<PAGE>
Investment Advisors
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Federated Research Corp.
Federated Investment Tower
1001 Liberty Avenue
Pittsburgh, PA 15222
Transfer Agent
Chase Global Funds Services Company
73 Tremont Street
Boston, MA 02108
(800) 909-1989
Distributor
Edgewood Services, Inc.
Clearing Operations
P.O. Box 897
Pittsburgh, PA 15230
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND, FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.
US EXITBI A97
================================================================================
EXCELSIOR
INSTITUTIONAL TRUST
BOND INDEX FUND
Annual Report
May 31, 1997
================================================================================
<PAGE>
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present to you the annual report for Excelsior
Institutional Trust's Bond Index Fund. The 1997 fiscal year was another year of
growth for the Excelsior fund family complex, highlighted by strong financial
markets and new fund offerings which helped push the assets of the funds over
the $5 billion milestone.
In our on-going efforts to provide you with investments opportunities that
are best suited to meet your investment needs in the ever-evolving financial
marketplace, we continually evaluate the current Excelsior fund offerings. In
the coming year, we may make recommendations to you which we believe can
achieve this goal. These recommendations may include, among other things, the
establishment of new funds and possibly the consolidation of certain equity
funds. We will keep you apprised of these developments as our assessment of
these matters progresses.
The coming year promises to be both interesting and exciting. We are
cautiously optimistic regarding the domestic equity markets, international
equity markets continue to look attractive, and fiscal policy has been
effective in keeping inflation under control. With this in mind, I am confident
that the Excelsior fund family will continue to provide you with the
appropriate investment vehicles and dedicated service staff to help you meet
your investment objectives.
Sincerely,
/s/ Frederick S. Wonham
-----------------------------------
Frederick S. Wonham
Chairman of the Board and President
<PAGE>
EXCELSIOR INSTITUTIONAL TRUST
ADVISER'S INVESTMENT REVIEW
BOND INDEX FUND
- --------------------------------------------------------------------------------
Stable to slightly lower interest rates enabled the Fund to achieve a total
return of 8.04%* compared to 8.32%** for the Lehman Brothers Aggregate Bond
Index for the fiscal year ended May 31, 1997. During this period, the
mortgage-backed securities sector was the best performer. Lower volatility and
tighter spreads contributed to the outperformance. The Corporates sector came
in second helped by its longer duration and yield spreads over Treasuries
followed by the Governments sector. In mortgages, GNMA's outperformed
conventionals by 25 bp during the period with Thirty-year passthroughs having
the best performance. In Corporates, lower quality credits outperformed higher
quality credits by 100 to 130 bp. The utilities sub-sector with its longer
duration was the best performer with returns 45 to 100 bp over the returns for
the other corporate sub-sectors. Throughout the fiscal year, the Fund was
structured to track the Lehman Brothers Aggregate Index as closely as possible.
- -------------------------------------
Bond Index Fund+
- -------------------------------------
Average Annual Total Return
Ended on 5/31/97
- -------------------------------------
1 Year Since Inception (7/11/94)
- -------------------------------------
8.04% 8.00%
- -------------------------------------
BOND INDEX FUND
Bond Index Fund Lehman Brothers
7/11/94 $10,000 $10,000
11/30/94 $10,029 $10,126
5/31/95 $11,172 $11,103
11/30/95 $11,798 $11,706
5/31/96 $11,660 $11,561
11/30/96 $12,512 $12,390
5/31/97 $12,632 $12,489
Past performance is not predictive of future performance. Investment returns
and principal values will vary and shares may be worth more or less at
redemption than their original cost.
The above illustration compares a $10,000 investment made in Bond Index
Fund and a broad-based index since 7/11/94 (inception date). For comparative
purposes, the value of the index on 6/30/94 is used as the beginning value on
7/11/94. All dividends and capital gain distributions are reinvested. The
Fund's performance takes into account fees and expenses. The index does not
take into account charges, fees and other expenses. Further information
relating to Fund performance is contained in the Financial Highlights section
of the Prospectus and elsewhere in this report.
- --------
* Total return represents the change during the period in a hypothetical
account with dividends reinvested.
** Source: Lehman Brothers--Lehman Brothers Aggregate Index is an unmanaged
total return performance benchmark commonly used to measure bond
performance. The Index is made up of Lehman's Govt./Corp Bond Index,
Mortgage-Backed Securities Index and Asset-Backed Securities Index which
are comprised of U.S. Government agencies and U.S. treasury securities,
investment grade corporate debt, mortgage-backed and asset-backed
securities, selected as representative of the market.
+ The Fund is currently waiving certain fees. Had the Fund not waived fees,
returns would have been lower. This voluntary waiver may be modified or
terminated at any time.
<PAGE>
Excelsior Institutional Bond Index Fund
Statement of Assets and Liabilities
May 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets:
- --------------------------------------------------------------------------------
<S> <C> <C>
Investment in Bond Index Portfolio ("Portfolio"), at value (Note 2a) $15,076,097
- --------------------------------------------------------------------------------
Prepaid expenses 33,069
- --------------------------------------------------------------------------------
Deferred organizational expenses (Note 2d) 4,472
- -------------------------------------------------------------------------------- -----------
Total Assets 15,113,638
- --------------------------------------------------------------------------------
Liabilities:
- --------------------------------------------------------------------------------
Dividends payable $88,585
- -----------------------------------------------------------------------
Accrued expenses 8,273
- ----------------------------------------------------------------------- -------
Total Liabilities 96,858
- -------------------------------------------------------------------------------- -----------
Net Assets $15,016,780
- -------------------------------------------------------------------------------- -----------
Net Assets Consist of:
- --------------------------------------------------------------------------------
Paid-in capital $14,921,422
- --------------------------------------------------------------------------------
Net unrealized appreciation from Portfolio 104,348
- --------------------------------------------------------------------------------
Accumulated net realized loss from Portfolio (25,170)
- --------------------------------------------------------------------------------
Undistributed net investment income 16,180
- -------------------------------------------------------------------------------- -----------
Net Assets $15,016,780
- -------------------------------------------------------------------------------- -----------
Shares outstanding (Unlimited number of $0.00001 par value shares authorized) 2,156,910
- --------------------------------------------------------------------------------
Net Asset Value Per Share (net assets / shares outstanding) $ 6.96
- -------------------------------------------------------------------------------- -----------
</TABLE>
See Notes to Financial Statements
<PAGE>
Excelsior Institutional Bond Index Fund
Statement of Operations
Year Ended May 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Investment Income from Portfolio (Note 2b):
- --------------------------------------------------------------------------------
Interest Income $ 1,088,013
- --------------------------------------------------------------------------------
Portfolio Expense(a)(b) (30,090)
- -------------------------------------------------------------------------------- -----------
1,057,923
-----------
Expenses (Note 2f):
- ----------------------------------------------------------------------------
Administrative fees (Note 3a) $ 60,000
- -------------------------------------------------
Administrative servicing fees (Note 3b) 27,238
- -------------------------------------------------
Prospectus and shareholder reports 7,500
- -------------------------------------------------
Professional fees 4,019
- -------------------------------------------------
Amortization of organization expenses (Note 2d) 2,121
- -------------------------------------------------
Miscellaneous 779
- ------------------------------------------------- --------
Total expenses 101,657
- -------------------------------------------------
Less: Waiver of fees (Note 3c) (64,113)
- -------------------------------------------------
Reimbursement of expenses (22,528)
- ------------------------------------------------- --------
Net expenses 15,016
- -------------------------------------------------------------------------------- -----------
Net investment income 1,042,907
- -------------------------------------------------------------------------------- -----------
Realized and Unrealized Gain from Portfolio:
- --------------------------------------------------------------------------------
Net realized gain 22,401
- --------------------------------------------------------------------------------
Net change in unrealized appreciation 126,992
- -------------------------------------------------------------------------------- -----------
Net Realized and Unrealized Gain 149,393
- -------------------------------------------------------------------------------- -----------
Net Increase in Net Assets resulting from operations $ 1,192,300
- -------------------------------------------------------------------------------- -----------
</TABLE>
(a) Net of waiver and reimbursement.
(b) Portfolio Expenses are discussed in Note 3 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report.
See Notes to Financial Statements
<PAGE>
Excelsior Institutional Bond Index Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended May 31,
-----------------------------
1997 1996
------------- --------------
<S> <C> <C>
Operations:
- -----------------------------------------------------------
Net investment income $ 1,042,907 $ 1,082,977
- -----------------------------------------------------------
Net realized gain from Portfolio ($84,430 and $228,827,
respectively, for Federal Income Tax purposes) 22,401 228,297
- -----------------------------------------------------------
Net change in unrealized appreciation (depreciation) from
Portfolio during the year 126,992 (634,192)
- ----------------------------------------------------------- ---------- -----------
Net increase in net assets resulting from operations 1,192,300 677,082
- ----------------------------------------------------------- ---------- -----------
Distributions to Shareholders:
- -----------------------------------------------------------
From net investment income (1,026,727) (1,082,479)
- -----------------------------------------------------------
From net realized gains (103,881) (222,525)
- -----------------------------------------------------------
In excess of net realized gains(a) (25,170) --
- ----------------------------------------------------------- ---------- -----------
Total distributions to shareholders (1,155,778) (1,305,004)
- ----------------------------------------------------------- ---------- -----------
Transactions in Shares of Beneficial Interest:
- -----------------------------------------------------------
Net proceeds from share sales 6,277,280 10,905,117
- -----------------------------------------------------------
Reinvestment of dividends 1,551 1,590
- -----------------------------------------------------------
Cost of shares redeemed (6,303,926) (10,837,971)
- ----------------------------------------------------------- ---------- -----------
Net increase (decrease) in net assets from beneficial
interest transactions (25,095) 68,736
- ----------------------------------------------------------- ---------- -----------
Total Increase (Decrease) in Net Assets 11,427 (559,186)
- -----------------------------------------------------------
Net Assets:
- -----------------------------------------------------------
Beginning of period 15,005,353 15,564,539
- ----------------------------------------------------------- ---------- -----------
End of period $15,016,780 $15,005,353
- ----------------------------------------------------------- ---------- -----------
Capital Share Transactions:
- -----------------------------------------------------------
Shares sold 901,579 1,513,852
- -----------------------------------------------------------
Shares issued for dividend reinvestment 221 195
- -----------------------------------------------------------
Shares redeemed (899,375) (1,504,886)
- ----------------------------------------------------------- ---------- -----------
Net Increase in Shares Outstanding: 2,425 9,161
- ----------------------------------------------------------- ---------- -----------
</TABLE>
(a) Distributions are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for federal income tax
purposes.
See Notes to Financial Statements
<PAGE>
Excelsior Institutional Bond Index Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Selected data for a share outstanding each period as follows:
Year Ended May 31,
------------------------------------------
1997 1996 1995(a)
---------- ---------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 6.96 $ 7.26 $ 7.00
- ---------------------------------------------- ------- ------- ---------
Investment Operations:
- ----------------------------------------------
Net investment income 0.49 0.50 0.46
- ----------------------------------------------
Net realized and unrealized gain (loss) from
Portfolio 0.06 (0.20) 0.28
- ---------------------------------------------- ------- ------- ---------
Total from investment operations 0.55 0.30 0.74
- ---------------------------------------------- ------- ------- ---------
Distributions:
- ----------------------------------------------
From net investment income (0.48) (0.50) (0.46)
- ----------------------------------------------
From net realized gains (0.06) (0.10) (0.02)
- ----------------------------------------------
In excess of net realized gains (b) (0.01) -- (0.00)(c)
- ---------------------------------------------- ------- ------- ---------
Total distributions (0.55) (0.60) (0.48)
- ---------------------------------------------- ------- ------- ---------
Net Asset Value, End of Period $ 6.96 $ 6.96 $ 7.26
- ---------------------------------------------- ======= ======= =========
Total return 8.04% 4.12% 11.03%(d)
- ----------------------------------------------
Ratios to average net assets
- ----------------------------------------------
Expenses(e) 0.10% 0.11% 0.12%*
- ----------------------------------------------
Net investment income 7.00% 6.91% 7.33%*
- ----------------------------------------------
Supplemental data
- ----------------------------------------------
Net assets, end of period (000 omitted) $15,017 $15,005 $ 15,565
- ----------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from July 11, 1994 (commencement of
operations) to May 31, 1995.
(b) Distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
distributions do not represent a return of capital for Federal income tax
purposes.
(c) Less than one cent per share.
(d) Not annualized.
(e) Reflects the Fund's proportionate share of the Portfolio's expenses as well
as voluntary fee waivers and reimbursements by agents of the Portfolio and
a voluntary fee waiver and an expense reimbursement by agents of the
Trust. If the voluntary waivers and expense reimbursements had not been in
place, the ratios of expenses and net investment income to average net
assets would have been as follows:
Expenses 0.68% 0.58% 1.23%*
Net Investment Income 6.42% 6.44% 6.22%*
See Notes to Financial Statements
<PAGE>
Excelsior Institutional Bond Index Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Organization
Excelsior Institutional Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act") and the Securities Act of 1933 as
an open-end, management investment company and is comprised of eight funds each
having its own investment objectives and policies. The financial statements
included herein are only those of Excelsior Institutional Bond Index Fund (the
"Fund"). The financial statements of the remaining seven funds are presented
separately.
The Fund's investment objective 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 the
Fund's investable assets in Bond Index Portfolio, a corresponding 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,
1997, the Fund's beneficial interest in the Portfolio was 37.5%.
United States Trust Company of Connecticut ("U.S. Trust Connecticut"), Chase
Global Funds Services Company ("CGFSC"), a subsidiary of The Chase Manhattan
Bank, and Federated Administrative Services ("FAS"), a wholly-owned subsidiary
of Federated Investors, (collectively, the "Administrators") serve as
Administrators of the Trust. Federated Research Corp., a wholly-owned
subsidiary of Federated Investors, is the investment advisor for the Portfolio.
Federated Research Corp. has delegated the daily management of the security
holdings of the Portfolio to United States Trust Company of New York ("U.S.
Trust New York" and, collectively with U.S. Trust Connecticut, "U.S. Trust"),
acting as sub-advisor. The advisory fee is charged to the Portfolio.
Prior to May 16, 1997, U.S. Turst New York, CGFSC and FAS served as the Trust's
administrators pursuant to an administration agreement substantially similar to
the administration agreement currently in effect for the Trust.
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 of the Fund. Such
policies are in conformity with generally accepted accounting principles for
investment companies and are consistently followed by the Fund in the
preparation of its financial statements. Generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts and disclosures on the financial statements. Actual
results could differ from these estimates.
<PAGE>
Excelsior Institutional Bond Index Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
a) 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.
b) 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.
c) 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. Distributions in excess of
net realized gains were the result of certain book and tax timing
differences. These distributions do not represent a return of capital for
federal income tax purposes.
d) Deferred Organization Expenses -- Expenses incurred by the Fund in
connection with its organization are being amortized on a straight-line
basis over a five year period.
e) Federal Income Taxes -- It is the policy of the Fund to continue to qualify
as a regulated investment company, if such qualification is in the best
interest of the shareholders, by complying with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies, and by distributing substantially all of its taxable
earnings to its shareholders.
f) Expense Allocation -- Expenses incurred by the Trust with respect to any two
or more funds in the Trust are allocated in proportion to the average net
assets of each Fund, except where allocations of direct expenses to each
fund can otherwise be fairly made. Expenses directly attributable to a Fund
are charged to that Fund.
g) 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. Transactions with Affiliates
a) Administrative Fee -- For the services provided to the Fund, the
Administrators are entitled jointly to annual fees, computed daily and paid
monthly, based on the combined aggregate average daily net assets of the
Trust's Funds (excluding the International Equity Fund), Excelsior Funds, Inc.
(excluding its international equity portfolios), and Excelsior Tax-Exempt
Funds, Inc., all of which are affiliated investment companies, as follows:
0.200% of the first $200 million, 0.175% of the next $200 million, and 0.150%
over $400 million. Administration fees payable by each Fund of the three
investment companies are determined in proportion to the relative average daily
net assets of the respective Funds for the period paid. For the year ended May
31, 1997, administration fees charged by FAS amounted to $60,000 of which
$36,875 was voluntarily waived.
b) Administrative Servicing Fee -- The Trust, on behalf of the Fund, intends to
enter into administrative servicing agreements with various service
organizations (which may include affiliates of U.S.
<PAGE>
Excelsior Institutional Bond Index Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Trust) requiring them to provide administrative support services to their
customers owning shares of the Fund. As a consideration for the administrative
services provided by each service organization to its customers, the Fund will
pay the service organizations an administrative service fee at the annual rate
of up to 0.40% of the average daily net asset value of its shares held by the
service organizations' customers. Such services may include assisting in
processing purchase, exchange and redemptions requests; transmitting and
receiving funds in connection with customer orders to purchase, exchange or
redeem shares; and providing periodic statements. U.S. Trust Connecticut
intends to voluntarily waive fees in an amount equal to the administrative
servicing fees, when incurred. For the year ended May 31, 1997, U.S. Trust
voluntarily agreed to waive administrative servicing fees amounting to $27,238.
c) Fee Waivers and Expense Reimbursement -- From time to time, as they may deem
appropriate in their sole discretion, or pursuant to applicable state expense
limitations, U.S. Trust Connecticut, and Federated Research Corp. may undertake
to waive a portion or all of the fees payable to them and also may reimburse
the Fund for a portion of other operating expenses. Until further notice, U.S.
Trust Connecticut and Federated Research Corp. have agreed to voluntarily waive
fees and reimburse expenses at Fund and Portfolio levels, respectively, to the
extent necessary to maintain a combined annual operating expense ratio of not
more than 0.30% of average daily net assets. For the year ended May 31, 1997,
U.S. Trust voluntarily reimbursed expenses of $22,528.
d) General -- Independent Trustees receive an annual retainer of $4,000 and an
additional $250 for each meeting of the Board of Trustees attended. In
addition, the Trust reimbursed independent Trustees for reasonable expenses
incurred when acting in their capacity as Trustees. Officers and Trustees of
the Trust or Portfolio, deemed to be affiliated or "interested parties" under
the Act, receive no compensation from the Trust or Portfolio for their
services.
4. Investment Transactions
Additions and reductions in the Fund's investment in the Portfolio for the year
ended May 31, 1997, aggregated $6,282,882 and $ 7,459,619, respectively.
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
EXCELSIOR INSTITUTIONAL BOND INDEX FUND:
We have audited the accompanying statement of assets and liabilities of
Excelsior Institutional Bond Index Fund, one of the Funds comprising Excelsior
Institutional Trust, as of May 31, 1997, the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of
the periods presented therein. These financial statements and financial
highlights are the responsibility of the Trust's managment. 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
Excelsior Institutional Bond Index Fund at May 31, 1997, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each
of the periods presented therein, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
July 15, 1997
<PAGE>
Excelsior Institutional Bond Index Fund
- --------------------------------------------------------------------------------
Federal Tax Information (Unaudited):
For the year ended May 31, 1997, the percentage of dividends paid that
qualify for the 70% dividends received deduction for corporate shareholders,
the designation of long-term capital gain and the amounts expected to be passed
through to shareholders as foreign tax credits are approximated as follows:
Dividends
Received Long-Term Foreign Tax
Deduction Capital Gain Credit
----------- -------------- ------------
Bond Index Fund ...... -- $84,430 --
<PAGE>
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>
<PAGE>
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>
<PAGE>
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>
<PAGE>
BOND INDEX PORTFOLIO
<TABLE>
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PRINCIPAL
AMOUNT VALUE
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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
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BOND INDEX PORTFOLIO
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PRINCIPAL
AMOUNT VALUE
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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
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(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)
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BOND INDEX PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1997
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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
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(See Notes which are an integral part of the Financial Statements)
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BOND INDEX PORTFOLIO
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1997
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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
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(See Notes which are an integral part of the Financial Statements)
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BOND INDEX PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
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YEAR ENDED MAY 31,
1997 1996
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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
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(See Notes which are an integral part of the Financial Statements)
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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.
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BOND INDEX PORTFOLIO
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.
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BOND INDEX 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.
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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
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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
Victor R. Siclari
Assistant Secretary
BOND INDEX PORTFOLIO
ANNUAL REPORT TO INVESTORS
MAY 31, 1997
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Cusip 314204108
G01854-01 (7/97)
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