PRESIDENT'S MESSAGE
Dear Shareholder:
I am pleased to present the second Annual Report for Federated Bond
Index Fund, which covers the period from June 1, 1996, through May 31,
1997.
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 mutual
fund with the same investment objective.+
The report opens with a commentary by the portfolio manager of Bond
Index Portfolio, followed by a series of charts that show total return
performance for Institutional Shares and Institutional Service Shares.
These charts incorporate the performance record of Bond Index
Portfolio from its inception on July 11, 1994, through February 22,
1996. From February 22, 1996, through May 31, 1997, the performance is
that of Federated Bond Index Fund. Also included are the financial
statements of Federated Bond Index Fund, and a complete listing of the
holdings in which it invests through the Bond Index Portfolio.
At the end of the reporting period, the $40 million in assets of the
Bond Index Portfolio were well diversified across U.S. Treasury notes
and bonds (46.9%), mortgage-backed securities (28.1%), corporate bonds
(17.7%), government agency securities (3.7%), asset-backed securities
(0.3%), and a repurchase agreement (3.1%).
Over its fiscal year, Federated Bond Index Fund provided relatively
strong performance. Institutional Shares delivered a total return of
7.97% through a share price increase of $0.06 and dividends totaling
$0.48 per share. Institutional Service Shares produced a total return
of 7.70% through a share price increase of $0.06 and dividends
totaling $0.46 per share.**
Thank you for participating in the performance potential of the
overall bond market through Federated Bond Index Fund. We look forward
to keeping you up-to-date on your investment. As always, we welcome
your comments or questions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
July 15, 1997
* Lehman Brothers Aggregate Bond Index is an unmanaged index measuring both
the capital price changes and income provided by the underlying universe of
securities comprised of U.S. Treasury and agency obligations, U.S.
investment-grade corporate debt and mortgage-backed obligations. Investments
cannot be made in an index.
** 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.
+ Federated Bond Index Fund, Institutional Shares and Institutional
Service Shares, invests all of its assets through a two-tier Hub and
Spoke fund structure (Hub and Spoke is a registered
service mark of Signature Financial Group, Inc. and is used under a
license with Federated Services Company).
MANAGEMENT DISCUSSION AND ANALYSIS
Federated Bond Index Fund's portfolio is managed to track the
characteristics of the Lehman Brothers Aggregate Bond Index, a broad
market-weighted index comprised of U.S. Treasury, agency, and
mortgage-backed securities and investment-grade corporate bonds with
maturities of at least one year.
During the first half of the fund's fiscal year, the fixed-income
market benefited from moderate economic growth, benign inflation, a
stronger dollar, and unprecedented foreign demand. The 10-year
Treasury note yield fell from 6.85% at the end of May 1996 to 6.04% at
the end of November 1996 while the 2- to 30-year portion of the yield
curve steepened slightly from 75 to 77 basis points. During the second
half of the reporting period, the fixed-income market followed the
trend of selling off in response to stronger economic growth and
rallying in response to subdued inflation. However, when Federal
Reserve Board (the "Fed") Chairman Greenspan's semi-annual
Humphrey-Hawkins testimony near the end of February 1997 warned of the
possibility of a preemptive tightening, the market focused on stronger
economic growth rather than benign inflation. After remaining on hold
for over a year and citing persisting strength in demand as increasing
the risk of inflationary imbalances, on March 25, 1997, the Fed
increased the fed funds target rate from 5.25% to 5.50%. This was the
first tightening of monetary policy in over two years, resulting in
higher yields and a flatter yield curve. The 10-year Treasury note
yield ended May 1997 at 6.66% with the 2- to 30-year spread narrowing
to 71 basis points.
The fund's Institutional Shares total return for the fiscal year ended
May 31, 1997, was 7.97% compared to 8.32% for the Lehman Brothers
Aggregate Bond Index.* Spread products performed well during this time
period with mortgage-backed and corporate securities outperforming
government securities.
* Performance quoted reflects 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 (the "Fund") (Institutional Shares) from
July 11, 1994 (start of performance) to May 31, 1997, compared to the
Lehman Brothers Aggregate Bond Index ("LBAG").**
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX A
AVERAGE TOTAL RETURN FOR THE PERIOD ENDED MAY 31, 1997
1 Year 7.97%
Start of Performance (7/11/94) (cumulative) 24.83%
Start of Performance (7/11/94) (annualized) 7.98%
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 fund
structure (Hub and Spoke is a registered service mark of
Signature Financial Group, Inc. and is used under a license with
Federated Services Company). Effective January 2, 1996, Bond Index
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, a portfolio of
St. James Portfolios. Therefore, performance information for periods
prior to January 2, 1996, includes that of Bond Market Portfolio.
Future performance of the Federated Bond Index Fund will be affected
by differences in expenses.
** 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 Securities and Exchange Commission requires to be reflected in
the fund's performance. This index is unmanaged.
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 (the "Fund") (Institutional Service
Shares) from July 11, 1994 (start of performance) to May 31, 1997,
compared to the Lehman Brothers Aggregate Bond Index ("LBAG").**
GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX B
AVERAGE TOTAL RETURN FOR THE PERIOD ENDED MAY 31, 1997
1 Year 7.70%
Start of Performance (7/11/94) (cumulative) 24.50%
Start of Performance (7/11/94) (annualized) 7.88%
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 fund
structure (Hub and Spoke is a registered service mark of
Signature Financial Group, Inc. and is used under a license with
Federated Services Company). Effective January 2, 1996, Bond Index
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, a portfolio of
St. James Portfolios. Therefore, performance information for periods
prior to January 2, 1996, includes that of Bond Market Portfolio.
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 Securities and Exchange Commission requires to be reflected in
the fund's performance. This index is unmanaged.
FEDERATED BOND INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in the Portfolio, at value $ 25,154,248
Receivable for shares sold 8,480
Prepaid expenses 25,880
Total assets 25,188,608
LIABILITIES:
Payable for shares redeemed $ 11,410
Income distribution payable 100,087
Accrued expenses 82,662
Total liabilities 194,159
NET ASSETS for 3,558,148 shares outstanding $ 24,994,449
NET ASSETS CONSIST OF:
Paid in capital $ 25,101,509
Net unrealized depreciation of investments in the Portfolio
(142,015)
Accumulated net realized gain on investments in the Portfolio 32,002
Undistributed net investment income 2,953
Total Net Assets $ 24,994,449
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
INSTITUTIONAL SHARES:
$20,598,922 / 2,932,382 shares outstanding $7.02
INSTITUTIONAL SERVICE SHARES:
$4,395,527 / 625,766 shares outstanding $7.02
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND INDEX FUND
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 1,029,040
Expenses allocated from the Portfolio (28,859)
Net investment income allocated from the Portfolio 1,000,181
EXPENSES:
Administrative personnel and services fee $ 89,754
Custodian fees 2,790
Transfer and dividend disbursing agent fees and expenses 42,800
Directors'/Trustees' fees 5,030
Auditing fees 7,563
Legal fees 3,000
Portfolio accounting fees 53,364
Shareholder services fee -- Institutional Service Shares 2,469
Share registration costs 25,949
Printing and postage 23,363
Insurance premiums 3,054
Miscellaneous 2,500
Total expenses 261,636
Reimbursement --
Reimbursement of other operating expenses (246,226)
Net expenses 15,410
Net investment income 984,771
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM THE PORTFOLIO:
Net realized gain on investment transactions allocated from the Portfolio 31,796
Net change in unrealized depreciation of investments allocated from the (61,204)
Portfolio
Net realized and unrealized loss on investments allocated from the
Portfolio (29,408)
Change in net assets resulting from operations $ 955,363
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED BOND INDEX FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1997 1996*
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 984,771 $ 40,256
Net realized gain on investments in the Portfolio ($15,128 net loss and
$0, respectively, as computed for federal tax purposes) 31,796 206
Net change in unrealized depreciation of investments in the Portfolio (61,204)
(80,811)
Change in net assets resulting from operations 955,363
(40,349)
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income
Institutional Shares (916,368)
(40,252)
Institutional Service Shares (65,450)
(4)
Change in net assets resulting from distributions to shareholders (981,818)
(40,256)
SHARE TRANSACTIONS --
Proceeds from sale of shares 28,329,040 7,689,089
Net asset value of shares issued to shareholders in payment of
distributions declared 142,180 5,918
Cost of shares redeemed (10,859,953)
(304,765)
Change in net assets resulting from share transactions 17,611,267 7,390,242
Change in net assets 17,584,812 7,309,637
NET ASSETS:
Beginning of period 7,409,637 100,000
End of period (including undistributed net investment income of
$2,953 and $0, respectively) $ 24,994,449 $ 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)
FEDERATED BOND INDEX FUND
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.96 $ 7.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.48 0.12
Net realized and unrealized gain (loss) on investments from the Portfolio 0.06 (0.29)
Total from investment operations 0.54 (0.17)
LESS DISTRIBUTIONS
Distributions from net investment income (0.48) (0.12)
NET ASSET VALUE, END OF PERIOD $ 7.02 $ 6.96
TOTAL RETURN(B) 7.97%
(2.32%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.29%
0.09%*
Net investment income 6.83%
7.01%*
Expense waiver/reimbursement(c) 1.73%
8.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $20,599 $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)
FEDERATED BOND INDEX FUND
FINANCIAL HIGHLIGHTS -- INSTITUTIONAL SERVICE SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1997 1996(A)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.96 $ 7.25
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.46 0.12
Net realized and unrealized gain (loss) on investments from the Portfolio 0.06 (0.29)
Total from investment operations 0.52 (0.17)
LESS DISTRIBUTIONS
Distributions from net investment income (0.46) (0.12)
NET ASSET VALUE, END OF PERIOD $ 7.02 $ 6.96
TOTAL RETURN(B) 7.70%
(2.32%)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.54%
0.09%*
Net investment income 6.64%
7.01%*
Expense waiver/reimbursement(c) 1.37%
8.18%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $4,396 $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, 1997
(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 the Bond Index
Portfolio (the "Portfolio"), a 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,
1997, the Fund's beneficial interest in the Portfolio was 62.5%.
Federated Research Corp. is the investment adviser for the Portfolio (the"
Adviser"). The Adviser 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 principals.
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.
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.
At May 31, 1997, the Fund, for federal tax purposes, had a capital
loss carryforward of $15,128, which will reduce the Fund'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 Fund of any liability for federal tax.
Pursuant to the Code, such capital loss carryforward will expire as
follows:
EXPIRATION YEAR EXPIRATION AMOUNT
2005 $15,128
Additionally, net capital losses of $7,922 attributable to security
transactions incurred after October 31, 1996, are treated as arising
on the first day of the Fund's next taxable year.
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 -- 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 Board of Trustees (the
"Trustees") to issue an unlimited number of full and fractional shares
of beneficial interest (without par value) for each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1997 1996*
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 3,399,030 $ 23,963,635 1,093,118 $ 7,688,791
Shares issued to shareholders in payment
of distributions declared 11,082 77,987 846 5,915
Shares redeemed (1,541,927) (10,829,602) (43,560) (304,664)
Net change resulting from Institutional
Share transactions 1,868,185 $ 13,212,020 1,050,404 $ 7,390,042
<CAPTION>
YEAR ENDED MAY 31,
1997 1996*
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Shares sold 620,929 $ 4,365,405 41 $ 298
Shares issued to shareholders in
payment of distributions declared 9,149 64,193 1 3
Shares redeemed (4,340) (30,351) (14) (101)
Net change resulting from Institutional
Service Share transactions 625,738 $ 4,399,247 28 $ 200
Net change resulting from Fund share transactions 2,493,923 $ 17,611,267 1,050,432 $ 7,390,242
</TABLE>
* For the period from February 22, 1996 (start of performance) to May
31, 1996.
(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. This
fee paid to FServ is based on the level of average daily net assets
of the Fund for the 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.
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.
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 for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ,
through its subsidiary Federated Shareholder Services Company
("FSSC"), serves as transfer and dividend disbursing agent for the
Fund. 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 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.
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.
(5) INVESTMENT TRANSACTIONS
Additions and reductions in the Fund's investment in the Portfolio for
the year ended May 31, 1997, were as follows:
ADDITIONS $ 28,471,220
REDUCTIONS $ 11,841,771
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, 1997, and the related statement of operations for
the year then ended, and the statement of changes in net assets and
financial highlights for the periods presented therein. These
financial statements and financial highlights are the responsibility
of the Trust's management. Our responsibility is to express an opinion
on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Federated Bond Index Fund at May 31, 1997, the
results of its operations for the year then ended, and changes in its
net assets and financial highlights for the periods presented therein,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
July 15, 1997
BOND INDEX PORTFOLIO
PORTFOLIO OF INVESTMENTS
MAY 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
ASSET-BACKED SECURITIES -- 0.3%
AUTOMOTIVE -- 0.3%
$ 109,913 Premier Auto Trust 1994-2, Class A3, 6.35%, 5/2/2000 $ 110,187
TOTAL ASSET-BACKED SECURITIES (IDENTIFIED COST $108,899) 110,187
CORPORATE BONDS -- 17.7%
AUTOMOBILE -- 1.1%
475,000 Ford Motor Co., Debenture, 7.125%,
11/15/2025 440,833
BANKING -- 0.8%
300,000 Summit Bancorp, Bond, 8.40%,
3/15/2027 302,082
BEVERAGE & TOBACCO -- 1.9%
275,000 Anheuser-Busch Cos., Inc., Note, 7.00%,
9/1/2005 273,586
150,000 PepsiCo, Inc., Debenture, 7.625%,
12/18/1998 152,835
350,000 Philip Morris Cos., Inc., Note, 6.375%,
2/1/2006 326,078
Total 752,499
COMMUNICATIONS -- 2.3%
200,000 Lucent Technologies, Inc., Note, 7.25%,
7/15/2006 201,850
450,000 Motorola, Inc., Debenture, 7.50%,
5/15/2025 451,300
250,000 Sprint Corp., Note, 8.125%,
7/15/2002 262,183
Total 915,333
DRUGS -- 0.6%
250,000 American Home Products Corp., Note, 7.70%,
2/15/2000 256,300
ELECTRONICS -- 0.8%
350,000 Oracle Corp., Sr. Note, 6.91%,
2/15/2007 338,961
FINANCE -- 2.4%
400,000 FINOVA Capital Corp., Note, 7.40%,
6/1/2007 401,676
250,000 Lehman Brothers Holdings, Inc., Note, 8.50%,
8/1/2015 262,840
300,000 Salomon, Inc., Sr. Note, 7.75%,
5/15/2000 307,278
Total 971,794
</TABLE>
BOND INDEX PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
CORPORATE BONDS -- CONTINUED
FINANCE - AUTOMOTIVE -- 0.7%
$ 300,000 General Motors Acceptance Corp., Note, 5.625%, 2/15/2001 $ 287,652
FOOD PRODUCTS -- 0.9%
350,000 Nabisco, Inc., Unsecd. Note, 8.00%,
1/15/2000 359,996
OIL & GAS -- 0.7%
265,000 Occidental Petroleum Corp., Sr. Note, 10.125%, 11/15/2001 296,328
RETAILERS -- 1.5%
300,000 Penney (J.C.) Co., Inc., Note, 7.375%,
6/15/2004 303,366
300,000 Wal-Mart Stores, Inc., Unsecd. Note, 7.50%, 5/15/2004 307,911
Total 611,277
SOVEREIGN GOVERNMENT -- 2.0%
150,000 Colombia, Republic of, Bond, 7.625%,
2/15/2007 144,210
300,000 Italy (Republic of), Debenture, 6.875%,
9/27/2023 276,483
400,000 Quebec, Province of, Debenture, 7.125%,
2/9/2024 369,732
Total 790,425
UTILITIES -- 2.0%
275,000 Duke Power Co., 1st Ref. Mtg., 7.50%,
8/1/2025 263,062
500,000 Pacific Gas & Electric Co., 1st Ref. Mtg., 7.875%,
3/1/2002 519,270
Total 782,332
TOTAL CORPORATE BONDS (IDENTIFIED COST $7,177,723) 7,105,812
GOVERNMENT AGENCIES -- 3.7%
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 1.0%
200,000 7.23%,
12/17/2002 198,938
175,000 7.90%,
9/19/2001 182,929
Total 381,867
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 1.0%
390,000 7.50%,
2/11/2002 403,346
</TABLE>
BOND INDEX PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
GOVERNMENT AGENCIES -- CONTINUED
GOVERNMENT AGENCY -- 1.7%
$ 675,000 Private Export Funding Corp., 7.30%, 1/31/2002
$ 692,341
TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $1,488,047) 1,477,554
MORTGAGE-BACKED SECURITIES -- 28.1%
FEDERAL HOME LOAN MORTGAGE CORPORATION -- 9.7%
410,723 6.50%,
2/1/2011 401,350
440,713 7.00%,
1/1/2012 438,368
318,922 7.00%,
5/1/2024 312,942
306,595 7.00%,
6/1/2024 300,847
372,910 7.00%,
1/1/2027 363,468
495,175 7.50%,
6/1/2026 494,248
296,337 7.50%,
11/1/2026 295,688
400,000 7.50%,
5/1/2027 399,124
256,537 8.00%,
7/1/2002 262,574
371,281 8.50%,
3/1/2025 384,910
225,438 9.00%,
4/1/2022 239,690
Total 3,893,209
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- 10.9%
300,000 7.00%,
5/1/2004 300,000
237,234 7.00%,
6/1/2009 236,862
381,916 7.00%,
5/1/2024 374,156
293,678 7.00%,
6/1/2024 287,437
297,527 7.50%,
6/1/2011 300,874
441,301 7.50%,
12/1/2011 446,266
236,733 7.50%,
2/1/2026 236,141
499,128 7.50%,
11/1/2026 497,097
466,255 8.00%,
3/1/2026 474,414
</TABLE>
BOND INDEX PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- CONTINUED
FEDERAL NATIONAL MORTGAGE ASSOCIATION -- CONTINUED
$ 394,782 8.50%, 8/1/2023
$ 411,884
465,875 8.50%,
10/1/2026 481,598
315,454 9.00%,
6/1/2025 332,605
Total 4,379,334
GOVERNMENT NATIONAL MORTGAGE ASSOCOCIATION -- 7.5%
457,086 7.50%,
7/15/2011 463,796
431,039 7.50%,
6/15/2024 431,172
479,747 7.50%,
6/15/2024 479,896
479,674 7.50%,
6/15/2026 477,722
465,031 8.00%,
8/15/2026 473,169
385,673 8.00%,
1/15/2027 392,422
120,578 9.50%,
1/15/2019 129,966
164,038 9.50%,
10/15/2020 176,728
Total 3,024,871
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $11,162,834) 11,297,414
U.S. TREASURY SECURITIES -- 46.9%
U.S. TREASURY BONDS -- 13.2%
450,000 7.125%,
2/15/2023 456,327
3,375,000 7.25%,
5/15/2016 3,472,571
1,170,000 9.375%,
2/15/2006 1,377,488
Total 5,306,386
U.S. TREASURY NOTES -- 33.7%
1,425,000 5.875%,
8/15/1998 1,422,991
1,505,000 6.25%,
2/15/2003 1,484,547
1,500,000 6.50%,
5/31/2001 1,501,875
450,000 6.50%,
5/15/2005 446,063
500,000 6.50%,
10/15/2006 493,905
2,200,000 7.00%,
4/15/1999 2,231,614
</TABLE>
BOND INDEX PORTFOLIO
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
U.S. TREASURY SECURITIES -- CONTINUED
U.S. TREASURY NOTES -- CONTINUED
$ 1,025,000 7.125%, 10/15/1998
$ 1,039,729
975,000 7.25%,
5/15/2004 1,009,886
2,525,000 8.875%,
5/15/2000 2,695,438
1,200,000 9.00%,
5/15/1998 1,234,308
Total 13,560,356
TOTAL U.S. TREASURY SECURITIES (IDENTIFIED COST $18,957,873) 18,866,742
(A)REPURCHASE AGREEMENT -- 3.1%
1,240,000 BT Securities Corp., 5,56%, dated 5/30/1997, due 6/2/1997
(AT AMORTIZED
COST) 1,240,000
TOTAL INVESTMENTS (IDENTIFIED COST $40,135,376)(B) $ 40,097,709
</TABLE>
(a) The repurchase agreement is fully collateralized by U.S.
government and/or agency obligations based on market prices at the
date of the portfolio. The investment in the repurchase agreement
is through participation in a joint account with other Federated
funds.
(b) The cost of investments for federal tax purposes amounts to
$40,142,407. The net unrealized depreciation of investments on a
federal tax basis amounts to $44,698 which is comprised of
$200,103 appreciation and $244,801 depreciation at May 31, 1997.
Note: The categories of investments are shown as a percentage of net assets
($40,230,345) at May 31, 1997.
(See Notes which are an integral part of the Financial Statements)
BOND INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at value (identified cost $40,135,376
and tax cost $40,142,407) $40,097,709
Cash 2,371
Income receivable 450,370
Receivable for investments sold 104,522
Total assets 40,654,972
LIABILITIES:
Payable for investments purchased $398,940
Accrued expenses 25,687
Total liabilities 424,627
NET ASSETS $40,230,345
NET ASSETS CONSIST OF:
Paid in capital for beneficial interests $40,230,345
</TABLE>
(See Notes which are an integral part of the Financial Statements)
BOND INDEX PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 2,117,053
EXPENSES:
Investment advisory fee $ 73,686
Administrative personnel and services fee 60,000
Custodian fees 27,056
Directors'/Trustees' fees 11,700
Auditing fees 20,258
Legal fees 4,800
Portfolio accounting fees 72,162
Printing and postage 2,500
Insurance premiums 2,613
Miscellaneous 2,381
Total expenses 277,156
Waivers and reimbursements --
Waiver of investment advisory fee $ (73,686)
Reimbursement of other operating expenses (144,521)
Total waivers and reimbursements (218,207)
Net expenses 58,949
Net investment income 2,058,104
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 54,299
Net change in unrealized depreciation of investments 65,788
Net realized and unrealized gain on investments 120,087
Change in net assets resulting from operations $ 2,178,191
</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 MAY 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 2,058,104 $ 1,141,277
Net realized gain on investments 54,299 228,503
Net change in unrealized appreciation (depreciation) 65,788 (715,007)
Change in net assets resulting from operations 2,178,191 654,773
TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST:
Additions 34,754,102 18,879,856
Reductions (19,301,390) (13,216,042)
Net increase from transactions in investors' beneficial interest 15,452,712 5,663,814
Change in net assets 17,630,903 6,318,587
NET ASSETS:
Beginning of period 22,599,442 16,280,855
End of period $ 40,230,345 $ 22,599,442
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED INVESTMENT PORTFOLIOS
BOND INDEX PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997
1. ORGANIZATION
Federated Investment Portfolios (the "Portfolio Series") was organized
as a Massachusetts business trust under a Declaration of Trust dated
September 29, 1995. The Portfolio Series is currently comprised of one
portfolio, Bond Index Portfolio (the "Portfolio"). The Declaration of
Trust permits the Portfolio Series to issue an unlimited number of
shares 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, as amended (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.
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 St.
James Portfolios, having a market value of $16,913,859, in exchange
for shares of beneficial interest in the Portfolio. These assets
acquired represented substantially all of the Predecessor
Portfolio's assets as of the Transaction Date. The Statement of
Changes in Net Assets, and Selected Financial Data presented herein
include the operations and selected financial data of the
Predecessor Portfolio for the periods prior to January 2, 1996.
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
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.
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.
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 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 custodian
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.
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.
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those
estimated.
OTHER -- Investment transactions are accounted for on the trade
date.
3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Research Corp., the Portfolio's
investment adviser (the "Adviser"), is entitled to receive for its
services an annual investment advisory fee equal to 0.25% 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 0.12% of the Portfolio's average daily net
assets. For the year ended May 31, 1997, the Adviser and U.S. Trust
voluntarily agreed to waive all of their fees.
ADMINISTRATIVE FEE -- Federated Administrative Services, Inc.
("FAS") provides the Portfolio with administrative personnel and
services. The FAS fee is based upon 0.05% on the first $1 billion of
average aggregate daily net assets of the Portfolio, subject to an
annual minimum fee of $60,000.
PORTFOLIO ACCOUNTING FEE -- 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.
CUSTODIAN -- Effective June 5, 1996, State Street Bank and Trust
Company became the custodian of the Portfolio's assets for which it
receives a fee.
Prior to June 5, 1996, Investors Bank & Trust Company ("IBT") served
as custodian of the Portfolio's assets pursuant to a Custody
Agreement between IBT and the Portfolio.
GENERAL -- Certain of the Officers and Trustees of the Portfolio
Series are Officers and Directors or Trustees of the above
companies.
4. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term investments,
for the year ended May 31, 1997, were as follows:
COST OF PURCHASES $30,943,318
PROCEEDS FROM SALES $14,531,264
5. SELECTED FINANCIAL DATA
YEAR ENDED MAY 31,
1997 1996 1995(A)
RATIOS TO AVERAGE NET ASSETS
Expenses 0.20% 0.09% 0.00%*
Net investment income 7.06% 7.00% 7.45%*
Expense waiver/reimbursement(b) 0.75% 0.89% 0.69%*
SUPPLEMENTAL DATA
Portfolio turnover 49% 43% 67%
* 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.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Trustees and Investors of the BOND INDEX PORTFOLIO:
We have audited the accompanying statement of assets and liabilities
of the Bond Index Portfolio, a series of Federated Investment
Portfolios, as of May 31, 1997, and the related statement of
operations for the year then ended and the statement of changes in net
assets for each of the two years in the period then 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of
securities owned as of May 31, 1997, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bond Index
Portfolio at May 31, 1997, the results of its operations for the year
then ended and the changes in its net assets for each of the two years
in the period then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
July 15, 1997
TRUSTEES
John F. Donahue
J. Christopher Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr.
Peter E. Madden
Gregor F. Meyer
John E. Murray, Jr.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Anthony R. Bosch
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
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.
FEDERATED BOND INDEX FUND
ANNUAL REPORT TO SHAREHOLDERS
MAY 31, 1997
Federated Securities Corp., Distributor
[Graphic]
Cusip 313909103
Cusip 313909202
G01738-03 (7/97)
[Graphic]
APPENDIX
A. The graphic presentation here displayed consists of a boxed legend
in the bottom center indicating the components of the corresponding
line graph. Federated Bond Index Fund - Institutional Shares (the
"Fund") is represented by a solid line. The Lehman Brothers Aggregate
Bond Index 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 purchase in the Fund and the Lehman Brothers Aggregate Bond
Index. The "y" axis reflects the cost of the investment. The "x" axis
reflects computation periods from the Fund's start of business, July
11, 1994, through May 31, 1997. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared to the
Lehman Brothers Aggregate Bond Index; the ending values are 12,483 and
12,630, respectively.
B. The graphic presentation here displayed consists of a boxed legend
in the bottom center indicating the components of the corresponding
line graph. Federated Bond Index Fund - Institutional Service Shares
(the "Fund") is represented by a solid line. The Lehman Brothers
Aggregate Bond Index 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 purchase in the Fund and the Lehman Brothers
Aggregate Bond Index. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from the Fund's
start of business, July 11, 1994, through May 31, 1997. The right
margin reflects the ending value of the hypothetical investment in the
Fund as compared to the Lehman Brothers Aggregate Bond Index; the
ending values are 12,450 and 12,630, respectively.
