FEDERATED
BOND INDEX
FUND
ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1996
FEDERATED INVESTORS
- ---------------------------------------------
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors
[LOGO]
Cusip 313909103
Cusip 313909202
G01738-01 (7/96)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the first Annual Report for Federated Bond Index Fund,
which covers the period from February 22, 1996, the start of performance,
through May 31, 1996.
Federated Bond Index Fund pursues the investment performance of the overall bond
market as measured by the Lehman Brothers Aggregate Bond Index*. This index is a
benchmark for broad bond market performance and includes U.S. Treasury and
agency securities, corporate investment grade bonds, and mortgage-backed
securities.
To efficiently pursue the performance of this index, Federated Bond Index Fund
invests all of its assets in Bond Index Portfolio, a fund with the same
investment objective and policies.
The report opens with an Investment Review by the portfolio manager of Bond
Index Portfolio, followed by a series of charts that show total return
performance. These charts incorporate the performance record of Bond Index
Portfolio from its inception on July 11, 1994 through February 21, 1996. From
February 22 through May 31, 1996, the performance is that of Federated Bond
Index Fund for both the Institutional and Institutional Service Shares. Next are
the financial statements of Federated Bond Index Fund, and a complete listing of
holdings in which it invests through the Bond Index Portfolio**. At the end of
the period, the assets of the Bond Index Portfolio were well diversified across
U.S. Treasury notes and bonds (46%), mortgage-backed securities (28.1%)
corporate bonds (16.9%), government agency securities (6.5%), and asset-backed
securities (1.2%).
Thank you for participating in the performance potential of bonds through
Federated Bond Index Fund. We look forward to keeping you up-to-date on your
investments. As always, we welcome your comments or questions.
Sincerely,
J. Christopher Donahue
President
July 15, 1996
* This index is unmanaged.
** Performance quoted reflects 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
- --------------------------------------------------------------------------------
The fund's annual reporting period from June 1, 1995 to May 31, 1996, can be
divided into two distinct segments in terms of the fund's performance. The slow
growth/low inflation drumbeat powered the fixed income markets higher through
year-end 1995. The impetus for lower yields was aided by the Federal Reserve
Board (the "Fed") which lowered the Federal Funds target rate by 50 basis points
in the second half of 1995, and by expectations for an agreement on balancing
the federal budget in seven years. By the end of 1995, interest rates were
sharply lower across the yield curve with the yield on the 2-year Treasury note
at 5.15%, while the benchmark 30-year Treasury bond broke below 6% for the first
time since 1993 to end the year at 5.95%.
Year to date 1996, on the other hand, has been marked by a dramatic reversal in
the bond market. Despite a third cut of 25 basis points in the Federal Funds
target rate by the Fed in January, the bond market reacted negatively to
burgeoning signs of increased economic activity. Employment, housing and auto
sales data have been much stronger than expected. As a result, interest rates
climbed sharply higher by the end of May, 1996. Compared to year-end 1995,
interest rates on 2-year and longer securities were over 100 basis points
higher. While higher yields during 1996 have hurt the performance of all the
sectors in the fund, the mortgage-backed sector was the best performing sector
by generating the smallest negative return for the five months ending May 31,
1996. This illustrates the benefit of diversification in a bond portfolio.
The fund characteristics continue to track the characteristics of the Lehman
Brothers Aggregate Bond Index*. As of May 31, 1996, the fund's option-adjusted
duration was 4.8 years. For the year ended May 31, 1996, the fund's cumulative
total return, based on net asset value, was 4.14%** compared to 4.38% for the
Lehman Brothers Aggregate Bond Index for the same period. Performance
information for periods prior to February 22, 1996 is related to Bond Index
Portfolio in which Federated Bond Index Fund, Institutional Shares and
Institutional Service Shares invests all of its assets through a two-tier Hub
and Spoke(R) fund structure (Hub and Spoke(R) is a registered service mark of
Signature Financial Group, Inc. and is used under a license with Federated
Services Company.) Future performance of the Federated Bond Index Fund will be
affected by differences in expenses, including the imposition of a Rule 12b-1
distribution fee.
* The Lehman Brothers Aggregate Bond Index is unmanaged. This is a total return
index measuring both the capital price changes and income provided by the
underlying universe of securities, weighted by market value outstanding.
Actual investments may not be made in an index.
** Performance quoted represents past performance. 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.
FEDERATED BOND INDEX FUND
(INSTITUTIONAL SHARES)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FEDERATED BOND INDEX FUND
(INSTITUTIONAL SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Bond Index Fund (Institutional Shares) from July 11, 1994 (start of
performance)* to May 31, 1996 compared to the Lehman Brothers Aggregate Bond
Index ("LBAG").+
See Appendix A.1
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED MAY 31, 1996*
<TABLE>
<S> <C>
1 Year................................................................. 4.14%
Start of Performance (July 11, 1994) (cumulative)...................... 15.62%
Start of Performance (July 11, 1994) (annualized)...................... 7.98%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Performance information for periods prior to February 22, 1996 is related to
Bond Index Portfolio in which Federated Bond Index Fund invests all of its
assets through a two-tier Hub and Spoke(R) fund structure (Hub and Spoke(R) is
a registered service mark of Signature Financial Group, Inc. and is used under
a license with Federated Services Company.) Future performance of the
Federated Bond Index Fund will be affected by differences in expenses,
including the imposition of a Rule 12b-1 distribution fee.
+ The fund's performance assumes the reinvestment of all dividends and
distributions. The "LBAG" has been adjusted to reflect reinvestment of
dividends on securities in the index. The "LBAG" is not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to be reflected
in the fund's performance.
FEDERATED BOND INDEX FUND
(INSTITUTIONAL SERVICE SHARES)
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN FEDERATED BOND INDEX FUND
(INSTITUTIONAL SERVICE SHARES)
The graph below illustrates the hypothetical investment of $10,000 in the
Federated Bond Index Fund (Institutional Service Shares) from July 11, 1994
(start of performance)* to May 31, 1996 compared to the Lehman Brothers
Aggregate Bond Index ("LBAG").+
See Appendix A.2
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED MAY 31, 1996*
<TABLE>
<S> <C>
1 Year................................................................. 4.12%
Start of Performance (July 11, 1994) (cumulative)...................... 15.60%
Start of Performance (July 11, 1994) (annualized)...................... 7.97%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Performance information for periods prior to February 22, 1996 is related to
Bond Index Portfolio in which Federated Bond Index Fund invests all of its
assets through a two-tier Hub and Spoke(R) fund structure (Hub and Spoke(R) is
a registered service mark of Signature Financial Group, Inc. and is used under
a license with Federated Services Company.) Future performance of the
Federated Bond Index Fund will be affected by differences in expenses,
including the imposition of a Rule 12b-1 distribution fee.
+ The fund's performance assumes the reinvestment of all dividends and
distributions. The "LBAG" has been adjusted to reflect reinvestment of
dividends on securities in the index. The "LBAG" is not adjusted to reflect
sales charges, expenses, or other fees that the SEC requires to be reflected
in the fund's performance.
FEDERATED BOND INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investment in Bond Index Portfolio, at value $7,477,069
- ---------------------------------------------------------------------------------
Receivable for shares sold 2,000
- --------------------------------------------------------------------------------- ----------
Total assets 7,479,069
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Income distribution payable $22,981
- -----------------------------------------------------------------------
Accrued expenses 46,451
- ----------------------------------------------------------------------- -------
Total liabilities 69,432
- --------------------------------------------------------------------------------- ----------
Net Assets for 1,064,225 shares outstanding $7,409,637
- --------------------------------------------------------------------------------- ----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid in capital $7,490,242
- ---------------------------------------------------------------------------------
Net unrealized depreciation of investments (80,811)
- ---------------------------------------------------------------------------------
Accumulated net realized gain on investments 206
- --------------------------------------------------------------------------------- ----------
Total Net Assets $7,409,637
- --------------------------------------------------------------------------------- ----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
- ---------------------------------------------------------------------------------
INSTITUTIONAL SHARES:
- ---------------------------------------------------------------------------------
$7,409,442 / 1,064,197 shares outstanding $6.96
- --------------------------------------------------------------------------------- ----------
INSTITUTIONAL SERVICE SHARES:
- ---------------------------------------------------------------------------------
$195 / 28 shares outstanding $6.96
- --------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND INDEX FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 22, 1996 (START OF PERFORMANCE) TO MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest $ 40,772
- ------------------------------------------------------------------------------------- --------
EXPENSES:
- -------------------------------------------------------------------------------------
Administrative personnel and services fees $ 24,098
- -------------------------------------------------------------------------
Custodian fees 994
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 1,787
- -------------------------------------------------------------------------
Legal fees 100
- -------------------------------------------------------------------------
Portfolio accounting fees 12,858
- -------------------------------------------------------------------------
Share registration costs 4,993
- -------------------------------------------------------------------------
Miscellaneous 2,705
- ------------------------------------------------------------------------- --------
Total expenses 47,535
- -------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS:
- -------------------------------------------------------------------------
Waiver of administrative personnel and services fees $(24,098)
- --------------------------------------------------------------
Waiver of transfer and dividend disbursing agent fees and
expenses (1,787)
- --------------------------------------------------------------
Waiver of portfolio accounting fees (12,858)
- --------------------------------------------------------------
Reimbursement of other operating expenses (8,276)
- -------------------------------------------------------------- --------
Total waivers and reimbursements (47,019)
- ------------------------------------------------------------------------- --------
Net expenses 516
- ------------------------------------------------------------------------------------- --------
Net investment income 40,256
- ------------------------------------------------------------------------------------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------
Net realized gain on investments 206
- -------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (80,811)
- ------------------------------------------------------------------------------------- --------
Net realized and unrealized loss on investments (80,605)
- ------------------------------------------------------------------------------------- --------
Change in net assets resulting from operations $(40,349)
- ------------------------------------------------------------------------------------- --------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1996*
--------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 40,256
- ---------------------------------------------------------------------------
Net realized gain on investments ($-0- as computed for federal tax
purposes) 206
- ---------------------------------------------------------------------------
Net change in unrealized depreciation (80,811)
- --------------------------------------------------------------------------- -------------
Change in net assets resulting from operations (40,349)
- --------------------------------------------------------------------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income
- ---------------------------------------------------------------------------
Institutional Shares (40,252)
- ---------------------------------------------------------------------------
Institutional Service Shares (4)
- --------------------------------------------------------------------------- -------------
Change in net assets resulting from distributions to shareholders (40,256)
- --------------------------------------------------------------------------- -------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 7,689,089
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 5,918
- ---------------------------------------------------------------------------
Cost of shares redeemed (304,765)
- --------------------------------------------------------------------------- -------------
Change in net assets resulting from share transactions 7,390,242
- --------------------------------------------------------------------------- -------------
Change in net assets 7,309,637
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 100,000
- --------------------------------------------------------------------------- -------------
End of period $7,409,637
- --------------------------------------------------------------------------- -------------
</TABLE>
* For the period from February 22, 1996 (start of performance) to May 31, 1996.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1996(A)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.12
- --------------------------------------------------------------------------
Net realized and unrealized loss on investments (0.29)
- -------------------------------------------------------------------------- -----------
Total from investment operations (0.17)
- -------------------------------------------------------------------------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Distributions from net investment income (0.12)
- -------------------------------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 6.96
- -------------------------------------------------------------------------- -----------
TOTAL RETURN (B) (2.32%)
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS*
- --------------------------------------------------------------------------
Expenses 0.09%
- --------------------------------------------------------------------------
Net investment income 7.01%
- --------------------------------------------------------------------------
Expense waiver/reimbursement (c) 8.18%
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $7,409
- --------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 22, 1996 (start of
performance) to May 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED MAY
31, 1996(A)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.25
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.12
- --------------------------------------------------------------------------
Net realized and unrealized loss on investments (0.29)
- -------------------------------------------------------------------------- -----------
Total from investment operations (0.17)
- -------------------------------------------------------------------------- -----------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Distributions from net investment income (0.12)
- -------------------------------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 6.96
- -------------------------------------------------------------------------- -----------
TOTAL RETURN (B) (2.32%)
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS*
- --------------------------------------------------------------------------
Expenses 0.09%
- --------------------------------------------------------------------------
Net investment income 7.01%
- --------------------------------------------------------------------------
Expense waiver/reimbursement (c) 8.18%
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 0.2
- --------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 22, 1996 (start of
performance) to May 31, 1996.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
FEDERATED INVESTMENT TRUST
FEDERATED BOND INDEX FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Investment Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, (the "Act") as an open-end, management
investment company. The Trust currently consists of one fund. The financial
statements included herein are those of Federated Bond Index Fund (the "Fund").
The Fund offers two classes of shares: Institutional Shares and Institutional
Service Shares.
The investment objective of the Fund is to provide investment results that
correspond to the investment performance of the Lehman Brothers Aggregate Bond
Index, a broad market-weighted index which encompasses U.S. Treasury and agency
securities, corporate investment grade bonds, and mortgage-backed securities.
The Fund seeks to achieve its investment objective by investing all of its
assets in Bond Index Portfolio, a portfolio (the "Portfolio") of Federated
Investment Portfolios, an open-end diversified management investment company.
The Fund has the same investment objective and policies as the Portfolio. The
value of the Fund's investment reflects its proportionate beneficial interest in
the net assets of the Portfolio. At May 31, 1996, the Fund's beneficial interest
in the Portfolio was 33.1%.
Federated Management is the investment adviser for the Portfolio. Federated
Management has delegated the daily management of the security holdings of the
Portfolio to the investment manager, United States Trust Company of New York
("U.S. Trust"), acting as subadviser. The advisory fee is charged to the
Portfolio.
The performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio, including the schedule of
investments, are included elsewhere in this report and should be read in
conjunction with the Trust's financial statements.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
VALUATION OF INVESTMENTS--Valuation of securities by the Portfolio is
discussed in Note 2 of the Portfolio's Notes to Financial Statements which
are included elsewhere in this report.
INVESTMENT INCOME--The Fund records its share of net investment income,
realized and unrealized gain and loss and adjusts its investment in the
Portfolio each day. All the net investment income and realized and
unrealized gain and loss of the Portfolio is allocated to the Fund and
other investors in the Portfolio at the time of such determination.
FEDERATED INVESTMENT TRUST
FEDERATED BOND INDEX FUND
- --------------------------------------------------------------------------------
DIVIDENDS TO SHAREHOLDERS--Dividends equal to all or substantially all of
the Fund's net investment income will be declared daily and paid at least
once a month. Distributions to shareholders of net realized capital gains,
if any, are normally declared and paid annually.
FEDERAL INCOME TAXES--It is the policy of the Fund to comply with the
provisions of the Internal Revenue Code, as amended, applicable to
regulated investment companies and to distribute each year substantially
all of its taxable income to its shareholders. For Federal income tax
purposes, the Fund is treated as a single entity for the purpose of
determining such qualification. Net capital losses for the Fund of $323
attributable to security transactions incurred after October 31, 1995, are
treated as arising on June 1, 1996, the first day of the Fund's next
taxable year.
OTHER--All the net income of the Portfolio is allocated pro rata to the
Fund and the other investors in the Portfolio at the time of such
determination.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows for the period ended May 31, 1996:
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES SHARES AMOUNT
- -------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Shares sold 1,093,118 $7,688,791
- --------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 846 5,915
- --------------------------------------------------------------------
Shares redeemed (43,560) (304,664)
- -------------------------------------------------------------------- --------- ----------
Net change resulting from share transactions 1,050,404 $7,390,042
- -------------------------------------------------------------------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT
- -------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Shares sold 41 $ 298
- --------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 1 3
- --------------------------------------------------------------------
Shares redeemed (14) (101)
- -------------------------------------------------------------------- --------- ----------
Net change resulting from share transactions 28 $ 200
- -------------------------------------------------------------------- --------- ----------
Total net change resulting from Fund share transactions 1,050,432 $7,390,242
- -------------------------------------------------------------------- --------- ----------
</TABLE>
(4) TRANSACTIONS WITH AFFILIATES
ADMINISTRATIVE FEE--Federated Services Company ("FServ") under the Master
Agreement for Administration and Management Services, provides the Fund with
administrative personnel and services. The fee paid to FServ is based on the
level of average daily net assets of the Fund for the
FEDERATED INVESTMENT TRUST
FEDERATED BOND INDEX FUND
- --------------------------------------------------------------------------------
period. The administrative fee received during any fiscal year shall be at least
$60,000 per fund and $30,000 per each additional class of shares. For the period
ended May 31, 1996, the administrator voluntarily chose to waive its fee. The
administrator can modify or terminate this voluntary waiver at any time at its
sole discretion.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
reimburse Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Institutional Service Shares. The Plan provides that the Fund may incur
distribution expenses up to 0.25% of the average daily net assets of the
Institutional Service Shares, annually, to reimburse FSC. For the period ended
May 31, 1996, the distributor voluntarily chose to waive its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Fund will pay FSS up to 0.25%
of average daily net assets of the Fund shares for the period. The fee paid to
FSS is used to finance certain services for shareholders and to maintain
shareholder accounts. For the period ended May 31, 1996, FSS voluntarily chose
to waive its fee. FSS can modify or terminate this voluntary waiver at any time
at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ, through its
subsidiary Federated Shareholder Services Company, serves as transfer and
dividend disbursing agent for the Fund. The fee paid to FServ is based on the
size, type, and number of accounts and transactions made by shareholders. For
the period ended May 31, 1996, FServ voluntarily chose to waive its fee. FServ
can modify or terminate this voluntary waiver at any time at its sole
discretion.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records for
which it receives a fee. The fee is based on the level of the Fund's average
daily net assets for the period, plus out-of-pocket expenses. For the period
ended May 31, 1996, FServ voluntarily chose to waive its fee. FServ can modify
or terminate this voluntary waiver at any time at its sole discretion.
ORGANIZATIONAL EXPENSES--Organizational expenses of $50,320 were borne initially
by FServ.
The Fund has agreed to reimburse FServ for the organizational expenses during
the sixty month period following effective date.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
FEDERATED INVESTMENT TRUST
FEDERATED BOND INDEX FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Additions and reductions in the Fund's investment in the Portfolio for the
period from February 22, 1996 (commencement of fund's operations) to May 31,
1996, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
ADDITIONS $7,789,744
- -------------------------------------------------------------------------------- ----------
REDUCTIONS $ 272,837
- -------------------------------------------------------------------------------- ----------
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
FEDERATED BOND INDEX FUND:
We have audited the accompanying statement of assets and liabilities of
Federated Bond Index Fund, a portfolio of Federated Investment Trust, as of May
31, 1996, and the related statement of operations, the statement of changes in
net assets, and the financial highlights for the period from February 22, 1996
to May 31, 1996. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of the Federated Bond
Index Fund as of May 31, 1996, the results of its operations, the changes in its
net assets and financial highlights for the period from February 22, 1996 to May
31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
July 18, 1996
BOND INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- -----------
<C> <C> <S> <C>
ASSET-BACKED SECURITIES--1.2%
- -----------------------------------------------------------------------------------
AUTOMOBILE--1.2%
----------------------------------------------------------------
$ 271,480 Premier Auto Trust 1994-2, Class A3, 6.35%, 5/2/2000 $ 272,243
---------------------------------------------------------------- -----------
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $268,977) 272,243
---------------------------------------------------------------- -----------
CORPORATE BONDS--16.9%
- -----------------------------------------------------------------------------------
AUTOMOBILE--1.1%
----------------------------------------------------------------
275,000 Ford Motor Co., Debenture, 7.125%, 11/15/2025 252,348
---------------------------------------------------------------- -----------
BEVERAGE & TOBACCO--3.3%
----------------------------------------------------------------
275,000 Anheuser-Busch Cos., Inc., Note, 7.00%, 9/1/2005 267,647
----------------------------------------------------------------
150,000 PepsiCo, Inc., Debenture, 7.625%, 12/18/1998 153,467
----------------------------------------------------------------
350,000 Philip Morris Cos., Inc., Note, 6.375%, 2/1/2006 323,418
---------------------------------------------------------------- -----------
Total 744,532
---------------------------------------------------------------- -----------
COMMUNICATIONS--2.3%
----------------------------------------------------------------
250,000 Motorola, Inc., Debenture, 7.50%, 5/15/2025 248,945
----------------------------------------------------------------
250,000 Sprint Corp., Note, 8.125%, 7/15/2002 260,450
---------------------------------------------------------------- -----------
Total 509,395
---------------------------------------------------------------- -----------
DRUGS--2.0%
----------------------------------------------------------------
450,000 American Home Products Corp., Note, 7.70%, 2/15/2000 461,556
---------------------------------------------------------------- -----------
FINANCE--2.7%
----------------------------------------------------------------
110,000 Bank of Boston Corp., Sub. Note, 6.625%, 12/1/2005 103,105
----------------------------------------------------------------
500,000 Lehman Brothers Holdings, Inc., Note, 8.50%, 8/1/2015 508,190
---------------------------------------------------------------- -----------
Total 611,295
---------------------------------------------------------------- -----------
FINANCE--AUTOMOTIVE--1.2%
----------------------------------------------------------------
300,000 General Motors Acceptance Corp., Note, 5.625%, 2/15/2001 281,883
---------------------------------------------------------------- -----------
RETAILERS--0.7%
----------------------------------------------------------------
150,000 Penney (J.C.) Co., Inc., Note, 7.375%, 6/15/2004 148,859
---------------------------------------------------------------- -----------
</TABLE>
BOND INDEX PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -----------------------------------------------------------------------------------
UTILITIES--1.1%
----------------------------------------------------------------
$ 275,000 Duke Power Co., 1st Ref. Mtg., 7.50%, 8/1/2025 $ 255,577
---------------------------------------------------------------- -----------
SOVEREIGN GOVERNMENT--2.5%
----------------------------------------------------------------
300,000 Italy (Republic of), Debenture, 6.875%, 9/27/2023 265,515
----------------------------------------------------------------
300,000 Province of Ontario, Sr. Unsub., 7.00%, 8/4/2005 292,914
---------------------------------------------------------------- -----------
Total 558,429
---------------------------------------------------------------- -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST $3,937,827) 3,823,874
---------------------------------------------------------------- -----------
GOVERNMENT AGENCIES--6.5%
- -----------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION--1.7%
----------------------------------------------------------------
200,000 7.23%, 12/17/2002 201,740
----------------------------------------------------------------
175,000 7.90%, 9/19/2001 182,821
---------------------------------------------------------------- -----------
Total 384,561
---------------------------------------------------------------- -----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--1.8%
----------------------------------------------------------------
390,000 7.50%, 2/11/2002 400,542
---------------------------------------------------------------- -----------
GOVERNMENT AGENCY--3.0%
----------------------------------------------------------------
675,000 Private Export Funding Corp., 7.30%, 1/31/2002 686,455
---------------------------------------------------------------- -----------
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $1,485,369) 1,471,558
---------------------------------------------------------------- -----------
MORTGAGE BACKED SECURITIES--28.1%
- -----------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORPORATION--9.4%
----------------------------------------------------------------
455,508 6.50%, 2/1/2011 437,429
----------------------------------------------------------------
324,686 7.00%, 5/1/2024 310,909
----------------------------------------------------------------
331,426 7.00%, 6/1/2024 316,303
----------------------------------------------------------------
315,964 8.00%, 7/1/2002 321,392
----------------------------------------------------------------
400,000 8.50%, 3/1/2025 408,624
----------------------------------------------------------------
309,235 9.00%, 4/1/2022 323,392
---------------------------------------------------------------- -----------
Total 2,118,049
---------------------------------------------------------------- -----------
</TABLE>
BOND INDEX PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- -----------
<C> <C> <S> <C>
MORTGAGE BACKED SECURITIES--CONTINUED
- -----------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--10.7%
----------------------------------------------------------------
$ 574,068 7.00%, 12/1/2025 $ 547,333
----------------------------------------------------------------
435,190 7.00%, 5/1/2024 414,923
----------------------------------------------------------------
278,101 7.00%, 6/1/2009 273,379
----------------------------------------------------------------
414,640 7.00%, 6/1/2024 395,331
----------------------------------------------------------------
325,000 7.50%, 6/1/2011 324,896
----------------------------------------------------------------
457,557 8.50%, 8/1/2023 469,394
---------------------------------------------------------------- -----------
Total 2,425,256
---------------------------------------------------------------- -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--8.0%
----------------------------------------------------------------
450,000 7.00%, 1/15/2026 428,202
----------------------------------------------------------------
463,917 7.50%, 6/15/2024 453,622
----------------------------------------------------------------
542,553 7.50%, 6/15/2024 530,514
----------------------------------------------------------------
162,290 9.50%, 1/15/2019 174,489
----------------------------------------------------------------
198,360 9.50%, 10/15/2020 212,555
---------------------------------------------------------------- -----------
Total 1,799,382
---------------------------------------------------------------- -----------
TOTAL MORTGAGE BACKED SECURITIES (IDENTIFIED COST $6,322,784) 6,342,687
---------------------------------------------------------------- -----------
U.S. TREASURY SECURITIES--46.0%
- -----------------------------------------------------------------------------------
U.S. TREASURY BONDS--14.4%
----------------------------------------------------------------
750,000 7.25%, 5/15/2004 768,870
----------------------------------------------------------------
2,175,000 7.25%, 5/15/2016 2,190,290
----------------------------------------------------------------
245,000 9.375%, 2/15/2006 288,181
---------------------------------------------------------------- -----------
Total 3,247,341
---------------------------------------------------------------- -----------
U.S. TREASURY NOTES--31.6%
----------------------------------------------------------------
980,000 6.25%, 2/15/2003 953,814
----------------------------------------------------------------
1,020,000 6.50%, 5/15/1997 1,026,059
----------------------------------------------------------------
2,025,000 6.50%, 8/15/1997 2,037,027
----------------------------------------------------------------
500,000 7.00%, 4/15/1999 507,420
----------------------------------------------------------------
</TABLE>
BOND INDEX PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- -----------
<C> <C> <S> <C>
U.S. TREASURY SECURITIES --CONTINUED
- -----------------------------------------------------------------------------------
U.S. TREASURY NOTES--CONTINUED
----------------------------------------------------------------
$ 1,525,000 7.125%, 10/15/1998 $ 1,551,444
----------------------------------------------------------------
1,000,000 8.875%, 5/15/2000 1,079,220
---------------------------------------------------------------- -----------
Total 7,154,984
---------------------------------------------------------------- -----------
TOTAL U.S. TREASURY SECURITIES (IDENTIFIED COST $10,401,185) 10,402,325
---------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST $22,416,142)(A) $22,312,687
---------------------------------------------------------------- -----------
</TABLE>
(a) The cost of investments for federal tax purposes amounts to $22,416,142. The
unrealized depreciation on a federal tax cost basis amounts to $103,455,
which is comprised of $107,708 appreciation and $211,163 depreciation at May
31, 1996.
Note: The categories of investments are shown as a percentage of net assets
($22,599,442) at May 31, 1996.
(See Notes which are an integral part of the Financial Statements)
BOND INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments in securities, at value (identified and tax cost $22,416,142) $22,312,687
- --------------------------------------------------------------------------------
Cash 882,977
- --------------------------------------------------------------------------------
Income receivable 260,325
- -------------------------------------------------------------------------------- -----------
Total assets 23,455,989
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $844,393
- ---------------------------------------------------------------------
Accrued expenses 12,154
- --------------------------------------------------------------------- --------
Total liabilities 856,547
- -------------------------------------------------------------------------------- -----------
Net Assets $22,599,442
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid in capital for beneficial interests $22,599,442
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BOND INDEX PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $1,155,382
- ----------------------------------------------------------------------------------- ----------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 40,743
- ----------------------------------------------------------------------
Administrative personnel and services fee 29,176
- ----------------------------------------------------------------------
Custodian fees 8,588
- ----------------------------------------------------------------------
Amortization of organization expenses 4,053
- ----------------------------------------------------------------------
Trustees' fees and expenses 1,644
- ----------------------------------------------------------------------
Insurance expense 2,796
- ----------------------------------------------------------------------
Auditing fees 14,500
- ----------------------------------------------------------------------
Legal fees 3,501
- ----------------------------------------------------------------------
Portfolio accounting fees 52,728
- ----------------------------------------------------------------------
Registration costs 445
- ----------------------------------------------------------------------
Miscellaneous 987
- ---------------------------------------------------------------------- ---------
Total expenses 159,161
- ----------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------
Waiver of investment advisory fee $(40,743)
- -----------------------------------------------------------
Waiver of administrative personnel and services fee (24,754)
- -----------------------------------------------------------
Waiver of portfolio accounting fees (23,561)
- -----------------------------------------------------------
Reimbursement of expenses (55,998)
- ----------------------------------------------------------- --------
Total waivers and reimbursements (145,056)
- ---------------------------------------------------------------------- ---------
Net expenses 14,105
- ----------------------------------------------------------------------------------- ----------
Net investment income 1,141,277
- ----------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -----------------------------------------------------------------------------------
Net realized gain on investments 228,503
- -----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (715,007)
- ----------------------------------------------------------------------------------- ----------
Net realized and unrealized loss on investments (486,504)
- ----------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $ 654,773
- ----------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BOND INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
MAY 31, 1996 MAY 31, 1995(A)
------------ ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------
Net investment income $ 1,141,277 $ 1,428,528
- -----------------------------------------------------------
Net realized gain on investments 228,503 136,599
- -----------------------------------------------------------
Net change in unrealized appreciation (depreciation) (715,007) 611,552
- ----------------------------------------------------------- ----------- --------------
Change in net assets resulting from operations 654,773 2,176,679
- ----------------------------------------------------------- ----------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
- -----------------------------------------------------------
Additions 18,879,856 32,835,501
- -----------------------------------------------------------
Reductions (13,216,042) (18,748,092)
- ----------------------------------------------------------- ----------- --------------
Net increase from transactions in investors'
beneficial interest 5,663,814 14,087,409
- ----------------------------------------------------------- ----------- --------------
Total increase in Net Assets 6,318,587 16,264,088
- -----------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------
Beginning of period 16,280,855 16,767
- ----------------------------------------------------------- ----------- --------------
End of period $22,599,442 $ 16,280,855
- ----------------------------------------------------------- ----------- --------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 0.09% 0.00%*
- -----------------------------------------------------------
Net investment income 7.00% 7.45%*
- -----------------------------------------------------------
Expense waiver/reimbursement (b) 0.89% 0.69%*
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Portfolio turnover 43% 67%
- -----------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 11, 1994 (date of initial
public investment) to May 31, 1995.
(b) 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)
FEDERATED INVESTMENT PORTFOLIOS
BOND INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Investment Portfolios (the "Portfolio Series") was organized as a
Massachusetts business trust under a Declaration of Trust dated as of September
29, 1995. The Portfolio Series is currently comprised of one portfolio, the Bond
Index Portfolio (the "Portfolio"). The Declaration of Trust permits the
Portfolio Series to issue an unlimited number of beneficial interests in the
Portfolio. The Portfolio, which began operations on January 2, 1996, is an
open-end diversified management investment company under the Investment Company
Act of 1940 (the "Act"). The investment objective of the Portfolio is to provide
investment results that correspond to the investment performance of the Lehman
Brothers Aggregate Bond Index.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. PREDECESSOR PORTFOLIO--Effective January 2, 1996 (the "Transaction Date") the Portfolio
received all of the assets of Excelsior Institutional Bond Index Fund, a series of
Excelsior Institutional Trust, which had invested all of its assets in Bond Market
Portfolio (the "Predecessor Portfolio"), a portfolio of the St. James Portfolios, having
a market value of $16,913,859, in exchange for shares of beneficial interest in the
Portfolio. These assets represented substantially all of the Predecessor Portfolio's
assets as of the Transaction Date. The Statement of Operations, Statement of Changes in
Net Assets, and Financial Highlights presented herein include the operations and
financial highlights of the Predecessor Portfolio for periods prior to January 2, 1996.
B. INVESTMENT VALUATIONS--Listed corporate bonds and other fixed-income and asset backed
securities are valued at the last sale price reported on national securities exchanges.
Unlisted bonds and securities and short-term obligations are valued at the prices
provided by an independent pricing service. Short-term securities obtained with
remaining maturities of sixty days or less may be stated at amortized cost, which
approximates market value.
C. 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"). 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.
D. REPURCHASE AGREEMENTS--The Portfolio may purchase portfolio securities from financial
institutions deemed to be creditworthy by the investment adviser subject to the seller's
agreement
</TABLE>
FEDERATED INVESTMENT PORTFOLIOS
BOND INDEX PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
to repurchase and the Portfolio's agreement to resell such securities at mutually agreed
upon prices. Securities purchased subject to such repurchase agreements are deposited
with the Portfolio's subcustodian or are maintained in the Federal Reserve/Treasury
book-entry system and must have, at all times, an aggregate market value of not less
than 102% of the repurchase price (including accrued interest).
If the value of the underlying security, including accrued interest, falls below 102% of
the repurchase price plus accrued interest, the Portfolio will require the seller to
deposit additional collateral by the next business day. Default or bankruptcy of the
seller may, however, expose the Portfolio to a risk of loss in the event that the
Portfolio is delayed or prevented from exercising its right to dispose of the underlying
collateral securities or to the extent that proceeds from a sale of the underlying
securities were less than the repurchase price under the agreement.
E. DEFERRED ORGANIZATION EXPENSES--Expenses incurred by the Portfolio have been deferred
and are being amortized over a period not to exceed sixty months beginning with the
commencement of operations of the Portfolio. The service providers to the Portfolio have
agreed to contribute to the Portfolio at the time of any termination, liquidation, or
dissolution of the Portfolio, an amount equal to the unamortized organizational expense
at such time.
The unamortized organizational expenses of the Predecessor Portfolio were reimbursed by
the previous administrator prior to the Transaction Date. Organizational expenses
reflected on the Statement of Operations include those which were amortized by the
Predecessor Portfolio during the period from June 1, 1995 through the Transaction Date.
F. FEDERAL INCOME TAXES--The Portfolio will be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be subject to taxation on its
share of the Portfolio's ordinary income and capital gains. It is intended that the
Portfolio's assets will be managed in such a way that an investor in the Portfolio will
be able to satisfy the requirements of Subchapter M of the Internal Revenue Code.
G. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Portfolio's investment
adviser (the "Adviser"), is entitled to receive for its services an annual
investment advisory fee equal to .25% of the Portfolio's average daily net
assets. The Adviser has entered into a subadvisory contract with the United
States Trust Company of New York ("U.S. Trust"). Under the terms of the
subadvisory contract, the Adviser is obligated to pay U.S. Trust an annual
investment advisory fee equal to .12% of
FEDERATED INVESTMENT PORTFOLIOS
BOND INDEX PORTFOLIO
- --------------------------------------------------------------------------------
the Portfolio's average daily net assets. For the period from January 2, 1996 to
May 31, 1996, the Adviser and U.S. Trust have voluntarily agreed to waive all of
their fees which amounted to $17,632.
United States Trust Company of the Pacific Northwest ("U.S. Trust Pacific") was
the investment adviser of the Predecessor Portfolio. For its services, U.S.
Trust Pacific was entitled to receive an annual advisory fee equal to 0.25% of
the average daily net assets of the Predecessor Portfolio. U.S. Trust Pacific
delegated the daily management of the Predecessor Portfolio to U.S. Trust, which
was entitled to receive from U.S. Trust Pacific an annual subadvisory fee equal
to 0.25% of the average daily net assets of the Predecessor Portfolio. U.S.
Trust Pacific and U.S. Trust voluntarily agreed to waive all of their investment
advisory fees and reimburse certain operating expenses of the Predecessor
Portfolio. The investment advisory fee waivers and expense reimbursements
totaled $23,111 and $55,998 for the period from June 1, 1995 to January 2, 1996,
and $47,955 and $83,454 for the period from July 11, 1994 to May 31, 1995.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Portfolio with administrative services and personnel. The FAS fee is based upon
.05% on the first $1 billion of average aggregate daily net assets of the
Portfolio, subject to an annual minimum fee of $60,000. FAS earned and
voluntarily agreed to waive its entire fee of $24,754 for the period from
January 2, 1996 to
May 31, 1996
Administrative and portfolio accounting services were provided to the
Predecessor Portfolio by Signature Financial Services, Inc. ("Signature"). For
their services Signature received fees of $33,589 for the period from June 1,
1995 to January 2, 1996.
PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ"), an affiliate of
FAS, maintains the Portfolio's accounting records for which it receives a fee.
The fee is based on the level of the Portfolio's average daily net assets for
the period, plus out of pocket expenses. FServ voluntarily agreed to waive its
entire fee ($23,561) for the period from January 2, 1996 to May 31, 1996.
CUSTODIAN--Investors Bank & Trust Company ("IBT") serves as custodian of the
Portfolio's assets pursuant to a Custody Agreement between IBT and the
Portfolio. For services provided thereunder by IBT, the Portfolio has agreed to
pay IBT a fee as agreed upon from time to time.
Effective June 5, 1996, State Street Bank & Trust Company became the custodian
of the Portfolio's assets.
GENERAL--Certain of the Officers and Trustees of the Portfolio Series are
Officers and Directors or Trustees of the above companies.
FEDERATED INVESTMENT PORTFOLIOS
BOND INDEX PORTFOLIO
- --------------------------------------------------------------------------------
(4) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term investments, for the
year ended May 31, 1996 were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
COST OF PURCHASES $14,846,827
- ------------------------------------------------------------------------------- -----------
PROCEEDS FROM SALES $ 6,826,814
- ------------------------------------------------------------------------------- -----------
</TABLE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Investors of the
BOND INDEX PORTFOLIO:
We have audited the accompanying statements of assets and liabilities of the
Bond Index Portfolio, a series of Federated Investment Portfolio, as of May 31,
1996, and the related statement of operations and the statement of changes in
net assets for the year ended. These financial statements are the responsibility
of the Portfolio's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The financial statements of St.
James Portfolio, the predecessor portfolio, for the year ended May 31, 1995,
were audited by other auditors whose report dated July 25, 1995, expressed an
unqualified opinion on those statements.
We conducted our audit 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. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bond Index Portfolio at May 31,
1996, the results of its operations and the changes in its net assets for the
year then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
July 18, 1996
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- ---------------------------------------------------------------------------------------------
John F. Donahue John F. Donahue
J. Christopher Donahue Chairman
Thomas G. Bigley J. Christopher Donahue
John T. Conroy, Jr. President
William J. Copeland Edward C. Gonzales
James E. Dowd Executive Vice President
Lawrence D. Ellis, M.D. John W. McGonigle
Edward L. Flaherty, Jr. Executive Vice President and Secretary
Peter E. Madden Richard B. Fisher
Gregor F. Meyer Vice President
John E. Murray, Jr. David M. Taylor
Wesley W. Posvar Treasurer
Marjorie P. Smuts J. Crilley Kelly
Assistant Secretary
</TABLE>
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 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.
APPENDIX
A.1 The graphic presentation here displayed consists of a line graph
titled "Growth of $10,000 Invested in Federated Bond Index Fund,
Institutional Shares." The corresponding components of the line graph are
listed underneath. Federated Bond Index Fund, Institutional Shares (the
"Fund") is represented by a solid line. Lehman Brothers Aggregate Bond
Index (the "LBAG") is represented by a dotted line. The line graph is a
visual representation of a comparison of change in value of a
hypothetical $10,000 investment in the Fund, and the LBAG. The "x" axis
reflects c omputation periods from July 11, 1994, through, May 31,
1996. The "y" axis reflects the cost of the investment, ranging from
$9,000 to $13,000. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the LBAG. The ending
values are $11,562 and 11,660, respectively.
A.2 The graphic presentation here displayed consists of a line graph
titled "Growth of $10,000 Invested in Federated Bond Index Fund,
Institutional Service Shares." The corresponding components of the line
graph are listed underneath. Federated Bond Index Fund,
Institutional Service Shares(the "Fund") is represented by a solid line.
Lehman Brothers Aggregate Bond Index (the "LBAG") is represented by a
dotted line. The line graph is a visual representation of a comparison
of change in value of a hypothetical $10,000 investment in the Fund, and
the LBAG. The "x" axis reflects computation periods from July 11, 1994,
through, May 31, 1996. The "y" axis reflects the cost of the
investment, ranging from $9,000 to $13,000. The right margin reflects
the ending value of the hypothetical investment in the Fund as compared
to the LBAG. The ending values are $11,560 and 11,660, respectively.
