,
6/15/2007 5,361,187
3,200,000 1 Formica Corp., Sr. Sub.
Note, 10.875%, 3/1/2009 3,208,000
TOTAL 18,867,999
BUSINESS EQUIPMENT &
SERVICES-2.4%
7,750,000 Dialog Corp. PLC, Sr.
Sub. Note, 11.00%,
11/15/2007 7,362,500
3,725,000 Electronic Retailing
Systems International,
Inc., Sr. Disc. Note,
0/13.25%, 2/1/2004 1,285,125
3,750,000 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%,
2/1/2008 3,796,875
4,225,000 1 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%,
2/1/2008 4,277,812
6,100,000 U.S. Office Products
Co., Sr. Sub. Note,
9.75%, 6/15/2008 4,300,500
3,483,000 United Stationers Supply
Co., Sr. Sub. Note,
12.75%, 5/1/2005 3,892,252
1,200,000 United Stationers Supply
Co., Sr. Sub. Note,
8.375%, 4/15/2008 1,212,000
TOTAL 26,127,064
CABLE TELEVISION-12.9%
67,574 4 Australis Media Ltd.,
Sr. Disc. Note,
5/15/2003 1,014
3,950,000 4 Australis Media Ltd.,
Unit, 0/14.00%,
5/15/2003 59,250
2,000,000 CSC Holdings, Inc., Sr.
Note, 7.875%, 12/15/2007 2,128,140
165,000 CSC Holdings, Inc., Sr.
Sub. Deb., 9.875%,
2/15/2013 186,450
2,875,000 CSC Holdings, Inc., Sr.
Sub. Note, 9.25%,
11/1/2005 3,119,375
4,300,000 CSC Holdings, Inc., Sr.
Sub. Note, 9.875%,
5/15/2006 4,730,000
2,000,000 Charter Communications
Holdings, Inc., Sr.
Disc. Note, 0/14.00%,
3/15/2007 1,925,000
4,750,000 Charter Communications
Southeast, L.P., Sr.
Note, 11.25%, 3/15/2006 5,462,500
6,475,000 Comcast Corp., Sr. Sub.
Deb., 9.375%, 5/15/2005 6,993,000
2,975,000 Comcast UK Cable, Deb.,
0/11.20%, 11/15/2007 2,606,844
8,825,000 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/10.75%,
2/15/2007 6,883,500
3,850,000 Diamond Holdings PLC,
Sr. Note, 9.125%,
2/1/2008 4,052,125
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
CABLE TELEVISION-
CONTINUED
$ 3,225,000 1 Diva Systems Corp., Sr.
Disc. Note, 0/12.625%,
3/1/2008 $ 1,048,125
8,850,000 1 Echostar DBS Corp., Sr.
Note, 9.375%, 2/1/2009 8,960,625
6,400,000 International Cabletel,
Inc., Sr. Defd. Cpn.
Note, 0/11.50%, 2/1/2006 5,504,000
6,375,000 International Cabletel,
Inc., Sr. Disc. Note,
0/12.75%, 4/15/2005 5,896,875
2,250,000 Lenfest Communications,
Inc., Sr. Note, 8.375%,
11/1/2005 2,446,875
1,000,000 Lenfest Communications,
Inc., Sr. Sub. Note,
10.50%, 6/15/2006 1,175,000
6,250,000 Lenfest Communications,
Inc., Sr. Sub. Note,
8.25%, 2/15/2008 6,562,500
12,150,000 1 NTL, Inc., Sr. Defd. Cpn.
Note, 0/12.375%,
10/1/2008 8,413,875
750,000 NTL, Inc., Sr. Defd. Cpn.
Note, 0/9.75%, 4/1/2008 525,000
5,700,000 1 NTL, Inc., Sr. Note,
11.50%, 10/1/2008 6,526,500
2,850,000 Pegasus Communications
Corp., Sr. Note, 9.625%,
10/15/2005 2,956,875
2,350,000 1 Pegasus Communications
Corp., Sr. Note, 9.75%,
12/1/2006 2,449,875
3,300,000 Pegasus Media, Note,
12.50%, 7/1/2005 3,646,500
2,850,000 Rogers Cablesystems
Ltd., Sr. Secd. 2nd
Priority Note, 10.00%,
12/1/2007 3,241,875
3,500,000 Rogers Cablesystems
Ltd., Sr. Secd. 2nd
Priority Note, 10.00%,
3/15/2005 4,016,250
5,800,000 Rogers Cablesystems
Ltd., Sr. Sub. Gtd. Note,
11.00%, 12/1/2015 6,931,000
19,600,000 TeleWest PLC, Sr. Disc.
Deb., 0/11.00%,
10/1/2007 17,248,000
1,150,000 1 TeleWest PLC, Sr. Note,
11.25%, 11/1/2008 1,316,750
9,825,000 UIH Australia/Pacific,
Sr. Disc. Note,
0/14.00%, 5/15/2006 5,747,625
8,000,000 United International
Holdings, Inc., Sr.
Secd. Disc. Note,
0/10.75%, 2/15/2008 5,340,000
TOTAL 138,101,323
CHEMICALS & PLASTICS-
3.3%
750,000 Buckeye Cellulose Corp.,
Sr. Sub. Note, 8.50%,
12/15/2005 783,750
3,900,000 Buckeye Cellulose Corp.,
Sr. Sub. Note, 9.25%,
9/15/2008 4,117,347
1,750,000 Foamex L.P., Sr. Sub.
Note, 13.50%, 8/15/2005 1,968,750
5,775,000 1 Huntsman Corp., Sr. Sub.
Note, 9.50%, 7/1/2007 5,818,312
3,988,000 ISP Holding, Inc., Sr.
Note, 9.75%, 2/15/2002 4,197,370
1,000,000 Polymer Group, Inc., Sr.
Sub. Note, 8.75%,
3/1/2008 1,015,000
12,900,000 Polymer Group, Inc., Sr.
Sub. Note, 9.00%,
7/1/2007 13,222,500
6,075,000 Sterling Chemicals
Holdings, Inc., Sr.
Disc. Note, 0/13.50%,
8/15/2008 2,338,875
1,925,000 Sterling Chemicals,
Inc., Sr. Sub. Note,
11.75%, 8/15/2006 1,694,000
TOTAL 35,155,904
CLOTHING & TEXTILES-1.9%
3,125,000 Collins & Aikman
Floorcoverings, Inc.,
Sr. Sub. Note, 10.00%,
1/15/2007 3,261,719
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
CLOTHING & TEXTILES-
CONTINUED
$ 3,850,000 Dyersburg Corp., Sr.
Sub. Note, 9.75%, 9/1/2007 $ 3,022,250
2,575,000 GFSI, Inc., Sr. Sub.
Note, 9.625%, 3/1/2007 2,417,281
4,450,000 Glenoit Corp., Sr. Sub.
Note, 11.00%, 4/15/2007 4,183,000
4,900,000 Pillowtex Corp., Sr.
Sub. Note, 10.00%,
11/15/2006 5,169,500
2,350,000 Pillowtex Corp., Sr.
Sub. Note, 9.00%,
12/15/2007 2,408,750
TOTAL 20,462,500
CONGLOMERATE-0.6%
6,375,000 Eagle Picher Industries,
Inc., Sr. Sub. Note,
9.375%, 3/1/2008 6,215,625
CONSUMER PRODUCTS-3.7%
2,500,000 1 Albecca, Inc., Sr. Sub.
Note, 10.75%, 8/15/2008 2,118,750
3,150,000 American Safety Razor
Co., Sr. Note, 9.875%,
8/1/2005 3,197,250
2,250,000 Amscan Holdings, Inc.,
Sr. Sub. Note, 9.875%,
12/15/2007 2,047,500
4,525,000 Chattem, Inc., Sr. Sub.
Note, 8.875%, 4/1/2008 4,615,500
850,000 Diamond Brands Operating
Corp., Sr. Sub. Note,
10.125%, 4/15/2008 677,875
1,450,000 Diamond Brands, Inc.,
Sr. Disc. Deb.,
0/12.875%, 4/15/2009 362,500
1,000,000 Hosiery Corp. of
America, Inc., Sr. Sub.
Note, 13.75%, 8/1/2002 1,075,000
5,300,000 ICON Fitness Corp., Sr.
Disc. Note, 0/14.00%,
11/15/2006 79,500
2,850,000 NBTY, Inc., Sr. Sub.
Note, 8.625%, 9/15/2007 2,750,250
1,100,000 Playtex Products, Inc.,
Sr. Note, 8.875%,
7/15/2004 1,152,250
1,800,000 Revlon Consumer Products
Corp., Sr. Note, 8.125%,
2/1/2006 1,701,000
13,950,000 Revlon Consumer Products
Corp., Sr. Sub. Note,
8.625%, 2/1/2008 12,345,750
2,175,000 1 Scotts Co., Sr. Sub.
Note, 8.625%, 1/15/2009 2,245,688
2,000,000 Sealy Mattress Co.,
Company Guarantee,
0/10.875%, 12/15/2007 1,260,000
1,250,000 Sealy Mattress Co., Sr.
Sub. Note, 9.875%,
12/15/2007 1,212,500
1,750,000 1 True Temper Sports,
Inc., Sr. Sub. Note,
10.875%, 12/1/2008 1,671,250
1,000,000 1 Volume Services America,
Inc., Sr. Sub. Note,
11.25%, 3/1/2009 1,010,000
TOTAL 39,522,563
CONTAINER & GLASS
PRODUCTS-0.8%
950,000 1 Consumers Packaging,
Inc., Sr. Note, 9.75%,
2/1/2007 978,500
2,050,000 1 Russell Stanley
Holdings, Inc., Sr. Sub.
Note, 10.875%, 2/15/2009 2,034,625
5,300,000 Tekni-Plex, Inc., Sr.
Sub. Note, 9.25%,
3/1/2008 5,459,000
TOTAL 8,472,125
ECOLOGICAL SERVICES &
EQUIPMENT-0.5%
5,500,000 Allied Waste North
America, Inc., Sr. Note,
7.875%, 1/1/2009 5,555,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
ELECTRONICS-0.9%
$ 8,350,000 Telecommunications
Techniques Co., LLC, Sr.
Sub. Note, 9.75%, 5/15/2008 $ 8,433,500
1,250,000 Viasystems, Inc., Sr.
Sub. Note, 9.75%, 6/1/2007 1,162,500
TOTAL 9,596,000
FOOD & DRUG RETAILERS-0.4%
3,650,000 Carr-Gottstein Foods
Co., Sr. Sub. Note,
12.00%, 11/15/2005 4,234,000
FOOD PRODUCTS-2.6%
6,500,000 1 Agrilink Foods, Inc.,
Sr. Sub. Note, 11.875%,
11/1/2008 6,971,250
3,600,000 Aurora Foods, Inc., Sr.
Sub. Note, Series B,
9.875%, 2/15/2007 3,942,000
2,000,000 Aurora Foods, Inc., Sr.
Sub. Note, Series D,
9.875%, 2/15/2007 2,190,000
3,625,000 Eagle Family Foods,
Inc., Sr. Sub. Note,
8.75%, 1/15/2008 3,353,125
6,400,000 International Home
Foods, Inc., Sr. Sub.
Note, 10.375%, 11/1/2006 7,008,000
4,250,000 1 Triarc Consumer Products
Group, LLC, Sr. Sub.
Note, 10.25%, 2/15/2009 4,207,500
TOTAL 27,671,875
FOOD SERVICES-1.4%
7,900,000 AmeriServe Food
Distribution, Inc., Sr.
Sub. Note, 10.125%,
7/15/2007 5,688,000
3,925,000 1 Carrols Corp., Sr. Sub.
Note, 9.50%, 12/1/2008 3,983,875
3,500,000 1 Domino's, Inc., Sr. Sub.
Note, 10.375%, 1/15/2009 3,648,750
3,200,000 Nebco Evans Holding Co.,
Sr. Disc. Note,
0/12.375%, 7/15/2007 1,532,000
TOTAL 14,852,625
FOREST PRODUCTS-0.9%
4,975,000 Stone Container Corp.,
Sr. Note, 11.50%,
10/1/2004 5,248,625
2,000,000 Stone Container Corp.,
Sr. Note, 12.58%,
8/1/2016 2,025,000
2,000,000 Stone Container Corp.,
Unit, 12.25%, 4/1/2002 2,035,000
TOTAL 9,308,625
HEALTHCARE-3.9%
2,600,000 Alliance Imaging, Inc.,
Sr. Sub. Note, 9.625%,
12/15/2005 2,548,000
5,000,000 CONMED Corp., Sr. Sub.
Note, 9.00%, 3/15/2008 5,025,000
5,725,000 Dade International,
Inc., Sr. Sub. Note,
11.125%, 5/1/2006 6,354,750
1,950,000 Everest Healthcare
Services Corp., Sr. Sub.
Note, 9.75%, 5/1/2008 1,959,750
700,000 Genesis Health Ventures,
Inc., Sr. Sub. Note,
9.75%, 6/15/2005 598,500
1,000,000 1 Genesis Health Ventures,
Inc., Sr. Sub. Note,
9.875%, 1/15/2009 845,000
1,750,000 Hudson Respiratory Care,
Inc., Sr. Sub. Note,
9.125%, 4/15/2008 1,496,250
5,000,000 1 Tenet Healthcare Corp.,
Sr. Note, 7.625%,
6/1/2008 4,848,100
8,650,000 Tenet Healthcare Corp.,
Sr. Note, 8.00%, 1/15/2005 8,668,511
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
HEALTHCARE-CONTINUED
$ 3,650,000 Tenet Healthcare Corp.,
Sr. Sub. Note, 8.625%,
1/15/2007 $ 3,704,750
6,000,000 1 Tenet Healthcare Corp.,
Sr. Sub. Note, 8.125%,
12/1/2008 5,880,000
TOTAL 41,928,611
HOTELS, MOTELS, INNS &
CASINOS-1.3%
1,000,000 HMH Properties, Inc.,
Sr. Note, Series A,
7.875%, 8/1/2005 987,500
9,225,000 HMH Properties, Inc.,
Sr. Note, Series B,
7.875%, 8/1/2008 8,879,062
4,200,000 HMH Properties, Inc.,
Sr. Note, Series C,
8.45%, 12/1/2008 4,158,000
TOTAL 14,024,562
INDUSTRIAL PRODUCTS &
EQUIPMENT-5.0%
3,750,000 Amphenol Corp., Sr. Sub.
Note, 9.875%, 5/15/2007 3,895,312
4,800,000 Cabot Safety Acquisition
Corp., Sr. Sub. Note,
12.50%, 7/15/2005 5,172,000
4,725,000 Continental Global
Group, Inc., Sr. Note,
11.00%, 4/1/2007 3,915,844
5,325,000 Euramax International
PLC, Sr. Sub. Note,
11.25%, 10/1/2006 5,484,750
1,200,000 Grove Holdings, LLC, Sr.
Disc. Deb., 0/11.625%,
5/1/2009 408,000
1,000,000 Grove Worldwide, LLC,
Sr. Sub. Note, 9.25%,
5/1/2008 855,000
3,525,000 ISG Resources, Inc., Sr.
Sub. Note, 10.00%,
4/15/2008 3,595,500
1,925,000 International Utility
Structures, Inc., Sr.
Sub. Note, 10.75%,
2/1/2008 1,876,875
1,800,000 Johnstown America
Industries, Inc., Sr.
Sub. Note, 11.75%,
8/15/2005 1,957,500
1,875,000 Johnstown America
Industries, Inc., Sr.
Sub. Note, Series C,
11.75%, 8/15/2005 2,039,062
5,000,000 MMI Products, Inc., Sr.
Sub. Note, 11.25%,
4/15/2007 5,337,500
2,200,000 1 Neenah Corp., Sr. Sub.
Note, 11.125%, 5/1/2007 2,304,500
2,775,000 Neenah Corp., Sr. Sub.
Note, Series B, 11.125%,
5/1/2007 2,906,812
3,450,000 Unifrax Investment
Corp., Sr. Note, 10.50%,
11/1/2003 3,596,625
7,525,000 WESCO Distribution,
Inc., Sr. Sub. Note,
9.125%, 6/1/2008 7,863,625
3,150,000 WESCO International,
Inc., Sr. Disc. Note,
0/11.125%, 6/1/2008 2,079,000
TOTAL 53,287,905
LEISURE & ENTERTAINMENT-3.3%
6,109,000 AMF Bowling Worldwide,
Inc., Sr. Sub. Disc.
Note, 0/12.25%, 3/15/2006 3,543,220
100,000 AMF Bowling Worldwide,
Inc., Sr. Sub. Note,
10.875%, 3/15/2006 79,500
2,500,000 Loews Cineplex
Entertainment, Inc., Sr.
Sub. Note, 8.875%,
8/1/2008 2,512,500
9,950,000 Premier Parks, Inc., Sr.
Disc. Note, 0/10.00%,
4/1/2008 6,965,000
3,100,000 Premier Parks, Inc., Sr.
Note, 12.00%, 8/15/2003 3,340,250
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-
continued
LEISURE & ENTERTAINMENT-
CONTINUED
$ 500,000 Premier Parks, Inc., Sr.
Note, 9.75%, 1/15/2007 $ 542,500
3,950,000 Regal Cinemas, Inc., Sr.
Sub. Note, 9.50%, 6/1/2008 3,950,000
7,000,000 Regal Cinemas, Inc., Sr.
Sub. Note, 9.50%, 6/1/2008 7,000,000
7,175,000 Six Flags Theme Parks,
Inc., Sr. Sub. Disc.
Note, 0/12.25%, 6/15/2005 7,982,188
TOTAL 35,915,158
MACHINERY & EQUIPMENT-2.2% 2,973,000 Alvey Systems, Inc.,
Sr.
Sub. Note, 11.375%,
1/31/2003 3,032,460
5,525,000 Clark Material Handling
Corp., Sr. Note, 10.75%,
11/15/2006 5,621,687
2,600,000 Columbus McKinnion
Corp., Sr. Sub. Note,
8.50%, 4/1/2008 2,535,000
3,500,000 National Equipment
Services, Inc., Sr. Sub.
Note, Series B, 10.00%,
11/30/2004 3,552,500
3,175,000 1 National Equipment
Services, Inc., Sr. Sub.
Note, 10.00%, 11/30/2004 3,222,625
6,000,000 1 United Rentals, Inc.,
Sr. Sub. Note, 9.25%,
1/15/2009 6,165,000
TOTAL 24,129,272
METALS & MINING-0.9%
4,525,000 1 AEI Holding Co., Inc.,
Sr. Note, 10.50%, 12/15/2005 4,434,500
4,900,000 1 AEI Resources, Inc., Sr.
Sub. Note, 11.50%,
12/15/2006 4,802,000
TOTAL 9,236,500
OIL & GAS-2.9%
2,600,000 Chiles Offshore, LLC,
Sr. Note, 10.00%, 5/1/2008 1,781,000
5,700,000 Continental Resources,
Inc., Sr. Sub. Note,
10.25%, 8/1/2008 4,474,500
2,075,000 DI Industries, Inc., Sr.
Note, 8.875%, 7/1/2007 1,530,312
6,650,000 Dailey Petroleum
Services Corp., Company
Guarantee, 9.50%,
2/15/2008 3,358,250
3,025,000 Forcenergy Gas
Exploration, Inc., Sr.
Sub. Note, 8.50%,
2/15/2007 1,073,875
3,075,000 Forcenergy Gas
Exploration, Inc., Sr.
Sub. Note, 9.50%,
11/1/2006 1,091,625
1,850,000 KCS Energy, Inc., Sr.
Sub. Note, 8.875%,
1/15/2008 564,250
1,300,000 Nuevo Energy Co., Sr.
Sub. Note, 8.875%,
6/1/2008 1,189,500
3,125,000 Ocean Energy, Inc., Sr.
Sub. Note, 10.375%,
10/15/2005 3,125,000
700,000 Ocean Rig Norway AS,
Company Guarantee,
10.25%, 6/1/2008 528,500
1,950,000 Pacalta Resources Ltd.,
Sr. Note, 10.75%,
6/15/2004 1,674,563
2,250,000 Pogo Producing Co., Sr.
Sub. Note, 8.75%,
5/15/2007 2,025,000
3,200,000 Pride Petroleum
Services, Inc., Sr.
Note, 9.375%, 5/1/2007 3,000,000
1,625,000 The Houston Exploration
Co., Sr. Sub. Note,
8.625%, 1/1/2008 1,604,688
2,025,000 Universal Compression
Holdings, Inc., Sr.
Disc. Note, 0/11.375%,
2/15/2009 1,164,375
5,150,000 Universal Compression
Holdings, Inc., Sr.
Disc. Note, 0/9.875%,
2/15/2008 3,090,000
TOTAL 31,275,438
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-continued
PRINTING & PUBLISHING-1.3%
$ 600,000 Garden State Newspapers,
Inc., Sr. Sub. Note,
8.75%, 10/1/2009 $ 615,000
3,100,000 Hollinger International
Publishing, Inc., Sr.
Sub. Note, 9.25%, 2/1/2006 3,328,625
4,700,000 Hollinger International
Publishing, Inc., Sr.
Sub. Note, 9.25%, 3/15/2007 5,046,625
4,425,000 K-III Communications
Corp., Company Guarantee,
Series B, 8.50%, 2/1/2006 4,613,063
TOTAL 13,603,313
SERVICES-0.6%
3,618,000 Coinmach Corp., Sr.
Note, 11.75%, 11/15/2005 4,015,980
2,450,000 SITEL Corp., Sr. Sub.
Note, 9.25%, 3/15/2006 2,284,625
TOTAL 6,300,605
STEEL-0.2%
725,000 Metals USA, Inc., Sr.
Sub. Note, 8.625%,
2/15/2008 699,625
1,275,000 Ryerson Tull, Inc., Sr.
Note, 9.125%, 7/15/2006 1,379,486
TOTAL 2,079,111
SURFACE TRANSPORTATION-2.8%
2,800,000 Allied Holdings, Inc.,
Sr. Note, 8.625%, 10/1/2007 2,842,000
4,950,000 5 AmeriTruck Distribution
Corp., Sr. Sub. Note,
12.25%, 11/15/2005 272,250
3,125,000 Gearbulk Holding Ltd.,
Sr. Note, 11.25%,
12/1/2004 3,273,437
7,050,000 Statia Terminals
International N.V., 1st
Mtg. Note, 11.75%,
11/15/2003 7,367,250
8,300,000 Stena AB, Sr. Note,
10.50%, 12/15/2005 8,466,000
3,675,000 Stena AB, Sr. Note,
8.75%, 6/15/2007 3,500,438
2,500,000 Stena Line AB, Sr. Note,
10.625%, 6/1/2008 2,062,500
3,125,000 1 The Holt Group, Inc., Sr.
Note, 9.75%, 1/15/2006 2,101,563
TOTAL 29,885,438
TELECOMMUNICATIONS &
CELLULAR-24.2%
5,850,000 1 American Cellular Corp.,
Sr. Note, 10.50%, 5/15/2008 6,127,875
1,000,000 Arch Communications,
Inc., Sr. Note, 12.75%,
7/1/2007 965,000
9,125,000 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/8.94%, 8/15/2008 5,611,875
8,250,000 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/9.27%, 8/15/2007 5,651,250
5,525,000 1 Centennial Cellular
Corp., Sr. Sub. Note,
10.75%, 12/15/2008 5,980,812
7,125,000 E.Spire Communications,
Inc., Sr. Disc. Note,
0/12.75%, 4/1/2006 4,346,250
1,900,000 E.Spire Communications,
Inc., Sr. Disc. Note,
0/13.00%, 11/1/2005 1,254,000
2,000,000 1 Hermes Europe Railtel
B.V., Sr. Note, 10.375%,
1/15/2009 2,130,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 8,650,000 Hermes Europe Railtel
B.V., Sr. Note, 11.50%,
8/15/2007 $ 9,406,875
5,625,000 ICG Holdings, Inc., Sr.
Disc. Note, 0/12.50%,
5/1/2006 4,456,463
7,000,000 ICG Services, Inc., Sr.
Disc. Note, 0/9.875%,
5/1/2008 3,964,170
7,250,000 IXC Communications,
Inc., Sr. Sub. Note,
9.00%, 4/15/2008 7,576,250
5,150,000 Intermedia
Communications, Inc.,
Sr. Disc. Note,
0/11.25%, 7/15/2007 3,605,000
10,925,000 Intermedia Communications,
Inc., Sr. Disc. Note,
0/12.50%, 5/15/2006 8,794,625
2,525,000 Intermedia
Communications, Inc.,
Sr. Note, 8.60%,
6/1/2008 2,405,063
3,325,000 Intermedia
Communications, Inc.,
Sr. Note, 8.875%,
11/1/2007 3,208,625
2,000,000 1 Intermedia
Communications, Inc.,
Sr. Sub. Disc. Note,
0/12.25%, 3/1/2009 1,105,000
16,450,000 1 Level 3 Communications,
Inc., Sr. Disc. Note,
0/10.50%, 12/1/2008 9,499,875
20,400,000 Level 3 Communications,
Inc., Sr. Note, 9.125%,
5/1/2008 19,941,000
12,325,000 McLeod, Inc., Sr. Disc.
Note, 0/10.50%, 3/1/2007 9,675,125
1,500,000 McLeod, Inc., Sr. Note,
8.375%, 3/15/2008 1,507,500
1,125,000 McLeod, Inc., Sr. Note,
9.25%, 7/15/2007 1,172,813
2,000,000 MetroNet Communications
Corp., Sr. Disc. Note,
0/10.75%, 11/1/2007 1,500,000
4,200,000 MetroNet Communications
Corp., Sr. Note, 12.00%,
8/15/2007 4,851,000
9,700,000 MetroNet Escrow Corp.,
Sr. Disc. Note, 0/9.95%,
6/15/2008 6,644,500
4,400,000 1 MetroNet Escrow Corp.,
Sr. Note, 10.625%,
11/1/2008 4,928,000
2,400,000 1 Metromedia Fiber
Network, Inc., Sr. Note,
10.00%, 11/15/2008 2,508,000
10,100,000 Millicom International
Cellular S.A., Sr. Disc.
Note, 0/13.50%, 6/1/2006 7,221,500
13,850,000 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/10.65%, 9/15/2007 9,591,125
14,350,000 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/9.95%, 2/15/2008 9,184,000
6,800,000 NEXTLINK Communications,
Inc., Sr. Disc. Note,
0/9.45%, 4/15/2008 4,012,000
3,000,000 NEXTLINK Communications,
Inc., Sr. Note, 9.00%,
3/15/2008 2,857,500
2,350,000 NEXTLINK Communications,
Inc., Sr. Note, 9.625%,
10/1/2007 2,308,875
3,500,000 Nextel International,
Inc., Sr. Disc. Note,
0/12.125%, 4/15/2008 1,547,105
3,250,000 1 Nextel Partners, Inc.,
Sr. Disc. Note,
0/14.00%, 2/1/2009 1,734,688
3,400,000 Orange PLC, Sr. Note,
8.00%, 8/1/2008 3,468,000
7,850,000 Paging Network, Inc.,
Sr. Sub. Note, 10.00%,
10/15/2008 6,770,625
5,350,000 Pathnet, Inc., Unit,
12.25%, 4/15/2008 3,129,750
5,400,000 PsiNet, Inc., Sr. Note,
10.00%, 2/15/2005 5,643,000
2,925,000 1 PsiNet, Inc., Sr. Note,
11.50%, 11/1/2008 3,268,688
5,000,000 Qwest Communications
International, Inc., Sr.
Disc. Note, 0/8.29%,
2/1/2008 3,950,000
6,525,000 Qwest Communications
International, Inc., Sr.
Disc. Note, 0/9.47%,
10/15/2007 5,203,688
<CAPTION>
PRINCIPAL
AMOUNT OR
SHARES VALUE
<S> <C> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 4,501,000 Qwest Communications
International, Inc., Sr.
Note, 10.875%, 4/1/2007 $ 5,254,918
6,500,000 1 Qwest Communications
International, Inc., Sr.
Note, 7.50%, 11/1/2008 6,841,250
4,700,000 Rogers Cantel Mobile,
Inc., Sr. Sub. Note,
8.80%, 10/1/2007 4,888,000
3,675,000 Telesystem International
Wireless, Inc., Sr.
Disc. Note, 0/10.50%,
11/1/2007 1,451,625
8,350,000 Telesystem International
Wireless, Inc., Sr.
Disc. Note, 0/13.25%,
6/30/2007 3,715,750
4,575,000 Teligent, Inc., Sr.
Disc. Note, 0/11.50%,
3/1/2008 2,310,375
6,250,000 Teligent, Inc., Sr.
Note, 11.50%, 12/1/2007 5,843,750
8,500,000 Triton PCS, Inc., Sr.
Disc. Note, 0/11.00%,
5/1/2008 4,781,250
1,000,000 US Xchange, L.L.C., Sr.
Note, 15.00%, 7/1/2008 1,062,500
4,325,000 USA Mobile
Communications, Inc.,
Sr. Note, 9.50%, 2/1/2004 3,784,375
2,650,000 1 Verio, Inc., Sr. Note,
11.25%, 12/1/2008 2,881,875
1,675,000 Viatel, Inc., Unit,
0/12.50%, 4/15/2008 1,021,750
5,750,000 Viatel, Inc., Unit,
11.25%, 4/15/2008 5,951,250
TOTAL 258,496,158
UTILITIES-0.7%
1,850,000 CMS Energy Corp., Sr.
Note, 7.50%, 1/15/2009 1,842,359
5,575,000 El Paso Electric Co., 1st
Mtg. Note, 9.40%, 5/1/2011 6,272,154
TOTAL 8,114,513
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$1,058,782,242) 1,021,039,135
COMMON STOCKS/WARRANTS-0.1%
BUSINESS EQUIPMENT &
SERVICES-0.0%
3,725 1, 2 Electronic Retailing
Systems International,
Inc., Warrants 18,625
CABLE TELEVISION-0.0%
9,675 2 Diva Systems Corp.,
Warrants 135,450
6,994 2 Pegasus Communications Corp. 170,479
3,450 2 Pegasus Communications
Corp., Warrants 113,850
9,825 2 UIH Australia/Pacific,
Warrants 11,053
TOTAL 430,832
CHEMICALS & PLASTICS-0.0%
4,675 2 Sterling Chemicals
Holdings, Inc., Warrants 70,125
CONSUMER PRODUCTS-0.0%
2,500 2 Hosiery Corp. of
America, Inc. 18,125
5,000 1, 2 IHF Capital, Inc.,
Warrants 2,500
TOTAL 20,625
<CAPTION>
SHARES VALUE
<S> <C> <C>
COMMON STOCKS/WARRANTS-
continued
METALS & MINING-0.0%
138,395 2 Royal Oak Mines, Inc $ 21,091
PRINTING & PUBLISHING-0.1%
5,350 2 Affiliated Newspaper
Investments, Inc. 801,831
STEEL-0.0%
1,800 1, 2 Bar Technologies, Inc.,
Warrants 99,000
TELECOMMUNICATIONS &
CELLULAR-0.0%
4,200 1, 2 MetroNet Communications
Corp., Warrants 239,904
5,350 1, 2 Pathnet, Inc., Warrants 54,169
TOTAL 294,073
TOTAL COMMON STOCKS/WARRANTS
(IDENTIFIED COST
$483,022) 1,756,202
PREFERRED STOCKS-4.1%
BANKING-0.1%
57,000 California Federal
Preferred Capital Corp.,
REIT Perpetual Pfd. Stock,
Series A, $2.28 1,503,375
BROADCAST RADIO & TV-1.6%
3,375 Benedek Communications
Corp., Sr. Exchangeable
PIK 2,716,875
32,712 Capstar Broadcasting
Corp., Cumulative
Exchangeable Pfd. Stock,
Series E 3,909,131
25,420 Capstar Broadcasting
Partners, Inc., Sr.
Pfd., $12.00 3,005,952
1,604 Cumulus Media, Inc.,
Cumulative Sr. Red. Pfd.
Stk., Series A, $3.44 1,824,555
53,125 Sinclair Broadcast
Group, Inc., Cumulative
Pfd., $11.63 5,817,187
TOTAL 17,273,700
CABLE TELEVISION-0.5%
4,770 Pegasus Communications
Corp., Cumulative PIK
Pfd., Series A, 12.75% 5,222,657
FOOD SERVICES-0.2%
27,912 Nebco Evans Holding Co.,
Exchangeable Pfd. Stock 1,353,729
HEALTHCARE-0.1%
11,183 River Holding Corp., Sr.
Exchangeable PIK 506,031
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.2%
2,000 Fairfield Manufacturing
Co., Inc., Cumulative
Exchangeable Pfd. Stock 1,950,000
40 1 International Utility
Structures, Inc., Unit 37,532
300 1 International Utility
Structures, Inc., Unit,
$13.00 289,500
TOTAL 2,277,032
PRINTING & PUBLISHING-0.9%
75,100 Primedia, Inc.,
Exchangeable Pfd. Stock,
Series H, $2.16 7,284,700
<CAPTION>
SHARES VALUE
<S> <C> <C>
PREFERRED STOCKS-continued
PRINTING & PUBLISHING-
CONTINUED
23,750 Primedia, Inc., Pfd., $9.20 $ 2,386,875
TOTAL 9,671,575
TELECOMMUNICATIONS &
CELLULAR-0.5%
3,503 NEXTEL Communications,
Inc., Cumulative PIK
Pfd., Series D, 13.00% 3,695,952
1,451 NEXTEL Communications,
Inc., Exchangeable Pfd.
Stock, Series E 1,386,005
3,882 Viatel, Inc., Conv. PIK
Pfd., Series A, 10.00% 564,832
TOTAL 5,646,789
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$43,874,195) 43,454,888
TOTAL INVESTMENTS
(IDENTIFIED COST
$1,103,139,459) 3 $ 1,066,250,225
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
Federal Securities laws. At February 28, 1999, these securities amounted to
$159,240,455 which represents 14.9% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $158,880,426 which
represents 14.8% of net assets.
2 Non-income producing security.
3 The cost of investments for federal tax purposes amounts to $1,103,139,459.
The net unrealized depreciation of investments on a federal tax basis amounts to
$36,889,234 which is comprised of $32,119,804 appreciation and $69,009,038
depreciation at February 28, 1999.
4 Australis Holdings Pty Limited, a wholly owned subsidiary of Australis Media
Limited, filed for reorganization relief under Chapter 11 of the Bankruptcy Code
on April 8, 1998. Australis was a leading provider of subscription television
services in Australia which has been negatively impacted by its failed merger
with a rival pay TV operator. The company has effectively ceased operations
although litigation is pending.
5 AmeriTruck Distribution Corporation and subsidiaries filed for reorganization
under Chapter 11 of the Federal Bankruptcy Code on November 11, 1998. AmeriTruck
operated in specialized segments of the trucking operation from ConAgra with
bond proceeds in hopes of establishing a major national presence in that niche
but was unable to generate enough volume to bring capacity utilization in that
segment to a level adequate to service related debt. The company continues to
operate in Chapter 11 while liquidating most of the refrigerated operation while
retaining selected profitable portions of that business.
Note: The categories of investments are shown as a percentage of net assets
($1,069,840,379) at February 28, 1999.
The following acronyms are used throughout this portfolio:
BIG -Bond Investors Guaranty GTD -Guaranty HDA -Hospital Development Authority
LLC -Limited Liability Corporation PIK -Payment in Kind PLC -Public Limited
Company REIT -Real Estate Investment Trust
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
FEBRUARY 28, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified cost
$1,103,139,459) $ 1,066,250,225
Income receivable 19,090,145
Receivable for
investments sold 36,743,064
Receivable for shares
sold 2,312,133
Prepaid expenses 61,105
TOTAL ASSETS 1,124,456,672
LIABILITIES:
Payable for investments
purchased $ 1,217,974
Payable for shares
redeemed 36,178,614
Income distribution
payable 2,691,127
Payable to Bank 14,387,945
Accrued expenses 140,633
TOTAL LIABILITIES 54,616,293
Net assets for
119,918,721 shares
outstanding $ 1,069,840,379
NET ASSETS CONSIST OF:
Paid in capital $ 1,119,564,368
Net unrealized
depreciation of
investments (36,889,234)
Accumulated net realized
loss on investments (13,478,110)
Undistributed net
investment income 643,355
TOTAL NET ASSETS $ 1,069,840,379
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE:
$1,069,840,379 /
119,918,721 shares
outstanding $8.92
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 4,793,200
Interest 108,874,702
TOTAL INCOME 113,667,902
EXPENSES:
Investment advisory fee $ 8,605,337
Administrative personnel
and services fee 865,071
Custodian fees 70,141
Transfer and dividend
disbursing agent fees
and expenses 312,950
Directors'/Trustees'
fees 17,610
Auditing fees 24,192
Legal fees 109,909
Portfolio accounting
fees 138,442
Shareholder services fee 2,868,383
Share registration costs 61,841
Printing and postage 74,880
Insurance premiums 8,119
Miscellaneous 9,957
TOTAL EXPENSES 13,166,832
WAIVERS:
Waiver of investment
advisory fee $ (2,459,542)
Waiver of shareholder
services fee (573,659)
TOTAL WAIVERS (3,033,201)
Net expenses 10,133,631
Net investment income 103,534,271
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on
investments 2,188,032
Net change in unrealized
depreciation of
investments (93,988,696)
Net realized and
unrealized gain (loss)
on investments (91,800,664)
Change in net assets
resulting from
operations $ 11,733,607
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 103,534,271 $ 89,225,466
Net realized gain on
investments ($2,188,032
and $4,861,343,
respectively,
as computed for federal
tax purposes) 2,188,032 2,894,137
Net change in unrealized
appreciation/(depreciation) (93,988,696) 34,916,343
CHANGE IN NET ASSETS
RESULTING FROM
OPERATIONS 11,733,607 127,035,946
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (103,375,232) (88,853,702)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 1,105,476,358 979,282,898
Net asset value of shares
issued to shareholders
in payment of
distributions declared 72,053,130 65,669,753
Cost of shares redeemed (1,215,110,331) (822,434,825)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (37,580,843) 222,517,826
Change in net assets (129,222,468) 260,700,070
NET ASSETS:
Beginning of period 1,199,062,847 938,362,777
End of period (including
undistributed net
investment income of
$643,355 and $54,638,
respectively) $ 1,069,840,379 $ 1,199,062,847
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
FEBRUARY 28, 1999
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
obligations may be more susceptible to real or perceived adverse economic
conditions than investment grade bonds. These lower rated debt obligations are
regarded as predominately 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).
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.
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 on capital for federal income tax
purposes.
Income and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments for foreign currency
and defaulted interest. The following reclassifications have been made to the
financial statements.
UNDISTRIBUTED
ACCUMULATED NET INVESTMENT
PAID-IN CAPITAL GAIN (LOSS) INCOME
$4,115 $(433,793) $429,678
Net investment income, net realized gains/losses, and net assets were not
affected by this reclassification.
FEDERAL TAXES
It is the Trust's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary. At February 28, 1999, the Trust, for federal tax purposes, had a
capital loss carryforward of $7,981,977, which will reduce the Trust's taxable
income arising from future net realized gain on investments, if any, to the
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve the
Trust of any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2000 $6,525,373
2003 $1,456,604
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense either upon demand by the Trust
or in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Trustees. The Trust will not incur any
registration costs upon such resales. The Trust's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Trust's pricing
committee.
Additional information on each restricted security held at February 28, 1999 is
as follows:
SECURITY ACQUISITION DATE ACQUISITION COST
Electronic Retailing Systems
International, Inc., Warrants 1/21/1997-1/31/1997 $129,220
IHF Capital, Inc., Warrants 11/4/1994-4/20/1995 51,080
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.
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 FEBRUARY 28 1999 1998
<S> <C> <C>
Shares sold 120,541,310 103,170,660
Shares issued to shareholders in payment
of distributions declared 7,818,612 6,907,979
Shares redeemed (131,659,365) (86,612,840)
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS (3,299,443) 23,465,799
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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, Inc. for the period.
The administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily
net assets of the Trust shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
FSSC may voluntarily choose to waive any portion of its fee. FSSC 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, 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.
INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1999, were as follows:
Purchases $519,604,990
Sales $612,828,451
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
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,
1999, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund'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, 1999, by correspondence with the custodian and brokers or other
appropriate auditing procedures where replies from brokers were not received. 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, 1999, and the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles.
[Graphic]
Boston, Massachusetts
April 19, 1999
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Federated High Yield Trust
APRIL 30, 1999
A Statement of Additional Information (SAI) dated April 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's annual and semi-annual reports to
shareholders as they become available. The annual report discusses market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year. To obtain the SAI, the annual report,
semi-annual report and other information without charge, and make inquiries,
call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Federated
Federated High Yield Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-4018
Cusip 314197104
8040401A (4/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Federated High Yield Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Federated High Yield Trust (Fund),
dated April 30, 1999. This SAI incorporates by reference the Fund's Annual
Report. Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.
APRIL 30, 1999
[Graphic]
Federated
World-Class Investment Manager
Federated High Yield Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
8040401A (4/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
What Do Shares Cost? 6
How is the Fund Sold? 6
Subaccounting Services 6
Redemption in Kind 6
Massachusetts Partnership Law 6
Account and Share Information 7
Tax Information 7
Who Manages and Provides Services to the Fund? 8
How Does the Fund Measure Performance? 11
Who is Federated Investors, Inc.? 13
Investment Ratings 14
Addresses 16
How is the Fund Organized?
The Fund is a diversified open-end, management investment company that was
established under the laws of the Commonwealth of Massachusetts on April 17,
1984. The Fund's investment adviser is Federated Investment Management Company
(Adviser). Effective March 31, 1999, Federated Management, Adviser to the Fund,
merged into Federated Investment Management Company (formerly, Federated
Advisers).
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
The following provides additional information about the types of securities in
which the Fund invests.
FIXED INCOME SECURITIES
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the market and credit risks of a zero coupon security.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risk.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risk, but not as low as treasury
securities.
The Fund treats mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risk, it does not
reduce the market and prepayment risks of these mortgage backed securities.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper
or notes, or pass through certificates. Asset backed securities have prepayment
risks. Like CMOs, asset backed securities may be structured like Floaters,
Inverse Floaters, IOs and POs.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risk as compared
to other debt securities of the same issuer.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities that the Fund has the option
to exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, the Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities.
Convertible securities have lower yields than comparable fixed income
securities. In addition, at the time a convertible security is issued the
conversion price exceeds the market value of the underlying equity securities.
Thus, convertible securities may provide lower returns than non-convertible
fixed income securities or equity securities depending upon changes in the price
of the underlying equity securities. However, convertible securities permit the
Fund to realize some of the potential appreciation of the underlying equity
securities with less risk of losing its initial investment.
The Fund treats convertible securities as fixed income securities for purposes
of its investment policies and limitations.
EQUITY SECURITIES
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Fund cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the types of equity securities in which the Fund invests.
COMMON STOCKS
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings directly
influence the value of its common stock.
INTERESTS IN OTHER LIMITED LIABILITY COMPANIES
Entities such as limited partnerships, limited liability companies, business
trusts and companies organized outside the United States may issue securities
comparable to common or preferred stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are real estate investment trusts that lease, operate and finance
commercial real estate. REITs are exempt from federal corporate income tax if
they limit their operations and distribute most of their income. Such tax
requirements limit a REIT's ability to respond to changes in the commercial real
estate market.
WARRANTS
Warrants give the Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the expiration
date). The Fund may buy the designated securities by paying the exercise price
before the expiration date. Warrants may become worthless if the price of the
stock does not rise above the exercise price by the expiration date. This
increases the market risks of warrants as compared to the underlying security.
Rights are the same as warrants, except companies typically issue rights to
existing stockholders.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
* it is organized under the laws of, or has a principal office located in,
another country;
* the principal trading market for its securities is in another country; or
* it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing.
DEPOSITARY RECEIPTS
Depositary receipts represent interests in underlying securities issued by a
foreign company. Depositary receipts are not traded in the same market as the
underlying security. The foreign securities underlying American Depositary
Receipts (ADRs) are traded in the United States. ADRs provide a way to buy
shares of foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for foreign
exchange transactions. The foreign securities underlying European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary
Receipts (IDRs), are traded globally or outside the United States. Depositary
receipts involve many of the same risks of investing directly in foreign
securities, including currency risks and risks of foreign investing.
FOREIGN GOVERNMENT SECURITIES
Foreign government securities generally consist of fixed income securities
supported by national, state or provincial governments or similar political
subdivisions. Foreign government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Foreign government securities also include fixed income securities of
quasi-governmental agencies that are either issued by entities owned by a
national, state or equivalent government or are obligations of a political unit
that are not backed by the national government's full faith and credit. Further,
foreign government securities include mortgage-related securities issued or
guaranteed by national, state or provincial governmental instrumentalities,
including quasi-governmental agencies.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create market
risks for the Fund. Delayed delivery transactions also involve credit risks in
the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to market risks and credit risks.
ASSET COVERAGE
In order to secure its obligations in connection with derivatives contracts or
special transactions, the Fund will either own the underlying assets, enter into
an offsetting transaction or set aside readily marketable securities with a
value that equals or exceeds the Fund's obligations. Unless the Fund has other
readily marketable assets to set aside, it cannot trade assets used to secure
such obligations without entering into an offsetting derivative contract or
terminating a special transaction. This may cause the Fund to miss favorable
trading opportunities or to realize losses on derivative contracts or special
transactions.
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
FIXED INCOME RISKS
CREDIT RISKS
* Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. The high yield bonds in which the Fund invests have a higher
default risk than investment grade securities. Low-grade bonds are almost always
uncollateralized and subordinated to other debt that a firm has outstanding.
* Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely upon the Adviser's credit assessment.
* Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
* Credit risk includes the possibility that a party to a transaction involving
the Fund will fail to meet its obligations. This could cause the Fund to lose
the benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
RISKS OF FOREIGN INVESTING
* Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
* Foreign companies may not provide information (including financial statements)
as frequently or to as great an extent as companies in the United States.
Foreign companies may also receive less coverage than United States companies by
market analysts and the financial press. In addition, foreign countries may lack
uniform accounting, auditing and financial reporting standards or regulatory
requirements comparable to those applicable to U.S. companies. These factors may
prevent the Fund and its Adviser from obtaining information concerning foreign
companies that is as frequent, extensive and reliable as the information
available concerning companies in the United States.
* Foreign countries may have restrictions on foreign ownership of securities or
may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of the Fund's
investments.
LEVERAGE RISKS
* Leverage risk is created when an investment exposes the Fund to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Fund's risk of loss and potential for gain.
EQUITY RISKS
STOCK MARKET RISKS
* The value of equity securities in the Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. The Fund's
portfolio will reflect changes in prices of individual portfolio stocks or
general changes in stock valuations. Consequently, the Fund's share price may
decline.
* The Adviser attempts to manage market risk by limiting the amount the Fund
invests in each company's equity securities. However, diversification will not
protect the Fund against widespread or prolonged declines in the stock market.
INVESTMENT LIMITATIONS
CONCENTRATION OF INVESTMENTS
The Fund 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 Fund 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 Fund will not purchase or sell commodities. The Fund reserves the right to
purchase financial futures and put options on financial futures, not including
stock index futures.
INVESTING IN REAL ESTATE
The Fund 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 Fund 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 Fund will not sell securities short unless:
* during the time the short position is open it owns an equal amount of the
securities sold or securities readily and freely convertible into or
exchangeable, without payment of additional consideration, for securities of the
same issue as, and equal in amount to, the securities sold short; and
* not more than 10% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time.
BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
LENDING CASH OR SECURITIES
The Fund 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
Fund's investment objective and policies or Declaration of Trust.
UNDERWRITING
The Fund 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.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities," as defined by the Investment
Company Act. The following limitations, however, may be changed by the Board
without shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN RESTRICTED AND ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days after notice.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities are
held in the Fund's portfolio or unless the Fund is entitled to them in
deliverable form without further payment or after segregating cash in the amount
of any further payment.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities, and securities of other investment companies)
is as a result more than 5% of the value of its total assets would be invested
in the securities of that issuer, or it would own more than 10% of the
outstanding voting securities of that issuer.
ACQUIRING SECURITIES
The Fund will not purchase securities of a company for the purpose of exercising
control or management.
However, the Fund 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 Fund. In addition, the Fund, other companies advised by the Fund'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 Fund 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 Fund and its affiliates might
possibly become directors of companies in which the Fund holds stock.
EQUITY SECURITIES
The Fund may invest up to 10% of total assets in equity securities including
common stocks, warrants or rights.
INVESTING IN FOREIGN SECURITIES
The Fund 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 Fund 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 Fund 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".
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
* for equity securities, according to the last sale price in the market in which
they are primarily traded (either a national securities exchange or the
over-the-counter market), if available;
* in the absence of recorded sales for equity securities, according to the
mean between the last closing bid and asked prices;
* for bonds and other fixed income securities, at the last sale price on a
national securities exchange, if available, otherwise, as determined by an
independent pricing service;
* futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the mean
between the last bid and the last asked price for the option as provided by an
investment dealer or other financial institution that deals in the option. The
Board may determine in good faith that another method of valuing such
investments is necessary to appraise their fair market value;
* for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as determined
in good faith by the Board; and
* for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
What Do Shares Cost?
The Fund's net asset value (NAV) per Share fluctuates and is based on the market
value of all securities and other assets of the Fund.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
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 Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.
In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Fund will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Fund itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Fund have
equal voting rights.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Fund's outstanding shares.
As of April 6, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Charles Schwab &
Co., Inc., San Francisco, California, 37.87%.
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
FOREIGN INVESTMENTS
If the Fund purchases foreign securities, their investment income may be subject
to foreign withholding or other taxes that could reduce the return on these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Fund intends to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. Due to differences in the book and tax treatment of
fixed-income securities denominated in foreign currencies, it is difficult to
project currency effects on an interim basis. Therefore, to the extent that
currency fluctuations cannot be anticipated, a portion of distributions to
shareholders could later be designated as a return of capital, rather than
income, for income tax purposes, which may be of particular concern to simple
trusts.
If the Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of the Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Fund's business affairs and for
exercising all the Fund's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each person's
name, address, birth date, present position(s) held with the Fund's, principal
occupations for the past five years and positions held prior to the past five
years, total compensation received as a Trustee from the Fund for its most
recent fiscal year, and the total compensation received from the Federated Fund
Complex for the most recent calendar year. The Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of April 6, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND AND
POSITION WITH FUND FOR PAST 5 YEARS FROM FUND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer $0 $0 for the Fund
Birth date: July 28, 1924 and Director or Trustee and 54 other investment
Federated Investors Tower of the Federated Fund companies in the
1001 Liberty Avenue Complex; Chairman and Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND TRUSTEE Investors, Inc.; Chairman and Trustee,
Federated Investment Management Company;
Chairman and Director, Federated Investment
Counseling and Federated Global Investment
Management Corp.; Chairman, Passport
Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,730.93 $113,860.22 for the Fund
Birth date: February 3, 1934 Complex; Director, Member of Executive and 54 other investment
15 Old Timber Trail Committee, Children's Hospital of companies in the
Pittsburgh, PA Pittsburgh; formerly: Senior Partner, Ernst & Fund Complex
TRUSTEE Young LLP; Director, MED 3000 Group,
Inc.; Director, Member of Executive
Committee, University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,904.29 $125,264.48 for the Fund
Birth date: June 23, 1937 Complex; President, Investment Properties and 54 other investment
Wood/IPC Commercial Dept. Corporation; Senior Vice President, companies in the
John R. Wood Associates, Inc. Realtors John R. Wood and Associates, Inc., Realtors; Fund Complex
3255 Tamiami Trial North Partner or Trustee in private real estate
Naples, FL ventures in Southwest Florida; formerly:
TRUSTEE President, Naples Property Management,
Inc. and Northgate Village Development
Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $0 $47,958.02 for the Fund
Birth date: September 3, 1939 Complex; formerly: Partner, Andersen and 39 other investment
175 Woodshire Drive Worldwide SC. companies in the
Pittsburgh, PA Fund Complex
TRUSTEE
J. CHRISTOPHER DONAHUE+ President or Executive Vice President of the $0 $0 for the Fund
Birth date: April 11, 1949 Federated Fund Complex; Director or and 22 other investment
Federated Investors Tower Trustee of some of the Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; President and Fund Complex
Pittsburgh, PA Director, Federated Investors, Inc.; President
EXECUTIVE VICE PRESIDENT and Trustee, Federated Investment
AND TRUSTEE Management Company; President and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; President,
Passport Research, Ltd.; Trustee,
Federated Shareholder Services Company;
Director, Federated Services Company.
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated $0 $0 for the Fund
Birth date: March 5, 1943 Funds; Chairman, President and Chief and 43 other investment
353 El Brillo Way Executive Officer, Cunningham & Co., Inc. ; companies in the
Palm Beach, FL Trustee Associate, Boston College; Director, Fund Complex
TRUSTEE EMC Corporation; formerly: Director,
Redgate Communications.
Previous Positions: Chairman of the Board
and Chief Executive Officer, Computer
Consoles, Inc.; President and Chief
Operating Officer, Wang Laboratories;
Director, First National Bank of Boston;
Director, Apollo Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,730.93 $113,860.22 for the Fund
Birth date: October 11, 1932 Complex; Professor of Medicine, University and 54 other investment
3471 Fifth Avenue of Pittsburgh; Medical Director, University of companies in the
Suite 1111 Pittsburgh Medical Center-Downtown; Fund Complex
Pittsburgh, PA Hematologist, Oncologist, and Internist,
TRUSTEE University of Pittsburgh Medical Center;
Member, National Board of Trustees,
Leukemia Society of America.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND AND
POSITION WITH FUND FOR PAST 5 YEARS FROM FUND FUND COMPLEX
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of $1,770.82 $113,860.22 for the Fund
Birth date: March 16, 1942 the Federated Fund and 54 other investment
One Royal Palm Way Complex; formerly: companies in the
100 Royal Palm Way Representative, Fund Complex
Palm Beach, FL Commonwealth of
TRUSTEE Massachusetts General Court; President, State
Street Bank and Trust Company and State Street
Corporation.
Previous Positions: Director, VISA USA and
VISA International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation.
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some of the Federated $0 $0 for the Fund
Birth date: April 10, 1945 Funds; Management Consultant. and 43 other investment
80 South Road Previous Positions: Chief Executive Officer, companies in the
Westhampton Beach, NY PBTC International Bank; Chief Financial Fund Complex
TRUSTEE Officer of Retail Banking Sector, Chase
Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President,
Citibank; Assistant Professor of Banking
and Finance, Frank G. Zarb School of
Business, Hofstra University.
JOHN E. MURRAY, JR., J.D., S.J.D. Director or Trustee of the Federated Fund $1,770.82 $113,860.22 for the Fund
Birth date: December 20, 1932 Complex; President, Law Professor, and 54 other investment
President, Duquesne University Duquesne University; Consulting Partner, companies in the
Pittsburgh, PA Mollica & Murray. Fund Complex
TRUSTEE Previous Positions: Dean and Professor of
Law, University of Pittsburgh School of
Law; Dean and Professor of Law,
Villanova University School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,730.93 $113,860.22 for the Fund
Birth date: June 21, 1935 Complex; Public Relations/Marketing/ and 54 other investment
4905 Bayard Street Conference Planning. companies in the
Pittsburgh, PA Previous Positions: National Spokesperson, Fund Complex
TRUSTEE Aluminum Company of America; business owner.
JOHN S. WALSH++ Director or Trustee of some of the Federated $0 $0 for the Fund
Birth date: November 28, 1957 Funds; President and Director, Heat Wagon, and 40 other investment
2007 Sherwood Drive Inc.; President and Director, Manufacturers companies in the
Valparaiso, IN Products, Inc.; President, Portable Heater Fund Complex
TRUSTEE Parts, a division of Manufacturers Products,
Inc.; Director, Walsh & Kelly, Inc.; formerly:
Vice President, Walsh & Kelly, Inc.
GLEN R. JOHNSON Trustee, Federated Investors, Inc.; staff $0 $0 for the Fund
Birth date: May 2, 1929 member, Federated Securities Corp. and 8 other investment
Federated Investors Tower companies in the
1001 Liberty Avenue Fund Complex
Pittsburgh, PA
PRESIDENT
EDWARD C. GONZALES Trustee or Director of some of the Funds in $0 $0 for the Fund
Birth date: October 22, 1930 the Federated Fund Complex; President, and 1 other investment
Federated Investors Tower Executive Vice President and Treasurer of company in the
1001 Liberty Avenue some of the Funds in the Federated Fund Fund Complex
Pittsburgh, PA Complex; Vice Chairman, Federated
EXECUTIVE VICE PRESIDENT Investors, Inc.; Vice President, Federated
Investment Management Company,
Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the Fund
Birth date: October 26, 1938 the Federated Fund Complex; Executive Vice and 54 other investment
Federated Investors Tower President, Secretary, and Director, Federated companies in the
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Fund Complex
Pittsburgh, PA Investment Management Company;
EXECUTIVE VICE PRESIDENT Director, Federated Investment Counseling
and SECRETARY and Federated Global Investment
Management Corp.; Director, Federated
Services Company; Director, Federated
Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the Fund
Birth date: June 17, 1954 Vice President-Funds Financial Services and 54 other investment
Federated Investors Tower Division, Federated Investors, Inc.; formerly: companies in the
1001 Liberty Avenue various management positions within Funds Fund Complex
Pittsburgh, PA Financial Services Division of Federated
TREASURER Investors, Inc.
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the Fund
Birth date: May 17, 1923 Funds in the Federated Fund Complex; and 6 other investment
Federated Investors Tower Director or Trustee of some of the Funds in companies in the
1001 Liberty Avenue the Federated Fund Complex; Executive Vice Fund Complex
Pittsburgh, PA President, Federated Investors, Inc.;
VICE PRESIDENT Chairman and Director, Federated Securities
Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM FUND AND
POSITION WITH FUND FOR PAST 5 YEARS FROM FUND FUND COMPLEX
<S> <C> <C> <C>
J. THOMAS MADDEN Chief Investment Officer $0 $0 for the Fund
Birth date: October 22, 1945 of this Fund and various and 12 other investment
Federated Investors Tower other Funds in the companies in the
1001 Liberty Avenue Federated Fund Complex; Fund Complex
Pittsburgh, PA Executive Vice
CHIEF INVESTMENT OFFICER President, Federated Investment Counseling,
Federated Global Investment Management
Corp., Federated Investment Management
Company and Passport Research, Ltd.;
Vice President, Federated Investors,
Inc.; formerly: Executive Vice
President and Senior Vice President,
Federated Investment Counseling
Institutional Portfolio Management
Services Division; Senior Vice
President, Federated Investment
Management Company and Passport
Research, Ltd.
MARK E. DURBIANO Mark E. Durbiano has been the Fund's $0 $0 for the Fund
Birth date: September 21, 1959 portfolio manager since August 1994. He is and no other investment
Federated Investors Tower Vice President of the Fund. Mr. Durbiano companies in the
1001 Liberty Avenue joined Federated Investors in 1982 and has Fund Complex
Pittsburgh, PA been a Senior Portfolio Manager and a
VICE PRESIDENT Senior Vice President of the Fund's
investment adviser since 1996. From 1988
through 1995, Mr. Durbiano was a Portfolio
Manager and a Vice President of the Fund's
investment adviser. Mr. Durbiano is a
Chartered Financial Analyst and received
his M.B.A. in Finance from the University of
Pittsburgh.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Fund.
++ Messrs. Cunningham, Mansfield and Walsh became members of the Board on March
23, 1999. They did not earn any fees for serving the Fund Complex since these
fees are reported as of the end of the last calendar year. They did not receive
any fees as of the fiscal year end of the Fund.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Fund or any Fund 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 Fund.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
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. 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 may select brokers and dealers
based on whether they also offer research services (as described below). In
selecting among firms believed to meet these criteria, the Adviser may give
consideration to those firms which have sold or are selling Shares of the Fund
and other funds distributed by the Distributor and its affiliates. The Adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Fund's Board.
RESEARCH SERVICES
Research services 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 may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
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 those 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.
For the fiscal year ended, February 28, 1999, the Fund paid no brokerage
commissions.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.
INDEPENDENT AUDITORS
Ernst & Young LLP is the independent auditor for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $8,605,337 $7,666,471 $5,738,180
Advisory Fee Reduction 2,459,542 2,196,440 1,773,042
Brokerage Commissions - - -
Administrative Fee 865,071 771,473 578,155
Shareholder Services Fee 2,294,724 - -
</TABLE>
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and ten-year periods ended February 28,
1999.
Yield given for the 30-day period ended February 28, 1999.
<TABLE>
<CAPTION>
30-DAY PERIOD 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Total Return N/A 0.33% 8.35% 10.26%
Yield 8.48% N/A N/A N/A
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average 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 NAV 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, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is calculated by dividing: (i) the net investment income per
Share earned by the Shares over a 30-day period; by (ii) the maximum offering
price per Share on the last day of the period. This number is then annualized
using semi-annual compounding. This means that the amount of income generated
during the 30-day period is assumed to be generated each month over a 12-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by Shares 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 investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Funds; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the 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 Fund uses in advertising may include:
LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX
Lehman Brothers Government/Corporate (Total) Index is comprised of approximately
5,000 issues, which include: non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and finance. The
average maturity of these bonds approximates nine years. Tracked by Lehman
Brothers, Inc., the index calculates total returns for one-month, three-month,
twelve-month, and ten-year periods and year-to-date.
LEHMAN BROTHERS GOVERNMENT/CORPORATE (LONG-TERM) INDEX
Lehman Brothers Government/Corporate (Long-Term) Index is composed of the same
types of issues as defined above. However, the average maturity of the bonds
included on this index approximates 22 years.
LEHMAN BROTHERS HIGH YIELD INDEX
Lehman 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.
MERRILL LYNCH 7-10 YEAR TREASURY INDEX
Merrill Lynch 7-10 Year Treasury Index is an unmanaged index tracking U.S.
government securities with maturities between 7 and 9.99 years. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
MERRILL LYNCH 10-15 YEAR TREASURY INDEX
Merrill Lynch 10-15 Year Treasury Index is an unmanaged index tracking U.S.
government securities with maturities between 10 and 14.99 years. The index is
produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
MERRILL LYNCH HIGH YIELD MASTER INDEX
Merrill Lynch High Yield Master Index is an unmanaged index comprised of
publicly placed, non-convertible, coupon-bearing domestic debt. Issues in the
index are less than investment grade as rated by Standard & Poor's Ratings Group
or Moody's Investors Service, Inc., and must not be in default. Issues have a
term to maturity of at least one year. The index is produced by Merrill Lynch,
Pierce, Fenner & Smith, Inc.
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Trust will quote its Lipper ranking in the "high current yield
funds" category in advertising and sales literature.
SALOMON BROTHERS AAA-AA CORPORATES
Salomon Brothers AAA-AA Corporates calculates total returns of approximately 775
issues which include long-term, high grade domestic corporate taxable bonds,
rated AAA-AA, with maturities of 12 years or more; it also includes companies in
industry, public utilities, and finance.
MORNINGSTAR, INC.
Morningstar, Inc. an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset-backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 million in U.S. government and
mortgage-backed securities daily and places approximately $25 billion in
repurchase agreements each day. Federated introduced the first U.S. government
fund to invest in U.S. government bond securities in 1969. Federated has been a
major force in the short- and intermediate-term government markets since 1982
and currently manages approximately $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
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 $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, 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 advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include 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 Timothy C. Pillion, Senior 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,
Broker/Dealer Sales Division, Federated Securities Corp.
Investment Ratings
STANDARD AND POOR'S LONG-TERM DEBT RATING DEFINITIONS
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
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-Debt rated BB has less near-term, vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B-Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC-Debt rated CCC has a currently identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B- rating.
CC-The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C-The rating C typically is applied to debt subordinated to senior debt which is
assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
MOODY'S INVESTORS SERVICE, INC. LONG-TERM 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 by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA-Bonds which are rated BAA are considered as medium grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA-Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B-Bonds which are rated B generally lack characteristics of the 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.
FITCH IBCA, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are imminent default in payment of interest or principal.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1-Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
* Leading market positions in well established industries.
* High rates of return on funds employed.
* Conservative capitalization structure with moderate reliance on debt and ample
asset protection.
* Broad margins in earning coverage of fixed financial charges and high internal
cash generation.
* Well established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2-Issuers rated Prime-1 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
STANDARD AND POOR'S COMMERCIAL PAPER RATINGS
A-1-This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
FITCH IBCA, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1-(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2-(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Addresses
FEDERATED HIGH YIELD TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
PART C. OTHER INFORMATION.
ITEM 23. Exhibits:
(a) (i) Conformed copy of Declaration of Trust of the
Registrant; (8)
(ii) Conformed copy of Amendment No. 1 to the Declaration of
Trust of the Registrant; (8)
(iii) Conformed copy of Amendment No. 2 to the Declaration of
Trust of the Registrant; (8)
(b) (i) Copy of By-Laws of the Registrant; (8)
(ii) Copy of Amendment No. 1 to the Bylaws; (8)
(iii) Copy of Amendment No. 2 to the Bylaws; (8)
(iv) Copy of Amendment No. 3 to the Bylaws; (8)
(v) Copy of Amendment No. 4 to the Bylaws; (11)
(vi) Copy of Amendment No. 5 to the Bylaws; (12)
(vii) Copy of Amendment No. 6 to the Bylaws; (12)
(viii) Copy of Amendment No. 7 to the Bylaws; (12)
(c) Conformed copy of Specimen Certificate for
Shares of Beneficial Interest of the Registrant; (8)
(d) Conformed copy of Investment Advisory Contract
of the Registrant; (7) (e) (i) Conformed copy of
Distributor's Contract of the Registrant; (7)
(ii) The Registrant hereby incorporates the conformed copy of the
specimen Mutual Funds Sales and Service Agreement; Mutual
Funds Service Agreement; and Plan/Trustee Mutual Funds
Service Agreement from Item 24(b)(6) of the Cash Trust
Series II Registration Statement on Form N-1A, filed with
the ...............Commission on July 24, 1995. (File Nos.
33- 38550 and 811-6269.)
(f) Not applicable;
(g) (i) Conformed copy of Custodian Agreement of the
Registrant; (8)
(ii) Conformed copy of Custodian Fee
Schedule; (11)
(h) (i) Conformed copy of Amended and Restated Agreement for
Fund Accounting Services,
Administrative Services, Shareholder Transfer Agency Services and
Custody Services Procurement; (12)
(ii) The responses described in Item 23(e)(ii) are
hereby incorporated by reference.
(iii)The Registrant hereby incorporates by reference the
conformed copy of the Shareholder Services Sub-Contract
between Fidelity and Federated Shareholder Services from
Item 24(b)(9)(iii) of the Federated GNMA Trust Registration
Statement on Form N-1A, filed with the Commission on March
25, 1996. (File Nos. 2-75670 and 811-3375)
(iv) Conformed copy of Amended and Restated Shareholder
Services Agreement; (11)
- ----------------
+ All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed February 20, 1990. (File Nos. 2-91091
and 811-4018)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed April 21, 1995. (File Nos. 2-91091 and
811-4018)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 24 on Form N-1A filed April 28, 1998. (File Nos. 2-90191 and
811-4018)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed February 26, 1999. (File Nos. 2-90191
and 811-4018).
<PAGE>
(i) Conformed copy of the Opinion of Counsel as to the legality of the shares
being registered; (8)
(j) (i) Conformed copy of Consent of Independent
Auditors; +
(ii) Opinion and Consent of Counsel as to Transfer of Organization Expenses; (8)
(k) Not applicable;
(l) Conformed copy of Initial Capital Understanding; (8)
(m) Not applicable;
(n) Copy of Financial Data Schedule; +
(o) Not applicable;
(p) (i) Conformed copy of Power of Attorney of the Registrant; +
(ii) Conformed copy of Power of Attorney of Chief Investment
Officer of the Registrant; +
(iii) Conformed copy of Power of Attorney of Treasurer of the
Registrant; (12)
(iv) Conformed copy of Power of Attorney of Trustee of the
Registrant; +
(v) Conformed copy of Power of Attorney of Trustee of the
Registrant; +
(vi) Conformed copy of Power of Attorney of Trustee of the
Registrant; +
Item 24. Persons Controlled by or Under Common Control with the Fund:
None.
Item 25. Indemnification: (1)
- ----------------
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1 filed July 9, 1984. (File Nos. 2-91091 and
811-4018)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed April 21, 1995. (File Nos. 2-91091 and
811-4018)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 25 on Form N-1A filed February 26, 1999. (File Nos. 2-90191
and 811-4018).
<PAGE>
Item 26. Business and Other Connections of the Investment Adviser:
For a description of the other business of the investment adviser,
see the section entitled "Who Manages the Fund" in Part A. The
affiliations with the Registrant of four of the Trustees and one
of the Officers of the investment adviser are included in Part B
of this Registration Statement under "Who Manages and Provides
Services to the Fund." The remaining Trustee of the investment
adviser, his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson (Partner,
Wilson, Halbrook & Bayard), 107 W. Market Street, Georgetown,
Delaware 19947.
The remaining Officers of the investment adviser are:
Executive Vice Presidents: William D. Dawson, III
Henry A. Frantzen
J. Thomas Madden
Senior Vice Presidents: Joseph M. Balestrino
David A. Briggs
Drew J. Collins
Jonathan C. Conley
Deborah A. Cunningham
Mark E. Durbiano
Jeffrey A. Kozemchak
Sandra L. McInerney
Susan M. Nason
Mary Jo Ochson
Robert J. Ostrowski
Vice Presidents: Todd A. Abraham
J. Scott Albrecht
Arthur J. Barry
Randall S. Bauer
David A. Briggs
Micheal W. Casey
Robert E. Cauley
Kenneth J. Cody
Alexandre de Bethmann
B. Anthony Delserone, Jr.
Michael P. Donnelly
Linda A. Duessel
Donald T. Ellenberger
Kathleen M. Foody-Malus
Thomas M. Franks
Edward C. Gonzales
James E. Grefenstette
Marc Halperin
Patricia L. Heagy
Susan R. Hill
William R. Jamison
Constantine J. Kartsonas
Stephen A. Keen
Robert M. Kowit
Richard J. Lazarchic
Steven Lehman
Marian R. Marinack
Keith J. Sabol
Frank Semack
Aash M. Shah
Michael W. Sirianni, Jr.
Christopher Smith
Tracy P. Stouffer
Edward J. Tiedge
Paige M. Wilhelm
George B. Wright
Jolanta M. Wysocka
<PAGE>
Assistant Vice Presidents: Nancy J. Belz
Lee R. Cunningham, II
James H. Davis, II
Jacqueline A. Drastal
Paul S. Drotch
Salvatore A. Esposito
Donna M. Fabiano
Gary E. Farwell
Eamonn G. Folan
John T. Gentry
John W. Harris
Nathan H. Kehm
John C. Kerber
Grant K. McKay
Natalie F. Metz
Joseph M. Natoli
John Sheehy
Matthew K. Stapen
Diane Tolby
Timothy G. Trebilcock
Leonardo A. Vila
Steven J. Wagner
Lori A. Wolff
Secretary: G. Andrew Bonnewell
Treasurer: Thomas R. Donahue
Assistant Secretaries: Thomas R. Donahue
Richard B. Fisher
Christine M. Newcamp
Assistant Treasurer: Richard B. Fisher
The business address of each of the Officers of the investment
adviser is Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, Pennsylvania 15222-3779. These individuals are also
officers of a majority of the investment advisers to the
investment companies in the Federated Fund Complex described in
Part B of this Registration Statement.
Item 27. Principal Underwriters:
(a)......Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following .... open-end
investment companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash
Trust Series, Inc.; CCB Funds; 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 Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High
Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust;
Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock and Bond Fund, Inc.;
Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years;
Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ;
Hibernia Funds; Independence One Mutual Funds; Intermediate
Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Regions
Funds; RIGGS Funds; SouthTrust Funds; Tax-Free Instruments
Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal Funds; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Group of Funds, Inc.; World Investment
Series, Inc.; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; DG Investor Series; High Yield Cash Trust; Investment
Series Trust; Star Funds; Targeted Duration Trust; The Virtus
Funds; Trust for Financial Institutions;
Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment company:
Liberty Term Trust, Inc.- 1999.
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Executive Vice
Federated Investors Tower President, President
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew W. Brown Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas P. Moretti Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Segura Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
<TABLE>
<CAPTION>
<S> <C> <C>
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
(Notices should be sent to the Agent for Service at the above
address)
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
("Transfer Agent and
Dividend Disbursing Agent")
Federated Services Company Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Investment Federated Investors Tower
Management Company 1001 Liberty Avenue
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 8600
Company Boston, MA 02266-8600
("Custodian")
Item 29. Management Services: Not applicable.
</TABLE>
Item 30. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FEDERATED HIGH YIELD TRUST,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on the
29th day of April, 1999.
FEDERATED HIGH YIELD TRUST
BY: /s/ Anthony R. Bosch
Anthony R. Bosch, Assistant Secretary
Attorney in Fact for John F. Donahue
April 29, 1999
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/ Anthony R. Bosch Attorney In Fact April 29, 1999
Anthony R. Bosch For the Persons
ASSISTANT SECRETARY Listed Below
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
J. Thomas Madden* Chief Investment Officer
Richard J. Thomas* Treasurer
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
Nicholas P. Constantakis* Trustee
John F. Cunningham* Trustee
J. Christopher Donahue* Executive Vice President
and Trustee
Lawrence D. Ellis, M.D.* Trustee
Peter E. Madden* Trustee
Charles F. Mansfield, Jr.* Trustee
John E. Murray, Jr., J.D., S.J.D.* Trustee
Marjorie P. Smuts* Trustee
John S. Walsh* Trustee
* By Power of Attorney
</TABLE>
Exhibit (p)(i) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretaries of FEDERATED HIGH YIELD TRUST
and each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and Trustee April 8, 1999
- -------------------------------------------------
John F. Donahue (Chief Executive Officer)
/s/Glen R. Johnson President April 8, 1999
Glen R. Johnson
/s/J. Christopher Donahue Executive Vice President April 8, 1999
- -------------------------------------------------
J. Christopher Donahue and Trustee
/s/Richard J. Thomas Treasurer April 8, 1999
Richard J. Thomas
/s/Thomas G. Bigley Trustee April 8, 1999
Thomas G. Bigley
/s/Nicholas P. Constantakis Trustee April 8, 1999
Nicholas P. Constantakis
/s/John T. Conroy, Jr. Trustee April 8, 1999
- -------------------------------------------------
John T. Conroy, Jr.
<PAGE>
SIGNATURES TITLE DATE
/s/Lawrence D. Ellis, M.D. Trustee April 8, 1999
- -------------------------------------------------
Lawrence D. Ellis, M.D.
/s/Peter E. Madden Trustee April 8, 1999
Peter E. Madden
/s/John E. Murray, Jr. Trustee April 8, 1999
- -------------------------------------------------
John E. Murray, Jr.
/s/Marjorie P. Smuts Trustee April 8, 1999
Marjorie P. Smuts
</TABLE>
Sworn to and subscribed before me this 8 day of April, 1999
/s/Cheri S. Good
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit (p)(ii) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretaries of FEDERATED HIGH YIELD TRUST
and each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/J. Thomas Madden Chief Investment Officer April 8, 1999
- ----------------------------------
J. Thomas Madden
Sworn to and subscribed before me this 8 day of April, 1999
/s/Cheri S. Good
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit (p)(iv) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretaries of FEDERATED HIGH YIELD TRUST
and each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/John F. Cunningham Trustee April 8, 1999
John F. Cunningham
Sworn to and subscribed before me this 8 day of April, 1999
/s/Cheri S. Good
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit (p)(v) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretaries of FEDERATED HIGH YIELD TRUST
and each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/Charles F. Mansfield, Jr. Trustee April 8, 1999
- ------------------------------------
Charles F. Mansfield, Jr.
Sworn to and subscribed before me this 8 day of April, 1999
/s/Cheri S. Good
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit (p)(vi) under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretaries of FEDERATED HIGH YIELD TRUST
and each of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be filed with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934 and the Investment Company Act of 1940, by
means of the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/John S. Walsh Trustee April 8, 1999
John S. Walsh
Sworn to and subscribed before me this 8 day of April, 1999
/s/Cheri S. Good
Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
Exhibit (j)(i) under Form N-1A
Exhibit (23) under Item 601/Reg. S-K
Consent of Ernst & Young LLP, Independent Auditors
We consent to the references to our firm under the caption "Financial
Highlights" in the Prospectus and to the use of our report dated April 19, 1999,
in Post-Effective Amendment Number 27 to the Registration Statement (Form N-1A
No. 2-91091) of Federated High Yield Trust dated April 30, 1999.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 001
<NAME> Federated High Yield Trust
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1999
<PERIOD-END> Feb-28-1999
<INVESTMENTS-AT-COST> 1,103,139,459
<INVESTMENTS-AT-VALUE> 1,066,250,225
<RECEIVABLES> 58,145,342
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 61,105
<TOTAL-ASSETS> 1,124,456,672
<PAYABLE-FOR-SECURITIES> 1,217,974
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53,398,319
<TOTAL-LIABILITIES> 54,616,293
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,119,564,368
<SHARES-COMMON-STOCK> 119,918,721
<SHARES-COMMON-PRIOR> 123,218,164
<ACCUMULATED-NII-CURRENT> 643,355
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,478,110)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (36,889,234)
<NET-ASSETS> 1,069,840,379
<DIVIDEND-INCOME> 4,793,200
<INTEREST-INCOME> 108,874,702
<OTHER-INCOME> 0
<EXPENSES-NET> 10,133,631
<NET-INVESTMENT-INCOME> 103,534,271
<REALIZED-GAINS-CURRENT> 2,188,032
<APPREC-INCREASE-CURRENT> (93,988,696)
<NET-CHANGE-FROM-OPS> 11,733,607
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (103,375,232)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 120,541,310
<NUMBER-OF-SHARES-REDEEMED> (131,659,365)
<SHARES-REINVESTED> 7,818,612
<NET-CHANGE-IN-ASSETS> (129,222,468)
<ACCUMULATED-NII-PRIOR> 54,638
<ACCUMULATED-GAINS-PRIOR> (15,232,349)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,605,337
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,166,832
<AVERAGE-NET-ASSETS> 1,147,270,389
<PER-SHARE-NAV-BEGIN> 9.730
<PER-SHARE-NII> 0.830
<PER-SHARE-GAIN-APPREC> (0.810)
<PER-SHARE-DIVIDEND> (0.830)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.920
<EXPENSE-RATIO> 0.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
