SEMI-ANNUAL REPORT
President's Message
Dear Investor:
I am pleased to present the Semi-Annual Report to Shareholders of Federated High
Yield Trust. The report covers the six-month period from March 1, 1999 through
August 31, 1999. The report includes an investment review by the fund's
portfolio manager, followed by a complete listing of portfolio holdings and the
financial statements.
This mutual fund is managed to pursue the significant opportunities available in
the lower-grade corporate bond market. 1 At the end of the reporting period, its
well-diversified portfolio included high yield bonds issued by companies that
span the business and industrial spectrum. Each holding is the result of an
intensive research process.
During the reporting period, the fund paid dividends of $0.34 per share and
produced a total return of (0.41%) 2 that was impacted by a net asset value
decline of $0.44 per share. The fund's net assets totaled $913 million on the
last day of the reporting period.
Thank you for participating in Federated High Yield Trust. As always, we
welcome your questions and comments.
Sincerely,
[Graphic]
Glen R. Johnson
President
October 15, 1999
1 Lower rated bonds involve a higher degree of risk than investment grade bonds
in return for higher yield potential.
2 Performance quoted represents past performance and is not indicative of future
results. Investment return and principal value will fluctuate, so that an
investor's shares, when redeemed, may be worth more or less than their original
cost.
Investment Review
High yield bonds generated strong relative returns during the reporting period
although absolute returns were lackluster as rising interest rates took their
toll. A strong domestic economy, signs of life in economic activity abroad and
two Federal Reserve Board rate increases caused the yield on 10 year U.S.
Treasury securities to rise 59 basis points. Early in the reporting period,
strong economic growth led to substantial spread tightening and very strong
relative performance for high yield bonds. However, rising default rates,
negative supply demand technicals (perhaps driven by Y2K planning by both
issuers and investors) and increasing credit concerns about specific issuers in
the consumer durable, theater exhibition, healthcare, and satellite telephone
sectors led to very weak performance in the high yield sector. For example, the
yield spread between high yield bonds and U.S. Treasuries began the reporting
period at 613 basis points, tightened to 559 basis points at the end of April,
and then widened to 594 basis points by the end of the reporting period. For the
reporting period as a whole, the Lehman Brothers High Yield Bond Index 1
returned 0.57%, outperforming the Lehman Brothers Aggregate Bond Index,2 a
measure of high quality bond performance, which returned (0.80%).
The fund underperformed the Lehman Brothers High Yield Bond Index as well as the
Lipper High Current Yield Fund Average. 2 Several factors negatively impacted
performance. The fund was underweight in the energy sector which generated
strong returns given rising energy prices. The fund's positions in the textile
area underperformed on disappointing financial performance by several issuers.
Specific positions in Jitney Jungle, a southeast food retailer; Sterling
Chemicals, a commodity chemical producer; Genesis Healthcare, a long term care
provider; Regal Cinemas, the largest theater exhibitor in the U.S. and Paging
Network, the largest paging company in the U.S., underperformed based on
disappointing operating performance. The fund was also underweight in the lower
quality triple C sector which returned 5.67% versus the single B sector (where
the fund has its largest exposure) which returned 0.04%. On the positive side,
the fund's default experience remains well below the overall high yield
sector's. For example, the fund had no exposure to Iridium and ICO Global, two
high profile defaults in the satellite telephone sector. The fund's holdings in
the energy sector generated strong returns as did telecommunication holdings in
Metronet and Triton PCS and the fund's position in UIH Australia.
1 Lehman Brothers High Yield Bond Index is an unmanaged index that includes all
fixed income securities having a maximum quality rating of Ba1, a minimum amount
outstanding of $100 million and at least one year to maturity. Lehman Brothers
Aggregate Bond Index is an unmanaged index composed of securities from the
Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities
Index and the Asset-Backed Securities Index. Total return comprises price
appreciation/depreciation and income as percentage of the original investment .
Indices are rebalanced monthly by market capitalization. Investments cannot be
made in an index.
2 Lipper figures represents the average of the total returns reported by all of
the mutual funds designated by Lipper Analytical Services, Inc. as falling into
the respective categories indicated. These figures do no reflect sales charge.
For the balance of 1999, we believe high yield bonds offer attractive relative
returns given strong domestic economic growth and very attractive yield spreads.
These two factors together typically indicate strong relative return potential.
However, the technical environment may prove challenging in the short term as
Y2K concerns impact the timing of new issue supply as well as investor's demand
for high yield securities. We expect issuance to be heavy in September and
October before slowing into year end while investors may underweight high yield
securities in favor of higher quality securities.
From a portfolio perspective, we continue to be overweight in the
telecommunications sector given the powerful secular growth characteristics of
the sector. Positions that have underperformed recently but where we continue to
see substantial value are being maintained or selectively increased.
Shareholder Meeting Results
A Special Meeting of Shareholders of Federated High Yield Trust was held on
March 23, 1999. On January 22, 1999, the record date for shareholders voting at
the meeting, there were 122,495,959 total outstanding shares. The following
items were considered by shareholders and the results of their voting were as
follows:
AGENDA ITEM 1
Election of Trustees: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
NAMES FOR TO VOTE
<S> <C> <C>
Thomas G. Bigley 72,506,280 1,447,275
John T. Conroy, Jr. 72,524,978 1,428,577
Nicholas P. Constantakis 72,531,889 1,421,666
John F. Cunningham 72,573,447 1,380,108
J. Christopher Donahue 72,544,025 1,409,530
Peter E. Madden 72,577,719 1,375,836
Charles F. Mansfield, Jr. 72,585,426 1,368,129
John E. Murray, Jr., J.D., S.J.D. 72,570,414 1,383,141
John S. Walsh 72,589,246 1,364,309
</TABLE>
1 The following Trustees continued their terms as Trustees: John F.
Donahue, Lawrence D. Ellis, M.D. and Marjorie P. Smuts
AGENDA ITEM 2
To ratify the selection of Ernst & Young LLP as the fund's independent auditors:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
72,691,505 352,516 909,534
</TABLE>
AGENDA ITEM 3
To make changes to the fund's fundamental investment policies:
(a) To approve a revision in the fund's fundamental investment policy regarding
borrowing to permit the purchase of securities while borrowings are outstanding:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
54,121,973 3,436,808 16,394,774
</TABLE>
(b) To approve making non-fundamental the fund's fundamental investment policy
regarding investing in lower-rated fixed income securities:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
54,312,593 3,441,735 16,199,227
</TABLE>
AGENDA ITEM 4
To eliminate the fund's fundamental investment policy on investing in oil, gas,
and minerals:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
54,950,647 2,897,954 16,104,954
</TABLE>
AGENDA ITEM 5
To approve amendments and restatements of the fund's Declaration of Trust:
(a) To require the approval by a majority of outstanding voting shares in the
event of the sale or conveyance of the assets of the fund to another trust or
corporation:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
56,375,718 1,870,608 15,707,229
</TABLE>
(b) To permit the Board of Trustees to liquidate assets of the fund without
shareholder approval:
<TABLE>
<CAPTION>
ABSTENTIONS
AND BROKER
FOR AGAINST NON-VOTES
<S> <C> <C>
50,175,667 7,677,882 16,100,006
</TABLE>
Portfolio of Investments
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-90.5%
AEROSPACE & DEFENSE-0.3%
$ 1,950,000 1 Anteon Corp., Sr. Sub.
Note, 12.00%, 5/15/2009 $ 1,911,000
1,000,000 1 Condor Systems, Inc., Sr.
Sub. Note, 11.875%,
5/1/2009 940,000
TOTAL 2,851,000
AUTO/TRUCK-0.4%
1,000,000 1 J.L. French Automotive
Castings, Inc., Sr. Sub.
Note, 11.50%, 6/1/2009 1,002,500
2,425,000 1 HDA Parts System, Inc., Sr.
Sub. Note, 12.00%,
8/1/2005 2,461,375
TOTAL 3,463,875
AUTOMOBILE-2.1%
4,050,000 Accuride Corp., Sr. Sub.
Note, Series B, 9.25%,
2/1/2008 3,928,500
3,563,000 Aftermarket Technology
Co., Sr. Sub. Note, 12.00%,
8/1/2004 3,652,075
5,000,000 American Axle &
Manufacturing, Inc.,
Company Guarantee, 9.75%,
3/1/2009 5,075,000
475,000 Collins & Aikman Products
Co., Sr. Sub. Note, 11.50%,
4/15/2006 477,375
1,000,000 Lear Corp., Sub. Note,
9.50%, 7/15/2006 1,040,000
1,000,000 Motor Coach Industries
International, Inc., Sr.
Sub. Note, 11.25%,
5/1/2009 995,000
3,700,000 Oxford Automotive, Inc.,
Company Guarantee,
10.125%, 6/15/2007 3,644,500
TOTAL 18,812,450
BANKING-0.8%
8,150,000 GS Escrow Corp., Sr. Note,
7.125%, 8/1/2005 7,743,804
BEVERAGE & TOBACCO-0.1%
700,000 National Wine & Spirits,
Inc., Company Guarantee,
10.125%, 1/15/2009 710,500
BROADCAST RADIO & TV-6.3%
7,250,000 ACME Television, LLC, Sr.
Disc. Note, 0/10.875%,
9/30/2004 6,017,500
1,250,000 Benedek Communications
Corp., Sr. Sub. Note,
0/13.25%, 5/15/2006 1,081,250
7,350,000 Big City Radio, Inc.,
Company Guarantee,
0/11.25%, 3/15/2005 5,108,250
1,000,000 Capstar Broadcasting
Partners, Inc., Sr. Sub.
Note, 9.25%, 7/1/2007 1,015,000
3,000,000 Chancellor Media Corp.,
Company Guarantee, 10.50%,
1/15/2007 3,262,500
7,500,000 Chancellor Media Corp.,
Sr. Sub. Note, 8.125%,
12/15/2007 7,143,750
3,925,000 Chancellor Media Corp.,
Sr. Sub. Note, 8.75%,
6/15/2007 3,905,375
8,250,000 Chancellor Media Corp.,
Sr. Sub. Note, 9.375%,
10/1/2004 8,373,750
4,000,000 Cumulus Media, Inc., Sr.
Sub. Note, 10.375%,
7/1/2008 4,150,000
13,125,000 Fox/Liberty Networks, LLC,
Sr. Disc. Note, 0/9.75%,
8/15/2007 10,237,500
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
BROADCAST RADIO & TV-
CONTINUED
$ 1,300,000 Sinclair Broadcast Group,
Inc., Sr. Sub. Note,
10.00%, 9/30/2005 $ 1,319,500
3,125,000 Sinclair Broadcast Group,
Inc., Sr. Sub. Note, 8.75%,
12/15/2007 2,968,750
1,100,000 Sinclair Broadcast Group,
Inc., Sr. Sub. Note, 9.00%,
7/15/2007 1,056,000
2,225,000 Young Broadcasting, Inc.,
Sr. Sub. Note, 10.125%,
2/15/2005 2,302,875
TOTAL 57,942,000
BUILDING & DEVELOPMENT-
1.9%
1,200,000 American Architectural
Products Corp., Sr. Note,
11.75%, 12/1/2007 546,000
4,625,000 American Builders &
Contractors Supply Co.,
Inc., Sr. Sub. Note,
10.625%, 5/15/2007 4,278,125
1,975,000 Building Materials Corp.
of America, Sr. Note,
8.00%, 10/15/2007 1,817,000
8,825,000 2 Falcon Building Products,
Inc., Sr. Sub. Disc. Note,
0/10.50%, 6/15/2007 6,221,625
3,200,000 1 Formica Corp., Sr. Sub.
Note, 10.875%, 3/1/2009 3,040,000
1,275,000 1 Juno Lighting, Inc., Sr.
Sub. Note, 11.875%,
7/1/2009 1,262,250
TOTAL 17,165,000
BUSINESS EQUIPMENT &
SERVICES-2.8%
2,950,000 1 Avis Rent A Car, Inc., Sr.
Sub. Note, 11.00%,
5/1/2009 3,023,750
7,750,000 Dialog Corp. PLC, Sr. Sub.
Note, 11.00%, 11/15/2007 6,916,875
3,725,000 2 Electronic Retailing
Systems International,
Inc., Sr. Disc. Note,
0/13.25%, 2/1/2004 1,024,375
4,225,000 1 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%, 2/1/2008 3,971,500
3,750,000 Fisher Scientific
International, Inc., Sr.
Sub. Note, 9.00%, 2/1/2008 3,525,000
6,100,000 U.S. Office Products Co.,
Sr. Sub. Note, 9.75%,
6/15/2008 3,507,500
3,483,000 United Stationers Supply
Co., Sr. Sub. Note, 12.75%,
5/1/2005 3,796,470
TOTAL 25,765,470
CABLE TELEVISION-9.5%
67,574 Australis Media Ltd., Sr.
Disc. Note, 5/15/2003 676
3,950,000 2 Australis Media Ltd.,
Unit, 0/14.00%, 5/15/2003 39,500
2,000,000 CSC Holdings, Inc., Sr.
Note, 7.875%, 12/15/2007 1,935,780
1,265,000 CSC Holdings, Inc., Sr.
Sub. Deb., 9.875%,
2/15/2013 1,299,788
4,375,000 CSC Holdings, Inc., Sr.
Sub. Note, 9.25%,
11/1/2005 4,462,500
8,825,000 2 Diamond Cable
Communications PLC, Sr.
Disc. Note, 0/10.75%,
2/15/2007 6,883,500
3,850,000 Diamond Cable
Communications PLC, Sr.
Note, 9.125%, 2/1/2008 3,907,750
3,225,000 1, 2 Diva Systems Corp., Sr.
Disc. Note, 0/12.625%,
3/1/2008 725,625
4,300,000 1 Echostar DBS Corp., Sr.
Note, 9.375%, 2/1/2009 4,300,000
6,400,000 2 International Cabletel,
Inc., Sr. Defd. Cpn. Note,
0/11.50%, 2/1/2006 5,568,000
1,000,000 Lenfest Communications,
Inc., Sr. Sub. Note,
10.50%, 6/15/2006 1,132,500
6,250,000 Lenfest Communications,
Inc., Sr. Sub. Note, 8.25%,
2/15/2008 6,328,125
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
CABLE TELEVISION-CONTINUED
$ 12,150,000 1, 2 NTL, Inc., 0/12.375%,
10/1/2008 $ 8,110,125
4,700,000 2 NTL, Inc., Sr. Note,
0/9.75%, 4/1/2008 3,125,500
5,700,000 1 NTL, Inc., Sr. Note,
11.50%, 10/1/2008 6,127,500
2,850,000 Pegasus Communications
Corp., Sr. Note, 9.625%,
10/15/2005 2,807,250
2,350,000 1 Pegasus Communications
Corp., Sr. Note, 9.75%,
12/1/2006 2,338,250
3,300,000 Pegasus Media, Note,
12.50%, 7/1/2005 3,663,000
1,325,000 2 RCN Corp., Sr. Disc. Note,
0/11.125%, 10/15/2007 901,000
2,675,000 2 RCN Corp., Sr. Note,
0/11.00%, 7/1/2008 1,658,500
5,800,000 Rogers Cablesystems Ltd.,
Sr. Sub. Gtd. Note, 11.00%,
12/1/2015 6,554,000
3,000,000 1, 2 TeleWest PLC, Sr. Disc.
Note, 0/9.25%, 4/15/2009 1,845,000
1,150,000 1 TeleWest PLC, Sr. Note,
11.25%, 11/1/2008 1,230,500
9,825,000 2 UIH Australia/Pacific, Sr.
Disc. Note, 0/14.00%,
5/15/2006 7,467,000
8,000,000 2 United International
Holdings, Inc., Sr. Secd.
Disc. Note, 0/10.75%,
2/15/2008 4,660,000
TOTAL 87,071,369
CHEMICALS & PLASTICS-3.5%
750,000 Buckeye Cellulose Corp.,
Sr. Sub. Note, 8.50%,
12/15/2005 735,000
1,750,000 Foamex L.P., Sr. Sub. Note,
13.50%, 8/15/2005 1,758,750
5,775,000 1 Huntsman Corp., Sr. Sub.
Note, 9.50%, 7/1/2007 5,471,812
3,000,000 Huntsman ICI Chemicals
LLC, Sr. Sub. Note,
10.125%, 7/1/2009 3,045,000
7,350,000 Lyondell Chemical Co., Sr.
Sub. Note, Series B,
10.875%, 5/1/2009 7,497,000
8,400,000 Polymer Group, Inc., Sr.
Sub. Note, 9.00%, 7/1/2007 8,064,000
6,075,000 2 Sterling Chemicals
Holdings, Inc., Sr. Disc.
Note, 0/13.50%, 8/15/2008 1,731,375
2,550,000 Sterling Chemicals, Inc.,
Sr. Sub. Note, 11.75%,
8/15/2006 1,797,750
2,325,000 Texas Petrochemicals
Corp., Sr. Sub. Note,
11.125%, 7/1/2006 2,046,000
TOTAL 32,146,687
CLOTHING & TEXTILES-1.8%
3,125,000 Collins & Aikman
Floorcoverings, Inc., Sr.
Sub. Note, 10.00%,
1/15/2007 3,156,250
3,850,000 Dyersburg Corp., Sr. Sub.
Note, 9.75%, 9/1/2007 1,559,250
2,575,000 GFSI, Inc., Sr. Sub. Note,
9.625%, 3/1/2007 2,072,875
4,450,000 Glenoit Corp., Sr. Sub.
Note, 11.00%, 4/15/2007 2,914,750
4,900,000 Pillowtex Corp., Sr. Sub.
Note, 10.00%, 11/15/2006 4,532,500
2,975,000 Pillowtex Corp., Sr. Sub.
Note, 9.00%, 12/15/2007 2,603,125
TOTAL 16,838,750
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
CONGLOMERATES-0.6%
$ 6,375,000 Eagle Picher Industries,
Inc., Sr. Sub. Note,
9.375%, 3/1/2008 $ 5,896,875
CONSUMER PRODUCTS-3.7%
3,000,000 1 Albecca, Inc., Company
Guarantee, 10.75%,
8/15/2008 2,295,000
3,150,000 American Safety Razor Co.,
Sr. Note, 9.875%, 8/1/2005 3,173,625
2,850,000 Amscan Holdings, Inc., Sr.
Sub. Note, 9.875%,
12/15/2007 2,294,250
3,925,000 Chattem, Inc., Sr. Sub.
Note, 8.875%, 4/1/2008 3,748,375
850,000 Diamond Brands Operating
Corp., Sr. Sub. Note,
10.125%, 4/15/2008 658,750
1,450,000 2 Diamond Brands, Inc., Sr.
Disc. Deb., 0/12.875%,
4/15/2009 268,250
2,850,000 NBTY, Inc., Sr. Sub. Note,
8.625%, 9/15/2007 2,372,625
13,950,000 Revlon Consumer Products
Corp., Sr. Note, 8.625%,
2/1/2008 11,648,250
175,000 1 Scotts Co., Sr. Sub. Note,
8.625%, 1/15/2009 170,625
2,000,000 2 Sealy Mattress Co.,
Company Guarantee,
0/10.875%, 12/15/2007 1,350,000
1,250,000 Sealy Mattress Co., Sr.
Sub. Note, 9.875%,
12/15/2007 1,218,750
1,925,000 1 True Temper Sports, Inc.,
Sr. Sub. Note, 10.875%,
12/1/2008 1,809,500
1,525,000 1 United Industries Corp.,
Sr. Sub. Note, 9.875%,
4/1/2009 1,334,375
1,000,000 1 Volume Services America,
Inc., Sr. Sub. Note,
11.25%, 3/1/2009 1,065,000
TOTAL 33,407,375
CONTAINER & GLASS
PRODUCTS-0.8%
2,250,000 1 Russell Stanley Holdings,
Inc., Sr. Sub. Note,
10.875%, 2/15/2009 2,103,750
5,300,000 Tekni-Plex, Inc., Sr. Sub.
Note, 9.25%, 3/1/2008 5,194,000
TOTAL 7,297,750
ECOLOGICAL SERVICES &
EQUIPMENT-0.9%
7,000,000 Allied Waste North
America, Inc., Sr. Note,
7.625%, 1/1/2006 6,475,000
2,000,000 Allied Waste North
America, Inc., Sr. Note,
7.875%, 1/1/2009 1,820,000
TOTAL 8,295,000
ELECTRONICS-1.1%
1,675,000 1 Fairchild Semiconductor
Corp., Sr. Sub. Note,
10.375%, 10/1/2007 1,649,875
8,350,000 Telecommunications
Techniques Co., LLC, Sr.
Sub. Note, 9.75%,
5/15/2008 7,974,250
TOTAL 9,624,125
FARMING & AGRICULTURE-0.1%
1,000,000 1 Royster-Clark, Inc., 1st
Mtg. Note, 10.25%,
4/1/2009 965,000
FOOD PRODUCTS-2.0%
6,500,000 1 Agrilink Foods, Inc., Sr.
Sub Note, 11.875%,
11/1/2008 6,142,500
1,000,000 Aurora Foods, Inc., Sr.
Sub. Note, Series B,
9.875%, 2/15/2007 1,002,500
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
FOOD PRODUCTS-CONTINUED
$ 3,625,000 Eagle Family Foods, Inc.,
Sr. Sub. Note, 8.75%,
1/15/2008 $ 2,755,000
4,400,000 International Home Foods,
Inc., Sr. Sub. Note,
10.375%, 11/1/2006 4,510,000
4,250,000 1 Triarc Consumer Products
Group, LLC, Sr. Sub. Note,
10.25%, 2/15/2009 4,101,250
TOTAL 18,511,250
FOOD SERVICES-1.7%
1,000,000 Advantica Restaurant
Group, Sr. Note, 11.25%,
1/15/2008 932,500
7,900,000 AmeriServe Food
Distribution, Inc., Sr.
Sub. Note, 10.125%,
7/15/2007 5,925,000
3,925,000 1 Carrols Corp., Sr. Sub
Note, 9.50%, 12/1/2008 3,375,500
3,500,000 1 Domino's, Inc., Sr. Sub
Note, 10.375%, 1/15/2009 3,500,000
3,200,000 2 Nebco Evans Holding Co.,
Sr. Disc. Note, 0/12.375%,
7/15/2007 1,392,000
TOTAL 15,125,000
FOREST PRODUCTS-0.6%
1,600,000 1 Packaging Corp. of
America, Sr. Sub. Note,
9.625%, 4/1/2009 1,624,000
2,050,000 Stone Container Corp., Sr.
Note, 11.50%, 10/1/2004 2,121,750
2,000,000 Stone Container Corp., Sr.
Note, 12.58%, 8/1/2016 2,150,000
TOTAL 5,895,750
HEALTH CARE-4.7%
500,000 Alliance Imaging, Inc.,
Sr. Sub. Note, 9.54%,
12/15/2005 455,000
2,600,000 Alliance Imaging, Inc.,
Sr. Sub. Note, 9.625%,
12/15/2005 2,444,000
5,000,000 CONMED Corp., Sr. Sub.
Note, 9.00%, 3/15/2008 4,775,000
2,750,000 Columbia/HCA Healthcare
Corp., Sr. Note, 6.91%,
6/15/2005 2,472,470
4,725,000 Dade International, Inc.,
Sr. Sub. Note, 11.125%,
5/1/2006 4,949,438
1,950,000 Everest Healthcare
Services Corp., Sr. Sub.
Note, 9.75%, 5/1/2008 1,784,250
2,225,000 Genesis Health Ventures,
Inc., Sr. Sub. Note, 9.25%,
10/1/2006 1,346,125
700,000 Genesis Health Ventures,
Inc., Sr. Sub. Note, 9.75%,
6/15/2005 437,500
1,000,000 1 Genesis Health Ventures,
Inc., Sr. Sub. Note,
9.875%, 1/15/2009 555,000
1,750,000 Hudson Respiratory Care,
Inc., Sr. Sub. Note,
9.125%, 4/15/2008 1,338,750
2,975,000 Kinetic Concepts, Inc.,
Company Guarantee, 9.625%,
11/1/2007 2,305,625
3,500,000 1 Tenet Healthcare Corp.,
Sr. Note, 7.625%, 6/1/2008 3,228,750
8,450,000 Tenet Healthcare Corp.,
Sr. Note, 8.00%, 1/15/2005 8,112,000
6,000,000 1 Tenet Healthcare Corp.,
Sr. Sub. Note, 8.125%,
12/1/2008 5,610,000
3,650,000 Tenet Healthcare Corp.,
Sr. Sub. Note, 8.625%,
1/15/2007 3,504,000
TOTAL 43,317,908
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
HOTELS, MOTELS, INNS &
CASINOS-2.0%
$ 1,100,000 Courtyard by Marriott II
LP, Sr. Note, 10.75%,
2/1/2008 $ 1,105,500
5,525,000 Florida Panthers Holdings,
Inc., Company Guarantee,
9.875%, 4/15/2009 5,193,500
2,900,000 HMH Properties, Inc., Sr.
Note, Series A, 7.875%,
8/1/2005 2,740,500
5,875,000 HMH Properties, Inc., Sr.
Note, Series B, 7.875%,
8/1/2008 5,316,875
4,200,000 HMH Properties, Inc., Sr.
Note, Series C, 8.45%,
12/1/2008 3,927,000
TOTAL 18,283,375
INDUSTRIAL PRODUCTS &
EQUIPMENT-4.5%
3,750,000 Amphenol Corp., Sr. Sub.
Note, 9.875%, 5/15/2007 3,787,500
3,800,000 Cabot Safety Acquisition
Corp., Sr. Sub. Note,
12.50%, 7/15/2005 4,056,500
4,725,000 Continental Global Group,
Inc., Sr. Note, 11.00%,
4/1/2007 3,189,375
5,325,000 Euramax International PLC,
Sr. Sub. Note, 11.25%,
10/1/2006 5,298,375
1,625,000 ISG Resources, Inc., Sr.
Sub. Note, 10.00%,
4/15/2008 1,584,375
1,925,000 International Utility
Structures, Inc., Sr. Sub.
Note, 10.75%, 2/1/2008 1,799,875
1,800,000 Johnstown America
Industries, Inc., Sr. Sub.
Note, 11.75%, 8/15/2005 1,845,000
1,875,000 Johnstown America
Industries, Inc., Sr. Sub.
Note, Series C, 11.75%,
8/15/2005 1,921,875
5,000,000 MMI Products, Inc., Sr.
Sub. Note, 11.25%,
4/15/2007 5,100,000
2,200,000 1 Neenah Corp., Sr. Sub.
Note, 11.125%, 5/1/2007 2,139,500
2,775,000 Neenah Corp., Sr. Sub.
Note, 11.125%, Series B,
5/1/2007 2,698,688
2,300,000 Unifrax Investment Corp.,
Sr. Note, 10.50%,
11/1/2003 2,328,750
5,525,000 WESCO Distribution, Inc.,
Sr. Sub. Note, 9.125%,
6/1/2008 5,248,750
TOTAL 40,998,563
LEISURE & ENTERTAINMENT-
2.1%
6,109,000 2 AMF Group, Inc., Sr. Sub.
Disc. Note, 0/12.25%,
3/15/2006 3,604,310
100,000 AMF Group, Inc., Sr. Sub.
Note, 10.875%, 3/15/2006 73,500
11,625,000 2 Premier Parks, Inc., Sr.
Disc. Note, 0/10.00%,
4/1/2008 7,730,625
10,950,000 Regal Cinemas, Inc., Sr.
Sub. Note, 9.50%, 6/1/2008 7,719,750
TOTAL 19,128,185
MACHINERY & EQUIPMENT-3.5% 2,973,000 Alvey Systems, Inc.,
Sr.
Sub. Note, 11.375%,
1/31/2003 3,017,595
5,525,000 Clark Material Handling
Corp., Sr. Note, 10.75%,
11/15/2006 4,737,687
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
MACHINERY & EQUIPMENT-
CONTINUED
$ 1,400,000 Columbus McKinnon Corp.,
Sr. Sub. Note, Series B,
8.50%, 4/1/2008 $ 1,281,000
2,775,000 1 Fairchild Corp., Sr. Sub.
Note, 10.75%, 4/15/2009 2,455,875
3,500,000 National Equipment
Services, Inc., Sr. Sub.
Note, Series B, 10.00%,
11/30/2004 3,517,500
3,300,000 1 National Equipment
Services, Inc., Sr. Sub.
Note, Series C, 10.00%,
11/30/2004 3,316,500
1,250,000 NationsRent, Inc., Company
Guarantee, 10.375%,
12/15/2008 1,250,000
6,000,000 United Rentals, Inc., Sr.
Sub. Note, 9.25%,
1/15/2009 5,850,000
3,700,000 United Rentals, Inc., Sr.
Sub. Note, Series B, 9.00%,
4/1/2009 3,561,250
2,575,000 1 WEC Co., Sr. Note, 12.00%,
7/15/2009 2,562,125
TOTAL 31,549,532
METALS & MINING-1.0%
3,525,000 1 AEI Holding Co., Inc., Sr.
Note, 10.50%, 12/15/2005 3,084,375
5,900,000 1 AEI Resources, Inc., Sr.
Sub. Note, 11.50%,
12/15/2006 5,044,500
700,000 Murrin Murrin Holdings
Pty. Ltd., Sr. Secd. Note,
9.375%, 8/31/2007 619,500
TOTAL 8,748,375
OIL & GAS-3.4% 2,600,000 Chiles Offshore, LLC, Sr.
Note, 10.00%, 5/1/2008 2,249,000
750,000 1 Comstock Resources, Inc.,
Sr. Note, 11.25%, 5/1/2007 780,000
5,700,000 Continental Resources,
Inc., Sr. Sub. Note,
10.25%, 8/1/2008 4,332,000
2,075,000 DI Industries, Inc., Sr.
Note, 8.875%, 7/1/2007 1,867,500
6,650,000 3 Dailey Petroleum Services
Corp., Company Guarantee,
9.50%, 2/15/2008 4,422,250
3,025,000 Forcenergy, Inc., Sr. Sub.
Note, 8.50%, 2/15/2007 2,525,875
3,075,000 Forcenergy, Inc., Sr. Sub.
Note, 9.50%, 11/1/2006 2,567,625
2,250,000 Pogo Producing Co., Sr.
Sub. Note, 8.75%,
5/15/2007 2,143,125
1,000,000 R&B Falcon Corp., Company
Guarantee, 9.50%,
12/15/2008 952,500
3,550,000 R&B Falcon Corp., Sr. Note,
12.25%, 3/15/2006 3,763,000
1,000,000 RBF Finance Co., Company
Guarantee, 11.00%,
3/15/2006 1,065,000
1,000,000 RBF Finance Co., Company
Guarantee, 11.375%,
3/15/2009 1,065,000
2,025,000 2 Universal Compression
Holdings, Inc., Sr. Disc.
Note, 0/11.375%, 2/15/2009 1,204,875
3,150,000 2 Universal Compression
Holdings, Inc., Sr. Disc.
Note, 0/9.875%, 2/15/2008 1,937,250
TOTAL 30,875,000
PRINTING & PUBLISHING-0.5%
600,000 Garden State Newspapers,
Inc., Sr. Sub. Note, 8.75%,
10/1/2009 568,500
4,425,000 K-III Communications
Corp., Company Guarantee,
Series B, 8.50%, 2/1/2006 4,248,000
TOTAL 4,816,500
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
SERVICES-1.1%
$ 2,057,000 Coinmach Corp., Sr. Note,
11.75%, 11/15/2005 $ 2,211,275
8,700,000 2 Crown Castle International
Corp., Sr. Disc. Note,
0/10.375%, 5/15/2011 4,872,000
2,450,000 SITEL Corp., Sr. Sub. Note,
9.25%, 3/15/2006 2,033,500
1,300,000 1 URS Corp., Sr. Sub. Note,
12.25%, 5/1/2009 1,306,500
TOTAL 10,423,275
STEEL-0.3%
1,000,000 National Steel Corp., 1st
Mtg. Bond, 9.875%,
3/1/2009 1,020,000
1,275,000 Ryerson Tull, Inc., Sr.
Note, 9.125%, 7/15/2006 1,335,499
TOTAL 2,355,499
SURFACE TRANSPORTATION-
2.4%
2,050,000 Allied Holdings, Inc., Sr.
Note, 8.625%, 10/1/2007 1,875,750
4,950,000 3 AmeriTruck Distribution
Corp., Sr. Sub. Note,
12.25%, 11/15/2005 297,000
3,125,000 Gearbulk Holding Ltd., Sr.
Note, 11.25%, 12/1/2004 3,187,500
750,000 Railworks Corp., Company
Guarantee, 11.50%,
4/15/2009 757,500
8,300,000 Stena AB, Sr. Note, 10.50%,
12/15/2005 8,300,000
3,675,000 Stena AB, Sr. Note, 8.75%,
6/15/2007 3,362,625
2,500,000 Stena Line AB, Sr. Note,
10.625%, 6/1/2008 1,862,500
3,125,000 1 The Holt Group, Inc., Sr.
Note, 9.75%, 1/15/2006 2,078,125
TOTAL 21,721,000
TELECOMMUNICATIONS &
CELLULAR-24.0%
5,850,000 1 American Cellular Corp.,
Sr. Note, 10.50%,
5/15/2008 6,084,000
1,000,000 Arch Communications, Inc.,
Sr. Note, Series B, 12.75%,
7/1/2007 835,000
2,000,000 2 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/10.80%, 5/15/2009 1,090,000
9,125,000 2 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/8.94%, 8/15/2008 4,973,125
8,250,000 2 Call-Net Enterprises,
Inc., Sr. Disc. Note,
0/9.27%, 8/15/2007 5,156,250
3,400,000 1 Centennial Cellular Corp.,
Sr. Sub. Note, 10.75%,
12/15/2008 3,553,000
2,000,000 1, 2 Dolphin Telecom PLC, Sr.
Disc. Note, 0/14.00%,
5/15/2009 850,000
7,125,000 2 E.Spire Communications,
Inc., Sr. Disc. Note,
0/12.75%, 4/1/2006 4,061,250
2,000,000 1 Hermes Europe Railtel
B.V., Sr. Note, 10.375%,
1/15/2009 2,020,000
8,650,000 Hermes Europe Railtel
B.V., Sr. Note, 11.50%,
8/15/2007 8,974,375
5,625,000 2 ICG Holdings, Inc., Sr.
Disc. Note, 0/12.50%,
5/1/2006 4,530,262
7,000,000 2 ICG Services, Inc., Sr.
Disc. Note, 0/9.875%,
5/1/2008 3,915,240
1,025,000 IXC Communications, Inc.,
Sr. Sub. Note, 9.00%,
4/15/2008 1,019,875
5,150,000 2 Intermedia Communications,
Inc., Sr. Disc. Note,
0/11.25%, 7/15/2007 3,579,250
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 10,925,000 2 Intermedia Communications,
Inc., Sr. Disc. Note,
0/12.50%, 5/15/2006 $ 8,903,875
2,000,000 1, 2 Intermedia Communications,
Inc., Sr. Sub. Disc. Note,
Series B, 0/12.25%,
3/1/2009 1,100,000
1,225,000 Intermedia Communications,
Inc., Sr. Note, 8.60%,
6/1/2008 1,090,250
3,325,000 Intermedia Communications,
Inc., Sr. Note, 8.875%,
11/1/2007 2,975,875
16,450,000 1 Level 3 Communications,
Inc., Sr. Disc. Note,
0/10.50%, 12/1/2008 9,376,500
9,900,000 Level 3 Communications,
Inc., Sr. Note, 9.125%,
5/1/2008 9,256,500
12,575,000 2 McLeod, Inc., Sr. Disc.
Note, 0/10.50%, 3/1/2007 9,871,375
1,500,000 McLeod, Inc., Sr. Note,
8.375%, 3/15/2008 1,421,249
1,125,000 McLeod, Inc., Sr. Note,
9.25%, 7/15/2007 1,122,188
2,000,000 2 MetroNet Communications
Corp., Sr. Disc. Note,
0/10.75%, 11/1/2007 1,610,000
4,200,000 MetroNet Communications
Corp., Sr. Note, 12.00%,
8/15/2007 4,893,000
4,700,000 2 MetroNet Escrow Corp., Sr.
Disc. Note, 0/9.95%,
6/15/2008 3,583,750
4,400,000 1 MetroNet Escrow Corp., Sr.
Note, 10.625%, 11/1/2008 4,994,000
10,100,000 2 Millicom International
Cellular S.A., Sr. Disc.
Note, 0/13.50%, 6/1/2006 7,171,000
6,350,000 2 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/10.65%, 9/15/2007 4,714,875
12,300,000 2 NEXTEL Communications,
Inc., Sr. Disc. Note,
0/9.95%, 2/15/2008 8,610,000
3,400,000 2 NEXTLINK Communications,
Inc., Sr. Disc. Note,
0/12.25%, 6/1/2009 1,989,000
6,000,000 2 NEXTLINK Communications,
Inc., Sr. Disc. Note,
0/9.45%, 4/15/2008 3,630,000
6,600,000 NEXTLINK Communications,
Inc., Sr. Note, 10.75%,
6/1/2009 6,699,000
3,000,000 NEXTLINK Communications,
Inc., Sr. Note, 9.00%,
3/15/2008 2,827,500
3,500,000 2 Nextel International,
Inc., Sr. Disc. Note,
0/12.125%, 4/15/2008 1,823,675
3,250,000 1, 2 Nextel Partners, Inc., Sr.
Disc. Note, 0/14.00%,
2/1/2009 1,966,250
7,850,000 Paging Network, Inc., Sr.
Sub. Note, 10.00%,
10/15/2008 4,592,250
5,350,000 Pathnet, Inc., Unit,
12.25%, 4/15/2008 3,076,250
3,400,000 PsiNet, Inc., Sr. Note,
10.00%, 2/15/2005 3,298,000
2,600,000 1 PsiNet, Inc., Sr. Note,
11.00%, 8/1/2009 2,600,000
2,925,000 PsiNet, Inc., Sr. Note,
11.50%, 11/1/2008 3,005,438
5,000,000 2 Qwest Communications
International, Inc., Sr.
Disc. Note, 0/8.29%,
2/1/2008 3,662,500
3,241,000 Qwest Communications
International, Inc., Sr.
Note, 10.875%, 4/1/2007 3,670,433
4,200,000 Rogers Cantel Mobile,
Inc., Sr. Sub. Note, 8.80%,
10/1/2007 4,315,500
1,000,000 1 Tele1 Europe B.V., Unit,
13.00%, 5/15/2009 1,062,500
3,675,000 2 Telesystem International
Wireless, Inc., Sr. Disc.
Note, 0/10.50%, 11/1/2007 1,561,875
8,350,000 2 Telesystem International
Wireless, Inc., Sr. Disc.
Note, 0/13.25%, 6/30/2007 4,133,250
4,575,000 2 Teligent AB, Sr. Disc.
Note, 0/11.50%, 3/1/2008 2,630,625
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
<C> <S> <C>
CORPORATE BONDS-continued
TELECOMMUNICATIONS &
CELLULAR-CONTINUED
$ 6,250,000 Teligent AB, Sr. Note,
11.50%, 12/1/2007 $ 6,031,250
8,500,000 2 Triton PCS, Inc., Sr. Disc.
Note, 0/11.00%, 5/1/2008 5,865,000
1,000,000 US Xchange, L.L.C., Sr.
Note, 15.00%, 7/1/2008 1,012,500
4,325,000 USA Mobile Communications,
Inc., Sr. Note, 9.50%,
2/1/2004 3,481,625
2,650,000 1 Verio, Inc., Sr. Note,
11.25%, 12/1/2008 2,729,500
1,000,000 1 Viatel, Inc., Sr. Note,
11.50%, 3/15/2009 1,000,000
2,275,000 2 Viatel, Inc., Unit,
0/12.50%, 4/15/2008 1,376,375
5,750,000 Viatel, Inc., Unit,
11.25%, 4/15/2008 5,663,750
3,850,000 2 WinStar Communications,
Inc., Sr. Sub. Defd. Deb.,
0/11.00%, 3/15/2008 3,561,250
TOTAL 218,601,360
TOTAL CORPORATE BONDS
(IDENTIFIED COST
$913,214,533) 826,347,602
COMMON STOCKS/WARANTS-0.2%
BUSINESS EQUIPMENT &
SERVICES-0.0%
3,725 1, 3 Electronic Retailing
Systems International,
Inc., Warrants 18,625
CABLE TELEVISION-0.1%
2,525 1, 3 Australis Holdings
Property Ltd., Warrants 0
68 CS Wireless Systems, Inc. 9
9,675 3 Diva Systems Corp.,
Warrants 77,400
6,994 3 Pegasus Communications
Corp. 293,748
3,450 3 Pegasus Communications
Corp., Warrants 243,225
9,825 3 UIH Australia/Pacific,
Warrants 245,625
9,000 3 Wireless One, Inc.,
Warrants 0
TOTAL 860,007
CHEMICALS & PLASTICS-0.0%
4,675 3 Sterling Chemicals
Holdings, Inc., Warrants 70,125
CONSUMER PRODUCTS-0.0%
5,000 1, 3 IHF Capital, Inc.,
Warrants 2,500
METALS & MINING-0.0%
138,395 3 Royal Oak Mines, Inc. 0
OIL & GAS-0.0%
2,400 1 R&B Falcon Corp., Warrants 36,600
<CAPTION>
SHARES VALUE
<C> <S> <C>
COMMON STOCKS/WARANTS-
continued
PRINTING & PUBLISHING-0.1%
5,350 3 Affiliated Newspaper
Investments, Inc. $ 802,500
STEEL-0.0%
1,800 1, 3 Bar Technologies, Inc.,
Warrants 36,000
TELECOMMUNICATIONS &
CELLULAR-0.0%
4,200 1, 3 MetroNet Communications
Corp., Warrants 323,400
5,350 1, 3 Pathnet, Inc., Warrants 54,169
TOTAL 377,569
TOTAL COMMON
STOCKS/WARRANTS
(IDENTIFIED COST $823,515) 2,203,926
PREFERRED STOCKS-5.1%
BANKING-0.1%
57,000 California Federal
Preferred Capital Corp.,
REIT Perpetual Pfd. Stock,
Series A, $2.28 1,417,875
BROADCAST RADIO & TV-1.9%
3,375 Benedek Communications
Corp., Sr. Exchangeable
PIK 2,565,000
34,776 Capstar Broadcasting
Corp., Cumulative
Exchangeable Pfd. Stock,
Series E 4,190,555
26,944 Capstar Broadcasting
Partners, Inc., Sr. Pfd.,
$12.00 3,078,352
1,716 Cumulus Media, Inc.,
Cumulative Sr. Red. Pfd.
Stk., Series A, $3.44 1,913,537
53,125 Sinclair Broadcast Group,
Inc., Cumulative Pfd.,
$11.63 5,445,313
TOTAL 17,192,757
CABLE TELEVISION-0.5%
5,071 Pegasus Communications
Corp., Cumulative PIK
Pfd., Series A, 12.75% 5,097,320
FOOD SERVICES-0.1%
29,478 Nebco Evans Holding Co.,
Exchangeable Pfd. Stock 987,526
FOREST PRODUCTS-0.1%
8,750 1 Packaging Corp. of
America, Sr. Exchangeable
PIK 960,312
HEALTH CARE-0.1%
11,826 River Holding Corp., Sr.
Exchangeable PIK 762,375
INDUSTRIAL PRODUCTS &
EQUIPMENT-0.3%
2,000 Fairfield Manufacturing
Co., Inc., Cumulative
Exchangeable Pfd. Stock 2,070,000
60 1 International Utility
Structures, Inc., Unit 55,950
300 1 International Utility
Structures, Inc., Unit,
$13.00 286,500
TOTAL 2,412,450
OIL & GAS-0.3%
2,491 R&B Falcon Corp., PIK Pfd.,
13.875% 2,348,308
<CAPTION>
SHARES OR
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
PREFERRED STOCKS-continued
PRINTING & PUBLISHING-1.1%
75,100 Primedia, Inc.,
Exchangeable Pfd. Stock,
Series H, $2.16 $ 7,510,000
23,750 Primedia, Inc., Pfd.,
$9.20 2,303,750
TOTAL 9,813,750
TELECOMMUNICATIONS &
CELLULAR-0.6%
3,733 NEXTEL Communications,
Inc., Cumulative PIK Pfd.,
Series D, 13.00% 3,900,985
1,532 NEXTEL Communications,
Inc., Exchangeable Pfd.
Stock, Series E 1,509,481
TOTAL 5,410,466
TOTAL PREFERRED STOCKS
(IDENTIFIED COST
$48,141,593) 46,403,139
REPURCHASE AGREEMENT-2.8%
4
$ 25,555,000 Salomon Brothers, Inc.,
5.50%, dated 8/31/1999,
due 9/1/1999 (at amortized
cost) 25,555,000
TOTAL INVESTMENTS
(IDENTIFIED COST
$987,734,641) 5 $ 900,509,667
</TABLE>
1 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the Board of Trustees. At August 31, 1999, these securities
amounted to $149,168,618 which represents 16.3% of net assets.
2 Denotes a zero coupon bond with effective rate at time of purchase.
3 Non-income producing security.
4 The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements is through participation in joint
accounts with other Federated funds.
5 The cost of investments for federal tax purposes amounts to $987,734,641. The
net unrealized depreciation of investments on a federal tax basis amounts to
$87,224,974 which is comprised of $11,593,518 appreciation and $98,818,492
depreciation at August 31, 1999.
Note: The categories of investments are shown as a percentage of net assets
($913,451,750) at August 31, 1999.
The following acronyms are used throughout this portfolio:
BIG -Bond Investors Guaranty
GTD -Guaranty
HDA -Hospital Development Authority
PCs -Participation Certificates
PIK -Payment in Kind
REIT -Real Estate Investment Trust
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at value
(identified and tax cost
$987,734,641) $ 900,509,667
Cash 622,152
Income receivable 16,427,392
Receivable for investments
sold 3,188,527
Receivable for shares sold 3,241,648
TOTAL ASSETS 923,989,386
LIABILITIES:
Payable for investments
purchased $ 109,710
Payable for shares
redeemed 2,753,220
Income distribution
payable 7,507,632
Payable for taxes withheld 3,322
Accrued expenses 163,752
TOTAL LIABILITIES 10,537,636
Net assets for 107,759,018
shares outstanding $ 913,451,750
NET ASSETS CONSIST OF:
Paid in capital $ 1,014,466,776
Net unrealized
depreciation of
investments (87,224,974)
Accumulated net realized
loss on investments (14,674,329)
Undistributed net
investment income 884,277
TOTAL NET ASSETS $ 913,451,750
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$913,451,750 / 107,759,018
shares outstanding $8.48
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
SIX MONTHS ENDED AUGUST 31, 1999 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends $ 2,353,967
Interest (net of foreign
taxes withheld of $3,336) 51,020,073
TOTAL INCOME 53,374,040
EXPENSES:
Investment advisory fee $ 3,938,409
Administrative personnel
and services fee 395,942
Custodian fees 46,111
Transfer and dividend
disbursing agent fees and
expenses 232,139
Directors'/Trustees' fees 8,514
Auditing fees 12,179
Legal fees 38,041
Portfolio accounting fees 71,155
Shareholder services fee 1,312,803
Share registration costs 36,663
Printing and postage 50,415
Insurance premiums 2,758
Miscellaneous 1,666
TOTAL EXPENSES 6,146,795
WAIVERS:
Waiver of investment
advisory fee $ (1,245,954)
Waiver of shareholder
services fee (262,561)
TOTAL WAIVERS (1,508,515)
Net expenses 4,638,280
Net investment income 48,735,760
REALIZED AND UNREALIZED
LOSS ON INVESTMENTS:
Net realized loss on
investments (1,196,219)
Net change in unrealized
depreciation
of investments (50,335,740)
Net realized and
unrealized loss on
investments (51,531,959)
Change in net assets
resulting from operations $ (2,796,199)
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
(unaudited) ENDED
AUGUST 31, FEBRUARY 28,
1999 1999
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 48,735,760 $ 103,534,271
Net realized gain (loss) on
investments ($(1,196,219)
and $2,188,032,
respectively, as computed
for federal tax purposes) (1,196,219) 2,188,032
Net change in unrealized
depreciation (50,335,740) (93,988,696)
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS (2,796,199) 11,733,607
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (48,494,838) (103,375,232)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 455,356,938 1,105,476,358
Net asset value of shares
issued to shareholders in
payment of
distributions declared 27,192,715 72,053,130
Cost of shares redeemed (587,647,245) (1,215,110,331)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (105,097,592) (37,580,843)
Change in net assets (156,388,629) (129,222,468)
NET ASSETS:
Beginning of period 1,069,840,379 1,199,062,847
End of period (including
undistributed net
investment income of
$884,277 and $643,355,
respectively) $ 913,451,750 $ 1,069,840,379
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
(unaudited)
AUGUST 31, YEAR ENDED FEBRUARY 28 OR 29,
1999 1999 1998 1997 1996
1995
<S> <C> <C> <C> <C> <C>
<C>
NET ASSET VALUE, BEGINNING
OF PERIOD $ 8.92 $ 9.73 $ 9.41 $ 9.09 $ 8.57 $ 9.48
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.34 0.83 0.82 0.85 0.85 0.84
Net realized and
unrealized gain (loss)
on investments (0.44 ) (0.81) 0.32 0.33 0.51 (0.90 )
TOTAL FROM INVESTMENT
OPERATIONS (0.10 ) 0.02 1.14 1.18 1.36 (0.06 )
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34 ) (0.83) (0.82) (0.85) (0.84) (0.84 )
Distributions in excess of
net investment income 1 - - - (0.01) - (0.01 )
TOTAL DISTRIBUTIONS (0.34 ) (0.83) (0.82) (0.86) (0.84) (0.85 )
NET ASSET VALUE, END
OF PERIOD $ 8.48 $ 8.92 $ 9.73 $ 9.41 $ 9.09 $ 8.57
TOTAL RETURN 2 (0.41 %) 0.33% 12.74% 13.74% 16.47% (0.32% )
RATIOS TO AVERAGE
NET ASSETS:
Expenses 3 1.17% 4 1.14% 1.15% 1.16% 1.18% 1.07 %
Net investment income 3 8.99% 4 8.76% 8.46% 9.17% 9.23% 9.48 %
Expenses (after waivers) 0.88% 4 0.88% 0.88% 0.88% 0.88% 0.85 %
Net investment income
(after waivers) 9.28% 4 9.02% 8.73% 9.45% 9.53% 9.70 %
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $913,452 $1,069,840 $1,199,063 $938,363 $673,779 $464,604
Portfolio turnover 29 % 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 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
4 Computed on an annualized basis.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
AUGUST 31, 1999 (UNAUDITED)
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 60 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.
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:
<TABLE>
<CAPTION>
EXPIRATION YEAR Expiration Amount
<S> <C> <C>
2000 $6,525,373
2003 $1,456,604
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
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.
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>
SIX MONTHS YEAR
ENDED ENDED
AUGUST 31, FEBRUARY 28,
1999 1999
<S> <C> <C>
Shares sold 51,282,724 120,541,310
Shares issued to
shareholders in payment of
distributions declared 3,061,402 7,818,612
Shares redeemed (66,503,829) (131,659,365)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (12,159,703) (3,299,443)
</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's 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 six
months ended August 31, 1999, were as follows:
<TABLE>
<S> <C>
Purchases $ 291,292,595
Sales $ 453,436,112
</TABLE>
YEAR 2000
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.
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
GLEN R. JOHNSON
President
J. THOMAS MADDEN
Chief Investment Officer
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD B. FISHER
Vice President
RICHARD J. THOMAS
Treasurer
KEITH A. ANTLE
Assistant Treasurer
C. GRANT ANDERSON
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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. Investment in mutual funds involves investment risk,
including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
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Federated
World-Class Investment Manager
SEMI-ANNUAL REPORT
Federated High Yield Trust
SEMI-ANNUAL REPORT TO SHAREHOLDERS
AUGUST 31, 1999
[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
Cusip 314197104
8092705 (10/99)
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