10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 1-14818

FEDERATED INVESTORS, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	25-1111467
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
Federated Investors Tower Pittsburgh, Pennsylvania	15222-3779
(Address of principal executive offices)	(zip code)

412-288-1900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Class B Common Stock, no par value	New York Stock Exchange
(Title of each class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x     No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange act.

Large accelerated filer  x Accelerated filer  ¨ Non-accelerated filer   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the Class B Common Stock held by non-affiliates of the registrant as of June 30, 2005 was approximately $2.4 billion, based on the last reported sales price of $30.01 as reported by the New York Stock Exchange. For purposes of this calculation, the registrant has deemed all of its executive officers and directors to be affiliates, but has made no determination as to whether any other persons are “affiliates” within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934. The number of shares of Class A and Class B Common Stock outstanding on February 24, 2006, was 9,000 and 106,618,256, respectively.

Documents incorporated by reference:

Selected portions of the 2005 Annual Report to Shareholders – Part I, Part II and Part IV of this Report.

Selected portions of the 2006 Information Statement – Part III of this Report.

Part I

ITEM 1 – BUSINESS

General

Federated Investors, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, “Federated” or “the Company”), is a leading provider of investment management products and related financial services. Federated has been in the asset management business since 1955 and is one of the largest mutual fund managers in the United States with $213.4 billion in assets under management at December 31, 2005.

Federated sponsors, markets and provides investment-related services to various investment products, including mutual funds and separately managed accounts. Federated’s principal source of revenue is investment advisory fee income earned by various subsidiaries of Federated pursuant to investment advisory contracts with the investment products. These subsidiaries are registered as investment advisers under the Investment Advisers Act of 1940. Investment advisers are compensated for their services in the form of investment advisory fees based primarily upon the net assets of the fund or separately managed account.

Federated provided investment advisory services to 136 Federated-sponsored funds as of December 31, 2005. Federated markets these funds to banks, broker/dealers and other financial intermediaries who use them to meet the needs of their customers, including retail investors, corporations and retirement plans. The funds sponsored by Federated are domiciled in the U.S., with the exception of Federated International Funds Plc and Federated Unit Trust, which are domiciled in Dublin, Ireland. Federated’s U.S.-domiciled funds (with the exception of a collective investment trust) are registered under the Investment Company Act of 1940 (“Investment Company Act”) and under applicable federal and state laws. Each of the funds enters into an advisory agreement that is subject to annual approval by the fund directors or trustees, including a majority of the directors who are not “interested persons” of the funds or Federated as defined under the Investment Company Act. In general, amendments to such advisory agreements must be approved by the funds’ shareholders. A significant portion of Federated’s revenue is derived from these advisory agreements, which generally are terminable upon 60 days notice.

Of the 136 funds sponsored by Federated (the “Federated Funds”) as of December 31, 2005, Federated’s investment advisory subsidiaries managed 53 money market funds (and cash equivalents) totaling $145.3 billion in assets, 48 fixed-income funds with $19.0 billion in assets and 35 equity funds with $26.0 billion in assets. Appendix A hereto lists all of these funds, including asset levels and dates of inception.

As of December 31, 2005, Federated provided investment advisory services to $23.1 billion in separately managed account assets. These separate accounts (together with the Federated Funds, “Managed Assets”) represented assets from government entities, pension and other employee benefit plans, corporations, trusts, foundations, endowments, mutual funds and other products sponsored by third parties, and other investors. Fees for separate accounts are typically based on the value of assets under management pursuant to investment advisory agreements that may be terminated at any time.

Certain Federated Funds have adopted distribution plans that, subject to applicable law, provide for payment to Federated for marketing expenses, including sales commissions paid to broker/dealers. These distribution plans are implemented through a distribution agreement between Federated and each respective fund. Although the specific terms of each such agreement vary, the basic terms of the agreements are similar. Pursuant to the agreements, Federated acts as underwriter for the funds and distributes shares of the funds primarily through unaffiliated dealers. Each distribution plan and agreement is initially approved by the directors or trustees of the respective fund and is reviewed for approval annually.

Federated also provides a broad range of services to support the operation, administration and distribution of the Federated Funds. These services, for which Federated receives fees pursuant to agreements with the Federated Funds, include administrative services, shareholder servicing and general support.

2

Total Managed Assets for the past three years were as follows:

Managed Assets by Asset Type

	As of December 31,						Growth Rate
(dollars in millions)	2005		2004		2003		3 Yr. CAGR1		2005
Money Market	$	160,621	$	124,302	$	142,773	2	%	29	%
Equity		29,785		29,013		25,627	18	%	3	%
Fixed-Income		23,017		25,953		29,517	(5	)%	(11	)%
Total Managed Assets	$	213,423	$	179,268	$	197,917	3	%	19	%

1 Compound Annual Growth Rate

Average Managed Assets for the past three years were as follows:

Average Managed Assets by Asset Type

	Year ended December 31,						Growth Rate
(dollars in millions)	2005		2004		2003		3 Yr. CAGR1		2005
Money Market	$	144,356	$	134,096	$	149,703	0	%	8	%
Equity		28,940		26,476		20,849	13	%	9	%
Fixed-Income		24,351		27,248		28,931	1	%	(11	)%
Total Average Managed Assets	$	197,647	$	187,820	$	199,483	1	%	5	%

1 Compound Annual Growth Rate

Federated also derives revenue from providing mutual fund administrative services and various other fund-related services to institutions seeking to outsource all or part of their mutual fund service and distribution functions. Through various subsidiaries, Federated provides its expertise in these areas to expand its relationships with key financial intermediaries, primarily banks, who sponsor proprietary mutual funds. Federated receives fees from these bank-sponsored funds for providing fund services. Federated provided these services for $18.3 billion of assets in funds sponsored by third parties (“Administered Assets”) as of December 31, 2005. During 2005, Federated experienced a reduction in the number of bank clients for mutual fund administrative services that caused a decline in Administered Assets in comparison to previous years.

The following chart shows period-end and average Administered Assets for the past three years:

Administered Assets

	As of and for the year ended December 31,						Growth Rate
(dollars in millions)	2005		2004		2003		3 Yr. CAGR1		2005
Period-End Administered Assets	$	18,271	$	37,164	$	43,428	(21	)%	(51	)%
Average Administered Assets		18,239		41,208		39,513	(22	)%	(56	)%

1 Compound Annual Growth Rate

Federated also provides retirement plan recordkeeping services and trade execution and settlement services through various subsidiaries.

3

Federated’s revenues from investment advisory, administrative and other service fees provided under agreements with the Federated Funds and other entities over the last three years were as follows (certain amounts previously reported have been reclassified to conform with the current year’s presentation):

Revenue

	Year ended December 31,						Growth Rate
(dollars in thousands)	2005		2004		2003		3 Yr. CAGR1		2005
Investment advisory fees, net	$	570,695	$	546,167	$	528,370	3	%	4	%
Administrative service fees, net		135,070		135,851		144,873	(2	)%	(1	)%
Other service fees, net2		196,193		153,849		111,382	22	%	28	%
Other, net		7,258		7,482		7,683	12	%	(3	)%
Total revenue	$	909,216	$	843,349	$	792,308	5	%	8	%

1 Compound Annual Growth Rate

2 Other service fees, net, for 2005 and 2004 included certain B-share-related distribution fee income that was not recorded in revenue in 2002 and 2003. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2005 Annual Report to Shareholders incorporated by reference in Part II, Item 7 of this report for further details.

Investment Products

Federated offers a wide range of products, including money market, equity and fixed-income investments. Federated’s mix includes products that the Company expects to be in demand under a variety of economic and market conditions.

Federated is one of the largest U.S. managers of money market assets, with $160.6 billion in such assets under management at December 31, 2005. Federated has developed expertise in managing cash for institutions, which typically have stringent requirements for regulatory compliance, relative safety, liquidity and competitive yields. Federated has managed money market funds for over 30 years and began selling money market fund products to institutions in 1974. Federated also manages retail money market products that are typically distributed through broker/dealers. Federated manages money market assets in the following asset classes: government ($68.3 billion); prime corporate ($64.7 billion); and tax free ($27.6 billion).

In recent years, Federated has emphasized growth of its equity business as an important component of its growth strategy and has broadened its range of equity investment products. Equity assets are managed across a wide range of styles including small-mid cap growth ($9.8 billion); large-cap value ($4.9 billion); flexible ($3.8 billion); core equity ($2.9 billion); equity income ($2.3 billion); international/global ($1.8 billion); and mid-large cap growth ($1.3 billion). Federated also manages assets in equity index funds ($2.4 billion) and balanced and asset allocation funds ($0.6 billion). These asset allocation funds include fixed-income assets.

Federated’s fixed-income assets are managed in a wide range of sectors including multi-sector ($6.2 billion); U.S. corporate ($3.2 billion); municipal ($3.1 billion); mortgage-backed ($3.0 billion); high-yield ($2.9 billion); U.S. government ($2.6 billion); and international/global ($2.0 billion). Federated’s fixed-income products offer fiduciaries and others a broad range of highly defined products designed to meet many of their investment needs.

Each investment product is managed by a team of portfolio managers supported by fundamental and quantitative research analysts. Federated’s proprietary, independent investment research process is centered on the integration of several fundamentals: quantitative research models, fundamental research and credit analysis, style-consistent and disciplined portfolio construction and management, portfolio attribution and trading.

4

Distribution Channels

Federated’s distribution strategy is to provide products geared to financial intermediaries, primarily banks, broker/dealers, investment advisers and directly to institutions such as corporations and government entities. Through substantial investments in distribution for more than 20 years, Federated has developed relationships with 3,500 intermediaries and sells its products directly to another 2,000 corporations and government entities. Federated uses its trained sales force of approximately 170 representatives and managers to add new customer relationships and strengthen and expand existing relationships.

Product Markets

Federated’s investment products are distributed in four principal markets: the trust market, the broker/dealer market, the institutional market and the international market. The following chart shows Federated Managed Assets by market for the dates indicated:

Managed Assets by Market

	As of December 31,						Growth Rate
(dollars in millions)	2005		2004		2003		3 Yr. CAGR1		2005
Trust	$	95,678	$	86,947	$	96,131	(2	)%	10	%
Broker/Dealer2		72,736		47,706		48,023	18	%	52	%
Institutional2		22,247		23,135		30,330	(7	)%	(4	)%
International		2,647		2,855		2,452	14	%	(7	)%
Other		20,115		18,625		20,981	1	%	8	%
Total Managed Assets	$	213,423	$	179,268	$	197,917	3	%	19	%

1 Compound Annual Growth Rate

2 Certain amounts previously reported have been reclassified to conform with the current year’s presentation.

Trust Market. Federated pioneered the concept of providing cash management to bank trust departments through money market mutual funds over 30 years ago. In addition, Federated initiated a strategy to provide a broad range of equity and fixed-income funds, termed MultiTrust™, to meet the evolving needs of bank trust departments. Federated’s bank trust customers invest the assets subject to their control, or upon direction from their customers, in one or more Federated Funds. Federated employs a dedicated sales force backed by a support staff to offer its products and services in the trust market. In addition to bank trust departments, Federated provides products and services to bank capital markets (institutional brokerages within banks) and to certain other institutions. Bank Capital Market assets totaled $27.3 billion at December 31, 2005, nearly all of which was in money market funds.

Money market funds contain the majority of Federated’s Managed Assets in the trust market. In allocating investments across various asset classes, investors typically maintain a portion of their portfolios in cash or cash equivalents, including money market funds, irrespective of trends in bond or stock prices. In addition, Federated offers an extensive menu of equity and fixed-income mutual funds and separately managed accounts structured for use in the trust market. As of December 31, 2005, Managed Assets in the trust market included $85.6 billion in money market assets, $5.7 billion in fixed-income assets and $4.4 billion in equity assets.

Broker/Dealer Market. Federated distributes its products in this market through a large, diversified group of approximately 2,600 national, regional, independent and bank broker/dealers. Federated maintains a sales staff dedicated to this market, including a separate group focused on the bank broker/dealers. Broker/dealers use Federated’s products to meet the needs of their customers, who are typically retail investors. Federated offers products with a variety of commission structures that enable brokers to offer their customers a choice of pricing options. Federated also offers money market mutual funds as cash management products designed for use by its broker/dealer clients. As of December 31, 2005, Managed Assets in the broker/dealer market included $49.2 billion in money market assets, $15.9 billion in equity assets and $7.6 billion in fixed-income assets.

5

Institutional Market. Federated has structured its investment process to meet the requirements of fiduciaries and others who use Federated’s products to meet the needs of their customers. Fiduciaries typically have stringent demands related to portfolio composition, risk and investment performance. Federated maintains a dedicated sales staff to focus on the distribution of its products to a wide variety of users: investment advisers, corporations, corporate and public pension funds, insurance companies, government entities, foundations, endowments, hospitals, and non-Federated investment companies. As of December 31, 2005, Managed Assets in the institutional market included $11.0 billion in money market assets, $5.8 billion in fixed-income assets and $5.4 billion in equity assets.

International Market. Federated has broadened its distribution to areas outside the U.S. Since 1998, Federated has been a 50% investor in a German joint venture company, Federated Asset Management GmbH (“FAM”) which administers separate accounts and distributes Federated offshore fund products in Europe. As of the end of 2005, Federated owned 100% of the outstanding interests in FAM. In addition, Federated sponsors six retail funds (“Federated Unit Trust”) for which FAM acts as a distributor in German-speaking countries in Europe. As of December 31, 2005, Managed Assets in the international market included $2.2 billion in fixed-income assets and $0.4 billion in equity assets.

Other Markets. Other markets at December 31, 2005, included assets under management from the following sources: TexPool, a local government investment pool in the state of Texas ($14.1 billion); certain affinity groups and direct sales efforts including the retail assets associated with the Federated Kaufmann Fund ($5.7 billion); and collateralized debt obligation (CDO) products for which Federated acts as the investment adviser ($0.3 billion).

Competition

The investment management business is highly competitive. Competition is particularly intense among mutual fund providers. According to the Investment Company Institute, at the end of 2005, there were nearly 9,000 registered open-end investment companies, of varying sizes and investment policies, whose shares are currently being offered to the public both on a sales-load and no-sales-load basis. In addition to competition from other mutual fund managers and investment advisers, Federated and the mutual fund industry compete with investment alternatives offered by insurance companies, commercial banks, broker/dealers, other financial institutions and hedge funds.

Competition for sales of investment products is influenced by various factors including investment performance in terms of attaining the stated objectives of the particular products and in terms of fund yields and total returns, advertising and sales promotional efforts, investor confidence and type and quality of services.

Changes in the demand for mutual fund distribution and administrative services are expected to continue. Competition for fund administration services is extremely high. In addition to competing with other service providers, banks sponsoring mutual funds may choose to internalize certain service functions. Consolidation within the banking industry also impacts the fund administration business as merging bank funds typically choose a single fund administration provider. Due to the fact that Federated derives a smaller portion of its revenue from Administered Assets as compared to Managed Assets, changes in the amount of Administered Assets generally have less impact on Federated’s results of operations than changes in Managed Assets.

Recent Acquisitions

In the third quarter 2005, assets of three equity mutual funds previously advised by Investors Management Group Ltd., a wholly owned subsidiary of AMCORE Financial, Inc., totaling approximately $142.0 million were acquired by two Federated Funds.

During the second quarter 2005, Federated completed the acquisition of the cash management business of Alliance Capital Management L.P. As a result of the acquisition, approximately $19.3 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services were transitioned into Federated money market funds.

Federated continues to look for new alliances and acquisition opportunities.

6

Regulatory Matters

Substantially all aspects of Federated’s business are subject to federal and state regulation and to the extent operations take place outside the United States, they are subject to the regulations of foreign countries. Depending upon the nature of any non-compliance, the results could include the suspension or revocation of licenses or registration, including broker/dealer licenses and registrations and transfer agent registrations, as well as the imposition of civil fines and penalties and in certain limited circumstances, prohibition from acting as an adviser to registered investment companies. Federated’s advisory companies are registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940 and with certain states. All of the mutual funds managed, distributed, and administered by Federated are registered with the SEC under the Investment Company Act of 1940. Certain wholly owned subsidiaries of Federated are registered as broker/dealers with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and with various states and are members of the National Association of Securities Dealers (the “NASD”). Their activities are regulated by the SEC, the NASD and the various states in which they are registered. These subsidiaries are required to meet capital requirements established by the SEC pursuant to the Exchange Act. Two other subsidiaries are registered with the SEC as transfer agents. One subsidiary is regulated by the New Jersey Department of Banking and Insurance. Amendments to current laws and regulations or newly promulgated laws and regulations governing Federated’s operations, the compliance with which may require substantial resources, could have a material adverse impact on Federated.

The federal, state and foreign laws and regulations applicable to most aspects of Federated’s business are primarily intended to benefit or protect Federated’s customers and the funds’ shareholders and generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict Federated from carrying on its business in the event that it fails to comply with such laws and regulations. In such event, the possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of broker/dealer licenses and registrations and transfer agent registrations, censure and fines.

For further details regarding recent regulatory matters, see the section titled “Risk Factors” in Item 1A of Part I of this Form 10-K.

Employees

At December 31, 2005, Federated employed 1,305 persons. Federated considers its relationships with its employees to be satisfactory.

Forward-Looking Information

Certain statements in this Annual Report on Form 10-K and the 2005 Annual Report to Shareholders, including those related to Federated’s distribution strategy; the strategy to grow assets through income-oriented products; the pursuit of acquisitions; developing competitive and innovative products; enhancing investment performance; retaining experienced money managers; changes in the number of clients for fund distribution and administration services; obligations to make additional contingent payments pursuant to acquisition agreements; the costs associated with the settlement with the Securities and Exchange Commission and the New York State Attorney General; legal proceedings; future cash needs; accounting for intangible assets; accounting for income taxes; market risk of investments and revenue; the impact of increased regulation; and the various items set forth under Risk Factors constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance or achievements of Federated or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Among others, Federated’s risks and uncertainties include Federated’s ability to successfully execute its distribution strategy; to successfully sell income-oriented products; to identify and complete suitable acquisitions; to successfully develop and market new products; to enhance and maintain investment performance; and to take actions necessary to retain experienced money managers. The number of clients for fund administration services is subject to the decisions of the clients to internalize or change service providers and the impact of mergers in the banking industry and the costs associated with the settlement may vary based in part on net assets of certain funds and costs associated with compliance with the terms of the settlement. Federated’s risks and uncertainties also include other regulatory inquiries, legal proceedings and future cash needs, which will be impacted

7

by any additional information requests from or fines or penalties paid to governmental agencies; the cost associated with private litigation; and the costs to implement regulatory changes; the accounting for intangible assets and loss contingencies, which are based upon estimates and will be affected if actual results differ significantly; the accounting for income taxes, which will be affected by the ability to utilize capital loss carry forwards; investments, which will be impacted by fluctuations in the securities markets; and revenue, which will be affected by changes in market values of assets under management and the impact of interest changes on money market and fixed-income funds. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism and the ongoing investigation into the mutual fund industry by federal and state regulators. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither Federated nor any other person assumes responsibility for the accuracy and completeness of such statements in the future.

Executive Officers

The following section sets forth certain information regarding the executive officers of Federated as of March 1, 2006:

Name	Position	Age
John F. Donahue	Chairman and Director	81
J. Christopher Donahue	President, Chief Executive Officer and Director	56
Thomas R. Donahue	President, FII Holdings, Inc. and Vice President, Treasurer and Chief Financial Officer	47
John B. Fisher	President and Chief Executive Officer of Federated Advisory Companies* and Vice President	49
Brian P. Bouda	Vice President and Chief Compliance Officer	59
Eugene F. Maloney	Executive Vice President, Federated Investors Management Company and Vice President	60
Denis McAuley III	Vice President and Principal Accounting Officer	59
John W. McGonigle	Vice Chairman, Executive Vice President, Chief Legal Officer, Secretary and Director	67
Thomas E. Territ	Vice President and President, Federated Securities Corp.	46

* Federated Advisory Companies include the following subsidiaries of Federated: Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Passport Research Limited, Passport Research II, Limited, Federated Investment Counseling and Federated Investment Management Company.

Mr. John F. Donahue is a founder of Federated. He has served as director and Chairman of Federated since Federated’s initial public offering in May 1998. He is a director or trustee of 39 investment companies managed by subsidiaries of Federated. Mr. Donahue is the father of J. Christopher Donahue who serves as Chief Executive Officer and director of Federated and Thomas R. Donahue who serves as Chief Financial Officer.

Mr. J. Christopher Donahue has served as director, President and Chief Executive Officer of Federated since 1998. He is President of 36 investment companies managed by subsidiaries of Federated. He is also director, trustee or managing general partner of 39 investment companies managed by subsidiaries of Federated. Mr. Donahue is the son of John F. Donahue and the brother of Thomas R. Donahue who serves as Chief Financial Officer.

8

Mr. Thomas R. Donahue has served as Vice President, Treasurer and Chief Financial Officer of Federated since 1998. He is President of FII Holdings, Inc., a wholly owned subsidiary of Federated. Prior to joining Federated, Mr. Donahue was in the venture capital business and was employed by PNC Bank in its Investment Banking Division. Mr. Donahue is the son of John F. Donahue and the brother of J. Christopher Donahue.

Mr. John B. Fisher is President and Chief Executive Officer of Federated Advisory Companies. He has also served as Vice President of Federated since 1998. He previously served as President of the Institutional Sales Division of Federated Securities Corp., a wholly owned subsidiary of Federated in which capacity he was responsible for the distribution of Federated’s products and services to investment advisers, insurance companies, retirement plans and corporations.

Mr. Brian P. Bouda has served as Vice President and Chief Compliance Officer of Federated since 2004. Mr. Bouda also serves as Chief Compliance Officer for each of Federated’s subsidiaries and the investment companies managed by subsidiaries of Federated.

Mr. Eugene F. Maloney has served as a Vice President of Federated since 1998. He is Executive Vice President of Federated Investors Management Company, a wholly owned subsidiary of Federated. Mr. Maloney provides certain legal, technical and management expertise to Federated’s sales divisions, including regulatory and legal requirements relating to a bank’s use of mutual funds in both trust and commercial environments.

Mr. Denis McAuley III has served as Vice President of Federated since 1999 and as Principal Accounting Officer of Federated since 2001. He also serves as President of Federated Shareholder Services Company and as Senior Vice President, Treasurer or Assistant Treasurer for various subsidiaries of Federated. Mr. McAuley is a Certified Public Accountant.

Mr. John W. McGonigle has been a director of Federated since 1998. He has served as Executive Vice President, Chief Legal Officer and Secretary of Federated since 1998 and as Vice Chairman since 2001. Mr. McGonigle is also Chairman of Federated International Management Limited a wholly owned subsidiary of Federated. Mr. McGonigle is also Executive Vice President and Secretary of the investment companies managed by subsidiaries of Federated.

Mr. Thomas E. Territ was named Vice President of Federated and the President of Federated Securities Corp., a wholly owned subsidiary of Federated, on February 27, 2006. As President of Federated Securities Corp, Mr. Territ is responsible for the marketing and sales efforts of Federated. Mr. Territ had previously served as Senior Vice President of Federated Securities Corp. since 1995, and held the position of National Sales Director for several of Federated’s sales divisions during that time.

Internet Address and Website Access

Federated’s internet address is FederatedInvestors.com. Federated makes available free of charge on its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 as soon as reasonably practicable after Federated electronically files such material with, or furnishes it to, the SEC.

ITEM 1A – RISK FACTORS

Potential Adverse Effects of Increased Competition in the Investment Management Business. The investment management business is highly competitive. Federated competes in the distribution of mutual funds and separately managed accounts with other independent fund management companies, national and regional broker/dealers, commercial banks, insurance companies and other institutions. Many of these competitors have substantially greater resources and brand recognition than Federated. Competition is based on various factors, including business reputation, investment performance, quality of service, the strength and continuity of management and selling relationships, marketing and distribution services offered, the range of products offered and fees charged. See “Business—Competition” above.

Many of Federated’s products are designed for use by institutions such as banks, insurance companies and other corporations. A large portion of Federated’s Managed Assets, particularly money market and fixed-income Managed Assets, are held by institutional investors. Because most institutional investment vehicles are sold without sales commissions at either the time of purchase or the time of redemption, institutional investors may be more inclined to transfer their assets among various institutional funds than investors in retail mutual funds. Of Federated’s 136 managed funds, 94 are sold without a sales commission.

9

A significant portion of Federated’s revenue is derived from providing mutual funds to the trust market, comprising approximately 1,200 banks and other financial institutions. Future profitability of Federated will be affected by its ability to retain its share of this market, and could also be adversely affected by the general consolidation occurring in the banking industry, as well as regulatory changes. In addition, bank consolidation trends could not only cause changes in Federated’s customer mix, but could also affect the scope of services provided and fees received by Federated, depending upon the degree to which banks internalize administrative functions attendant to proprietary mutual funds.

Potential Adverse Effects of a Decline in Securities Markets. Changes in economic or market conditions may adversely affect the profitability and performance of and demand for Federated’s investment products and services. The ability of Federated to compete and grow is dependent, in part, on the relative attractiveness of the types of investment products Federated offers and its investment performance and strategies under prevailing market conditions. A significant portion of Federated’s revenue is derived from investment advisory fees, which are based on the value of Managed Assets and vary with the type of asset being managed, with higher fees generally earned on equity products than on fixed-income and money market products. Consequently, significant fluctuations in the prices of securities held by, or the level of redemptions from, the funds or other products advised by Federated may materially affect the amount of Managed Assets and thus Federated’s revenue, profitability and ability to grow. Substantially all of Federated’s Managed Assets are in investment products that permit investors to redeem their investment at any time.

Potential Adverse Effects on Money Market and Other Fixed-Income Assets Resulting From Changes in Interest Rates. Approximately 43% of Federated’s revenue in 2005 was from managed assets in money market products. These assets are largely from institutional investors. In a rising-rate environment, certain institutional investors using money market products and other short-term duration fixed-income products for cash management purposes may shift these investments to direct investments in comparable instruments in order to realize higher yields than those available in money market and other fund products holding lower-yielding instruments. These redemptions reduce Managed Assets, thereby reducing Federated’s revenue. In addition, rising interest rates will tend to reduce the market value of bonds held in various investment portfolios and other products. Thus, increases in interest rates could have an adverse effect on Federated’s revenue from money market portfolios and from other fixed-income products. After reaching record lows, short-term interest rates began to rise in 2004 and are expected to continue to increase. Federated has been actively diversifying its products to expand its Managed Assets in equity products, which may be less sensitive to interest rate increases. There can be no assurance that Federated will be successful in these diversification efforts.

Adverse Effects of Poor Investment Performance. Success in the investment management business is largely dependent on investment performance relative to market conditions and the performance of competing products. Good performance generally assists retention and growth of assets, resulting in additional revenues. Conversely, poor performance tends to result in decreased sales and increased redemptions with corresponding decreases in revenues to Federated. Poor performance could, therefore, have a material adverse effect on Federated’s business, results of operations or business prospects.

Potential Adverse Effects of Changes in Laws and Regulations on Federated’s Investment Management Business. Federated and its investment management business are subject to extensive regulation in the United States and abroad. Federated and the Federated Funds are subject to Federal securities laws, principally the Investment Company Act and the Advisers Act, state laws regarding securities fraud and regulations promulgated by the Securities and Exchange Commission (the “SEC”), the National Association of Securities Dealers (the “NASD”) and the New York Stock Exchange (the “NYSE”). Federated is also affected by the regulations governing banks and other financial institutions and, to the extent operations take place outside the United States, by foreign regulations. During the past five years, the Federal securities laws have been augmented substantially by, among other measures, the Sarbanes-Oxley Act of 2002, the Patriot Act of 2001 and the Gramm-Leach-Bliley Act of 1999. Currently, several bills are pending in Congress that would amend the Investment Company Act to impose additional requirements and restrictions on Federated and the Federated Funds. In addition, during the past few years the SEC, NASD and the NYSE have adopted regulations that will increase Federated’s operating expenses and affect the

10

conduct of its business. The SEC has proposed other significant regulations or amendments to regulations that, if adopted, will affect Federated and the Federated Funds, and Federated anticipates that other reforms and regulatory actions affecting the mutual fund industry are likely to occur. Changes in laws, regulations or governmental policies, and the costs associated with compliance, could materially and adversely affect the business and operations of Federated.

No Assurance of Successful Future Acquisitions. Federated’s business strategy contemplates the acquisition of other investment management companies as well as investment assets. There can be no assurance that Federated will find suitable acquisition candidates at acceptable prices, have sufficient capital resources to realize its acquisition strategy, be successful in entering into definitive agreements for desired acquisitions, or successfully integrate acquired companies into Federated, or that any such acquisitions, if consummated, will prove to be advantageous to Federated.

Retaining and Recruiting Key Personnel. The Company’s ability to locate and retain quality personnel has contributed significantly to its growth and success and is important to attracting and retaining customers. The market for qualified executives, investment managers, analysts, sales representatives and other key personnel is extremely competitive. There can be no assurance that the Company will be successful in its efforts to recruit and retain the required personnel. The Company has encouraged the continued retention of its executives and other key personnel through measures such as providing competitive compensation arrangements and in certain cases employment agreements. The loss of any such personnel could have an adverse effect on the Company. Moreover, since certain of our products contribute significantly to our revenues and earnings, the loss of even a small number of key personnel associated with these products could have a disproportionate impact on our business.

Various executives, investment and sales personnel now own restricted stock and hold stock options subject to vesting periods of up to ten years from the date acquired or awarded and to provisions that require resale or forfeiture to the Company in certain circumstances upon termination of employment. In addition, certain of these employees are employed under contracts which require periodic review of compensation and contain restrictive covenants with regard to divulging confidential information and engaging in competitive enterprises.

During 2005, the two senior portfolio managers of the Federated Kaufmann Fund were subject to employment and non-competition agreements which were entered into in 2000. The non-competition agreements continue into April 2007, while the employment agreements ran through June 30, 2005. In 2005, Federated reached agreements with these portfolio managers on new terms of employment including performance-based incentive compensation. These portfolio managers are no longer parties to formal employment contracts with Federated, which is generally consistent with Federated’s policy for portfolio managers.

Additional information can be found in Items 7 and 8 of Part II of this Form 10-K.

Systems and Technology Risks. Federated utilizes software and related technologies throughout its businesses including both proprietary systems and those provided by outside vendors. Unanticipated issues could occur and it is not possible to predict with certainty all of the adverse effects that could result from a failure of a third party to address computer system problems. Accordingly, there can be no assurance that potential system interruptions or the cost necessary to rectify the problems would not have a material adverse effect on Federated’s business, financial condition, results of operations or business prospects.

Adverse Effects of Rising Costs of Risk Management. Since 2001, expenses related to risk management have increased and management expects these costs to be significant going forward. Insurance coverage for significant risks may not be available or may only be available at prohibitive costs. Renewals of insurance policies may expose the company to additional cost through the assumption of higher deductibles, and co-insurance liability and/or lower coverage levels. Higher insurance costs, incurred deductibles and lower coverage levels may reduce Federated’s operating and net income.

11

Potential Adverse Effects Related to Federated’s Internal Review into Certain Mutual Fund Trading Practices and Investigations by Regulatory Authorities. In 2003, Federated responded to detailed requests for information from the SEC, the New York State Attorney General (the “NYAG”) and the NASD regarding a number of mutual fund practices, including market timing, late trading and fair valuation of foreign securities. These requests prompted Federated to conduct an internal review that found instances in which Federated employees improperly permitted frequent trading or improperly accepted orders for fluctuating-net-asset-value funds after the close of the NYSE (see Note (23) to the Consolidated Financial Statements incorporated by reference in Item 15(a)(1) of Part IV of this Form 10-K). Federated continues to cooperate with all regulatory inquiries.

Federated announced on November 28, 2005 that it had entered into settlement agreements with the SEC and NYAG to resolve the past mutual fund trading issues. Under the terms of the settlements, Federated paid for the benefit of fund shareholders a total of $72.0 million in addition to the $8.0 million paid in 2004. In addition, Federated has agreed to reduce the investment advisory fees on certain Federated funds by $4.0 million per year for the five-year period beginning January 1, 2006 based upon effective fee rates and assets under management as of September 30, 2005. Depending upon the level of assets under management in these funds during the five-year period, the actual investment advisory fee reduction could be greater or less than $4.0 million per year. Certain other undertakings required by these agreements will be incurred in future periods, and the significance of such expenses is currently not determinable.

Any material losses in client or shareholder confidence in Federated or in the mutual fund industry could increase redemptions from and reduce sales of Federated Funds and other investment management services, resulting in a decrease in future revenues. Responding to continued requests from regulatory authorities, defending pending litigation and addressing the undertakings required by the settlement agreements will increase Federated’s operating expenses and could have other material adverse effects on Federated’s business.

Adverse Effects of Termination or Failure to Renew Fund Agreements. A substantial majority of Federated’s revenues are derived from investment management agreements with the funds that, as required by law, are terminable upon 60 days notice. In addition, each such investment management agreement must be approved and renewed annually by each fund’s board of directors or trustees, including disinterested members of the board, or its shareholders, as required by law. Generally, Federated’s administrative servicing agreements with bank proprietary fund customers have an initial term of three years with a provision for automatic renewal unless notice is otherwise given and provide for termination for cause. Failure to renew, changes resulting in lower fees, or termination of a significant number of these agreements could have a material adverse impact on Federated. In addition, as required by the Investment Company Act, each investment advisory agreement with a mutual fund automatically terminates upon its “assignment,” although new investment advisory agreements may be approved by the mutual fund’s directors or trustees and shareholders. A sale of a sufficient number of shares of Federated’s voting securities to transfer control of Federated could be deemed an “assignment” in certain circumstances. An assignment, actual or constructive, will trigger these termination provisions and may adversely affect Federated’s ability to realize the value of these assets.

Under the terms of the settlement agreement with the SEC and NYAG, a Federated investment advisory subsidiary may not serve as investment advisor to any registered investment company unless: (i) at least 75% of the fund’s directors are independent of Federated; (ii) the chairman of each such fund is independent of Federated; (iii) no action may be taken by the fund’s board of directors or trustees or any committee thereof unless approved by a majority of the independent board members of the fund or committee, respectively; and (iv) the fund appoints a senior officer who reports to the independent directors or trustees and is responsible for monitoring compliance by the fund with applicable laws and fiduciary duties and for managing the process by which management fees charged to a fund are approved.

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.

12

ITEM 2 – PROPERTIES

Federated’s facilities are concentrated in Pittsburgh, Pennsylvania where it leases space sufficient to meet its operating needs. Federated’s headquarters are located in the Federated Investors Tower, where Federated occupies approximately 281,000 square feet. Federated leases approximately 100,000 square feet at the Pittsburgh Office and Research Park and an aggregate of 25,000 square feet at other locations in Pittsburgh. Federated maintains office space in Frankfurt, Germany for certain international initiatives; in New York, New York, where Federated Global Investment Management Corp. conducts its business; and in Sicklerville, New Jersey, where Federated Investors Trust Company is located. Additional offices in Wilmington, Delaware are subleased by Federated.

ITEM 3 – LEGAL PROCEEDINGS

Since October 2003, Federated Investors, Inc. and related entities have been named as defendants in twenty-three cases filed in various federal district courts and state courts involving allegations relating to market timing, late trading and excessive fees. All of the pending cases involving allegations related to market timing and late trading have been transferred to the U.S. District Court for the District of Maryland and consolidated for pre-trial proceedings. One market timing/late trading case was voluntarily dismissed by the plaintiff without prejudice.

The seven excessive fee cases were originally filed in five different federal courts and one state court. All six of the federal cases are now pending in the U.S. District Court for the Western District of Pennsylvania. The state court case was voluntarily dismissed by the plaintiff without prejudice.

All of these lawsuits seek unquantified damages, attorneys’ fees and expenses. Federated intends to defend this litigation. The potential impact of these recent lawsuits and future potential similar suits is uncertain. It is possible that an unfavorable determination will cause a material adverse impact on Federated’s financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

For additional information, see the information contained in Federated’s 2005 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Contingent Liabilities” incorporated by reference in Part II, Item 7 of this report, and under the caption “Notes to the Consolidated Financial Statements – Note (23) – Commitments and Contingencies – (c) Internal Review of Mutual Fund Trading Activities and (d) Legal Proceedings” incorporated by reference in Part IV, Item 15(a)(1) of this Form 10-K.

ITEM 4 – SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

The board of directors amended the Federated Investors, Inc. Stock Incentive Plan (“the Plan”) to increase the number of shares awardable under the Plan by 3.3 million shares of Class B common stock. The amendment to the Plan is subject to shareholder approval at the 2006 annual shareholder meeting.

13

PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The following table sets forth information regarding Federated’s stock-based compensation as of December 31, 2005:

Category of stock-based compensation plan	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans1
Approved by shareholders	7,748,111	$	20.36	1,701,728
Not approved by shareholders	0		0	0
Total	7,748,111	$	20.36	1,701,728

1 On January 26, 2006, Federated’s board of directors amended the Plan to increase the number of shares awardable under the Plan by 3.3 million shares of Class B common stock. The amendment to the Plan is subject to shareholder approval at the 2006 annual shareholder meeting.

The following table summarizes stock repurchases under Federated’s share repurchase program during the fourth quarter of 2005. Stock repurchases and dividend payments are subject to the restrictions outlined in Note (14) to the Consolidated Financial Statements incorporated by reference in Part II, Item 8 of this Form 10-K.

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October2	2,000	$	3.00	0	5,000,000
November2	242		0.00	0	5,000,000
December	162,800		36.89	162,800	4,837,200
Total	165,042	$	36.42	162,800	4,837,200

¹ Federated’s current share repurchase program was announced in October 2004, whereby the board of directors authorized management to purchase up to 5.0 million shares of Federated Class B common stock through December 31, 2006. No other plans exist as of December 31, 2005.

² Shares in October and November represent shares of restricted stock repurchased or forfeited due to employee separation.

All other information required by this Item is contained in Federated’s 2005 Annual Report to Shareholders under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to the Consolidated Financial Statements” and is incorporated herein by reference.

ITEM 6 – SELECTED FINANCIAL DATA

The information required by this Item is contained in Federated’s 2005 Annual Report to Shareholders under the caption “Selected Consolidated Financial Data” and is incorporated herein by reference.

14

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this Item is contained in Federated’s 2005 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is contained in Federated’s 2005 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is contained in Federated’s 2005 Annual Report to Shareholders under the captions “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements,” “Consolidated Balance Sheets,” “Consolidated Statements of Income,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows,” and “Notes to the Consolidated Financial Statements” and is incorporated herein by reference.

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A – CONTROLS AND PROCEDURES

Federated carried out an evaluation, under the supervision and with the participation of management, including Federated’s President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Federated’s disclosure controls and procedures as of December 31, 2005. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that Federated’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the registrant in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in Federated’s internal control over financial reporting that occurred during the fourth quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, Federated’s internal control over financial reporting.

All other information required by this Item is contained in Federated’s 2005 Annual Report to Shareholders under the caption “Management’s Assessment of Internal Control Over Financial Reporting” and “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Effectiveness of Internal Control Over Financial Reporting” and is incorporated herein by reference.

15

PART III

ITEM 10 – DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item (other than the information set forth below) is contained in Federated’s Information Statement for its 2006 Annual Meeting of Shareholders under the captions “Board of Directors and Election of Directors,” “Executive Compensation” and “Security Ownership – Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.

Executive Officers

The information required by this Item with respect to Federated’s executive officers is contained in Item 1 of Part I of this Form 10-K under the section “Executive Officers.”

Code of Ethics

In October 2003, Federated adopted a code of ethics for its senior financial officers. This code meets the requirements provided by Item 406 of Regulation S-K and is incorporated by reference in Part IV, Item 15(a)(3) of this report as Exhibit 14.01. In the event that Federated amends or waives a provision of this code and such amendment or waiver relates to any element of the code of ethics definition enumerated in paragraph (6) of Item 406 of Regulation S-K, Federated would post such information on its internet website at FederatedInvestors.com.

ITEM 11 – EXECUTIVE COMPENSATION

The information required by this Item is contained in Federated’s Information Statement for the 2006 Annual Meeting of Shareholders under the captions “Board of Directors and Election of Directors” and “Executive Compensation” and is incorporated herein by reference.

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is contained in Federated’s Information Statement for the 2006 Annual Meeting of Shareholders under the caption “Security Ownership” and is incorporated herein by reference.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is contained in Federated’s Information Statement for the 2006 Annual Meeting of Shareholders under the caption “Executive Compensation” and is incorporated herein by reference.

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is contained in Federated’s Information Statement for the 2006 Annual Meeting of Shareholders under the caption “Independent Registered Public Accounting Firm” and is incorporated herein by reference.

16

PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements:

The information required by this Item is contained in Federated’s 2005 Annual Report to Shareholders under the captions “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements,” “Consolidated Balance Sheets,” “Consolidated Statements of Income,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to the Consolidated Financial Statements” and is incorporated herein by reference.

(a)(2) Financial Statement Schedules:

All schedules for which provisions are made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because such schedules are not required under the related instructions, are inapplicable, or because the required information is either incorporated herein by reference or included in the financial statements or notes thereto included in this report.

(a)(3) Exhibits:

The following exhibits are filed or incorporated as part of this report:

Exhibit Number	Description
2.01	Agreement and Plan of Merger, dated as of February 20, 1998, between Federated Investors and Federated (incorporated by reference to Exhibit 2.01 to the Registration Statement on Form S-1 (File No. 333-48405))
2.02	Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.1 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
2.03	Amendment No. 1, dated April 11, 2001, to the Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.2 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
3.01	Restated Articles of Incorporation of Federated (incorporated by reference to Exhibit 3.01 to the Registration Statement on Form S-1 (File No. 333-48405))
3.02	Restated By-Laws of Federated (incorporated by reference to Exhibit 3.02 to the Registration Statement on Form S-1 (File No. 333-48405))
4.01	Form of Class A Common Stock certificate (incorporated by reference to Exhibit 4.01 to the Registration Statement on Form S-1 (File No. 333-48405))
4.02	Form of Class B Common Stock certificate (incorporated by reference to Exhibit 4.02 to the Registration Statement on Form S-1 (File No. 333-48405))

17

4.05	Shareholder Rights Agreement, dated August 1, 1989, between Federated and The Standard Fire Insurance Company, as amended January 31, 1996 (incorporated by reference to Exhibit 4.06 to the Registration Statement on Form S-1 (File No. 333-48405))
9.01	Voting Shares Irrevocable Trust dated May 31, 1989 (incorporated by reference to Exhibit 9.01 to the Registration Statement on Form S-1 (File No. 333-48405))
10.06	Federated Program Master Agreement, dated as of October 24, 1997, among Federated, Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and Bankers Trust Company (incorporated by reference to Exhibit 4.09 to the Registration Statement on Form S-1 (File No. 333-48405))
10.07	Federated Investors, Inc. Employee Stock Purchase Plan, amended as of July 20, 1999 (incorporated by reference to Exhibit 10.2 of the June 30, 1999 Quarterly Report on Form 10-Q (File No. 001-14818))
10.09	Federated Investors Program Revolving Purchase Agreement, dated as of October 24, 1997, between Federated Funding 1997-1, Inc. and PLT Finance, L.P. (incorporated by reference to Exhibit 4.11 to the Registration Statement on Form S-1 (File No. 333-48405))
10.10	Federated Investors Program Fee Agreement, dated as of October 24, 1997, between Federated Investors and PLT Finance, L.P. (incorporated by reference to Exhibit 4.12 to the Registration Statement on Form S-1 (File No. 333-48405))
10.11	Schedule X to Federated Program Master Agreement, dated as of October 24, 1997, among Federated, Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and Bankers Trust Company (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-1 (File No. 333-48405))
10.14	Form of Bonus Stock Option Agreement (incorporated by reference to Exhibit 10.13 of the Form 10-K for the fiscal year ended December 31, 1998 (File No. 001-14818))
10.15	Federated Investors Tower Lease dated January 1, 1993 (incorporated by reference to Exhibit 10.03 to the Registration Statement on Form S-1 (File No. 333-48405))
10.16	Federated Investors Tower Lease dated February 1, 1994 (incorporated by reference to Exhibit 10.04 to the Registration Statement on Form S-1 (File No. 333-48405))
10.18	Employment Agreement, dated January 16, 1997, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.06 to the Registration Statement on Form S-1 (File No. 333-48405))
10.19	Employment Agreement, dated December 28, 1990, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.08 to the Registration Statement on Form S-1 (File No. 333-48405))
10.20	Employment Agreement, dated December 22, 1993, between Federated Securities Corp. and an executive officer (incorporated by reference to Exhibit 10.09 to the Registration Statement on Form S-1 (File No. 333-48405))
10.21	Employment Agreement, dated March 17, 1995, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.07 to the Registration Statement on Form S-1 (File No. 333-48405))

18

10.26	Purchase and Sale Agreement, dated as of December 21, 2000, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A., and Citicorp North America, Inc. Company (incorporated by reference to Exhibit 10.26 of the Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 001-14818))
10.27	Amendment No. 2 to the Federated Investors Program Documents dated as of December 21, 2000, among Federated Investors, Inc., Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, Putnam Lovell Finance L.P., Putnam Lovell Securities Inc., and Bankers Trust Company (incorporated by reference to Exhibit 10.27 of the Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 001-14818))
10.29	Second Amended and Restated Credit Agreement, dated as of January 22, 2002, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.29 of the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-14818))
10.32	Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated April 8, 2002, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to the March 31, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.33	Employment agreement, dated May 13, 2002, between Federated Investors, Inc. and an executive officer (incorporated by reference to Exhibit 10.2 to the March 31, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.34	Annual Stock Option Agreement dated April 24, 2002 between Federated Investors, Inc. and the independent directors (incorporated by reference to Exhibit 10.1 to the June 30, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.37	Amendment No. 2 to the Second Amended and Restated Credit Agreement, dated January 20, 2003, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 001-14818))
10.38	Edgewood Services, Inc. Discretionary Line of Credit Demand Note, dated as of September 30, 2003 (incorporated by reference to Exhibit 10.1 to the September 30, 2003 Quarterly Report on Form 10-Q (File No. 001-14818))
10.39	Federated Investors, Inc. Guaranty and Suretyship Agreement, dated as of September 30, 2003 (incorporated by reference to Exhibit 10.2 to the September 30, 2003 Quarterly Report on Form 10-Q (File No. 001-14818))
10.40	Amendment to Purchase and Sale Agreement, dated as of December 31, 2003, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A., and Citicorp North America, Inc. Company (incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))
10.41	Amendments No. 6, 5, 4, 3 and 2 to Federated Investors Tower Lease dated as of December 31, 2003; November 10, 2000; June 30, 2000; February 10, 1999; and September 19, 1996 (incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))

19

10.42	Amendment No. 3 to the Second Amended and Restated Credit Agreement, dated January 16, 2004, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))
10.43	Federated Investors, Inc. Annual Incentive Plan, amended as of February 5, 2004 (incorporated by reference to Exhibit 10.1 to the March 31, 2004 Quarterly Report on Form 10-Q (File No. 001-14818))
10.44	Federated Investors, Inc. Stock Incentive Plan, amended as of April 19, 2004 (incorporated by reference to Exhibit 10.2 to the March 31, 2004 Quarterly Report on Form 10-Q (File No. 001-14818))
10.45	Agreement with Boston Financial Data Services (incorporated by reference to Exhibit 10.1 to the June 30, 2004 Quarterly Report on Form 10-Q (File No. 001-14818))
10.46	Agreement with Alliance Capital Management L.P., dated as of October 28, 2004 (incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 001-14818))
10.47	Amendment dated December 31, 2004 to the Federated Investors Program Documents dated as of December 21, 2000, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A. and Citicorp North America, Inc. (incorporated by reference to Exhibit 10.47 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 001-14818))
10.48	Amendment No. 4 to the Second Amended and Restated Credit Agreement, dated January 14, 2005, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (File No. 001-14818))
10.49	Form of Bonus Restricted Stock Program Award Agreement (incorporated by reference to Exhibit 10.1 to the March 31, 2005 Quarterly Report on Form 10-Q (File No. 001-14818))
10.50	Amendment dated June 29, 2005 to the definitive agreement between Federated Investors and Alliance Capital Management L.P. dated October 28, 2004 and filed as Exhibit 10.46 to Federated’s Annual Report on Form 10-K for the year ended December 31, 2004 (incorporated by reference to Exhibit 10.1 to the June 30, 2005 Quarterly Report on Form 10-Q (File No. 001-14818))
10.51	Amendment dated June 30, 2005 to the Federated Investors Program Documents dated as of December 21, 2000, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A. and Citicorp North America, Inc. (incorporated by reference to Exhibit 10.2 to the June 30, 2005 Quarterly Report on Form 10-Q (File No. 001-14818))
10.52	Amendment dated June 30, 2005 to the Federated Program Master Agreement, dated as of October 24, 1997, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors Inc., Wilmington Trust Company, Putnam Lovell Finance, L.P., Putnam, Lovell NBF Securities Inc. and Deutsche Bank Trust Company Americas (incorporated by reference to Exhibit 10.3 to the June 30, 2005 Quarterly Report on Form 10-Q (File No. 001-14818))
10.53	Amendment No. 5 to the Second Amended and Restated Credit Agreement, dated November 22, 2005, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (Filed herewith)

20

13.01	Selected Portions of 2005 Annual Report to Shareholders (Filed herewith)
14.01	Federated Investors, Inc. Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.01 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))
21.01	Subsidiaries of the Registrant (Filed herewith)
23.01	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (Filed herewith)
31.01	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.01	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

(b) Exhibits:

See (a)(3) above.

(c) Financial Statement Schedules:

See (a)(2) above.

21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

FEDERATED INVESTORS, INC.
By:	/s/ J. Christopher Donahue
	J. Christopher Donahue
	President and Chief Executive Officer
	Date: March 2, 2006

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ John F. Donahue John F. Donahue	Chairman and Director	March 2, 2006
/s/ J. Christopher Donahue J. Christopher Donahue	President, Chief Executive Officer and Director (Principal Executive Officer)	March 2, 2006
/s/ Thomas R. Donahue Thomas R. Donahue	Chief Financial Officer	March 2, 2006
/s/ Michael J. Farrell Michael J. Farrell	Director	March 2, 2006
/s/ David M. Kelly David M. Kelly	Director	March 2, 2006

22

Signature	Title	Date
/s/ Denis McAuley III Denis McAuley III	Principal Accounting Officer	March 2, 2006
/s/ John W. McGonigle John W. McGonigle	Director	March 2, 2006
/s/ James L. Murdy James L. Murdy	Director	March 2, 2006
/s/ Edward G. O’Connor Edward G. O’Connor	Director	March 2, 2006

23

EXHIBIT INDEX

Exhibit Number	Description
10.53	Amendment No. 5 to the Second Amended and Restated Credit Agreement, dated November 22, 2005, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association
13.01	Selected Portions of 2005 Annual Report to Shareholders
21.01	Subsidiaries of the Registrant
23.01	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
31.01	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

24

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/05	Fund Category	Assets as of 12/31/05	Load	Fund Effective Date
EQUITY FUNDS:
FEDERATED AMERICAN LEADERS FUND INC.	5	Large Cap Value Fund	2,389,346,999	Y	2/26/1969
FEDERATED AMERICAN LEADERS FUND II	2	Large Cap Value Fund	267,922,961	N	12/15/1993
FEDERATED BALANCED ALLOCATION FUND	3	Asset Allocation/Balanced Fund	28,513	Y	12/23/2005
FEDERATED CAPITAL APPRECIATION FUND	4	Core Equity Fund	2,826,442,311	Y	9/2/1976
FEDERATED CAPITAL APPRECIATION FUND II	2	Core Equity Fund	26,164,504	N	6/17/2000
FEDERATED CAPITAL INCOME FUND	4	Flexible Fund	499,182,624	Y	5/29/1988
FEDERATED CAPITAL INCOME FUND II	1	Flexible Fund	62,545,087	N	12/15/1993
FEDERATED CONSERVATIVE ALLOCATION FUND	2	Asset Allocation/Balanced Fund	88,132,040	N	3/11/1994
FEDERATED EQUITY INCOME FUND INC.	4	Equity Income Fund	1,067,606,518	Y	12/30/1986
FEDERATED EQUITY INCOME FUND II	1	Equity Income Fund	62,397,212	N	12/16/1996
FEDERATED GROWTH ALLOCATION FUND	2	Asset Allocation/Balanced Fund	71,495,586	N	3/11/1994
FEDERATED INTERNATIONAL CAPITAL APPRECIATION FUND	3	International/Global Equity Fund	182,221,900	Y	6/30/1997
FEDERATED INTERNATIONAL EQUITY FUND	3	International/Global Equity Fund	289,197,516	Y	8/17/1984
FEDERATED INTERNATIONAL EQUITY FUND II	1	International/Global Equity Fund	58,756,705	N	4/4/1995
FEDERATED INTERNATIONAL SMALL COMPANY FUND	3	International/Global Equity Fund	477,518,990	Y	1/31/1996
FEDERATED INTERNATIONAL VALUE FUND	3	International/Global Equity Fund	98,766,055	Y	8/24/1998
FEDERATED KAUFMANN FUND	4	Small-Mid Cap Growth Fund	8,402,039,168	Y	4/17/2001
FEDERATED KAUFMANN FUND II	2	Small-Mid Cap Growth Fund	94,011,098	N	4/30/2002
FEDERATED KAUFMANN SMALL CAP FUND	4	Small-Mid Cap Growth Fund	721,632,065	Y	12/18/2002
FEDERATED LARGE CAP GROWTH FUND	3	Mid-Large Cap Growth Fund	204,841,818	Y	12/23/1998
FEDERATED MARKET OPPORTUNITY FUND	3	Flexible Fund	2,693,803,069	Y	11/29/2000
FEDERATED MAX-CAP INDEX FUND	4	Index Fund	1,320,814,652	N	7/2/1990
FEDERATED MID CAP GROWTH STRATEGIES FUND	3	Mid-Large Cap Growth Fund	717,124,124	Y	8/23/1984
FEDERATED MID CAP GROWTH STRATEGIES FUND II	1	Mid-Large Cap Growth Fund	57,023,685	N	9/30/1995
FEDERATED MID-CAP INDEX FUND	1	Index Fund	943,756,846	N	7/7/1992
FEDERATED MINI-CAP INDEX FUND	2	Index Fund	95,679,589	N	7/7/1992
FEDERATED MODERATE ALLOCATION FUND	2	Asset Allocation/Balanced Fund	120,019,258	N	3/11/1994
FEDERATED MUNI AND STOCK ADVANTAGE FUND	3	Flexible Fund	502,059,249	Y	9/22/2003
FEDERATED STOCK AND BOND FUND INC.	4	Asset Allocation/Balanced Fund	325,844,990	N	10/31/1968
FEDERATED STOCK TRUST	1	Large Cap Value Fund	835,912,933	N	3/31/1982
FEDERATED STRATEGIC VALUE FUND	3	Equity Income Fund	176,449,755	Y	3/23/2005
FEDERATED TECHNOLOGY FUND	3	Mid-Large Cap Growth Fund	87,365,882	Y	9/13/1999
LVM EUROPA-AKTIEN	2	International/Global Equity Fund	92,542,772	Y	11/1/1999
LVM INTER-AKTIEN	2	International/Global Equity Fund	55,161,737	Y	11/1/1999
LVM PROFUTUR	2	International/Global Equity Fund	117,041,635	Y	11/1/1999
Total Equity Funds			26,030,849,846

25

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/05	Fund Category	Assets as of 12/31/05	Load	Fund Effective Date
FIXED INCOME FUNDS:
CAPITAL PRESERVATION FUND	3	Multi-Sector Fund	2,035,188,722	N	3/1/1986
FEDERATED ADJUSTABLE RATE SECURITIES FUND	2	Mortgage-Backed Fund	168,544,342	N	12/3/1985
FEDERATED BOND FUND	4	U.S. Corporate Fund	1,073,216,239	Y	5/20/1987
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND	2	Municipal Fund	82,820,896	Y	11/24/1992
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES	3	Mortgage-Backed Fund	995,944,564	Y	10/6/1969
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II	1	Mortgage-Backed Fund	391,417,172	N	12/15/1993
FEDERATED GNMA TRUST	2	Mortgage-Backed Fund	634,747,626	N	3/23/1982
FEDERATED GOVERNMENT INCOME SECURITIES INC.	4	U.S. Government Fund	670,319,166	Y	4/4/1986
FEDERATED GOVERNMENT ULTRASHORT DURATION FUND	3	U.S. Government Fund	258,414,387	N	9/13/1994
FEDERATED HIGH INCOME ADVANTAGE FUND	3	High Yield Fund	60,610,555	Y	9/20/1993
FEDERATED HIGH INCOME BOND FUND INC.	3	High Yield Fund	1,467,766,126	Y	11/30/1977
FEDERATED HIGH INCOME BOND FUND II	2	High Yield Fund	338,233,765	N	12/15/1993
FEDERATED HIGH YIELD TRUST	1	High Yield Fund	291,359,548	N	8/23/1984
FEDERATED INCOME TRUST	2	Mortgage-Backed Fund	517,978,163	N	3/30/1982
FEDERATED INSTITUTIONAL HIGH YIELD BOND FUND	1	High Yield Fund	22,342,435	N	10/30/2002
FEDERATED INTERMEDIATE CORPORATE BOND FUND	2	U.S. Corporate Fund	279,950,482	N	12/8/1993
FEDERATED INTERMEDIATE GOVERNMENT FUND	2	U.S. Government Fund	50,375,519	N	7/22/1991
FEDERATED INTERMEDIATE GOVERNMENT/CORPORATE FUND	2	Multi-Sector Fund	5,591,173	N	9/1/2005
FEDERATED INTERMEDIATE MUNICIPAL TRUST	2	Municipal Fund	189,881,734	N	12/26/1985
FEDERATED INTERNATIONAL BOND FUND	3	International/Global Fixed Income Fund	165,346,548	Y	5/15/1991
FEDERATED INTERNATIONAL HIGH INCOME FUND	3	International/Global Fixed Income Fund	178,832,872	Y	9/10/1996
FEDERATED LIMITED TERM MUNICIPAL FUND	2	Municipal Fund	103,150,546	Y	8/31/1993
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST	1	Municipal Fund	206,605,355	Y	9/9/1991
FEDERATED MORTGAGE FUND	2	Mortgage-Backed Fund	317,187,133	N	2/10/1997
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND INC	4	Municipal Fund	543,390,263	Y	4/10/1987
FEDERATED MUNICIPAL SECURITIES FUND INC.	3	Municipal Fund	495,605,232	N	10/4/1976
FEDERATED MUNICIPAL ULTRASHORT FUND	2	Municipal Fund	394,519,911	N	10/16/2000
FEDERATED NEW YORK MUNICIPAL INCOME FUND	2	Municipal Fund	48,007,772	Y	11/24/1992
FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND	1	Municipal Fund	50,280,399	Y	5/1/1992
FEDERATED OHIO MUNICIPAL INCOME FUND	1	Municipal Fund	101,338,104	Y	10/10/1990
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND	2	Municipal Fund	263,259,153	Y	10/10/1990
FEDERATED PREMIER INTERMEDIATE MUNI INCOME FD	2	Municipal Fund	161,652,964	Y	12/19/2002
FEDERATED PREMIER MUNICIPAL INCOME FUND	2	Municipal Fund	146,682,989	Y	12/19/2002
FEDERATED QUALITY BOND FUND II	2	U.S. Corporate Fund	553,906,287	N	4/21/1999
FEDERATED SHORT-TERM INCOME FUND	4	U.S. Corporate Fund	297,522,429	N	7/1/1986
FEDERATED SHORT-TERM MUNICIPAL TRUST	2	Municipal Fund	251,468,279	N	8/20/1981
FEDERATED STRATEGIC INCOME FUND	4	Multi-Sector Fund	1,085,119,958	Y	4/5/1994
FEDERATED TOTAL RETURN BOND FUND	6	Multi-Sector Fund	1,434,368,741	N	1/19/1994
FEDERATED TOTAL RETURN GOVERNMENT BOND FUND	2	U.S. Government Fund	323,499,479	N	9/13/1995
FEDERATED U.S.GOVERNMENT BOND FUND	1	U.S. Government Fund	79,719,527	N	12/3/1985
FEDERATED ULTRASHORT BOND FUND	3	Multi-Sector Fund	663,183,313	N	2/10/1997
FEDERATED US BOND FUND	1	Multi-Sector Fund	30,361,680	N	1/11/2005
FEDERATED US GOVERNMENT SECURITIES FUND: 1-3 YEARS	3	U.S. Government Fund	408,473,123	N	3/15/1984
FEDERATED US GOVERNMENT SECURITIES FUND: 2-5 YEARS	3	U.S. Government Fund	760,857,802	N	2/18/1983
FEDERATED VERMONT MUNICIPAL INCOME FUND	1	Municipal Fund	47,166,282	Y	9/19/2000

26

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/05	Fund Category	Assets as of 12/31/05	Load	Fund Effective Date
LVM EURO-KURZLAUFER	2	International/Global Fixed Income Fund	97,782,933	Y	11/1/1999
LVM EURO-RENTEN	2	International/Global Fixed Income Fund	242,751,238	Y	11/1/1999
LVM INTER-RENTEN	2	International/Global Fixed Income Fund	50,562,232	Y	11/1/1999
Total Fixed Income Funds			19,037,305,158
Total Non-Money Market Funds			45,068,155,004
MONEY MARKET FUNDS:
ALABAMA MUNICIPAL CASH TRUST	1	Tax Free Fund	269,646,191	N	12/1/1993
ARIZONA MUNICIPAL CASH TRUST	1	Tax Free Fund	111,702,157	N	5/31/1998
AUTOMATED CASH MANAGEMENT TRUST	2	Prime Fund	2,577,412,024	N	5/18/1982
AUTOMATED GOVERNMENT CASH RESERVES	1	Government Fund	406,769,757	N	2/2/1990
AUTOMATED GOVERNMENT MONEY TRUST	1	Government Fund	740,391,829	N	8/6/1982
AUTOMATED TREASURY CASH RESERVES	1	Government Fund	124,171,506	N	8/5/1991
CALIFORNIA MUNICIPAL CASH TRUST	5	Tax Free Fund	2,004,512,202	N	3/15/1989
CONNECTICUT MUNICIPAL CASH TRUST	2	Tax Free Fund	255,897,027	N	11/1/1989
EDWARD JONES MONEY MARKET FUND	2	Government Fund	11,243,520,648	N	5/9/1980
FEDERATED CAPITAL RESERVES FUND	1	Prime Fund	8,112,706,041	N	12/31/2004
FEDERATED GOVERNMENT RESERVES FUND	1	Government Fund	6,753,383,406	N	12/31/2004
FEDERATED MASTER TRUST	1	Prime Fund	193,932,983	N	12/16/1977
FEDERATED MUNICIPAL TRUST	1	Tax Free Fund	427,967,530	N	12/31/2004
FEDERATED PRIME MONEY FUND II	1	Prime Fund	74,225,622	N	12/15/1993
FEDERATED SHORT-TERM EURO FUND	4	Prime Fund	113,775,941	N	11/9/1999
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST	1	Government Fund	211,647,442	N	4/16/1987
FEDERATED SHORT-TERM U.S. PRIME FUND	4	Prime Fund	3,846,412,807	N	9/20/1993
FEDERATED SHORT-TERM U.S.GOVT SECURITIES FUND	4	Government Fund	1,560,062,268	N	12/31/1990
FEDERATED SHORT-TERM U.S.TREASURY SECURITIES FUND	2	Government Fund	1,531,585,638	N	4/16/1992
FEDERATED TAX-FREE TRUST	1	Tax Free Fund	157,297,608	N	3/6/1979
FLORIDA MUNICIPAL CASH TRUST	3	Tax Free Fund	1,617,648,021	N	9/19/1994
GEORGIA MUNICIPAL CASH TRUST	1	Tax Free Fund	604,009,034	N	8/14/1995
GOVERNMENT CASH SERIES	1	Government Fund	610,143,522	N	8/15/1989
GOVERNMENT OBLIGATIONS FUND	4	Government Fund	9,549,947,828	N	12/11/1989
GOVERNMENT OBLIGATIONS TAX MANAGED FUND	2	Government Fund	4,407,085,009	N	5/7/1995
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST	4	Government Fund	310,854,870	N	6/6/1980
LIQUID CASH TRUST	1	Government Fund	76,706,227	N	12/12/1980
MARYLAND MUNICIPAL CASH TRUST	1	Tax Free Fund	69,404,449	N	5/4/1994
MASSACHUSETTS MUNICIPAL CASH TRUST	2	Tax Free Fund	262,087,268	N	5/18/1990
MICHIGAN MUNICIPAL CASH TRUST	2	Tax Free Fund	189,436,289	N	6/7/1995
MINNESOTA MUNICIPAL CASH TRUST	2	Tax Free Fund	441,201,542	N	12/31/1990
MONEY MARKET MANAGEMENT INC.	1	Prime Fund	41,611,164	N	1/16/1974
MUNICIPAL CASH SERIES	1	Tax Free Fund	386,262,056	N	8/15/1989
MUNICIPAL CASH SERIES II	1	Tax Free Fund	491,653,204	N	1/25/1991
MUNICIPAL OBLIGATIONS FUND	3	Tax Free Fund	4,656,164,695	N	2/8/1993
NEW JERSEY MUNICIPAL CASH TRUST	3	Tax Free Fund	369,182,617	N	12/10/1990
NEW YORK MUNICIPAL CASH TRUST	4	Tax Free Fund	1,489,390,832	N	11/24/1982
NORTH CAROLINA MUNICIPAL CASH TRUST	1	Tax Free Fund	235,221,999	N	12/1/1993
OHIO MUNICIPAL CASH TRUST	3	Tax Free Fund	299,159,683	N	4/22/1991
PENNSYLVANIA MUNICIPAL CASH TRUST	3	Tax Free Fund	455,741,705	N	11/1/1989
PRIME CASH OBLIGATIONS FUND	3	Prime Fund	8,708,488,014	N	2/8/1993
PRIME CASH SERIES	1	Prime Fund	4,236,309,532	N	8/15/1989
PRIME MANAGEMENT OBLIGATIONS FUND	3	Prime Fund	3,323,514,047	N	4/30/2003

27

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/05	Fund Category	Assets as of 12/31/05	Load	Fund Effective Date
PRIME OBLIGATIONS FUND	3	Prime Fund	21,517,364,649	N	2/11/1989
PRIME VALUE OBLIGATIONS FUND	3	Prime Fund	9,987,511,332	N	2/8/1993
TAX FREE INSTRUMENTS TRUST	2	Tax Free Fund	2,809,785,178	N	12/21/1982
TAX-FREE OBLIGATIONS FUND	2	Tax Free Fund	9,430,529,919	N	12/11/1989
TREASURY CASH SERIES	1	Government Fund	332,586,043	N	2/5/1990
TREASURY CASH SERIES II	1	Government Fund	243,374,969	N	1/25/1991
TREASURY OBLIGATIONS FUND	4	Government Fund	13,804,969,894	N	12/11/1989
TRUST FOR U.S. TREASURY OBLIGATIONS	1	Government Fund	464,008,593	N	11/8/1979
U.S. TREASURY CASH RESERVES	2	Government Fund	2,567,114,740	N	5/14/1991
VIRGINIA MUNICIPAL CASH TRUST	3	Tax Free Fund	583,549,363	N	8/30/1993
Total Money Market Funds			145,289,038,914
MANAGED FUND TOTAL	313		190,357,193,918
Other Managed Assets*			23,066,292,395
TOTAL MANAGED ASSETS			213,423,486,313

Summary:

Total Number of Load Funds: 42

Total Number of No-Load Funds: 94

Total Number of Funds: 136

* Other Managed Assets include Separate Account and Repo Assets

28

EX-10.53

Exhibit 10.53

AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

THIS AMENDMENT NO. 5 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is dated as of November 22, 2005, and is by and among FEDERATED INVESTORS, INC., a Pennsylvania corporation (the “Borrower”), the BANKS set forth herein (collectively, the “Banks”), and PNC BANK, NATIONAL ASSOCIATION, as agent for the Banks (the “Agent”).

WHEREAS, the Borrower, the Banks and the Agent are parties to that certain Second Amended and Restated Credit Agreement dated as of January 22, 2002, as amended by Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of April 8, 2002, Amendment No. 2 to Second Amended and Restated Credit Agreement dated as of January 20, 2003, Amendment No. 3 to Second Amended and Restated Credit Agreement dated as of January 16, 2004, and Amendment No. 4 to Second Amended and Restated Credit Agreement and Amendment to Guaranty Agreement dated as of January 14, 2005 (as amended, the “Credit Agreement”);

WHEREAS, the Borrower, the Banks and the Agent wish to amend the Credit Agreement as set forth herein.

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the parties hereto, intending to be legally bound, agree as follows:

1. Definitions.

Capitalized terms used herein unless otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement as amended by this Amendment.

2. Amendments of Credit Agreement.

(a) The definition of “Revolving Credit Expiration Date” in Section 1.1 of the Credit Agreement is hereby amended and restated as follows:

Revolving Credit Expiration Date shall mean November 21, 2006 (which is the date 364 days after the effective date of Amendment No. 5 to Second Amended and Restated Credit Agreement among the Borrower, the Banks and the Agent) or such later date as determined pursuant to Section 2.13(a).

(b) The first paragraph of Section 2.3(a) [Facility Fees] of the Credit Agreement is hereby amended and restated as follows:

Accruing from the Closing Date until the Revolving Credit Expiration Date, the Borrower agrees to pay to the Agent for the account of each Bank, as consideration for such Bank’s Revolving Credit Commitment hereunder, a facility fee (the

“Facility Fee”) equal to a percentage per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to 0.125% of such Bank’s Revolving Credit Commitment as the same may be constituted from time to time.

(c) Section 8.2(g) [Guaranties] of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

Guaranties. The Borrower shall not, and shall not permit any of its Subsidiaries to, at any time directly or indirectly, become or be liable in respect of any Guaranty, or assume, guaranty, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except (i) pursuant to the Guaranty Agreement, (ii) the guarantee by the Companies of obligations of the Subsidiaries of the Borrower (other than any Subsidiary which is not wholly owned) to third parties, which obligations are incurred in the ordinary course of such Subsidiaries’ business consistent with industry practice and not otherwise forbidden by this Agreement; provided that, except for Limited Investments, in no event shall the Borrower or its Subsidiaries become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of the Special Purpose Subsidiaries, (iii) the Guaranty dated January 1, 2000 by the Borrower in favor of 40th Associates pursuant to which the Borrower guarantees that certain lease dated October 9, 1998 between InvestLink Technologies, Inc., as lessee, and 40th Associates, as lessor, of commercial space located at 8 West 40th Street, New York, NY at an annual rent of approximately $225,000 and with a term expiring no later than December 31, 2008, and (iv) the guarantee by the Companies of Indebtedness of Persons which are not Affiliates of any Company provided that the aggregate amount of Indebtedness that is guaranteed by all of the Companies pursuant to this clause (iv) shall not exceed, at any one time, $5,000,000.

3. Conditions of Effectiveness of Amendment of Credit Agreement. The effectiveness of this Amendment of the Credit Agreement is expressly conditioned upon satisfaction of each of the following conditions precedent on the date hereof:

(a) Representations and Warranties; No Defaults. The representations and warranties of the Borrower contained in Article VI of the Credit Agreement shall be true and accurate on the date hereof with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and the Borrower shall have performed and complied with all covenants and conditions under the Senior Loan Documents and hereof; and no Event of Default or Potential Default under the Credit Agreement or the other Senior Loan Documents shall have occurred and be continuing or shall exist.

(b) Authorization and Incumbency. There shall be delivered to the Agent for the benefit of each Bank a certificate, dated as of the date hereof, and signed by the Secretary or an Assistant Secretary of the Borrower, certifying as appropriate as to:

(i) all action taken by the Borrower in connection with this Amendment and the other Senior Loan Documents; and

(ii) the names of the officer or officers authorized to sign this Amendment and any other documents executed and delivered in connection herewith and described in this Section 3 and the true signatures of such officer or officers.

(c) Acknowledgment. There shall be delivered to the Agent for the benefit of each Bank the Confirmation in the form attached hereto as Exhibit 1 hereto executed by each of the Loan Parties (other than the Borrower).

(d) Legal Details; Counterparts. All legal details and proceedings in connection with the transactions contemplated by this Amendment shall be in form and substance satisfactory to the Agent. The Agent shall have received from the Borrower and each of the Banks an executed original of this Amendment. Each of this Amendment and the Confirmation may be executed by the parties hereto or thereto in any number of separate counterparts, each of which when taken together shall constitute one and the same instrument.

4. Fees and Expenses. The Borrower hereby agrees to reimburse the Agent and the Banks on demand for all legal costs, expenses and disbursements relating to this Amendment which are payable by the Borrower as provided in Sections 10.5 and 11.3 of the Credit Agreement.

5. Force and Effect. Except as expressly modified by this Amendment, the Credit Agreement and the other Senior Loan Documents are hereby ratified and confirmed and shall remain in full force and effect after the date hereof.

6. Governing Law. This Amendment shall be deemed to be a contract under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed and enforced in accordance with the internal laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles.

[SIGNATURE PAGES FOLLOW]

SIGNATURE PAGE 1 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Amendment No. 5 to Second Amended and Restated Credit Agreement as of the date first above written.

FEDERATED INVESTORS, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Vice President

SIGNATURE PAGE 2 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT

PNC BANK, NATIONAL ASSOCIATION
individually and as Agent
By:	/s/ Edward Chidiac
Name:	Edward Chidiac
Title:	Vice President

SIGNATURE PAGE 3 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT

BANK OF AMERICA, NATIONAL ASSOCIATION
By:	/s/ D. Lee Moore III
Name:	D. Lee Moore III
Title:	Assistant Vice President

SIGNATURE PAGE 4 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT

STATE STREET BANK AND TRUST COMPANY
By:	/s/ John T. Daley
Name:	John T. Daley
Title:	Vice President

SIGNATURE PAGE 5 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT

JPMORGAN CHASE BANK
By:	/s/ Jeanne O’Connell Horn
Name:	Jeanne O’Connell Horn
Title:	Vice President

SIGNATURE PAGE 6 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT

CITIBANK, N.A.
By:	/s/ Matthew Nicholls
Name:	Matthew Nicholls
Title:	Vice President

SIGNATURE PAGE 7 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT

FIFTH THIRD BANK
By:	/s/ James Janovsky
Name:	James Janovsky
Title:	Vice President

SIGNATURE PAGE 8 OF 8 TO AMENDMENT NO. 5

TO SECOND AMENDED AND RESTATED CREDIT

CITIZENS BANK OF PENNSYLVANIA
By:	/s/ Dwayne R. Finney
Name:	Dwayne R. Finney
Title:	Senior Vice President

Exhibit 1

CONFIRMATION

Reference is hereby made to that certain Second Amended and Restated Credit Agreement by and between FEDERATED INVESTORS, INC., the BANKS set forth therein, and PNC BANK, NATIONAL ASSOCIATION, as Agent for the Banks, dated as of January 22, 2002, as amended by Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of April 8, 2002, Amendment No. 2 to Second Amended and Restated Credit Agreement dated as of January 20, 2003, Amendment No. 3 to Second Amended and Restated Credit Agreement dated as of January 16, 2004 and Amendment No. 4 to Second Amended and Restated Credit Agreement and Amendment to Guaranty Agreement dated as of January 14, 2005 (as amended, the “Credit Agreement”). All terms used herein unless otherwise defined herein shall have the meanings given to them in the Credit Agreement.

On the date hereof, the Borrower, the Banks and the Agent are entering into that certain Amendment No. 5 to Second Amended and Restated Credit Agreement (the “Amendment”), a copy of which has been provided to the undersigned. This Confirmation is delivered to the Bank pursuant to Section 3(c) of the Amendment.

Pursuant to the Credit Agreement, (i) the Guarantors are party to that certain Continuing Agreement of Guaranty and Suretyship dated as of January 22, 2002 in favor of the Agent for the benefit of the Banks, as amended by Amendment No. 4 to Second Amended and Restated Credit Agreement and Amendment to Guaranty Agreement dated as of January 14, 2005 (as amended, the “Guaranty Agreement”) and (ii) the Borrower and its Subsidiaries are party to that certain Intercompany Subordination Agreement dated as of January 22, 2002 in favor of the Agent for the benefit of the Banks (the “Intercompany Subordination Agreement”). This Confirmation will confirm to the Agent and the Banks that the undersigned Guarantors and Subsidiaries of the Borrower have read and understand the Amendment which provides for, among other things and subject to certain conditions set forth in the Credit Agreement, the extension of the Revolving Credit Expiration Date.

The Guarantors hereby ratify and confirm the Guaranty Agreement. The Subsidiaries of the Borrower hereby ratify and confirm the Intercompany Subordination Agreement.

This Confirmation is dated as of November 22, 2005.

[SIGNATURE PAGES FOLLOW]

[SIGNATURE PAGE 1 OF 6 OF CONFIRMATION]

IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned, by their duly authorized officers, have executed this Confirmation as of the date set forth above.

EDGEWOOD SERVICES, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer
FEDERATED ADMINISTRATIVE SERVICES
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Sr. Vice President
FEDERATED ADMINISTRATIVE SERVICES, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Sr. Vice President
FEDERATED INVESTMENT MANAGEMENT COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer

[SIGNATURE PAGE 2 OF 6 OF CONFIRMATION]

FEDERATED INVESTORS TRUST COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer
SOUTHPOINTE DISTRIBUTION SERVICES, INC.
(formerly known as Federated Financial Services, Inc.)
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer
FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer
FEDERATED INTERNATIONAL MANAGEMENT LIMITED
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Director
FEDERATED INVESTORS, INC
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Vice President

[SIGNATURE PAGE 3 OF 6 OF CONFIRMATION]

FEDERATED INVESTORS MANAGEMENT COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Sr. Vice President
FEDERATED INVESTMENT COUNSELING
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer
FEDERATED SECURITIES CORP.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer
FEDERATED SERVICES COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Sr. Vice President
FEDERATED SHAREHOLDER SERVICES COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	President

[SIGNATURE PAGE 4 OF 6 OF CONFIRMATION]

FII HOLDINGS, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Vice President
PASSPORT RESEARCH, LTD.
By:	Federated Investment Management Company, its general partner
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer
FEDERATED INTERNATIONAL HOLDINGS BV
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Director
FEDERATED INTERNATIONAL - EUROPE GMBH
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Director
FEDERATED ASSET MANAGEMENT GMBH
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Authorized By Shareholder Resolution

[SIGNATURE PAGE 5 OF 6 OF CONFIRMATION]

FEDERATED PRIVATE ASSET MANAGEMENT, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer
RETIREMENT PLAN SERVICE COMPANY OF AMERICA
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer
FEDERATED ADVISORY SERVICES COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer
FEDERATED EQUITY MANAGEMENT COMPANY OF PENNSYLVANIA
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer

[SIGNATURE PAGE 6 OF 6 OF CONFIRMATION]

PASSPORT RESEARCH II, LTD.
By:	Federated Equity Management Company of Pennsylvania, its general partner
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Asst. Treasurer
FEDERATED INVESTORS (UK) LTD.
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Director

EX-13.01

EXHIBIT 13.01

SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands, except per share data and managed and administered assets)

The selected consolidated financial data below should be read in conjunction with Federated Investors, Inc. and its subsidiaries’ (Federated) Consolidated Financial Statements and Notes. The selected consolidated financial data (except managed and administered assets) of Federated for the five years ended December 31, 2005, have been derived from the audited Consolidated Financial Statements of Federated. See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes which follow.

Years Ended December 31,	2005			2004		2003		2002		2001
Statement of Income Data1
Total revenue2	$	909,216		$	843,349	$	792,308	$	775,838	$	781,442
Operating income2		299,056			317,979		308,655		326,315		308,318
Income from continuing operations before income taxes		280,011			290,279		295,614		310,360		255,782
Income from continuing operations		163,292			179,720		188,894		200,388		163,655
(Loss) income from discontinued operations		(3,009	)		1,459		2,591		3,372		4,792
Net income		160,283			181,179		191,485		203,760		168,447
Share Data
Basic earnings per share1
Income from continuing operations	$	1.54		$	1.67	$	1.75	$	1.78	$	1.42
(Loss) income from discontinued operations		(0.03	)		0.01		0.02		0.03		0.04
Net income3		1.51			1.68		1.78		1.81		1.46
Diluted earnings per share1
Income from continuing operations	$	1.51		$	1.63	$	1.69	$	1.71	$	1.36
(Loss) income from discontinued operations		(0.03	)		0.01		0.02		0.03		0.04
Net income		1.48			1.64		1.71		1.74		1.40
Book value per share at period end	$	5.05		$	4.28	$	3.64	$	3.03	$	2.06
Cash dividends per share	$	0.575		$	0.414	$	0.297	$	0.217	$	0.175
Weighted-average shares outstanding – basic		106,114			107,615		107,839		112,375		115,012
Weighted-average shares outstanding – assuming dilution		108,252			110,410		112,059		117,304		119,992
Balance Sheet Data at Period End
Total assets4	$	896,621		$	954,688	$	879,228	$	795,451	$	693,748
Long-term debt—nonrecourse4		159,784			284,915		327,142		319,328		312,871
Total liabilities and minority interest		356,292			496,935		483,375		454,734		456,651
Shareholders’ equity		540,329			457,753		395,853		340,717		237,097
Managed and Administered Assets (in millions)
As of period end:
Managed assets5	$	213,423		$	179,268	$	197,917	$	195,353	$	179,687
Administered assets6		18,271			37,164		43,428		34,827		44,684
Average for the period:
Managed assets		197,647			187,820		199,483		189,242		160,593
Administered assets6		18,239			41,208		39,513		38,032		41,982

1 The Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003 included charges related to Federated’s internal review and settlement related to past mutual fund trading practices. See Note (23) to the Consolidated Financial Statements.

2 Revenue and expenses for the years ended December 31, 2005, 2004 and 2001 included certain Class B share distribution- and financing-related income and expenses. In 2002 and 2003, Federated did not recognize such B-share distribution- and financing-related income or expenses. See Note (1)(m) to the Consolidated Financial Statements.

3 Totals may not sum due to rounding.

4 In 2005 and 2004, Federated wrote-down the carrying value of certain B-share-related deferred sales commission assets and corresponding nonrecourse debt. See Note (11) to the Consolidated Financial Statements.

5 During 2005, Federated acquired the cash management business of Alliance Capital Management L.P. See Note (2) to the Consolidated Financial Statements.

6 In 2005, Federated experienced a reduction in the number of bank clients for fund administration and accounting services.

MANAGEMENT’S DISCUSSION AND ANALYSIS

of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements appearing elsewhere in this report.

General

Federated Investors, Inc. (together with its subsidiaries, Federated) is one of the largest investment managers in the United States with $213.4 billion in managed assets as of December 31, 2005. The majority of Federated’s revenue is derived from advising and administering Federated mutual funds, separately managed accounts and other sponsored products, in both domestic and international markets. Federated also derives revenue from administering mutual funds sponsored by third parties and from providing various other mutual fund-related services, including distribution, shareholder servicing, trade clearing and retirement plan recordkeeping services (collectively, Other Services).

Investment advisory fees, administrative fees and certain fees for Other Services, such as distribution and shareholder service fees, are contract-based fees that are calculated as a percentage of the net assets of the investment portfolios that are managed or administered by Federated. As such, Federated’s revenue is primarily dependent upon factors that affect the value of managed and administered assets including market conditions and the ability to attract and retain assets. Fee rates for Federated’s services generally vary by asset type and investment objective and, in certain instances, decline as the average net assets of the individual portfolios exceed certain thresholds. Generally, rates charged for advisory services provided to equity products are higher than rates charged on money market and fixed-income products. Accordingly, revenue is also dependent upon the relative composition of average assets under management. Since Federated’s products are largely distributed and serviced through financial intermediaries, Federated pays a significant portion of the distribution and shareholder service fees from sponsored products to the financial intermediaries that sell and service these products. These payments are generally calculated as a percentage of net assets attributable to the party receiving the payment and are recorded on the Consolidated Statements of Income either as reductions to revenue as in the case of certain shareholder service fee payments or as an expense as in the case of certain distribution fee payments.

Federated’s remaining Other Services fees are based on fixed rates per transaction or retirement plan participant. Revenue relating to these services will vary with changes in the number of transactions and plan participants which are impacted by sales and marketing efforts, competitive fund performance, introduction and market reception of new products and acquisitions.

Federated’s most significant operating expenses include marketing and distribution costs and compensation and related costs, which represent fixed and variable compensation and related employee benefits.

Business Developments

Settlement Expense

As previously reported, beginning in September 2003 Federated has conducted an internal review into certain mutual fund trading activities in response to requests for information from the Securities and Exchange Commission (SEC), National Association of Securities Dealers and New York State Attorney General (NYAG). Federated announced on November 28, 2005 that it had entered into settlement agreements with the SEC and NYAG to resolve the past mutual fund trading issues. Under the terms of the settlements, Federated paid for the benefit of fund shareholders a total of $72.0 million in addition to the $8.0 million paid in 2004. In addition, Federated has agreed to reduce the investment advisory fees on certain Federated funds by $4.0 million per year for the five-year period beginning January 1, 2006 based upon effective fee rates and assets under management as of September 30, 2005. Depending upon the level of assets under management in these funds during the five-year period, the actual investment advisory fee reduction could be greater or less than $4.0 million per year. Costs related to certain other undertakings required by these agreements will be incurred in future periods and the significance of such costs is currently not determinable.

Net income for 2005, 2004 and 2003 reflected settlement expenses of $55.6 million, $17.4 million and $7.6 million primarily representing civil penalties and restoration to fund shareholders associated with the aforementioned settlements. Other costs associated with various legal, regulatory and compliance matters, including costs related to Federated’s internal review and costs incurred on behalf of the funds resulted in pretax charges of $9.6 million, $15.4 million and $13.5 million in 2005, 2004 and 2003, respectively. In addition, 2005 net income included a $23.6 million pretax insurance recovery of certain of these costs which was recorded as a reduction to the various income statement line items to which these costs were originally charged.

Acquisitions

Since 1998, Federated has participated in a joint venture arrangement in Germany with LVM Landwirtschaftlicher-Versicherungsverein Munster a.G. (LVM), whereby each investor owned a 50% interest in Federated Asset Management GmbH (FAM), an administrator of separate accounts and distributor of Federated offshore fund products in Germany and other German-speaking countries in Europe. On December 30, 2005, Federated acquired LVM’s shares in FAM. This transaction was accounted for using the purchase method of accounting and as a result, Federated consolidated the assets and liabilities of FAM in its Consolidated Balance Sheet as of December 31, 2005 based on their fair values. Due to the end-of-the-year closing of this acquisition, Federated’s equity interest in the operating results of FAM for 2005 is included in “Revenue – Other, net” in the Consolidated Statements of Income.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

In the third quarter 2005, assets of three equity mutual funds previously advised by Investors Management Group Ltd., a wholly owned subsidiary of AMCORE Financial, Inc. totaling approximately $142.0 million were acquired by two sponsored mutual funds (AMCORE Acquisition). As a result of the transaction, Federated recorded an investment advisory contract intangible asset, which is being amortized on an accelerated basis over a seven-year useful life.

During the second quarter 2005, Federated completed the acquisition of the cash management business of Alliance Capital Management L.P. (Alliance Acquisition). As a result of the acquisition, approximately $19.3 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services were transitioned into Federated money market funds. The upfront cost of this acquisition was $27.1 million, which included $25.0 million in purchase price and $2.1 million in transaction costs. The purchase agreement also provides for contingent purchase price payments payable over five years. The contingent purchase price payments are calculated as 1) a percentage of revenues less certain operating expenses directly attributed to these assets over the five-year period and 2) a one-time payment payable if certain net revenue targets are met. At current asset levels, these additional payments would approximate $79.7 million over the five-year period. This acquisition was accounted for using the purchase method of accounting. Accordingly, Federated began recognizing revenue and expenses related to the acquired assets in the Consolidated Statements of Income as of the acquisition date and allocated the cost of the acquisition to the acquired assets based on their estimated fair values as of the acquisition date. Federated recorded two investment advisory contract intangible assets totaling $23.4 million. These assets are being amortized on an accelerated basis over a weighted-average amortization period of nine years. Federated also recorded an intangible asset of $5.0 million representing the fair value of the noncompete agreement obtained from Alliance. This asset is being amortized on a straight-line basis over a seven-year useful life. Contingent purchase price payments totaling $8.4 million were recorded as a liability in “Other current liabilities – other” in the Consolidated Balance Sheets at December 31, 2005, and will be paid in the second quarter of 2006. Goodwill of $7.0 million, which represents the excess recorded costs of this acquisition over the fair value of the investment advisory contract and noncompete agreement intangible assets, has been recorded as of December 31, 2005 and is deductible for tax purposes.

Dispositions

On February 15, 2006, an indirect, wholly owned subsidiary of Federated, signed a definitive agreement to sell certain assets associated with its TrustConnect® mutual fund processing business (the Business) to Matrix Settlement and Clearance Services, LLC (MSCS), one of the leading providers of mutual fund clearing and settlement processing for banks, trust companies and 401(k) providers. The transaction, which is subject to customary closing conditions including approval by the National Association of Securities Dealers, Inc., is expected to close in a series of closings over the first and second quarters of 2006. The assets included in the sale of the Business consist primarily of customer relationships, customer contracts and intellectual property, which have no recorded carrying values on Federated’s Consolidated Balance Sheet as of December 31, 2005. In exchange for the assets of the Business, Federated will be entitled to receive upfront cash consideration ranging between $7.0 million and $8.6 million due on a pro-rata basis over the series of closings, as well as contingent consideration due approximately 2  ¹/2 years after the initial closing date. The contingent consideration will be calculated as a percentage of net revenue above a specific threshold directly attributed to the Business. Both Federated and MSCS have made customary representations, warranties and covenants in the agreement.

In the third quarter 2005, Federated sold its interest in InvestLink Technologies, Inc., an indirect, wholly owned subsidiary (InvestLink), to an independent third party. InvestLink’s primary business was to provide software-related solutions for third-party administrators of defined contribution plans. Federated recognized a loss on the sale of InvestLink of $1.7 million, which included tax expense of $0.3 million. InvestLink’s results of operations and the loss on sale have been reflected net of tax as discontinued operations in the Consolidated Statements of Income included elsewhere in this report for all periods presented.

B-Shares

In 2004 and 2005, management performed recoverability analyses of the deferred sales commission assets and nonrecourse debt related to B-share financings closed through September 2000. The evaluations indicated that future cash flows will not be sufficient to fully amortize the related asset and debt balances. As such, in addition to the normal amortization occurring during the period based on B-share-related distribution, shareholder service and CDSC fee cash flows, the B-share-related deferred sales commission asset balance was written down by $87.9 million and $7.5 million during 2005 and 2004, respectively, with a corresponding write-down of nonrecourse debt in each period. There was no material impact on the results of operations as a result of this write-down. For purposes of evaluating trends in the company’s operating results, management generally excludes the impact of these income and expense items. See Note (11) to the Consolidated Financial Statements for more information regarding Federated’s accounting for B-share funding arrangements.

Consolidations

Under Financial Accounting Standards Board (FASB) Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46), most of Federated’s sponsored mutual funds meet the definition of a Variable Interest Entity (VIEs). In 2005, Federated invested in certain newly launched products sponsored by Federated in order to provide investable cash to the product

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

thereby allowing the product to establish a performance history. As the sole or majority investor in these various new products, Federated was deemed to be the primary beneficiary. At December 31, 2005, the aggregate assets and debt of the products that Federated consolidated were $36.0 million and $0.1 million, respectively, and Federated recorded $0.7 million to “Minority interest” on Federated’s Consolidated Balance Sheets. The assets of the products are primarily classified as “Investments” on Federated’s Consolidated Balance Sheets. Neither creditors nor equity investors in the products have any recourse to Federated’s general credit.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Asset Highlights

Managed and Administered Assets at Period End

in millions as of December 31,	2005		2004		Percent Change
Managed Assets
By Asset Type
Money market	$	160,621	$	124,302	29	%
Equity		29,785		29,013	3	%
Fixed-income		23,017		25,953	(11	)%
Total managed assets	$	213,423	$	179,268	19	%
By Product Type
Mutual Funds:
Money market	$	145,289	$	110,559	31	%
Equity		26,031		25,951	0	%
Fixed-income		19,037		21,137	(10	)%
Total mutual fund assets		190,357		157,647	21	%
Separate Accounts:
Money market		15,332		13,743	12	%
Equity		3,754		3,062	23	%
Fixed-income		3,980		4,816	(17	)%
Total separate account assets		23,066		21,621	7	%
Total managed assets	$	213,423	$	179,268	19	%
Administered Assets	$	18,271	$	37,164	(51	)%

Average Managed and Administered Assets

in millions for the years ended December 31,	2005		2004		2003		2005 vs. 2004		2004 vs. 2003
Average Managed Assets
By Asset Type
Money market	$	144,356	$	134,096	$	149,703	8	%	(10	)%
Equity		28,940		26,476		20,849	9	%	27	%
Fixed-income		24,351		27,248		28,931	(11	)%	(6	)%
Total average managed assets	$	197,647	$	187,820	$	199,483	5	%	(6	)%
By Product Type
Mutual Funds:
Money market	$	129,531	$	119,745	$	134,413	8	%	(11	)%
Equity		25,609		23,827		18,702	7	%	27	%
Fixed-income		20,170		22,301		23,869	(10	)%	(7	)%
Total average mutual fund assets		175,310		165,873		176,984	6	%	(6	)%
Separate Accounts:
Money market		14,825		14,351		15,290	3	%	(6	)%
Equity		3,331		2,649		2,147	26	%	23	%
Fixed-income		4,181		4,947		5,062	(15	)%	(2	)%
Total average separate account assets		22,337		21,947		22,499	2	%	(2	)%
Total average managed assets	$	197,647	$	187,820	$	199,483	5	%	(6	)%
Average Administered Assets	$	18,239	$	41,208	$	39,513	(56	)%	4	%

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Changes in Federated’s average asset mix year-over-year have a direct impact on Federated’s total revenue due to the difference in the fee rates per invested dollar earned on each asset type. Equity products generally have a higher management fee rate than fixed-income and money market products. The following table presents the relative composition of average managed assets and the percent of total revenue derived from each asset type over the last three years:

	Percentage of Total Average Managed Assets						Percent of Total Revenue
	2005		2004		2003		2005		2004		2003
Money market assets	73	%	71	%	75	%	43	%	40	%	49	%
Equity assets	15	%	14	%	10	%	38	%	37	%	27	%
Fixed-income assets	12	%	15	%	15	%	16	%	19	%	20	%
Other activities	—		—		—		3	%	4	%	4	%

December 31, 2005 period-end managed assets increased 19% over period-end managed assets at December 31, 2004 driven by increases in money market assets net of declines in fixed-income assets. Average managed assets for 2005 increased 5% over average managed assets for 2004. Period-end and average money market assets increased 29% and 8%, respectively, for 2005 compared to 2004 principally due to the Alliance Acquisition and organic growth. Period-end equity assets increased 3% primarily as a result of increases in net asset values partially offset by net redemptions. Average equity assets grew 9% during 2005 as compared to 2004. Period-end and average fixed-income assets each declined 11% for 2005 as compared to 2004 primarily from net redemptions.

The December 31, 2004 period-end managed assets decreased 9% compared to period-end managed assets at December 31, 2003. Average managed assets for 2004 decreased 6% compared to average managed assets for 2003. Equity assets benefited from positive market conditions and net sales during the year, increasing 13% to $29.0 billion as of December 31, 2004 from December 31, 2003. Average equity assets grew 27% during 2004 to $26.5 billion as compared to the same period in 2003. Total and average fixed-income and money market assets declined in 2004 as compared to 2003 due largely to the expectation and occurrence of rising short-term interest rates. Fixed-income assets decreased 12% as of December 31, 2004 as compared to December 31, 2003, while average fixed-income assets decreased 6% for 2004 as compared to 2003. Money market assets at December 31, 2004 declined 13% as compared to December 31, 2003, while average money market assets declined 10% for 2004 as compared to 2003.

Components of Changes in Equity and Fixed-Income Fund Managed Assets

in millions for the years ended December 31,	2005			2004			Percent Change
Equity Funds
Beginning assets	$	25,951		$	22,817		14	%
Sales		5,054			5,972		(15	)%
Redemptions		(6,666	)		(5,532	)	20	%
Net (redemptions) sales		(1,612	)		440		(466	)%
Net exchanges		25			257		(90	)%
Acquisition related		142			105		35	%
Other1		1,525			2,332		(35	)%
Ending equity fund assets	$	26,031		$	25,951		0	%
Fixed-Income Funds
Beginning assets	$	21,137		$	24,004		(12	)%
Sales		5,061			7,719		(34	)%
Redemptions		(7,376	)		(11,209	)	(34	)%
Net redemptions		(2,315	)		(3,490	)	(34	)%
Net exchanges		(100	)		11		(1,009	)%
Acquisition related		50			220		(77	)%
Other1		265			392		(32	)%
Ending fixed-income fund assets	$	19,037		$	21,137		(10	)%

1 Includes changes in the market value of securities held by the funds, reinvested dividends and distributions and net investment income.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Federated’s investment products are primarily distributed in four markets. These markets and the relative percentage of managed assets at December 31, 2005 attributable to such markets are as follows: trust market (45%), broker/dealer market (34%), institutional market (10%) and international market (1%).

Results of Operations

Revenue. The following table sets forth components of total revenue for the three years ended December 31:

in millions	2005		2004		2003		2005 vs. 2004		2004 vs. 2003
Revenue from managed assets	$	883.3	$	809.0	$	759.3	9	%	7	%
Revenue from sources other than managed assets		25.9		34.3		33.0	(24	)%	4	%
Total revenue	$	909.2	$	843.3	$	792.3	8	%	6	%

Revenue from managed assets increased $74.3 million in 2005 as compared to 2004 due to a $67.1 million revenue increase generated from money market assets acquired in connection with the Alliance Acquisition along with a $30.8 million revenue increase from a 9% increase in average equity assets under management, partially offset by a $20.5 million decline in fixed-income revenue related to an 11% decrease in fixed-income average managed assets and a reduction of $4.4 million from lower average money market assets (excluding the assets from the Alliance Acquisition).

Revenue from managed assets increased $49.7 million in 2004 as compared to 2003 due to 1) an increase of $69.6 million resulting from significant asset growth in average equity assets under management, 2) a $49.0 million increase in “Other service fees, net – affiliates” relating to the application of financing treatment in 2004 to account for all B-share funding arrangements, 3) a $3.0 million reduction in advisory fee waivers due to reduced portfolio accounting expenses of the funds, offset by 4) a reduction in fixed-income and money market assets resulting in a $56.8 million decrease in revenue from managed assets, 5) a $16.3 million reduction in “Other service fees, net – affiliates” due to changes in the Federated-fund-related portfolio accounting contracts effective for 2004 and 6) a non-recurring reduction of $1.4 million in “Other service fees, net – affiliates” due to the accrual for the return of shareholder service fees to various Federated funds resulting from an administrative delay in the implementation of contractual terms.

Revenue from sources other than managed assets, which represents 3% of Federated’s 2005 revenue, decreased $8.4 million principally as a result of a $7.2 million decrease in revenue from a reduction in the number of bank clients for fund administration and accounting services. These reductions were partially offset by revenue from managed assets earned on certain previously administered assets acquired by Federated in 2004 and a reduction in related marketing and distribution expenses.

Revenue from sources other than managed assets increased $1.3 million in 2004 as compared to 2003. The increase in 2004 primarily reflected increased revenue of $2.7 million resulting from increased assets for clearing and retirement services partially offset by a net decrease of $1.7 million due to a reduction in the number of bank clients for fund administration and accounting services.

As previously discussed, as part of its required undertakings in the settlements with the SEC and NYAG, Federated will reduce its management fee charged to certain of its mutual funds effective January 1, 2006. For more information, please refer to the section entitled “Business Developments.”

Operating Expenses. The following table sets forth operating expenses for the three years ended December 31:

in millions	2005		2004		2003		2005 vs. 2004		2004 vs. 2003
Marketing and distribution	$	222.7	$	156.4	$	156.1	42	%	0	%
Compensation and related		175.6		169.7		167.0	3	%	2	%
Amortization of deferred sales commissions		51.7		55.7		14.9	(7	)%	274	%
Amortization of intangible assets		14.2		10.7		10.5	33	%	2	%
Settlement expense		55.6		17.4		7.6	220	%	129	%
All other		90.4		115.5		127.6	(22	)%	(9	)%
Total operating expenses	$	610.2	$	525.4	$	483.7	16	%	9	%

Total operating expenses for 2005 increased $84.8 million compared to 2004. Marketing and distribution expense increased $66.3 million in 2005 as compared to 2004 primarily due to $54.3 million of additional expenses associated with the increase in assets under management from the Alliance Acquisition. In addition, a change in the asset mix within money market products caused an increase of $9.7 million and an increase in average equity assets caused an increase of $6.3 million. The $3.5 million increase in amortization of intangible assets in 2005 as compared to 2004 arose mainly from $4.9 million of additional amortization expense associated with the Alliance Acquisition. All other expenses decreased $25.1 million in 2005 as compared to 2004 principally as a result of recognizing the aforementioned $23.6 million insurance recovery. The insurance recovery was primarily recorded as a reduction to “Professional service fees” and “Office and occupancy” of $22.1 million and $1.3 million, respectively.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

As previously discussed, Federated announced on November 28, 2005 that it had entered into settlement agreements with the SEC and NYAG to resolve past mutual fund trading issues. For 2005 and 2004, “Settlement Expense” and “All other” were affected by costs associated with resolving these past mutual fund trading issues. For more information please refer to the section entitled “Business Developments.”

Total operating expenses for 2004 increased 9% or $41.7 million over 2003. Compensation and related expense increased $2.7 million in 2004 over 2003 due to 1) a $1.8 million increase in the accrual for contingent incentive compensation associated with the acquisition of substantially all of the business of the former advisor of the Kaufmann Fund (Kaufmann Acquisition), 2) a $2.2 million increase in other bonus programs, 3) a $1.8 million increase in employer-related taxes due principally to the exercise of options and taxable transfer of restricted stock, 4) a $1.7 million increase in salary levels, offset by 5) a $5.5 million reduction relating to a new bonus program available to certain employees in 2004, pursuant to which a portion of the bonus earned in 2004 was paid out in the form of restricted stock granted in the first quarter 2005 with a three-year prospective vesting term.

Amortization of deferred sales commissions increased in 2004 as compared to 2003 primarily as a result of applying financing treatment in 2004 to account for all B-share funding arrangements in the Consolidated Statements of Income.

All other expenses decreased $12.1 million in 2004 as compared to 2003. This decrease related primarily to decreases in “Professional service fees,” “Office and Occupancy” and “Advertising and promotional” partially offset by an increase in “Other.” The $10.4 million decrease in “Professional service fees” primarily reflected a $13.7 million decrease related to the elimination of portfolio accounting expenses resulting from changes in the Federated-fund-related contracts partially offset by an increase of $2.9 million due to increased legal fees. The $3.1 million decrease in “Office and occupancy” was due to: 1) a decrease of $1.4 million caused by an amendment in early 2004 to the building lease for Federated’s corporate headquarters which included the surrender of certain floors and resulted in the reversal of unamortized balances of related refurbishment allowances and deferred rent associated with these surrendered floors, 2) a $1.1 million decrease in depreciation expense primarily due to certain capitalized projects becoming fully depreciated in 2004 and 3) a $0.7 million decrease in postage expenses associated with the internal investigation into past mutual fund trading activities. The $2.1 million decrease in “Advertising and promotional” was due primarily to a $0.9 million reduction in marketing materials expense primarily as a result of decreased sales and a $1.0 million decrease in Federated’s advertising campaign. The $4.0 million increase in “Other” is composed primarily of a $1.9 million charge to return shareholder service fees to various Federated funds resulting from an administrative delay in the implementation of contractual terms and a $1.7 million charge for remedial actions related to various fund transactions and trading issues.

Nonoperating Income (Expenses). Nonoperating expense, net, decreased $8.9 million in 2005 as compared to 2004 primarily as a result of an increase in “Interest and dividends” of $5.3 million primarily as a result of higher yields earned on investments due to rising interest rates and a $3.1 million decrease in “Debt expense – nonrecourse” attributable to a lower amount of average nonrecourse debt outstanding.

Federated’s total net nonoperating expense increased $14.9 million in 2004 as compared to 2003 primarily as a result of applying financing treatment in 2004 to account for all B-share funding arrangements, which increased expense by $16.4 million in 2004, partially offset by a $1.4 million increase in interest and dividend income primarily due to higher average balances ($0.7 million) along with higher yields earned on investments caused by rising interest rates ($0.6 million).

Income Taxes on Continuing Operations. The income tax provision for continuing operations for 2005, 2004 and 2003 was $116.7 million, $110.6 million and $106.7 million, respectively. The $6.1 million increase in the provision for 2005 as compared to 2004 was primarily due to the estimated federal tax effect of the increase in the non-deductible portion of the current period settlement expense ($8.8 million) and increased state taxes ($1.7 million) partially offset by the federal tax effect of lower income from continuing operations before taxes ($3.6 million). The $3.8 million increase in the provision for 2004 as compared to 2003 is primarily due to the non-deductible portion of settlement expense ($3.5 million) and increased state taxes ($3.1 million) partially offset by the federal tax effect of lower income from continuing operations before taxes ($1.9 million). The effective tax rate was 41.7% for 2005, 38.1% for 2004 and 36.1% for 2003. The increase in the effective tax rate for 2005 as compared to 2004 as well as 2004 over 2003 is primarily due to the increase in the non-deductible portion of settlement expense and increased state taxes (see Note (16) to the Consolidated Financial Statements).

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Income from Continuing Operations. The following table sets forth highlights of Federated’s operations for the three years ended December 31:

in millions, except per share data	2005			2004		2003		2005 vs. 2004		2004 vs. 2003
Income from continuing operations	$	163.3		$	179.7	$	188.9	(9	)%	(5	)%
(Loss) income from discontinued operations		(3.0	)		1.5		2.6	(300	)%	(42	)%
Net income		160.3			181.2		191.5	(12	)%	(5	)%
Diluted earnings per share:
Income from continuing operations	$	1.51		$	1.63	$	1.69	(7	)%	(4	)%
(Loss) income from discontinued operations	$	(0.03	)	$	0.01	$	0.02	(400	)%	(50	)%
Net income	$	1.48		$	1.64	$	1.71	(10	)%	(4	)%
Weighted-average shares outstanding – assuming dilution		108.3			110.4		112.1	(2	)%	(1	)%

Income from continuing operations decreased $16.4 million in 2005 as compared to 2004 and decreased $9.2 million in 2004 as compared to 2003 primarily as a result of the changes in revenues and expenses noted above. In 2005 and 2004, diluted earnings per share for income from continuing operations decreased $0.12 and $0.06 per diluted share, respectively, as the impact of decreased income from continuing operations was slightly offset by lower weighted-average diluted shares outstanding.

(Loss) Income from Discontinued Operations. Discontinued operations, net of tax, reflects the sale of InvestLink in the third quarter 2005 and Federated’s transfer agency business in the second quarter 2004. In 2005, Federated reported a loss from discontinued operations, net of tax, of $3.0 million which included a $1.7 million after-tax loss on the sale of InvestLink. In 2004 and 2003, Federated reported a gain from discontinued operations, net of tax, of $1.5 million and $2.6 million, respectively, which primarily reflects the after-tax results of operations of the sold businesses (see Note (3) to the Consolidated Financial Statements).

Liquidity and Capital Resources

At December 31, 2005, liquid assets, consisting of cash and cash equivalents, short-term investments and receivables, totaled $330.0 million as compared to $292.1 million in 2004. The balance at the end of 2005 was higher than the balance at the end of 2004 as a result of cash generated by operations during 2005. Federated also had a B-share funding arrangement with an independent third party and $150.0 million available for borrowings under its credit facility as of December 31, 2005 (see Note (10) and Note (11) to the Consolidated Financial Statements).

Operating Activities. Net cash provided by operating activities totaled $186.0 million for 2005 as compared to $297.0 million for 2004. Principally, the $111.0 million decline was driven by payments made as part of settlement agreements with the SEC and NYAG totaling $72.0 million in 2005 compared to $8.0 million in 2004. For more information, please see the section entitled “Business Developments.”

A $37.0 million decrease in the tax benefit from stock-based compensation plans resulted primarily from the vesting and employee tax realization of 1.9 million shares of restricted stock during the first quarter of 2004 ($19.4 million) and the exercise and employee tax realization of 1.7 million stock options during the third quarter 2004 ($15.9 million).

An increase of $35.3 million in net purchases of trading securities resulted primarily from Federated’s 2005 investment in various sponsored investment products, which were consolidated in the Consolidated Financial Statements.

Deferred sales commissions paid decreased $17.6 million primarily as a result of reduced sales of the B-share asset class.

Investing Activities. In 2005, Federated used $61.4 million for investing activities. Of this amount, Federated paid $60.9 million for business acquisitions net of cash acquired consisting primarily of 1) $33.1 million in contingent purchase price payments related to the Kaufmann Acquisition, of which $29.5 million was accrued in “Other current liabilities – affiliates” in the Consolidated Balance Sheets at December 31, 2004, (see Note (2) to the Consolidated Financial Statements) 2) $26.9 million related to the Alliance Acquisition and 3) $1.5 million related to the AMCORE Acquisition. In addition, Federated paid $2.3 million to acquire property and equipment, $2.0 million of which was computer related.

Financing Activities. In 2005, Federated used $135.0 million for financing activities. Of this amount, Federated paid $61.5 million or $0.575 per share in dividends to holders of its common stock in 2005. Federated’s board of directors declared a dividend of $0.15 per share, for shareholders of record on February 8, 2006, that was paid on February 15, 2006.

Federated used $25.7 million to repurchase 0.9 million shares of Class B common stock in the open market and in private transactions under the stock repurchase program. As of December 31, 2005, Federated can repurchase an additional 4.8 million shares through its authorized programs through December 31, 2006.

Stock repurchases and dividend payments are subject to restrictions under the Second Amended and Restated Credit Agreement, as amended. These restrictions limit cash payments for additional stock repurchases and dividends to 50% of net income from January 1, 2000 to and including the payment date. After considering earnings through December 31, 2005, given current debt covenants, Federated has the ability to make additional stock repurchase or dividend payments of more than $131 million.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Of the distributions to minority interest holders of $30.2 million, $20.1 million represents cash distributed to third-party equity holders in sponsored products that have been consolidated by Federated. The remaining amount represents partnership distributions of $10.1 million made to a noncontrolling partner in Federated’s limited partnerships (see Note (20) to the Consolidated Financial Statements).

Contributions from minority interest holders of $20.7 million represents third-party equity investments in sponsored products that have been consolidated by Federated.

Financial Position

“Deferred sales commissions, net of accumulated amortization” and “Long-term debt – nonrecourse” at December 31, 2005 decreased by $129.1 million and $125.1 million, respectively, from December 31, 2004 primarily as a result of the previously discussed write down of B-share-related deferred sales commission assets, with a corresponding write down of nonrecourse debt. For more information, please refer to the section entitled “Business Developments.”

“Accounts payable and accrued expenses – affiliates” at December 31, 2005 decreased $8.9 million from December 31, 2004 due to payments or adjustments of $3.6 million related to the internal review and settlement related to past mutual fund trading practices, $2.7 million related to shareholder service fees payable to various Federated funds resulting from an administrative delay in the implementation of contractual terms and $2.0 million related to remedial actions in connection with various fund transaction and trading issues.

“Other current liabilities – other” at December 31, 2005 decreased $8.3 million from December 31, 2004 primarily as a result of recognizing the insurance recovery proceeds in the Consolidated Statements of Income during the third quarter 2005, of which $16.5 million had been received and recorded as a liability as of December 31, 2004, partially offset by $8.4 million accrued as of December 31, 2005 related to the cost of the Alliance Acquisition.

“Prepaid and other current assets,” which includes prepaid taxes, at December 31, 2005 decreased $7.6 million from December 31, 2004 due primarily to required projections used in the calculation of estimated federal income tax payments resulting in an overpayment of federal taxes in 2004.

Contractual Obligations and Contingent Liabilities

Contractual. The following table presents as of December 31, 2005, Federated’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent amounts contractually due to the recipient and do not include any unamortized discounts or other similar carrying value adjustments. Further discussion of the nature of each obligation is included either in the referenced Note to the Consolidated Financial Statements or in a footnote to the table.

in millions	Note Reference		Payments due in								Total
			2006		2007-2008		2009-2010		After 2010
Capital lease obligations	(15	)	$	0.1	$	0.2	$	0.1	$	0	$	0.4
Operating lease obligations	(15	)		13.2		23.9		18.0		31.1		86.2
Purchase obligations1				10.6		5.6		0		0		16.2
Employment-related commitments2				2.1		1.2		0		0		3.3
Total			$	26.0	$	30.9	$	18.1	$	31.1	$	106.1

1 Federated is a party to various contracts pursuant to which it receives certain services including legal, trade order transmission and recovery services, as well as access to various fund-related information systems and research databases. These contracts contain certain minimum noncancelable payments, cancellation provisions and renewal terms. The contracts expire on various dates through the year 2008. Costs for such services are expensed as incurred.

2 Federated has certain domestic and international employment arrangements pursuant to which Federated is obligated to make minimum compensation payments. These contracts expire on various dates through the year 2008.

Pursuant to various acquisition agreements entered into by Federated since 2001, Federated may be required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In 2001, Federated completed the Kaufmann Acquisition. In addition to the upfront purchase price paid at the date of the acquisition, Federated agreed to pay up to $165.5 million in additional purchase price contingent upon the achievement of specified revenue growth. To date Federated has paid $132.4 million in contingent payments. As of December 31, 2005, a $33.1 million contingent payment has been accrued in “Other current liabilities – affiliates” and will be paid in 2006. This represents the final contingent purchase price payment under the terms of the acquisition agreement.

As part of the Alliance Acquisition, Federated is required to make contingent purchase price payments over a five-year period. These payments are calculated as a percentage of revenues less certain operating expenses directly attributed to the assets acquired. The first contingent purchase price payment will be paid in the second quarter of 2006, $8.4 million of which was accrued in “Other current liabilities – other” at December 31, 2005.

In addition, pursuant to certain other acquisition agreements, Federated is required to make contingent payments on a periodic basis calculated as a percentage of average assets under management on certain Federated fund shareholder accounts for which the seller is the named broker/dealer of record. In these cases, the payments occur monthly or quarterly and could continue through fourth quarter 2008.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Internal Review of Mutual Fund Trading Activities. As previously reported, since September 2003 Federated has conducted an internal review into certain mutual fund trading activities in response to requests for information from the SEC, National Association of Securities Dealers and NYAG. Federated subsequently received inquiries relating to such trading activities from the U.S. Attorneys Office for the Western District of Pennsylvania, the Commodity Futures Trading Commission, the Securities Commissioner and the Attorney General of West Virginia, and the Connecticut Banking Commission. Attorneys from the law firms of Reed Smith LLP and Davis, Polk & Wardwell conducted the review at the direction of a special investigative committee of Federated’s board of directors. The special investigative committee was comprised of the current board. Attorneys from the law firm of Dickstein Shapiro Morin & Oshinsky, LLP, independent counsel for the Federated mutual funds, participated in the review and reported on its progress to the independent directors of the funds.

In February 2004, the Company announced that the special investigative committee of the board of directors had substantially completed its assessment of the impact of past mutual fund trading issues. Based upon the findings of the internal review and of an independent expert retained by the Federated mutual funds, Federated paid restoration of $8.0 million to compensate for the detrimental impact from the improper trading activities identified in the review. Federated has completed its review of information relating to trading activities.

As previously discussed, Federated announced on November 28, 2005 that it had entered into settlement agreements with the SEC and NYAG to resolve the past mutual fund trading issues. For more information, please refer to the section entitled “Business Developments.”

Legal Proceedings. Since October 2003, Federated Investors, Inc. and related entities have been named as defendants in twenty-three cases filed in various federal district courts and state courts involving allegations relating to market timing, late trading and excessive fees. All of the pending cases involving allegations related to market timing and late trading have been transferred to the U.S. District Court for the District of Maryland and consolidated for pre-trial proceedings. One market timing/late trading case was voluntarily dismissed by the plaintiff without prejudice.

The seven excessive fee cases were originally filed in five different federal courts and one state court. All six of the federal cases are now pending in the U.S. District Court for the Western District of Pennsylvania. The state court case was voluntarily dismissed by the plaintiff without prejudice.

All of these lawsuits seek unquantified damages, attorneys’ fees and expenses. Federated intends to defend this litigation. The potential impact of these recent lawsuits and future potential similar suits is uncertain. It is possible that an unfavorable determination will cause a material adverse impact on Federated’s financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

In addition, Federated has other claims asserted and threatened against it in the ordinary course of business. These other claims are subject to inherent uncertainties. In the opinion of management, after consultation with counsel, it is unlikely that any adverse determination for any pending or threatened other claim will materially affect the financial position, results of operations or liquidity of Federated.

Future Cash Needs. In addition to the contractual obligations and contingent liabilities described above, management expects that principal uses of cash will include paying incentive and base compensation, advancing sales commissions, funding marketing and promotion expenditures, repurchasing company stock, paying shareholder dividends, funding business acquisitions, funding property and equipment acquisitions, including computer-related equipment, and seeding new products. As a result of recently adopted regulations and frequent requests for information from regulatory authorities, management anticipates that expenditures for compliance personnel, compliance systems and related professional and consulting fees will increase. Resolution of the matters described above regarding the internal review, other regulatory inquiries and legal proceedings could result in payments which may have a significant impact on Federated’s liquidity, capital resources and results of operations. Management believes that Federated’s existing liquid assets, together with the expected continuing cash flow from operations, its borrowing capacity under the current credit facility, the current B-share funding arrangement and its ability to issue stock will be sufficient to meet its present and reasonably foreseeable cash needs.

On November 22, 2005, Federated renewed its $150.0 million credit facility by signing Amendment No. 5 to the Second Amended and Restated Credit Agreement (the Renewed Credit Facility). The Renewed Credit Facility has a term of 364 days and can be renewed for additional 364-day terms. Under the Renewed Credit Facility, Federated will pay a facility fee of 0.125% on the revolving credit commitment. The Renewed Credit Facility expands the limited ability to provide guarantees of third-party obligations, otherwise, no changes were made to the financial and nonfinancial covenants contained in the Second Amended and Restated Credit Agreement, as previously amended.

In September 2005, a wholly owned subsidiary of Federated extended its discretionary line of credit agreement with a bank under which it can borrow up to $50 million for the payment of obligations associated with daily net settlements of mutual funds processed through the National Securities Clearing Corporation. Borrowings under this 364-day agreement bear interest at a rate mutually agreed upon by the bank and the borrower at the time of the borrowing and are payable on demand. At December 31, 2005, the outstanding balance under this agreement was zero. Federated guarantees the payment of any obligation owed by the subsidiary in connection with this line of credit.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Variable Interest Entities

Federated is involved with various entities in the normal course of business that may be deemed to be VIEs. In 2005, Federated determined that it was the primary beneficiary of certain VIEs and, as a result, consolidated the assets, liabilities and operations of these VIEs in its Consolidated Financial Statements. See Note (4) to the Consolidated Financial Statements for more information.

Recent Accounting Pronouncements

SFAS 123(R) – In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123(R)). SFAS 123(R) supersedes APB 25, and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123, which as discussed in Note (1) to the Consolidated Financial Statements, Federated adopted on a prospective basis as of January 1, 2003. However, SFAS 123(R) requires all share-based payments to employees, including prior grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The SEC announced in April 2005 that it would require that registrants that are not small business issuers adopt SFAS 123(R) no later than the beginning of the first fiscal year beginning after June 15, 2005. Federated adopted SFAS 123(R) using the modified prospective method effective January 1, 2006.

Since (1) SFAS 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and (2) Federated adopted SFAS 123 using the prospective transition method, which applied only to awards granted, modified or settled after the adoption date, compensation costs for certain previously granted awards that were not recognized under SFAS 123 will be recognized under SFAS 123(R). SFAS 123(R) will require Federated to change its policy for accounting for retirement-eligible employees on a prospective basis. In addition, SFAS 123(R) will require Federated to change its policy for accounting for forfeitures. SFAS 123(R) requires companies to include estimated forfeitures in the initial estimate of compensation cost. Upon implementation of SFAS 123(R), Federated will recognize a cumulative effect of a change in accounting principle, net of tax to reflect the compensation cost that would not have been recognized in prior periods had forfeitures been estimated in those periods. Assuming no additional grants or modifications to awards that are not fully vested as of the date of adoption, the impact of adopting SFAS 123(R) will approximate the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note (1) to the Consolidated Financial Statements for at least the next three years. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under literature applicable to Federated for 2005 reporting. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While Federated cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized for such tax deductions were $2.5 million, $39.5 million and $3.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.

FSP 109-2 – In December 2004, the FASB issued Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004,” which provides guidance with respect to reporting the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the Jobs Act). The Jobs Act provides conditions under which the repatriation of certain foreign earnings in either 2004 or 2005 will qualify for preferential tax treatment. If these conditions are met, a maximum 5.25% income tax rate rather than the maximum regular tax rate of 35% would apply to eligible repatriations of certain foreign earnings.

Federated has completed its evaluation of these provisions in conjunction with an analysis of its foreign earnings available for repatriation. As a result of that review, Federated has determined that it is not feasible to pay the level of dividend required to obtain this preferential tax treatment.

FSP EITF 85-24-1 – In March 2005, the FASB issued Staff Position EITF 85-24-1 “Application of EITF Issue No. 85-24, ‘Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,’ When Cash for the Right to Future Distribution Fees for Shares Previously Sold Is Received from Third Parties” (FSP EITF 85-24-1). FSP EITF 85-24-1, which addresses when revenue should be recognized by the seller for sales of rights to future cash flows relating to certain distribution fees, was effective for reporting periods beginning after March 11, 2005. Funding of the payments made by Federated of upfront commissions paid upon the sale of Class B shares of sponsored mutual funds is made through arrangements with independent third parties by selling the rights to all related future distribution fees, servicing fees and CDSCs. Federated adopted the provisions of FSP EITF 85-24-1 effective April 1, 2005. The adoption did not have an impact on Federated’s results of operations or financial position. For financial reporting purposes, Federated continues to account for these arrangements as financings.

EITF 04-5 – In June 2005, the FASB ratified the consensus in EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (EITF 04-5). EITF 04-5 provides guidance for determining whether a general partner controls a limited partnership. The guidance broadly

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

provides that the general partner in a limited partnership is presumed to control that limited partnership. However, that presumption can be overcome if the limited partners have either substantive kick-out rights or substantive participating rights. The effective date for applying the guidance in EITF 04-5 is June 29, 2005 for all new or recently modified limited partnerships and no later than the first reporting period in fiscal years beginning after December 15, 2005, for all other limited partnerships. During 2005, Federated applied the provisions of EITF 04-5 to account for a wholly owned subsidiary’s general partnership interest in a newly formed limited partnership. The adoption of this EITF did not have a material impact on Federated’s financial position or results of operations.

Critical Accounting Policies

Federated’s Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Management continually evaluates the accounting policies and estimates it uses to prepare the Consolidated Financial Statements. In general, management’s estimates are based on historical experience, on information from third-party professionals and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results may differ from those estimates made by management and those differences may be significant.

Of the significant accounting policies described in Note (1) to the Consolidated Financial Statements, management believes that its policies regarding accounting for intangible assets, income taxes, stock-based employee compensation and loss contingencies involve a higher degree of judgment and complexity (see Note (1) of the Consolidated Financial Statements).

Accounting for Intangible Assets. Two aspects of accounting for intangible assets require significant management estimates and judgment: (1) valuation in connection with the initial purchase price allocation and (2) ongoing evaluation for impairment. The process of allocating purchase price based on the fair value of identifiable intangible assets at the date of acquisition requires management estimates and judgment as to expectations for profit margins on the assets, asset redemption rates, growth from sales efforts and the effects of market conditions. If actual operating margins or the rate of changes in assets, among other assumptions, differ significantly from the estimates and judgments used in the initial valuation for the purchase price allocation, the intangible asset amounts recorded in the financial statements could be subject to possible impairment or could require an acceleration in amortization expense that could have a material adverse effect on Federated’s consolidated financial position and results of operations.

The level, if any, of impairment of customer-related intangible assets, such as investment advisory contract intangible assets, is highly dependent upon the remaining level of managed assets acquired in connection with an acquisition. Approximately 53% of the carrying value of Federated’s customer-related intangible assets as of December 31, 2005 relates to a single renewable investment advisory contract with one fund. Consecutive annual declines in the managed asset balance in this particular fund in excess of 60% over its remaining useful life could have a considerable impact on the underlying value of Federated’s customer-related intangible assets. To date, the actual compound annual rate of change in the acquired assets in this fund since the acquisition in 2001 has been more favorable than the assumed rate. No changes have been made to this estimate in the current year.

Accounting for Income Taxes. Significant management judgment is required in developing Federated’s provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. As of December 31, 2005, Federated had not recorded a valuation allowance on the $6.0 million deferred tax asset relating to Federated’s CDO other-than-temporary impairment losses (unrecognized for tax purposes). Federated considered the following facts in connection with its evaluation of the realizability of the $6.0 million deferred tax asset: (1) the actual amount of capital loss associated with Federated’s remaining investment in the CDOs will not be known until such time as those investments are either redeemed by the CDOs or sold by Federated; (2) the carry-forward period for capital losses is five years, and (3) Federated has historically generated capital gains in times of favorable market conditions. Based on these factors, management believes it is more likely than not that Federated will be able to utilize these losses in the future. In the event that Federated’s preliminary strategies do not materialize, Federated may be required to record a valuation allowance of as much as $6.0 million for these deferred tax assets.

Accounting for Stock-Based Employee Compensation. In 2003, Federated adopted the fair-value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” for employee stock-based compensation for all stock-based awards granted, modified or settled on or after January 1, 2003. Awards granted prior to 2003 continue to be accounted for using the intrinsic-value method prescribed by APB 25, “Accounting for Stock Issued to Employees.”

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Had compensation costs for all stock options and employee restricted stock been determined based upon fair values at the grant dates in accordance with SFAS 123, Federated would have experienced net income and earnings per share similar to the pro forma amounts indicated below for the years ended December 31. As allowed by SFAS 123, Federated calculates compensation as if all instruments granted are expected to vest and recognizes the effect of actual forfeitures as they occur.

in millions, except per share data	2005			2004			2003
Net income	$	160.3		$	181.2		$	191.5
Add back: Stock-based employee compensation expense included in reported net income, net of related tax effects		2.2			0.5			0.2
Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards1, net of related tax effects		(5.4	)		(2.9	)		(5.6	)
Pro forma net income	$	157.1		$	178.8		$	186.1
Earnings per share:
Basic earnings per share	$	1.51		$	1.68		$	1.78
Pro forma basic earnings per share	$	1.48		$	1.66		$	1.73
Diluted earnings per share	$	1.48		$	1.64		$	1.71
Pro forma diluted earnings per share	$	1.45		$	1.62		$	1.66

1 “All awards” refers to awards granted, modified or settled on or after January 1, 1995, as required by SFAS 123.

Federated estimated the grant-date fair value using the Black-Scholes option-pricing model with the following weighted-average assumptions for options granted in 2005, 2004 and 2003, respectively: dividend yields of 2.19%, 1.34% and 1.03%; expected volatility factors of 21.6%, 24.9% and 27.8%; risk-free interest rates of 3.77%, 3.69% and 2.77%; and an expected life of 5.0 years, 5.6 years and 5.0 years.

Accounting for Loss Contingencies. In accordance with SFAS No. 5, “Accounting for Contingencies,” Federated accrues for estimated costs, including legal costs related to existing lawsuits, claims and proceedings when it is probable that a liability has been incurred and the costs can be reasonably estimated. Accruals are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter. Significant differences could exist between the actual cost required to investigate, litigate and/or settle a claim or the ultimate outcome of a suit and management’s estimate. These differences could have a material impact on Federated’s results of operations, financial position or cash flows.

Certifications

J. Christopher Donahue and Thomas R. Donahue have provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002. These certifications are included as Exhibit 31.01 of Federated’s Form 10-K for the year ended December 31, 2005. As required by the New York Stock Exchange (NYSE), on May 11, 2005, J. Christopher Donahue submitted his annual certification to the NYSE as required by Section 303A.12 of the NYSE Corporate Governance Rules.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Market Risk – Investments. In the normal course of its business, Federated is exposed to the risk of loss due to fluctuations in the securities market and general economy. Management is responsible for identifying, assessing and managing market and other risks. At December 31, 2005, Federated was exposed to price risk with regard to its $2.0 million investment in sponsored fluctuating-value mutual funds. Price risk is the risk that the fair value of the investment will decline and ultimately result in the recognition of a loss for Federated. At December 31, 2005, Federated also held certain investments for trading purposes, which exposed it to price risk, including a $0.5 million investment in the common stock of large-cap companies and three S&P 500-indexed derivative financial instruments with a combined notional value of $5.0 million.

At December 31, 2005, Federated was exposed to interest-rate and credit risk as a result of its $35.9 million investment in short-term debt and asset-backed securities held by certain sponsored funds consolidated by Federated. Interest-rate risk is the risk that unplanned fluctuations in earnings will result from interest-rate volatility while credit risk is the risk that an issuer of debt securities may default on its obligations. Approximately $25.0 million of these securities represented the portfolio investments of a consolidated enhanced cash product and the remaining $10.9 million primarily represented investment-grade securities held as portfolio investments of certain consolidated fixed-income products. Due to the short duration of these financial instruments, a change of 100 basis points in interest rates would not have a material effect on Federated’s financial condition or results of operations.

Market Risk – Revenue. It is important to note that a significant portion of Federated’s revenue is based on the market value of managed and administered assets. Declines in the market values of assets as a result of changes in the market or other conditions will therefore negatively impact revenue and net income.

Approximately 43% of Federated’s revenue in 2005 was from managed assets in money market products. After reaching record lows, short-term interest rates began to rise in 2004 and are expected to continue to increase. In a rising rate environment, certain institutional investors using money market products and other short-term duration fixed-income products for cash management purposes may shift these investments to direct investments in comparable instruments in order to realize higher yields than those available in money market and other fund products holding lower-yielding instruments. In addition, rising interest rates will tend to reduce the market value of bonds held in various investment portfolios and other products. Thus, increases in interest rates could have an adverse effect on Federated’s revenue from money market portfolios and from other fixed-income products.

For further discussion of managed assets and factors that impact Federated’s revenue, see the sections entitled “General,” “Asset Highlights” and “Contractual Obligations and Contingent Liabilities” herein as well as the sections entitled “Regulatory Matters” and “Risk Factors” in Federated’s Annual Report on Form 10-K for the year ended December 31, 2005 on file with the SEC.

MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

Federated Investors, Inc.’s (Federated) management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements in this annual report. These consolidated financial statements and notes have been prepared in conformity with U.S. generally accepted accounting principles from accounting records which management believes fairly and accurately reflect Federated’s operations and financial position. The consolidated financial statements include amounts based on management’s best estimates and judgments considering currently available information and management’s view of current conditions and circumstances.

Management is responsible for establishing and maintaining adequate internal control over financial reporting that is designed to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the effectiveness of Federated’s internal control over financial reporting as of December 31, 2005, in relation to criteria for effective internal control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2005, its system of internal control over financial reporting is properly designed and operating effectively to achieve the criteria of the “Internal Control – Integrated Framework.” Ernst & Young LLP, independent registered public accounting firm, has audited the consolidated financial statements included in this annual report and has issued an audit report on management’s assessment of Federated’s internal control over financial reporting.

Federated Investors, Inc.

/s/ J. Christopher Donahue	/s/ Thomas R. Donahue
J. Christopher Donahue	Thomas R. Donahue
President and Chief Executive Officer	Chief Financial Officer

February 15, 2006

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON CONSOLIDATED FINANCIAL STATEMENTS

The Shareholders and Board of Directors

Federated Investors, Inc.

We have audited the accompanying consolidated balance sheets of Federated Investors, Inc. and subsidiaries (Federated) as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of Federated’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. 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 consolidated financial position of Federated Investors, Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Federated Investors, Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 15, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

February 15, 2006

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, ON EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING

The Shareholders and Board of Directors

Federated Investors, Inc.

We have audited management’s assessment, included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting, that Federated Investors, Inc. maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Federated Investors, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Federated Investors, Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Federated Investors, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Federated Investors, Inc. as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005, of Federated Investors, Inc. and our report dated February 15, 2006, expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

February 15, 2006

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

December 31,	2005			2004
Current Assets
Cash and cash equivalents	$	245,846		$	256,213
Restricted cash equivalents		587			0
Investments		38,372			2,058
Receivables—affiliates		40,631			30,790
Receivables—other, net of reserve of $117 and $52, respectively		5,173			3,037
Accrued revenue—affiliates		823			1,146
Accrued revenue—other		5,882			6,078
Current deferred tax asset, net		2,433			8,916
Prepaid and other current assets		6,676			14,262
Total current assets		346,423			322,500
Long-Term Assets
Goodwill		303,194			260,045
Intangible assets, net		66,832			51,929
Deferred sales commissions, net of accumulated amortization of $287,836 and $290,583, respectively		157,562			286,650
Property and equipment, net		22,006			27,166
Other long-term assets		604			6,398
Total long-term assets		550,198			632,188
Total assets	$	896,621		$	954,688
Current Liabilities
Cash overdraft	$	2,292		$	3,811
Current portion of long-term debt—nonrecourse		0			3,016
Accrued compensation and benefits		44,433			42,603
Accounts payable and accrued expenses—affiliates		1,399			10,263
Accounts payable and accrued expenses—other		70,746			62,496
Income taxes payable		1,098			2,171
Other current liabilities—affiliates		33,082			29,468
Other current liabilities—other		13,250			21,539
Total current liabilities		166,300			175,367
Long-Term Liabilities
Long-term debt—nonrecourse		159,784			284,915
Long-term deferred tax liability, net		21,433			23,479
Other long-term liabilities—affiliates		28			4,000
Other long-term liabilities—other		7,494			8,588
Total long-term liabilities		188,739			320,982
Total liabilities		355,039			496,349
Minority interest		1,253			586
Commitments and contingencies (Note (23))
Shareholders’ Equity
Common stock:
Class A, no par value, 20,000 shares authorized, 9,000 issued and outstanding		189			189
Class B, no par value, 900,000,000 shares authorized, 129,505,456 shares issued		134,922			128,133
Additional paid-in capital from treasury stock transactions		768			0
Retained earnings		954,710			865,348
Treasury stock, at cost, 22,471,600 and 22,505,641 shares Class B common stock, respectively		(550,586	)		(536,446	)
Accumulated other comprehensive income, net of tax		326			529
Total shareholders’ equity		540,329			457,753
Total liabilities, minority interest, and shareholders’ equity	$	896,621		$	954,688

(The accompanying notes are an integral part of these Consolidated Financial Statements.)

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

Years Ended December 31,	2005			2004			2003
Revenue
Investment advisory fees, net—affiliates	$	548,739		$	527,237		$	511,618
Investment advisory fees, net—other		21,956			18,930			16,752
Administrative service fees, net—affiliates		128,243			121,847			129,612
Administrative service fees, net—other		6,827			14,004			15,261
Other service fees, net—affiliates		177,881			134,428			95,022
Other service fees, net—other		18,312			19,421			16,360
Other, net		7,258			7,482			7,683
Total revenue		909,216			843,349			792,308
Operating Expenses
Marketing and distribution		222,689			156,442			156,093
Compensation and related		175,629			169,688			166,961
Office and occupancy		21,328			20,852			23,912
Systems and communications		19,964			18,829			18,839
Advertising and promotional		15,435			15,352			17,406
Travel and related		12,031			12,167			12,787
Professional service fees		8,778			34,371			44,791
Amortization of deferred sales commissions		51,732			55,716			14,911
Amortization of intangible assets		14,165			10,673			10,494
Settlement expense		55,592			17,410			7,590
Other		12,817			13,870			9,869
Total operating expenses		610,160			525,370			483,653
Operating income		299,056			317,979			308,655
Nonoperating Income (Expenses)
Interest and dividends		8,732			3,385			1,962
Gain on securities, net		263			37			4
Debt expense—recourse		(369	)		(373	)		(491	)
Debt expense—nonrecourse		(17,517	)		(20,655	)		(4,215	)
Other, net		51			(143	)		(95	)
Total nonoperating expenses, net		(8,840	)		(17,749	)		(2,835	)
Income from continuing operations before minority interest and income taxes		290,216			300,230			305,820
Minority interest		10,205			9,951			10,206
Income from continuing operations before income taxes		280,011			290,279			295,614
Income tax provision		116,719			110,559			106,720
Income from continuing operations		163,292			179,720			188,894
Discontinued operations, net of tax		(3,009	)		1,459			2,591
Net income	$	160,283		$	181,179		$	191,485
Earnings Per Share—basic
Income from continuing operations	$	1.54		$	1.67		$	1.75
(Loss) income from discontinued operations		(0.03	)		0.01			0.02
Net income1	$	1.51		$	1.68		$	1.78
Earnings Per Share—diluted
Income from continuing operations	$	1.51		$	1.63		$	1.69
(Loss) income from discontinued operations		(0.03	)		0.01			0.02
Net income	$	1.48		$	1.64		$	1.71
Cash dividends per share	$	0.575		$	0.414		$	0.297

¹ Totals may not sum due to rounding.

(The accompanying notes are an integral part of these Consolidated Financial Statements.)

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands)

	Shares					Common Stock			Additional Paid-in Capital from Treasury Stock Transactions			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income, Net of Tax			Total Shareholders’ Equity
	Class A	Class B		Treasury
Balance at January 1, 2003	9,000	112,551,721		16,953,735		$	82,367		$	3,610		$	590,418		$	(335,699	)	$	21		$	340,717
Net income	0	0		0			0			0			191,485			0			0			191,485
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			77			77
Foreign currency translation	0	0		0			0			0			0			0			274			274
Comprehensive income																						191,836
Amortization of employee restricted stock and other compensation plans	0	0		0			1,564			0			0			0			0			1,564
Restricted stock issuance	0	40,000		(40,000	)		0			116			0			4			0			120
Dividends declared	0	0		0			0			0			(32,493	)		0			0			(32,493	)
Exercise of stock options	0	479,037		(479,037	)		3,469			83			0			4,068			0			7,620
Purchase of treasury stock	0	(4,415,000	)	4,415,000			0			0			0			(113,526	)		0			(113,526	)
Other	0	0		0			15			0			0			0			0			15
Balance at December 31, 2003	9,000	108,655,758		20,849,698			87,415			3,809			749,410			(445,153	)		372			395,853
Net income	0	0		0			0			0			181,179			0			0			181,179
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			35			35
Foreign currency translation	0	0		0			0			0			0			0			122			122
Comprehensive income																						181,336
Amortization of employee restricted stock and other compensation plans	0	0		0			1,618			0			0			0			0			1,618
Restricted stock issuance	0	362,000		(362,000	)		19,411			(320	)		(3,019	)		4,425			0			20,497
Dividends declared	0	0		0			0			0			(44,703	)		0			0			(44,703	)
Exercise of stock options	0	2,135,958		(2,135,958	)		20,085			(3,489	)		(17,519	)		25,679			0			24,756
Purchase of treasury stock	0	(4,153,901	)	4,153,901			0			0			0			(121,397	)		0			(121,397	)
Other	0	0		0			(207	)		0			0			0			0			(207	)
Balance at December 31, 2004	9,000	106,999,815		22,505,641			128,322			0			865,348			(536,446	)		529			457,753
Net income	0	0		0			0			0			160,283			0			0			160,283
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			27			27
Foreign currency translation	0	0		0			0			0			0			0			(230	)		(230	)
Comprehensive income																						160,080
Amortization of employee restricted stock and other compensation plans	0	0		0			4,252			0			0			0			0			4,252
Restricted stock issuance	0	679,796		(679,796	)		198			46			(7,020	)		8,375			0			1,599
Dividends declared	0	0		0			0			0			(61,465	)		0			0			(61,465	)
Exercise of stock options	0	274,348		(274,348	)		2,339			722			(2,436	)		2,958			0			3,583
Purchase of treasury stock	0	(920,103	)	920,103			0			0			0			(25,473	)		0			(25,473	)
Balance at December 31, 2005	9,000	107,033,856		22,471,600		$	135,111		$	768		$	954,710		$	(550,586	)	$	326		$	540,329

(The accompanying notes are an integral part of these Consolidated Financial Statements.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

Years Ended December 31,	2005			2004			2003
Operating Activities
Net income	$	160,283		$	181,179		$	191,485
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Amortization of deferred sales commissions		51,732			55,716			14,911
Depreciation and other amortization		24,006			18,916			20,506
Minority interest		10,205			9,951			10,206
Loss (gain) on disposal of assets		908			(110	)		(4,669	)
Provision (benefit) for deferred income taxes		4,485			(1,592	)		1,992
Tax benefit from stock-based compensation		2,537			39,497			3,469
Net purchases of trading securities		(35,811	)		(483	)		0
Deferred sales commissions paid		(30,836	)		(48,431	)		(74,724	)
Contingent deferred sales charges received		20,012			25,081			595
Proceeds from sale of certain B-share-related future revenues		0			0			63,152
Other changes in assets and liabilities:
(Increase) decrease in receivables, net		(9,122	)		4,072			(1,387	)
Decrease (increase) in other assets		8,409			(5,776	)		1,149
Increase (decrease) in accounts payable and accrued expenses		1,717			(3,967	)		24,694
(Decrease) increase in income taxes payable		(1,073	)		352			1,099
(Decrease) increase in other current liabilities		(17,522	)		16,428			(3,350	)
(Decrease) increase in other long-term liabilities		(3,924	)		6,212			(311	)
Net cash provided by operating activities		186,006			297,045			248,817
Investing Activities
Additions to property and equipment		(2,341	)		(5,527	)		(6,288	)
Net proceeds from disposal of business, property, equipment and other assets		2,002			1,271			18
Cash paid for business acquisitions, net of cash acquired		(60,908	)		(67,589	)		(1,263	)
Purchases of securities available for sale		(215	)		(41	)		(834	)
Proceeds from redemptions of securities available for sale		695			73			451
Increase in restricted cash equivalents		(587	)		0			0
Net cash used by investing activities		(61,354	)		(71,813	)		(7,916	)
Financing Activities
Distributions to minority interest		(30,212	)		(9,925	)		(10,228	)
Contributions from minority interest		20,674			0			0
Dividends paid		(61,465	)		(44,703	)		(32,493	)
Proceeds from shareholders for stock-based compensation and other		2,650			5,546			4,286
Purchases of treasury stock		(25,732	)		(119,558	)		(120,037	)
Proceeds from new borrowings—nonrecourse		26,021			42,720			12,935
Payments on debt—nonrecourse		(66,147	)		(74,306	)		(11,572	)
Other financing activities		(808	)		(1,257	)		(1,237	)
Net cash used by financing activities		(135,019	)		(201,483	)		(158,346	)
Net (decrease) increase in cash and cash equivalents		(10,367	)		23,749			82,555
Cash and cash equivalents, beginning of year		256,213			232,464			149,909
Cash and cash equivalents, end of year	$	245,846		$	256,213		$	232,464
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest	$	51		$	89		$	2,279
Income taxes		103,542			77,879			133,270

(The accompanying notes are an integral part of these Consolidated Financial Statements.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(December 31, 2005, 2004 and 2003)

(1) Summary of Significant Accounting Policies

(a) Nature of Operations

Federated Investors, Inc. and its subsidiaries (Federated) provide investment advisory, administrative, distribution and other services primarily to Federated mutual funds, separately managed accounts and other sponsored products in both domestic and international markets. Federated also provides investment advisory and administrative services to corporations, employee benefit plans and private investment advisory accounts.

The majority of Federated’s revenue is derived from investment advisory services provided to mutual funds and separately managed accounts through various subsidiaries pursuant to investment advisory contracts. These subsidiaries are registered as investment advisers under the Investment Advisers Act of 1940 and with certain states.

Federated also derives revenue from providing administrative and other fund-related services to both sponsored and third-party investment products. Other fund-related services include distribution, shareholder servicing, trade clearing and retirement plan recordkeeping services.

Shares of the portfolios or classes of shares under management or administration by Federated are distributed by wholly owned subsidiaries, which are registered broker/dealers under the Securities Exchange Act of 1934 and under applicable state laws. Federated’s investment products are primarily distributed within the bank trust, broker/dealer and institutional markets.

(b) Basis of Presentation

The Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates, and such differences may be material to the Consolidated Financial Statements.

(c) Reclassification of Prior Period Financial Statements

Certain items previously reported have been reclassified to conform with the current year’s presentation.

(d) Principles of Consolidation

The Consolidated Financial Statements include the accounts of Federated Investors, Inc. and entities or sponsored products in which Federated holds a controlling financial interest. A controlling financial interest is determined either by the extent of Federated’s decision-making ability through voting interests, as prescribed by Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 94, “Consolidation of All Majority-Owned Subsidiaries,” or by the extent of Federated’s participation in the economic risks and rewards of the entity through variable interests pursuant to FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46). Federated provides for minority interests in consolidated entities for which Federated’s controlling financial interest is less than 100 percent. All significant intercompany accounts and transactions have been eliminated.

The equity method of accounting is used to account for investments in entities in which Federated’s ownership is between 20 and 50 percent and for investments in certain limited partnerships in which Federated is a general partner. Equity investments are carried at Federated’s share of net assets and are included in either “Investments” or “Other long-term assets” on the Consolidated Balance Sheets dependent upon management’s ability and intent to sell the investment. The proportionate share of income or loss is included in “Revenue – Other, net” in the Consolidated Statements of Income.

(e) Business Combinations

Business combinations have been accounted for under the purchase method of accounting. Results of operations of an acquired business are included from the date of acquisition. Management allocates the cost of an acquired entity to acquired assets, including identifiable intangible assets, and assumed liabilities based on their estimated fair values as of the date of acquisition. Any excess cost of the acquired entity that exists after this allocation process is recorded as “Goodwill” on the Consolidated Balance Sheets.

(f) Cash and Cash Equivalents

Cash and cash equivalents include money market accounts, interest-bearing deposits with banks and overnight federal funds sold.

(g) Restricted Cash Equivalents

Restricted cash equivalents represent an investment in a third-party sponsored money market account held in escrow as required by an agreement with certain sponsored mutual funds. The restricted cash equivalents represent a return of shareholder service fees to various sponsored mutual funds resulting from an administrative delay in the implementation of contractual terms. The restricted cash equivalents are being distributed to various mutual funds over a period not to exceed 18 months, ending in January 2007 in accordance with a payment schedule established by the independent boards of directors/trustees of the mutual funds. The offsetting obligation to the mutual funds is primarily recorded as a current liability in “Accounts payable and accrued expenses – affiliates” (see Note (21)). All interest earned on the escrow account is payable to the mutual funds.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(h) Investments

Investments include trading and available-for-sale securities held by Federated. Federated’s trading securities primarily represent investments in short-term, investment-grade debt instruments held by certain sponsored money market and fixed-income products, which are consolidated by Federated as a result of Federated’s relationship as the primary beneficiary of the product (see Note (4)). Trading securities are carried at fair value based on quoted market prices. Federated’s trading securities held at December 31, 2005 and 2004 are classified as current and are included in “Investments” on the Consolidated Balance Sheets. Changes in the fair values of trading securities are recognized in “Gain on securities, net” in the Consolidated Statements of Income.

Federated’s available-for-sale securities include investments in fluctuating-value mutual funds and asset-backed securities. These investments are carried at fair value based on quoted market prices or, in the absence of quoted market prices, discounted cash flows. These investments are classified as current or long-term assets and are included in “Investments” or “Other long-term assets,” respectively, on the Consolidated Balance Sheets based on management’s ability to sell the investment. At December 31, 2005 and 2004, Federated did not hold any available-for-sale securities that were classified as long-term assets. The unrealized gains or losses on securities available-for-sale are included net of tax in “Accumulated other comprehensive income, net of tax” on the Consolidated Balance Sheets. Realized gains and losses on these securities are computed on a specific-identification basis and recognized in “Gain on securities, net” in the Consolidated Statements of Income.

On a periodic basis, management evaluates the carrying value of investments for impairment. With respect to its investments in fluctuating-value mutual funds, management considers various criteria, including the duration and extent of a decline in fair value, the ability and intent of management to retain the investment for a period of time sufficient to allow the value to recover and the financial condition and near-term prospects of the investment, to determine whether a decline in fair value is other than temporary. If, after considering these criteria, management believes that a decline is other than temporary, the carrying value of the security is written down to fair value through the Consolidated Statements of Income. With respect to Federated’s investments in asset-backed securities, estimates of future cash flows are updated each quarter based on actual defaults, changes in anticipated default rates or other portfolio changes. The carrying values of these investments are written down to fair value at that time, as appropriate. Impairment adjustments are recognized in “Gain on securities, net” in the Consolidated Statements of Income.

(i) Derivatives

From time to time, Federated may consolidate a sponsored investment product that holds freestanding derivative financial instruments for trading purposes. Federated recognizes derivative instruments at fair value and records the changes in fair value in Nonoperating Income (Expense) on the Consolidated Statements of Income. Federated may also enter into derivative financial instruments to hedge price or interest-rate exposures with respect to seed investments in sponsored products or to hedge foreign-currency exchange risk. As of December 31, 2005, Federated did not hold any derivatives designated in a formal hedge relationship under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

(j) Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives ranging from one to 25 years. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or their respective lease terms, whichever is shorter. As property and equipment are placed out-of-service, the cost and related accumulated depreciation and amortization are removed and any residual net book value is reflected as a loss in “Nonoperating Income (Expenses) – Other, net” in the Consolidated Statements of Income.

Management reviews the remaining useful lives and carrying values of property and equipment assets to determine whether events and circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include a decrease in the market price of the asset, an accumulation of costs significantly in excess of the amount originally expected in the acquisition or development of the asset, historical and projected cash flows associated with the asset and an expectation that the asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Should there be an indication of a change in the useful life or an impairment in value, Federated compares the carrying value of the asset to the probability-weighted undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether an impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to fair value determined based on prices of similar assets if available or discounted cash flows. Impairment adjustments are recognized in “Operating Expenses – Other” in the Consolidated Statements of Income.

(k) Costs of Computer Software Developed or Obtained for Internal Use

Certain internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized. These capitalized costs are included in “Property and equipment, net” on the Consolidated Balance Sheets and are amortized using the straight-line method over the shorter of the estimated useful life of the software or four years. These assets are subject to the impairment test used for other categories of property and equipment described in Note (1)(j).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(l) Intangible Assets

Intangible assets, consisting primarily of goodwill, investment advisory contracts and noncompete agreements acquired in connection with various acquisitions, are recorded at fair value determined using a discounted cash flow model as of the date of acquisition. The discounted cash flow model considers various factors to project future cash flows expected to be generated from the asset. Given the investment advisory nature of Federated’s business and of the businesses acquired over the years, these factors typically include: (1) an estimated rate of change for underlying managed assets; (2) expected revenue per managed asset; (3) incremental operating expenses; (4) useful life of the acquired asset; and (5) a discount rate. Management estimates a rate of change for underlying managed assets based on a combination of an estimated rate of market appreciation or depreciation and an estimated net redemption or sales rate. Expected revenue per managed asset, incremental operating expenses and the useful life of the acquired asset are generally based on contract terms and historical experience. The discount rate is estimated at the current market rate of return. After the fair value of all separately identifiable assets has been estimated, the cost of the acquisition in excess of the sum of the fair values of these assets is allocated to goodwill.

Federated tests goodwill for impairment at least annually or when indicators of potential impairment exist. Federated uses a two-step process to test for and measure impairment that begins with an estimation of the fair value of its reporting unit. This first step is a screen for potential impairment, and if impairment has occurred, the second step measures the amount of impairment.

Federated amortizes separately identifiable intangible assets using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used. Federated uses either the straight-line or an accelerated method of amortization after considering specific characteristics of the underlying fund shareholder base to forecast the pattern in which the economic benefits will be consumed, including fund shareholder behavior, demographics and persistency levels. The assets are amortized over their estimated useful lives, which range from five to 14 years. Management periodically evaluates the remaining useful lives and carrying values of the intangible assets to determine whether events and circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include a decline in the level of managed assets, changes to contractual provisions underlying certain intangible assets and reductions in operating cash flows. Should there be an indication of a change in the useful life or impairment in value, Federated compares the carrying value of the asset and its related useful life to the projected undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to its fair value determined using discounted cash flows. Federated writes-off the cost and accumulated amortization balances for all fully amortized intangible assets.

(m) Deferred Sales Commissions and Nonrecourse Debt

Federated pays upfront commissions to broker/dealers to promote the sale of certain mutual fund shares. Under various fund-related contracts, Federated is entitled to distribution and servicing fees from the mutual fund over the life of such shares. Both of these fees are calculated as a percentage of average managed assets associated with the related classes of shares. For certain share classes, Federated is also entitled to receive a contingent deferred sales charge (CDSC), which is collected from certain redeeming shareholders.

For share classes that pay both a distribution fee and CDSC, excluding B-shares, Federated capitalizes all or a portion of the upfront commissions as deferred sales commissions, dependent upon expected recoverability rates. The deferred sales commission asset is amortized over the estimated period of benefit ranging from one to four years. The distribution and servicing fees are recognized in the Consolidated Statements of Income over the life of the mutual fund share class. CDSCs collected on these share classes are used to reduce the deferred sales commission asset.

For share classes that do not charge both a distribution fee and CDSC, Federated expenses the cost of the upfront commission in “Marketing and distribution” in the Consolidated Statements of Income as it is incurred and credits “Marketing and distribution” for any CDSCs collected.

Funding of the payments made by Federated of upfront commissions paid upon the sales of Class B shares of sponsored mutual funds is made through arrangements with independent third parties by selling the rights to all related future distribution fees, servicing fees and CDSCs. For financial reporting purposes, these arrangements are treated as financings. As a result, Federated capitalizes all of the upfront commissions as deferred sales commissions and recognizes B-share-related distribution fees and servicing fees in the Consolidated Statements of Income even though legal title to these fees has been transferred to the third party. In addition, Federated records nonrecourse debt equal to the proceeds received on the sale of future revenue streams. The debt does not contain a contractual maturity or stated interest rate. Interest rates are imputed based on current market conditions at the time of issuance. The deferred sales commission asset and nonrecourse debt balance are amortized over the estimated life of the B-share fund asset dependent upon the level and timing of cash flows from the sold future revenue streams, not to exceed eight years. CDSCs collected on the B-share fund assets are used to reduce the deferred sales commission asset.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

Federated reviews the carrying value of B-share-related deferred sales commission assets on a periodic basis to determine whether a significant long-term decline in the equity or bond markets or other events or circumstances indicate that an impairment in value may have occurred. Should there be an indication of an impairment in value, Federated compares the carrying value of the asset to the probability-weighted undiscounted cash flows from the sold future revenue streams over the remaining life of the underlying B-share fund asset to determine whether an impairment has occurred. Management writes down these asset and debt balances to fair value when reasonably estimable expected future cash flows indicate that cash flows will not be sufficient to fully amortize the remaining deferred sales commission asset and nonrecourse debt balance.

Sale accounting treatment was applied to account for the sale of distribution fees and CDSCs pursuant to the B-share funding arrangements in 2003. As a result, B-share-related distribution fees and related expenses are not reflected in Federated’s Consolidated Statements of Income for 2003. In addition, the Consolidated Statement of Cash Flows for 2003 reflects sale accounting treatment while 2005 and 2004 reflect financing treatment.

(n) Foreign Currency Translation

The balance sheets of certain wholly owned foreign subsidiaries of Federated are translated at the current exchange rate as of the end of the accounting period and the related income or loss are translated at the average exchange rate in effect during the period. Net exchange gains and losses resulting from these translations are excluded from income and are recorded in “Accumulated other comprehensive income, net of tax” on the Consolidated Balance Sheets. Foreign currency transaction gains and losses relating to Federated’s foreign subsidiaries are reflected in “Operating Expenses – Other” in the Consolidated Statements of Income.

(o) Treasury Stock

Federated accounts for acquisitions of treasury stock at cost and reports total treasury stock held as a deduction from total shareholders’ equity on the Consolidated Balance Sheets. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a specific-identification basis. The “Additional paid-in capital from treasury stock transactions” account on the Consolidated Balance Sheets is increased as Federated reissues treasury stock for more than the cost of the shares. If Federated issues treasury stock for less than its cost, “Additional paid-in capital from treasury stock transactions” is reduced to no less than zero. Once this account is at zero, any further required reductions are recorded to “Retained earnings” on the Consolidated Balance Sheets.

(p) Revenue Recognition

Revenue from providing investment advisory, administrative and other services (including distribution, shareholder servicing, clearing and recordkeeping) is recognized during the period in which the services are performed. Investment advisory, administrative and the majority of other service fees are based principally on the net asset value of the investment portfolios that are managed or administered by Federated. Federated may waive certain fees for services for competitive reasons or to meet regulatory or contractual requirements.

Federated has contractual arrangements with third parties to provide certain fund-related services. Management considers various factors to determine whether Federated’s revenue should be recorded based on the gross amount payable by the funds or net of payments to third-party service providers. Management’s analysis is based on whether Federated is acting as the principal service provider or is performing as an agent. The primary factors considered include: (1) whether the customer holds Federated or the service provider responsible for the fulfillment and acceptability of the services to be provided; (2) whether Federated has any practical latitude in negotiating the price to pay a third-party provider; (3) whether Federated or the customer selects the ultimate service provider; and (4) whether Federated has credit risk in the arrangement. Generally, the less the customer is directly involved with or participates in making decisions regarding the ultimate third-party service provider, the more supportive the facts are that Federated is acting as the principal in these transactions and should therefore report gross revenues. As a result of considering these factors, investment advisory fees, administrative service fees, distribution fees and certain other service fees are recorded gross of payments made to third parties. By contrast, management determined that in the case of shareholder services Federated acts as an agent; thus Federated records shareholder service fees net of certain third-party payments. Management reached this conclusion based largely on the fact that given the personalized nature of shareholder services, the customer, in this case the shareholder, has a direct relationship with their financial intermediary for the provision of shareholder services. Third-party payments for shareholder services recorded as an offset to revenue for the years ended December 31, 2005, 2004 and 2003 were $199.2 million, $165.8 million and $171.5 million, respectively.

(q) Employee Stock-Based Compensation

Federated uses the fair-value-based method of accounting for stock-based awards under the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS 123) for all awards granted, modified or settled in 2003 or later. Accordingly, Federated recognizes the estimated fair value of the stock-based awards as compensation expense on a straight-line or modified straight-line basis over the awards’ vesting periods, which vary in length from zero to ten years. For all employee-related stock option awards granted prior to 2003 with no subsequent modifications, Federated continues to apply the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations. Under APB 25, compensation expense is not recognized for stock option awards granted with an exercise price equal to or greater than the market value of Federated’s Class B common stock on the date of grant.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

With respect to restricted stock awards, the fair value of the award (the difference between the market value of Federated’s Class B common stock on the date of grant and the purchase price paid by the employee) is charged to compensation expense on a straight-line or modified straight-line basis over the period of employee performance during which the awards vest, which ranges from three to ten years.

Had compensation costs for all employee stock options and restricted stock been determined based upon fair values at the grant dates in accordance with SFAS 123, Federated would have experienced net income and earnings per share similar to the pro forma amounts indicated below for the years ended December 31. As allowed by SFAS 123, Federated calculates compensation as if all instruments granted are expected to vest and recognizes the effect of actual forfeitures as they occur. In addition, for awards with provisions that allow for accelerated vesting upon retirement, Federated recognizes the expense over the vesting period, regardless of the employee’s attainment of retirement age.

In thousands, except per share data	2005			2004			2003
Net income	$	160,283		$	181,179		$	191,485
Add back: Stock-based employee compensation expense included in reported net income, net of related tax effects		2,181			540			217
Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards1, net of related tax effects		(5,401	)		(2,884	)		(5,600	)
Pro forma net income	$	157,063		$	178,835		$	186,102
Earnings per share:
Basic earnings per share	$	1.51		$	1.68		$	1.78
Pro forma basic earnings per share	$	1.48		$	1.66		$	1.73
Diluted earnings per share	$	1.48		$	1.64		$	1.71
Pro forma diluted earnings per share	$	1.45		$	1.62		$	1.66

1 “All awards” refers to awards granted, modified or settled on or after January 1, 1995, as required by SFAS 123.

Federated estimated the grant-date fair value using the Black-Scholes option-pricing model with the following weighted-average assumptions for options granted in 2005, 2004 and 2003, respectively: dividend yields of 2.19%, 1.34% and 1.03%; expected volatility factors of 21.6%, 24.9% and 27.8%; risk-free interest rates of 3.77%, 3.69% and 2.77%; and an expected life of 5.0 years, 5.6 years and 5.0 years.

(r) Leases

Federated classifies leases as either capital or operating leases in accordance with the provisions of SFAS No. 13, “Accounting for Leases.” Rent expense under noncancelable operating leases with scheduled rent increases or rent holidays is accounted for on a straight-line basis over the lease term, beginning on the date of initial possession or the effective date of the lease agreement. The amount of the excess of straight-line rent expense over scheduled payments is recorded as a deferred liability. Build-out allowances and other such lease incentives are recorded as deferred credits, and are amortized on a straight-line basis as a reduction of rent expense beginning in the period they are deemed to be earned, which generally coincides with the effective date of the lease. The current portion of unamortized deferred lease costs and build-out allowances is included in “Other current liabilities – other” and the long-term portion is included in “Other long-term liabilities – other” on the Consolidated Balance Sheets.

(s) Advertising Costs

Federated generally expenses the cost of all advertising and promotional activities as incurred. Certain printed matter, however, such as sales brochures, are accounted for as prepaid supplies and are included in “Prepaid and other current assets” on the Consolidated Balance Sheets until they no longer are owned or expected to be used, at which time their costs are expensed.

(t) Income Taxes

Federated accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

taxable income in the years in which those temporary differences are expected to be recovered or settled. Federated recognizes a valuation allowance if, based on the weight of available evidence regarding future taxable income, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

(u) Earnings Per Share

Earnings per share are calculated in accordance with SFAS No. 128, “Earnings Per Share,” which requires that both basic and diluted earnings per share be presented. Basic earnings per share is based on the weighted-average number of common shares outstanding during each period excluding nonvested restricted stock. Diluted earnings per share are based on basic shares as determined above plus incremental shares that would be issued upon the assumed exercise of in-the-money stock options and nonvested restricted stock using the treasury stock method.

(v) Comprehensive Income

Federated reports all changes in comprehensive income in the Consolidated Statements of Changes in Shareholders’ Equity, in accordance with the provisions of SFAS No. 130, “Reporting Comprehensive Income.” Comprehensive income includes net income, unrealized gains and losses on securities available for sale, net of tax, and foreign currency translation adjustments, net of tax.

(w) Loss Contingencies

In accordance with SFAS No. 5, “Accounting for Contingencies,” Federated accrues for estimated costs, including legal costs related to existing lawsuits, claims and proceedings when it is probable that a liability has been incurred and the costs can be reasonably estimated. Accruals are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter. Significant differences could exist between the actual cost required to investigate, litigate and/or settle a claim or the ultimate outcome of a suit and management’s estimate. These differences could have a material impact on Federated’s results of operations, financial position or cash flows. Recoveries of losses are recognized in the Consolidated Statements of Income when receipt is deemed probable.

(x) Business Segments

SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” (SFAS 131) establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and assess performance.

Federated operates in one operating segment, the asset management business. Federated’s Chief Executive Officer (CEO) is the Company’s chief operating decision maker as defined by SFAS 131. Federated’s CEO utilizes a consolidated approach to assess performance and allocate resources.

(y) Recent Accounting Pronouncements

SFAS 123(R) – In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123(R)). SFAS 123(R) supersedes APB 25, and amends SFAS No. 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123, which as discussed above in Note (1)(q), Federated adopted on a prospective basis as of January 1, 2003. However, SFAS 123(R) requires all share-based payments to employees, including prior grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Securities and Exchange Commission (SEC) announced in April 2005 that it would require that registrants that are not small business issuers adopt SFAS 123(R) no later than the beginning of the first fiscal year beginning after June 15, 2005. Federated adopted SFAS 123(R) using the modified prospective method effective January 1, 2006.

Since (1) SFAS 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and (2) Federated adopted SFAS 123 using the prospective transition method, which applied only to awards granted, modified or settled after the adoption date, compensation costs for certain previously granted awards that were not recognized under SFAS 123 will be recognized under SFAS 123(R). SFAS 123(R) will require Federated to change its policy for accounting for retirement-eligible employees on a prospective basis. In addition, SFAS 123(R) will require Federated to change its policy for accounting for forfeitures. SFAS 123(R) requires companies to include estimated forfeitures in the initial estimate of compensation cost. Upon implementation of SFAS 123(R), Federated will recognize a cumulative effect of a change in accounting principle, net of tax to reflect the compensation cost that would not have been recognized in prior periods had forfeitures been estimated in those periods. Assuming no additional grants or modifications to awards that are not fully vested as of the date of adoption, the impact of adopting SFAS 123(R) will approximate the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note (1)(q) for at least the next three years. SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation costs to be reported as a financing cash flow, rather than as an operating cash flow as required under literature applicable to Federated for 2005 reporting. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While Federated cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized for such tax deductions were $2.5 million, $39.5 million and $3.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

FSP 109-2 – In December 2004, the FASB issued Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004,” which provides guidance with respect to reporting the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the Jobs Act). The Jobs Act provides conditions under which the repatriation of certain foreign earnings in either 2004 or 2005 will qualify for preferential tax treatment. If these conditions are met, a maximum 5.25% income tax rate rather than the maximum regular tax rate of 35% would apply to eligible repatriations of certain foreign earnings.

Federated completed its evaluation of these provisions in conjunction with an analysis of its foreign earnings available for repatriation. As a result of that review, Federated determined that it was not feasible to pay the level of dividend required to obtain this preferential tax treatment.

FSP EITF 85-24-1 – In March 2005, the FASB issued Staff Position EITF 85-24-1 “Application of EITF Issue No. 85-24, ‘Distribution Fees by Distributors of Mutual Funds That Do Not Have a Front-End Sales Charge,’ When Cash for the Right to Future Distribution Fees for Shares Previously Sold Is Received from Third Parties” (FSP EITF 85-24-1). FSP EITF 85-24-1, which addresses when revenue should be recognized by the seller for sales of rights to future cash flows relating to certain distribution fees, was effective for reporting periods beginning after March 11, 2005. Funding of the payments made by Federated of upfront commissions paid upon the sale of Class B shares of sponsored mutual funds is made through arrangements with independent third parties by selling the rights to all related future distribution fees, servicing fees and CDSCs. Federated adopted the provisions of FSP EITF 85-24-1 effective April 1, 2005. The adoption did not have an impact on Federated’s results of operations or financial position. For financial reporting purposes, Federated continues to account for these arrangements as financings.

EITF 04-5 – In June 2005, the FASB ratified the consensus in EITF Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (EITF 04-5). EITF 04-5 provides guidance for determining whether a general partner controls a limited partnership. The guidance broadly provides that the general partner in a limited partnership is presumed to control that limited partnership. However, that presumption can be overcome if the limited partners have either substantive kick-out rights or substantive participating rights. The effective date for applying the guidance in EITF 04-5 is June 29, 2005 for all new or recently modified limited partnerships and no later than the first reporting period in fiscal years beginning after December 15, 2005, for all other limited partnerships. During 2005, Federated applied the provisions of EITF 04-5 to account for a wholly owned subsidiary’s general partnership interest in a newly formed limited partnership. The adoption of this EITF did not have a material impact on Federated’s financial position or results of operations.

(2) Business Combinations and Acquisitions

Since 1998, Federated has participated in a joint venture arrangement in Germany with LVM Landwirtschaftlicher-Versicherungsverein Munster a.G. (LVM), whereby each investor owned a 50% interest in Federated Asset Management GmbH (FAM), an administrator of separate accounts and distributor of Federated offshore fund products in Germany and other German-speaking countries in Europe. On December 30, 2005, Federated acquired LVM’s shares in FAM. This transaction was accounted for using the purchase method of accounting and as a result, Federated consolidated the assets and liabilities of FAM in its Consolidated Balance Sheet as of December 31, 2005 based on their fair values. Federated’s equity interest in the operating results of FAM for 2005 is included in “Revenue – Other, net” in the Consolidated Statements of Income.

In the third quarter 2005, assets of three equity mutual funds previously advised by Investors Management Group Ltd., a wholly owned subsidiary of AMCORE Financial, Inc. totaling approximately $142.0 million were acquired by two sponsored mutual funds. As a result of the transaction, Federated recorded an investment advisory contract intangible asset, which is being amortized on an accelerated basis over a seven-year useful life.

During the second quarter 2005, Federated completed the acquisition of the cash management business of Alliance Capital Management L.P. (Alliance Acquisition). As a result of the acquisition, approximately $19.3 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services were transitioned into Federated money market funds. The upfront cost of this acquisition was $27.1 million, which included $25.0 million in purchase price and $2.1 million in transaction costs. The purchase agreement also provides for contingent purchase price payments payable over five years. The contingent purchase price payments are calculated as (1) a percentage of revenues less certain operating expenses directly attributed to these assets over the five-year period and (2) a one-time payment payable if certain net revenue targets are met. At current asset levels, these additional payments would approximate $79.7 million over the five-year period. This acquisition was accounted for using the purchase method of accounting. Accordingly, Federated began recognizing revenue and expenses related to the acquired assets in the Consolidated Statements of Income as of the acquisition date and allocated the cost of the acquisition to the acquired assets based on their estimated fair values as of the acquisition date. Federated recorded two investment advisory contract intangible assets totaling $23.4 million. These assets are being amortized on an accelerated basis over a weighted-average amortization period of nine years. Federated also recorded an intangible asset of $5.0 million representing the fair value of the noncompete agreement obtained from Alliance. This asset is being amortized on a straight-line basis

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

over a seven-year useful life. Contingent purchase price payments totaling $8.4 million were recorded as a liability in “Other current liabilities – other” in the Consolidated Balance Sheets at December 31, 2005, and will be paid in the second quarter of 2006. Goodwill of $7.0 million, which represents the excess recorded costs of this acquisition over the fair value of the investment advisory contract and noncompete agreement intangible assets, has been recorded as of December 31, 2005 and is deductible for tax purposes.

The following table summarizes unaudited pro forma financial information assuming the Alliance Acquisition occurred at the beginning of the years ended December 31, 2005 and 2004. This pro forma financial information is for informational purposes only and is not indicative of actual results that would have occurred had the Alliance Acquisition been completed on the assumed dates and it is not indicative of future results. In addition, the following pro forma financial information has not been adjusted to reflect any operating efficiencies that may be realized as a result of the Alliance Acquisition.

in thousands, except per share data	2005		2004
Revenue	$	945,987	$	943,354
Income from continuing operations	$	164,933	$	183,955
Net income	$	161,924	$	185,414
Income from continuing operations per basic share	$	1.55	$	1.71
Income from continuing operations per diluted share	$	1.52	$	1.67
Net income per basic share	$	1.53	$	1.72
Net income per diluted share	$	1.50	$	1.68

In the third quarter 2004, assets of four mutual funds previously advised by Banknorth N.A., a subsidiary of Banknorth Group, Inc., totaling approximately $265 million were acquired by four sponsored mutual funds. This transaction occurred in connection with an agreement between Federated, Banknorth Group, Inc. and Banknorth N.A. As a result of this transaction, Federated recorded an investment advisory contract intangible asset, which is being amortized on an accelerated basis over a ten-year useful life.

In the second quarter 2002, Federated signed an agreement with FirstMerit Advisors, Inc. and FirstMerit Corporation pursuant to which assets totaling approximately $250 million, previously advised by FirstMerit, were acquired by various Federated funds (FirstMerit Acquisition). In the fourth quarter 2001, assets of three mutual funds previously advised by Rightime Econometrics, Inc., totaling approximately $148 million, were acquired by Federated Capital Appreciation Fund in connection with an agreement between Federated, Lincoln Investment Planning, Inc. and Rightime Econometrics, Inc. (Rightime Acquisition). The upfront purchase price for each of these acquisitions was capitalized as an investment advisory contract intangible asset. The agreements also require Federated to pay certain contingent payments on a periodic basis (either monthly or quarterly) over the three- to five-year periods following the completion of the acquisitions calculated as a percentage of assets under management. See Note (23) for information regarding these contingent payments.

In the second quarter 2001, Federated completed the acquisition of substantially all of the business of the former advisor of the Kaufmann Fund (Kaufmann Acquisition). Federated agreed to pay up to $165.5 million in additional purchase price contingent upon the achievement of specified revenue growth (see Note (23)). In 2005, 2004 and 2002, $33.1 million, $66.2 million and $33.1 million, respectively, of additional purchase price was paid and recorded as goodwill. As of December 31, 2005, a $33.1 million contingent payment has been accrued in “Other current liabilities – affiliates” and will be paid in 2006. This represents the final contingent purchase price payment under the terms of the acquisition agreement.

(3) Discontinued Operations

(a) Sale of InvestLink Technologies, Inc.

During the third quarter 2005, Federated sold its interest in InvestLink Technologies, Inc., an indirect, wholly owned subsidiary (InvestLink), to an independent third party. InvestLink’s primary business was to provide software-related solutions for third-party administrators of defined contribution plans. The sale resulted in the disposal of $1.8 million in total InvestLink net assets, which consisted primarily of $0.8 million of goodwill, $0.7 million of fixed assets and $0.3 million of receivables/accrued revenues. After taking selling costs into consideration, Federated recognized a loss on the sale of InvestLink of $1.7 million, which included tax expense of $0.3 million. This loss on sale was included in “Discontinued Operations, net of tax” on the Consolidated Statements of Income.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

The results of operations of InvestLink, also included in “Discontinued operations, net of tax,” were as follows for the years ended December 31:

in thousands	2005			2004			2003
Net revenue from discontinued operations	$	1,385		$	3,615		$	3,466
Pre-tax loss from discontinued operations		(1,750	)		(1,015	)		(1,281	)
Income tax benefit		(612	)		(354	)		(448	)
Loss from discontinued operations, net of tax	$	(1,138	)	$	(661	)	$	(833	)

(b) Sale of Federated’s Transfer Agency Business

In the second quarter 2004, Federated completed the sale of its transfer agency business to Boston Financial Data Services. Total net assets included in the transfer agency sale were approximately $1.1 million and consisted primarily of $0.7 million of goodwill and $0.7 million of fixed assets offset by $0.3 million of unamortized balances of specifically identified refurbishment allowances and deferred rent associated with the assignment of a building lease. There was no material gain or loss associated with this transaction.

The results of operations of the transfer agency business included in “Discontinued operations, net of tax” were as follows for the years ended December 31:

in thousands	2005			2004		2003
Net revenue from discontinued operations	$	0		$	14,738	$	27,499
Pre-tax (loss) income from discontinued operations		(290	)		3,018		5,268
Income tax (benefit) provision		(101	)		1,056		1,844
(Loss) income from discontinued operations, net of tax	$	(189	)	$	1,962	$	3,424

For the year ended December 31, 2005, Federated reported a $0.2 million loss from the transfer agency business discontinued operations, net of tax, which was primarily attributable to residual costs associated with the sold transfer agency business.

(4) Variable Interest Entities

Federated is involved with various entities in the normal course of business that may be deemed to be variable interest entities (VIEs). In 2005, Federated determined that it was the primary beneficiary of certain VIEs and, as a result, consolidated the assets, liabilities and operations of these VIEs in its Consolidated Financial Statements.

(a) Consolidated VIEs

Under FIN 46, most of Federated’s sponsored mutual funds meet the definition of a VIE. In 2005, Federated invested in certain newly launched products sponsored by Federated in order to provide investable cash to the product thereby allowing the product to establish a performance history. As the sole or majority investor in these various new products, Federated was deemed to be the primary beneficiary. At December 31, 2005, the aggregate assets and debt of the products that Federated consolidated were $36.0 million and $0.1 million, respectively, and Federated recorded $0.7 million to “Minority interest” on Federated’s Consolidated Balance Sheets. The assets of the products are primarily classified as “Investments” on Federated’s Consolidated Balance Sheets. Neither creditors nor equity investors in the products have any recourse to Federated’s general credit.

(b) Non-Consolidated VIEs

Federated acts as the investment manager for certain investment products which are deemed to be VIEs. In addition to Federated’s involvement as the investment manager, Federated may also hold investments in these products. The products generally include domestic and offshore money market and fluctuating-value fund products, closed-end fixed-income funds and a group trust. Federated is not the primary beneficiary of these VIEs and therefore Federated has not consolidated these entities. As of December 31, 2005, total assets under management in these investment products approximated $166.3 billion. Federated’s investments in these products represent its maximum exposure to loss. As of December 31, 2005, Federated’s investment in these investment products was $240.5 million, all but $1.8 million of which was invested in money market products.

At December 31, 2005, Federated also acted as the investment manager for two collateralized debt obligations (CDOs) which meet the definition of a VIE. The CDOs are alternative investment vehicles created for the sole purpose of issuing collateralized debt instruments that offer investors the opportunity for returns that vary with the risk level of their investment. The notes issued by the CDOs are backed by diversified portfolios consisting primarily of structured debt and had original expected maturities of twelve years. As of December 31, 2005, aggregate total assets and aggregate total obligations of the CDOs approximated $287.6 million and $357.3 million, respectively. Federated has no remaining carrying value for its investments in these CDOs and therefore has no related risk of loss.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(5) Investments

Investments as of December 31, 2005 and 2004 included trading and available-for-sale securities. All investments held as of December 31, 2005 and 2004 were classified as current and are included in “Investments” on the Consolidated Balance Sheets.

Federated’s trading securities totaled $36.4 million and $0.5 million at December 31, 2005 and 2004, respectively. Federated consolidated certain sponsored products into its Consolidated Financial Statements as a result of Federated’s relationship as the primary beneficiary of the products (see Note (4)). As a result, all investments held by these sponsored products were included in Federated’s Consolidated Balance Sheet as of December 31, 2005 as trading securities. These investments primarily represented short-term, investment-grade debt securities.

Available-for-sale securities (see Note (1)(h)) were as follows:

in thousands	Cost		Gross Unrealized				Estimated Market Value
			Gains		(Losses)
At December 31, 2005
Fluctuating-value mutual funds	$	1,801	$	206	$	0	$	2,007
At December 31, 2004
Fluctuating-value mutual funds	$	819	$	166	$	0	$	985
Asset-backed securities1		564		0		0		564
Total available-for-sale securities	$	1,383	$	166	$	0	$	1,549

1 Amount represents Federated’s investment in its mortgage-backed CDO which was liquidated in January 2005.

At December 31, 2005, Federated consolidated three derivative financial instruments included in the investment portfolio of a wholly owned sponsored mutual fund. One such instrument was a total-return swap with a notional amount of $4.5 million and an asset balance recorded at fair value of $0.1 million. The other two instruments were futures contracts with an aggregate notional value of $0.5 million. The futures contracts are settled daily and as such, had no carrying value at December 31, 2005.

The following table presents gains and losses recognized in the Consolidated Statements of Income in connection with investments for the years ended December 31:

in thousands	2005			2004			2003
Unrealized gain on trading securities	$	34		$	28		$	0
Realized gains1		256			12			4
Realized losses2		(27	)		(3	)		0
Gain on securities, net	$	263		$	37		$	4

1 Of the realized gains, $71, $11 and $4 related to the disposal of available-for-sale securities in 2005, 2004 and 2003, respectively.

2 The realized losses recognized in 2005 and 2004 related entirely to the disposal of trading securities.

(6) Intangible Assets and Goodwill

Federated’s identifiable intangible assets consisted of the following at December 31:

	2005							2004
in thousands	Cost		Accumulated Amortization			Carrying Value		Cost		Accumulated Amortization			Carrying Value
Investment advisory contracts1	$	97,923	$	(37,821	)	$	60,102	$	74,175	$	(26,467	)	$	47,708
Noncompete agreements2		20,448		(13,725	)		6,723		15,400		(11,379	)		4,021
Other		12		(5	)		7		1,612		(1,412	)		200
Total identifiable intangible assets3	$	118,383	$	(51,551	)	$	66,832	$	91,187	$	(39,258	)	$	51,929

1 Weighted average amortization period of 10.1 years

2 Weighted average amortization period of 6.2 years

3 Weighted average amortization period of 9.5 years

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

The increase in identifiable intangible assets relates primarily to the Alliance Acquisition. As a result of the acquisition, Federated recorded two investment advisory contract intangible assets totaling $23.4 million. These assets are being amortized on an accelerated basis over a weighted-average amortization period of nine years. Federated also recorded an intangible asset of $5.0 million representing the fair value of the noncompete agreement obtained from Alliance. This asset is being amortized on a straight-line basis over a seven-year useful life. See Note (2) for a complete discussion on recent acquisitions.

Amortization expense for identifiable intangible assets was $14.2 million, $10.7 million and $10.5 million in 2005, 2004 and 2003, respectively. Following is a schedule of expected aggregate annual amortization expense for intangible assets in each of the five years following December 31, 2005 assuming no new acquisitions or impairments:

in thousands
2006	$	15,294
2007		12,580
2008		10,914
2009		10,050
2010		9,295

Goodwill at December 31, 2005 and 2004 was $303.2 million and $260.0 million, respectively. During the first quarter 2005, Federated recorded $3.6 million of additional goodwill to account for the additional portion of the contingent purchase price paid in May 2005 in connection with the Kaufmann Acquisition. During the fourth quarter 2005, Federated recorded an additional $33.1 million of goodwill to account for the portion of the contingent purchase price to be paid in May 2006. Approximately 88% and 89% of total goodwill on the Consolidated Balance Sheets at December 31, 2005 and 2004, respectively, represented goodwill resulting from this acquisition.

During the second half of 2005, Federated recorded goodwill of $7.0 million applicable to the Alliance Acquisition. See Note (2) for additional information.

With the sale of Federated’s investment in InvestLink in the third quarter 2005 (see Note (3)(a)) Federated sold $0.8 million in goodwill.

(7) Other Long-Term Assets

Federated’s other long-term assets consisted of the following at December 31:

in thousands	2005		2004
Lease-related receivable	$	0	$	3,399
Equity investment in the German joint venture company		0		2,578
Security deposits		296		301
Prepaid and other assets		308		120
Other long-term assets	$	604	$	6,398

The lease-related receivable represents a refurbishment allowance associated with Federated’s amended operating lease for its corporate headquarters. This allowance will be received in 2006 and accordingly, was reclassified to “Receivables – other, net” in 2005.

On December 30, 2005, Federated acquired all outstanding shares of FAM. This transaction was accounted for using the purchase method of accounting and as a result, Federated fully consolidated the assets and liabilities of FAM in its Consolidated Balance Sheet as of December 31, 2005 (see Note (2)).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(8) Property and Equipment

Property and equipment consisted of the following at December 31:

in thousands	Estimated Useful Life	2005			2004
Computer equipment1	1 to 6 years	$	18,561		$	20,170
Transportation equipment	3 or 25 years		11,876			11,873
Leasehold improvements	Up to term of lease		8,726			8,879
Software development	Up to 4 years		5,504			8,874
Office furniture and equipment	2 to 10 years		7,556			8,772
Total cost/fair value			52,223			58,568
Accumulated depreciation and amortization2			(30,217	)		(31,402	)
Property and equipment, net		$	22,006		$	27,166

1 Amounts include $1,128 and $3,185 recorded under capital lease arrangements for 2005 and 2004, respectively.

2 Amounts include $786 and $2,580 related to capital lease arrangements for 2005 and 2004, respectively.

Depreciation and amortization expense from continuing operations was $6.3 million, $7.5 million and $8.6 million for the years ended December 31, 2005, 2004 and 2003, respectively, and included the depreciation of assets recorded under capital lease arrangements.

(9) Other Current Liabilities – Other

Federated’s “Other current liabilities – other” as of December 31, 2005 included $8.4 million related to the purchase price of the Alliance Acquisition. See Note (2) for additional information on this acquisition.

Federated’s “Other current liabilities – other” as of December 31, 2004 included $16.5 million related to an insurance recovery for a claim submitted to cover costs associated with the internal review, governmental investigations and civil litigation into past mutual fund trading practices. See Note (23) for further information on the internal review of mutual fund trading activities. The retention of this advance payment was contingent upon approval of the claim. In the event that all or a portion of the claim was denied, Federated would have been required to repay all or a portion of this advance payment. During the third quarter of 2005, final approval of this claim was obtained and the proceeds were recorded as reductions to the income statement line items originally charged.

(10) Recourse Debt

As of December 31, 2005, Federated was able to borrow up to $150.0 million under the provisions of the Second Amended and Restated Credit Agreement as amended (the Credit Facility), the term of which expires in November 2006 and may be renewed for additional 364-day periods. Under this agreement, Federated pays a facility fee of 0.125% on the revolving credit commitment. At December 31, 2005, the outstanding balance under the Credit Facility was zero. The Credit Facility contains various financial and nonfinancial covenants. Federated was in compliance with all such covenants at December 31, 2005. Several of Federated’s wholly owned subsidiaries guarantee any obligation of Federated that arises pursuant to the Credit Facility.

In September 2005, a wholly owned subsidiary of Federated extended its discretionary line of credit agreement with a bank under which it can borrow up to $50.0 million for the payment of obligations associated with daily net settlements of mutual funds processed through the National Securities Clearing Corporation. Borrowings under this 364-day agreement bear interest at a rate mutually agreed upon by the bank and the borrower at the time of the borrowing and are payable on demand. At December 31, 2005, there was no outstanding balance under this agreement. Federated guarantees the payment of any obligation owed by the subsidiary in connection with this line of credit.

See Note (15) for information on capital leases.

(11) Deferred Sales Commissions and Nonrecourse Debt

Deferred sales commissions consisted of the following at December 31:

in thousands	2005		2004
Deferred sales commissions on B-shares, net	$	154,544	$	283,056
Other deferred sales commissions, net		3,018		3,594
Deferred sales commissions, net	$	157,562	$	286,650

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

Since 1997, Federated has funded sales commissions paid for Class B shares of sponsored mutual funds under various arrangements with independent third parties by selling its right to future cash flow streams associated with the B-share deferred sales commissions. As a result of these funding arrangements, Federated has recorded nonrecourse debt, which comprised the following at December 31:

dollars in thousands	Weighted-Average Interest Rates at December 31,				Remaining Amortization Period at December 31, 2005	2005		2004
	2005		2004
Financings through March 1997	N/A		7.60	%	N/A	$	0	$	3,016
Financings between April 1997 and September 2000	8.30	%	8.21	%	2.8 years		23,843		124,370
Financings between October 2000 and December 2003	5.14	%	5.34	%	6.0 years		86,445		125,031
Financings between January 2004 and December 2005	5.16	%	4.75	%	8.0 years		49,496		35,514
Total nonrecourse debt						$	159,784	$	287,931

Federated’s nonrecourse debt does not contain a contractual maturity but is amortized up to eight years dependent upon the cash flows of the related B-share fund assets, which are applied first to interest and then principal. Interest rates are imputed based on current market conditions at the time of issuance.

In 2004 and 2005, management performed recoverability analyses of the deferred sales commission assets and nonrecourse debt related to B-share financings closed through September 2000. The evaluations indicated that future cash flows will not be sufficient to fully amortize the related asset and debt balances. As such, in addition to the normal amortization occurring during the period based on B-share-related distribution, shareholder service and CDSC fee cash flows, the B-share-related deferred sales commission asset balance was written down by $87.9 million and $7.5 million during 2005 and 2004, respectively, while the nonrecourse debt was written down by $88.0 million and $7.6 million during 2005 and 2004, respectively. There was no material impact on the results of operations as a result of this write-down.

Federated has an agreement with an independent financial institution for funding of the B-share sales commissions through December 2006.

(12) Employee Benefit Plans

(a) 401(k)/Profit Sharing Plan

Federated offers a 401(k) plan covering substantially all employees. Under the 401(k) plan, employees can make salary deferral contributions at a rate of 1% to 25% of their annual compensation (as defined in the 401(k) plan), subject to Internal Revenue Code limitations. Federated makes a matching contribution in an amount equal to 100% of the first 2% that each participant defers and 50% of the next 4% of deferral contributions. Forfeitures of nonvested matching contributions are used to offset future matching contributions.

Vesting in Federated’s matching contributions commences once a participant in the 401(k) plan has been employed at least two years and worked at least 1,000 hours per year. Upon completion of two years of service, 20% of Federated’s contribution included in a participant’s account vests and 20% vests for each of the following four years if the participant works 1,000 hours per year. Employees are immediately vested in their 401(k) salary deferral contributions.

Matching contributions to the 401(k) plan recognized in “Compensation and related” expense amounted to $3.1 million, $3.0 million and $2.9 million for 2005, 2004 and 2003, respectively.

A Federated employee becomes eligible to participate in the Profit Sharing Plan upon the first day of employment. The Profit Sharing Plan is a defined contribution plan to which Federated may contribute amounts as authorized by its board of directors. No contributions have been made to the Profit Sharing Plan in 2005, 2004 or 2003. At December 31, 2005, the Profit Sharing Plan held 1.3 million shares of Federated Class B common stock.

(b) Employee Stock Purchase Plan

Federated offers an Employee Stock Purchase Plan which allows employees to purchase a maximum of 750,000 shares of Class B common stock. Employees may contribute up to 10% of their salary to purchase shares of Federated’s Class B common stock on a quarterly basis at the market price. The shares under the plan may be newly issued shares, treasury shares or shares purchased on the open market. As of December 31, 2005, 77,348 shares were purchased by the plan on the open market since the plan’s inception in 1998.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(13) Other Compensation Plans

Federated’s long-term incentive compensation has been provided for under the Stock Incentive Plan (the Plan), as amended and subsequently approved by shareholders in April 2002. Stock-based awards are granted to reward Federated’s employees and independent directors who have contributed to the success of Federated and to provide incentive to increase their efforts on behalf of Federated. Under the plan, a total of 20.3 million shares of Class B common stock have been authorized for granting stock-based awards in the form of restricted stock, stock options or other stock-based awards. On January 26, 2006, the board of directors, subject to approval by the Class A shareholder, amended the Plan to increase the number of shares awardable under the Plan by 3.3 million shares of Class B common stock. For existing plans, vesting occurs over a zero- to ten-year period and, in certain cases, may be accelerated as a result of meeting specific performance criteria.

(a) Restricted Stock

During 2005, Federated awarded 212,796 shares of restricted Federated Class B common stock in connection with a bonus program in which certain key employees received a portion of their bonus in the form of restricted stock under the Plan. This restricted stock was granted on the bonus payment date, was issued out of treasury and will vest over a three-year period. Also during 2005, Federated sold 467,000 shares of restricted Federated Class B common stock under the Plan to certain key employees. During the restricted period, the recipient receives dividends on the shares. Forfeitures of 85,203 shares occurred in 2005; no forfeitures occurred in either 2004 or 2003. In addition, during 2005, employees sold 2,480 shares of restricted stock to fund their tax liabilities related to the vesting of their shares.

The following table presents information on restricted stock grants made under the Plan during the years ending:

	2005		2004		2003
Number of shares granted		679,796		362,000		40,000
Weighted-average grant-date fair value per share	$	27.52	$	25.53	$	22.08

Compensation expense related to restricted stock was $3.3 million, $0.7 million and $0.5 million for the years ended December 31, 2005, 2004 and 2003, respectively.

(b) Stock Options

In 2005, 2004 and 2003, independent directors were awarded 12,000, 16,500 and 6,750 stock options, respectively. Each vested option may be exercised, during the stated exercise period, for the purchase of one share of Class B common stock at the exercise price. The number of stock options exercised in 2005, 2004 and 2003 were 274,348, 2,135,958 and 479,037, respectively.

The following table summarizes the status of and changes in Federated’s stock option program during the past three years:

	Options		Weighted-Average Exercise Price		Options Exercisable	Weighted-Average Exercise Price
Outstanding at end of 2002	11,910,804		$	16.11	1,771,254	$	17.37
Granted	6,750		$	27.22
Exercised	(479,037	)	$	8.67
Forfeited	(292,975	)	$	10.55
Outstanding at end of 2003	11,145,542		$	16.58	1,302,217	$	20.64
Granted	16,500		$	30.42
Exercised	(2,135,958	)	$	2.19
Forfeited	(886,000	)	$	22.34
Outstanding at end of 2004	8,140,084		$	19.75	1,155,709	$	21.69
Granted	12,000		$	27.44
Exercised	(274,348	)	$	4.54
Forfeited	(129,625	)	$	16.63
Outstanding at end of 2005	7,748,111		$	20.36	1,083,861	$	22.75

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

Additional information regarding stock options outstanding at December 31, 2005 follows:

Range of Exercise Prices	Outstanding	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life (in Years)	Exercisable	Weighted-Average Exercise Price of Exercisable Options
$1.29	36,000	$	1.29	0.5	36,000	$	1.29
$4.00	1,470,825	$	4.00	1.5	0	$	0.00
$11.04 to $13.29	1,494,225	$	12.64	3.3	318,300	$	12.50
$18.08 to $25.35	2,118,831	$	24.18	5.6	298,081	$	25.35
$26.95 to $35.00	2,628,230	$	31.07	5.7	431,480	$	30.31
	7,748,111	$	20.36	4.4	1,083,861	$	22.75

Information regarding the fair value of options granted in 2005, 2004 and 2003 follows:

	2005		2004		2003
Exercise price equals market price on date of grant:
Weighted-average grant-date fair value	$	5.45	$	7.97	$	7.16
Weighted-average exercise price	$	27.44	$	30.42	$	27.22

No awards were granted with an exercise price that was less than or greater than the market price on the date of grant in 2005, 2004 or 2003.

Total compensation expense related to stock options was $1.0 million, $0.9 million and $1.1 million for the years ended December 31, 2005, 2004 and 2003, respectively.

(14) Common Stock

The Class A common stockholder has the entire voting rights of Federated; however, without the consent of the majority of the holders of the Class B common stock, the Class A common stockholder cannot alter Federated’s structure, dispose of all or substantially all of Federated’s assets, amend the Articles of Incorporation or Bylaws of Federated to adversely affect the Class B common stockholders, or liquidate or dissolve Federated.

Cash dividends of $61.5 million, $44.7 million and $32.5 million were paid in 2005, 2004 and 2003, respectively, to holders of common stock.

In 2004, the board of directors approved a share repurchase program authorizing executive management to purchase Federated Class B common stock. Under the program, shares can be repurchased in open market and private transactions through the life of the program. The program authorizes executive management to determine the timing and the amount of shares for each purchase. The repurchased stock will be held in treasury for employee benefit plans, potential acquisitions and other corporate activities. During the year ended December 31, 2005, Federated repurchased 920,103 shares of its stock as part of its current buyback program. As of December 31, 2005, under the current program, Federated can repurchase an additional 4.8 million shares.

Stock repurchases and dividend payments are subject to restrictions under the Credit Facility, as amended. These restrictions limit cash payments for additional stock repurchases and dividends to 50% of net income earned during the period from January 1, 2000, to and including the payment date, less certain payments for dividends and stock repurchases. As of December 31, 2005, Federated, given current debt covenants, had the ability to make additional stock repurchase or dividend payments of more than $131 million under these restrictions.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(15) Leases

The following is a schedule by year of future minimum payments required under the capital leases and future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2005:

in thousands	Capital Leases			Operating Leases
2006	$	121		$	13,223
2007		104			12,545
2008		104			11,423
2009		86			9,204
2010		0			8,747
2011 and thereafter		0			31,101
Total minimum lease payments	$	415		$	86,243
Less executory costs and imputed interest costs		(72	)
Present value of minimum lease payments	$	343

Federated’s total capital lease obligation was $0.3 million and $0.5 million at December 31, 2005 and 2004, respectively, and was included in “Other current liabilities – other” and “Other long-term liabilities – other.” Federated entered into a new capital lease for computer hardware in 2005. The two capital leases outstanding at December 31, 2005 carried interest rates of 2.90% and 6.93% and expire in the first quarter 2006 and the fourth quarter 2009. The weighted-average interest rates for capital leases outstanding at December 31, 2005 and 2004 were 6.83% and 3.60%, respectively.

Federated held a material operating lease at December 31, 2005 for its corporate headquarters building in Pittsburgh, Pennsylvania. This lease expires in 2014 and has renewal options for two successive terms of five years each. This lease includes provisions for leasehold improvement incentives, rent escalation and certain penalties for early termination. In addition, at December 31, 2005, Federated had various other operating lease agreements primarily involving facilities, office and computer equipment and vehicles. These leases are noncancelable and expire on various dates through the year 2014. Most leases include renewal options and, in certain leases, escalation clauses.

Federated began subleasing certain leased property in 2002. Sublease income for the years ended December 31, 2005, 2004 and 2003 was $0.5 million, $0.6 million and $0.5 million, respectively. As of December 31, 2005, aggregate future minimum rentals to be received under a noncancelable sublease that expires in 2007 totaled $1.0 million.

Rental expenses related to continuing operations were $12.1 million, $10.9 million and $12.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(16) Income Taxes

Federated files a consolidated federal income tax return. Financial statement tax expense is determined under the liability method.

Income tax expense consisted of the following components for the years ended December 31:

in thousands	2005			2004			2003
Current:
Federal continuing operations	$	104,284		$	106,308		$	100,474
Federal discontinued operations		(452	)		623			1,396
State		7,395			5,205			3,656
Foreign		556			638			598
		111,783			112,774			106,124
Deferred:
Federal		3,444			(3,157	)		1,992
State		1,040			1,565			0
Total	$	116,267		$	111,182		$	108,116

For the years ended December 31, 2005, 2004 and 2003, the foreign subsidiaries had net income of $3.2 million, $4.0 million and $4.7 million, respectively, for which income tax expense of $1.4 million, $1.6 million and $1.9 million, respectively, has been provided.

Federated’s effective income tax rate from continuing operations was 41.7%, 38.1% and 36.1% for the years ended December 31, 2005, 2004 and 2003, respectively.

The reconciliation between the Federal statutory income tax rate and Federated’s effective income tax rate attributable to continuing operations consisted of the following for the years ended December 31:

	2005		2004		2003
Expected statutory rate	35.0	%	35.0	%	35.0	%
Increase:
State income taxes, net of Federal benefit	2.0		1.5		0.8
Non-deductible portion of Settlement expense	4.4		1.2		0.0
Other	0.3		0.4		0.3
Total	41.7	%	38.1	%	36.1	%

On December 21, 2004, the FASB issued Staff Position No. 109-2 which provides guidance with respect to reporting the potential impact of the repatriation provisions of the Jobs Act. The Jobs Act provides conditions under which the repatriation of certain foreign earnings in either 2004 or 2005 will qualify for preferential tax treatment. If these conditions are met, a maximum 5.25% income tax rate rather than the maximum regular tax rate of 35% would apply to eligible repatriations of certain foreign earnings. Federated completed its evaluation of these provisions in conjunction with an analysis of its foreign earnings available for repatriation. As a result of that review, Federated determined that it was not feasible to pay the level of dividend required to obtain this preferential tax treatment.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consisted of the following as of December 31:

in thousands	2005			2004
Deferred Tax Assets
State tax net operating losses	$	10,920		$	11,094
Impairment losses on CDOs1		5,972			6,614
Capital losses		3,273			3,061
Contingent payments		1,658			1,658
State taxes		658			714
Deferred income		0			5,760
Advisory fees		0			1,750
Other		1,903			2,372
Total gross deferred tax asset		24,384			33,023
Valuation allowance2		(13,480	)		(13,654	)
Total deferred tax asset, net of valuation allowance	$	10,904		$	19,369
Deferred Tax Liabilities
Deferred sales commissions	$	11,611		$	19,835
Intangible assets		9,275			4,507
Property and equipment		3,091			3,738
State taxes		3,051			2,067
Costs of internal-use software		1,056			1,885
Other		1,820			1,900
Total gross deferred tax liability	$	29,904		$	33,932
Net deferred tax liability	$	19,000		$	14,563

1 This amount represents deferred tax assets generated by the impairment charges recorded to write down the value of Federated’s investment in the CDOs. The amount of actual capital loss associated with these investments will not be known until they are either redeemed or sold. The five-year carry-forward period will begin in the first tax year after Federated’s CDO investments are either redeemed or sold. Management believes it is more likely than not that Federated will be able to fully realize these deferred tax assets in the future.

2 A valuation allowance has been recognized for the entire deferred tax asset for state tax net operating losses and $2,560 of the capital losses deferred tax asset. The valuation allowance was recorded due to management’s belief that it is more likely than not that Federated will not be able to realize the benefit of these loss carry-forwards.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(17) Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:

in thousands, except per share data	2005			2004		2003
Numerator
Income from continuing operations	$	163,292		$	179,720	$	188,894
(Loss) income from discontinued operations		(3,009	)		1,459		2,591
Net income	$	160,283		$	181,179	$	191,485
Denominator
Denominator for basic earnings per share – weighted-average shares less nonvested restricted stock		106,114			107,615		107,839
Effect of dilutive securities:
Dilutive potential shares from stock-based compensation		2,138			2,795		4,220
Denominator for diluted earnings per share – adjusted weighted-average shares and assumed conversions		108,252			110,410		112,059
Basic earnings per share
Income from continuing operations	$	1.54		$	1.67	$	1.75
(Loss) income from discontinued operations		(0.03	)		0.01		0.02
Net income1	$	1.51		$	1.68	$	1.78
Diluted earnings per share
Income from continuing operations	$	1.51		$	1.63	$	1.69
(Loss) income from discontinued operations		(0.03	)		0.01		0.02
Net income	$	1.48		$	1.64	$	1.71

1 Totals may not sum due to rounding.

Federated uses the treasury stock method to reflect the dilutive effect of unvested restricted stock and unexercised stock options in diluted earnings per share. For the years ended December 31, 2005, 2004 and 2003, options to purchase 1.3 million, 1.7 million and 2.9 million shares of common stock, respectively, at a weighted-average exercise price per share of $32.25, $32.41 and $31.37, respectively, were outstanding but not included in the computation of diluted earnings per share for each year due to the option exercise price being greater than the average market price of Federated Class B common stock for each respective year. Under the treasury stock method, in the event the options become dilutive, their dilutive effect would result in the addition of a net number of shares to the weighted-average number of shares used in the calculation of diluted earnings per share.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(18) Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income (loss), net of tax, are as follows:

in thousands	Unrealized Gain (Loss) on Securities Available for Sale			Foreign Currency Translation Gain (Loss)			Total
Balance at January 1, 2003	$	(5	)	$	26		$	21
Total change in market value1		78			0			78
Reclassification adjustment – net realized gain2		(1	)		0			(1	)
Gain on currency conversion3		0			274			274
Balance at December 31, 2003		72			300			372
Total change in market value1		41			0			41
Reclassification adjustment – net realized gain2		(6	)		0			(6	)
Gain on currency conversion3		0			122			122
Balance at December 31, 2004		107			422			529
Total change in market value1		73			0			73
Reclassification adjustment – net realized gain2		(46	)		0			(46	)
Loss on currency conversion3		0			(230	)		(230	)
Balance at December 31, 2005	$	134		$	192		$	326

1 The tax expense on the change in market value of securities available for sale was $39, $23 and $42 for 2005, 2004 and 2003, respectively.

2 The tax expense on the reclassification adjustment for securities available for sale was $25, $3 and $1 for 2005, 2004 and 2003, respectively.

3 The tax benefit (expense) on the foreign currency translation (loss) gain was $124, $(66) and $(148) for 2005, 2004 and 2003, respectively.

(19) Disclosures of Fair Value

Estimated fair values of Federated’s financial instruments have been determined using available market information and appropriate valuation methodologies, as set forth below. These fair values are not necessarily indicative of the amounts that would be realized upon exchange of these instruments or Federated’s intent to dispose of these instruments.

Carrying amounts approximate fair value for the following financial instruments due to their short maturities:

• Cash and cash equivalents

• Restricted cash equivalents

• Receivables

• Accrued revenue

• Accrued compensation and benefits

• Accounts payable and accrued expenses

Investments are carried at fair value (see Note (1)(h)).

Federated’s recourse debt is comprised of capital lease liabilities. The fair value of each capital lease liability is estimated based on the current market rate for debt with a similar remaining maturity. Based on this fair value estimate, the carrying value of capital lease liabilities approximates fair value and is included in “Other current liabilities – other” and “Other long-term liabilities – other” on the Consolidated Balance Sheets.

The fair value of Federated’s nonrecourse debt is estimated based on estimated annual redemption and market appreciation rates. Based on this estimate, the carrying value of nonrecourse debt appearing on the Consolidated Balance Sheets approximates fair value.

(20) Minority Interest in Subsidiaries and Equity Investments

Federated has a majority interest (50.5%) and acts as the general partner in Passport Research Ltd., a limited partnership. Edward D. Jones & Co., L.P. is the limited partner with a 49.5% interest. The partnership acts as investment adviser to a sponsored fund.

Federated has a majority interest (50.5%) and acts as the general partner in Passport Research II, Ltd., a limited partnership. Edward D. Jones & Co., L.P. is the limited partner with a 49.5% interest. The partnership acts as investment adviser to a sponsored fund.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

Since 1998, Federated has owned a 50% interest in a German joint-venture company. Federated accounted for this investment under the equity method of accounting through the end of 2005. Federated purchased the outstanding shares in the joint venture company effective December 30, 2005. See Note (2) for more discussion regarding this acquisition.

In 2005, Federated consolidated certain sponsored products, which were deemed to be VIEs. While Federated is the primary beneficiary and consolidator of the products, equity investments in certain of these products held by third parties are presented as minority interests in Federated’s Consolidated Financial Statements.

(21) Related Party Transactions

Federated has classified certain entities as affiliates in accordance with SFAS No. 57, “Related Party Disclosures.”

At December 31, 2005 and 2004, “Receivables – affiliates” totaled $40.6 million and $30.8 million, respectively, and “Accrued revenue – affiliates” totaled $0.8 million and $1.1 million, respectively, relating to services provided to various Federated products.

At December 31, 2005 and 2004, “Accounts payable and accrued expenses – affiliates” totaled $1.4 million and $10.3 million, respectively. For 2005, $0.6 million of this amount related to shareholder service fees payable to various Federated funds resulting from an administrative delay in the implementation of contractual terms, the cash for which is currently held in escrow, $0.1 million related to the internal review and settlement related to past mutual fund trading practices (see Note (23) for more detail) and $0.1 million related to remedial actions in connection with various fund transactions. With regard to 2004, $3.6 million related to the internal review and settlement related to past mutual fund trading practices (see Note (23) for more detail), $3.3 million related to shareholder service fees payable to various Federated funds resulting from an administrative delay in the implementation of contractual terms, $2.0 million related to remedial actions in connection with various fund transactions and trading issues, $0.6 million related to distribution fees payable to FAM and $0.3 million related to a contribution to a foundation. The remaining amounts in both 2005 and 2004 primarily represent fund-related expenses assumed by Federated in certain cases in order to make the fund more competitive or to meet regulatory requirements.

At December 31, 2005 and 2004, “Other current liabilities – affiliates” totaled $33.1 million and $29.5 million, respectively, and represented the accrual for the contingent purchase price payment earned as of that year-end related to the Kaufmann Acquisition (see Note (6)).

At December 31, 2004, “Other long-term liabilities – affiliates” totaled $4.0 million and represented the long-term portion of the then-estimated Settlement expense (see Note (23)).

(22) Concentration Risk

In terms of revenue concentration by product, approximately 16% of Federated’s total revenue for 2005 was derived from services provided to one sponsored fund. In addition, approximately 12% of Federated’s total revenue for 2005 related to one customer. In both cases, the majority of this revenue is dependent upon the level of assets under management in numerous individual fund shareholder accounts.

(23) Commitments and Contingencies

(a) Contractual

Federated is obligated to make certain future payments under various agreements to which it is a party, including capital and operating leases (see Note (15)). The following table summarizes payments due on unrecorded service contracts and employment arrangements:

in millions	Payments due in						Total
	2006		2007		2008
Purchase obligations1	$	10.6	$	4.8	$	0.8	$	16.2
Employment-related commitments2		2.1		0.9		0.3		3.3
Total	$	12.7	$	5.7	$	1.1	$	19.5

1 Federated is a party to various contracts pursuant to which it receives certain services including legal, trade order transmission and recovery services, as well as access to various fund-related information systems and research databases. These contracts contain certain minimum noncancelable payments, cancellation provisions and renewal terms. The contracts expire on various dates through the year 2008. Costs for such services are expensed as incurred.

2 Federated has certain domestic and international employment arrangements pursuant to which Federated is obligated to make minimum compensation payments. These contracts expire on various dates through the year 2008.

Pursuant to various acquisition agreements, Federated is required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In 2001, Federated completed the acquisition of substantially all of the business of the

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

former advisor of the Kaufmann Fund. Pursuant to this acquisition agreement, Federated will pay an additional $33.1 million as contingent purchase price (all of which is accrued at December 31, 2005 (see Note (6))) and could pay $6.7 million as contingent incentive compensation ($4.7 million of which is accrued at December 31, 2005) in 2006. The purchase price payments are recorded as additional goodwill at such time as performance targets have been met, while the incentive compensation payments are recognized as compensation expense during the periods in which the payments are earned. In 2005, Federated made contingent payments of $39.8 million, $33.1 million of which was recorded as goodwill. In 2004, Federated made contingent payments of $79.6 million, $66.2 million of which was recorded as goodwill. In 2003, no contingent payments were made.

As part of the Alliance Acquisition, Federated is required to make contingent purchase price payments over a five-year period. These payments are calculated as a percentage of revenues less certain operating expenses directly attributed to the assets acquired. The first contingent purchase price payment will be paid in the second quarter of 2006, $8.4 million of which was accrued in “Other current liabilities-other” at December 31, 2005.

Pursuant to certain other acquisition agreements, Federated is required to make contingent payments on a periodic basis calculated as a percentage of average assets under management on certain Federated fund shareholder accounts for which the seller is the named broker/dealer of record. In these cases, the payments occur monthly or quarterly and could continue through fourth quarter 2008.

(b) Guarantees and Indemnifications

In connection with the sale of InvestLink (see Note (3)(a)), the real estate lease for office space was assigned to the purchaser of InvestLink. As of December 31, 2005, Federated was the named guarantor for this lease agreement. Pursuant to the guarantee agreement, the term of which expires December 31, 2008, Federated would be required to make the scheduled lease-related payments to the landlord in the event the lessee defaults on the payment. As of December 31, 2005, the maximum potential amount of future lease-related payments is $0.8 million. Management believes that the likelihood of making any payment under this guarantee is remote. Management estimated the fair value of the guarantee at inception by performing a probability-weighted future cash flow analysis which gave due regard to the remote likelihood that the lessee will default on the lease-related payments. Based on this analysis, management did not recognize a liability for the guarantee either at the inception of the guarantee or at December 31, 2005.

On an intercompany basis, various wholly owned subsidiaries of Federated guarantee certain financial obligations of Federated Investors, Inc., and Federated Investors, Inc. guarantees certain financial and performance-related obligations of various wholly owned subsidiaries. In addition, in the normal course of business, Federated has entered into contracts that provide a variety of indemnifications. Typically, obligations to indemnify third parties arise in the context of contracts entered into by Federated, under which Federated agrees to hold the other party harmless against losses arising out of the contract, provided the other party’s actions are not deemed to have breached an agreed upon standard of care. In each of these circumstances, payment by Federated is contingent on the other party making a claim for indemnity, subject to Federated’s right to challenge the other party’s claim. Further, Federated’s obligations under these agreements may be limited in terms of time and/or amount. It is not possible to predict the maximum potential amount of future payments under these or similar agreements due to the conditional nature of Federated’s obligations and the unique facts and circumstances involved in each particular agreement. Management believes that if Federated were to incur a loss in any of these matters, such loss should not have a material effect on its business, financial position or results of operations.

(c) Internal Review of Mutual Fund Trading Activities

As previously reported, beginning in September 2003 Federated has conducted an internal review into certain mutual fund trading activities in response to requests for information from the SEC, National Association of Securities Dealers and New York State Attorney General (NYAG). Federated subsequently received inquiries relating to such trading activities from the U.S. Attorneys Office for the Western District of Pennsylvania, the Commodity Futures Trading Commission, the Securities Commissioner and the Attorney General of West Virginia, and the Connecticut Banking Commission. Attorneys from the law firms of Reed Smith LLP and Davis, Polk & Wardwell conducted the review at the direction of a special investigative committee of Federated’s board of directors. The special investigative committee was comprised of the current board. Attorneys from the law firm of Dickstein Shapiro Morin & Oshinsky, LLP, independent counsel for the Federated mutual funds, participated in the review and reported on its progress to the independent directors of the funds.

In February 2004, the Company announced that the special investigative committee of the board of directors had substantially completed its assessment of the impact of past mutual fund trading issues. Based upon the findings of the internal review and of an independent expert retained by the Federated mutual funds, Federated paid restoration of $8.0 million to compensate for the detrimental impact from the improper trading activities identified in the review. Federated has completed its review of information relating to trading activities.

Federated announced on November 28, 2005 that it had entered into settlement agreements with the SEC and NYAG to resolve the past mutual fund trading issues. Under the terms of the settlements, Federated paid for the benefit of fund shareholders a total of $72.0 million in addition to the $8.0 million paid in 2004. In addition, Federated has agreed to reduce the investment advisory fees on certain Federated funds by $4.0 million per year for the five-year period beginning January 1, 2006, based upon effective fee rates and assets under management as of September 30, 2005. Depending upon the level of assets under management in these funds during the five-year

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

period, the actual investment advisory fee reduction could be greater or less than $4.0 million per year. Costs related to certain other undertakings required by these agreements will be incurred in future periods and the significance of such costs is currently not determinable.

Net income for 2005, 2004 and 2003 reflected settlement expenses of $55.6 million, $17.4 million and $7.6 million primarily representing civil penalties and restoration to fund shareholders associated with the aforementioned settlements. Other costs associated with various legal, regulatory and compliance matters, including costs related to Federated’s internal review and costs incurred on behalf of the funds resulted in pretax charges of $9.6 million, $15.4 million and $13.5 million in 2005, 2004 and 2003, respectively. In addition, 2005 net income included a $23.6 million pretax insurance recovery of certain of these costs which was recorded as a reduction to the various income statement line items to which these costs were originally charged.

(d) Legal Proceedings

Since October 2003, Federated Investors, Inc. and related entities have been named as defendants in twenty-three cases filed in various federal district courts and state courts involving allegations relating to market timing, late trading and excessive fees. All of the pending cases involving allegations related to market timing and late trading have been transferred to the U.S. District Court for the District of Maryland and consolidated for pre-trial proceedings. One market timing/late trading case was voluntarily dismissed by the plaintiff without prejudice.

The seven excessive fee cases were originally filed in five different federal courts and one state court. All six of the federal cases are now pending in the U.S. District Court for the Western District of Pennsylvania. The state court case was voluntarily dismissed by the plaintiff without prejudice.

All of these lawsuits seek unquantified damages, attorneys’ fees and expenses. Federated intends to defend this litigation. The potential impact of these recent lawsuits and future potential similar suits is uncertain. It is possible that an unfavorable determination will cause a material adverse impact on Federated’s financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

In addition, Federated has other claims asserted and threatened against it in the ordinary course of business. These other claims are subject to inherent uncertainties. In the opinion of management, after consultation with counsel, it is unlikely that any adverse determination for any pending or threatened other claim will materially affect the financial position, results of operations or liquidity of Federated.

(24) Subsequent Events

On January 26, 2006, Federated’s board of directors declared a $0.15 per share dividend to shareholders of record as of February 8, 2006, which was paid on February 15, 2006. In addition, the board of directors amended the Plan to increase the number of shares awardable under the Plan by 3.3 million shares of Class B common stock. The amendment to the Plan is subject to shareholder approval at the 2006 annual shareholder meeting.

On February 15, 2006, an indirect, wholly owned subsidiary of Federated, signed a definitive agreement to sell certain assets associated with its TrustConnect^® mutual fund processing business (the Business) to Matrix Settlement and Clearance Services, LLC (MSCS), one of the leading providers of mutual fund clearing and settlement processing for banks, trust companies and 401(k) providers. The transaction, which is subject to customary closing conditions including approval by the National Association of Securities Dealers, Inc., is expected to close in a series of closings over the first and second quarters of 2006. The assets included in the sale of the Business consist primarily of customer relationships, customer contracts and intellectual property which have no recorded carrying values on Federated’s Consolidated Balance Sheets as of December 31, 2005. In exchange for the assets of the Business, Federated will be entitled to receive upfront cash consideration ranging between $7.0 million and $8.6 million due on a pro-rata basis over the series of closings, as well as contingent consideration due approximately 2 ¹/2 years after the initial closing date. The contingent consideration will be calculated as a percentage of net revenue above a specific threshold directly attributed to the Business. Both Federated and MSCS have made customary representations, warranties and covenants in the agreement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2005, 2004 and 2003)

(25) Supplementary Quarterly Financial Data (Unaudited)

in thousands, except per share data, for the quarters ended	March 31,			June 30,			September 30,			December 31,
2005
Revenue1	$	205,366		$	220,732		$	241,359		$	241,759
Operating income2		29,957			74,522			108,300			86,278
Income from continuing operations2		7,526			38,442			65,498			51,827
(Loss) income from discontinued operations		(498	)		(681	)		(1,831	)		0
Net income2		7,028			37,761			63,667			51,827
Basic earnings per share
Income from continuing operations2		0.07			0.36			0.62			0.49
(Loss) income from discontinued operations		(0.00	)		(0.00	)		(0.02	)		0.00
Net income2		0.07			0.36			0.60			0.49
Diluted earnings per share
Income from continuing operations2		0.07			0.35			0.61			0.48
(Loss) income from discontinued operations		(0.00	)		(0.00	)		(0.02	)		0.00
Net income2, 3		0.06			0.35			0.59			0.48
Cash dividends per share		0.125			0.150			0.150			0.150
Stock price per share4
High		30.00			30.12			33.65			37.85
Low		27.80			27.03			29.65			32.85
2004
Revenue1	$	219,439		$	212,251		$	204,414		$	207,245
Operating income2		88,141			83,457			81,839			64,542
Income from continuing operations2		51,107			48,835			47,504			32,273
Income (loss) from discontinued operations2		626			1,814			(453	)		(527	)
Net income2		51,733			50,649			47,051			31,746
Basic earnings per share
Income from continuing operations2		0.47			0.45			0.44			0.30
Income (loss) from discontinued operations2		0.01			0.02			(0.00	)		(0.00	)
Net income2		0.48			0.47			0.44			0.30
Diluted earnings per share
Income from continuing operations2		0.46			0.44			0.43			0.30
Income (loss) from discontinued operations2		0.01			0.02			(0.00	)		(0.00	)
Net income2, 3		0.46			0.46			0.43			0.29
Cash dividends per share		0.085			0.102			0.102			0.125
Stock price per share4
High		33.79			32.45			30.34			31.74
Low		28.78			27.70			26.72			27.07

1 Certain previously reported amounts reflect reclassifications, primarily related to discontinued operations, to conform with current year’s presentation.

2 The Consolidated Financial Statements for the quarters ended December 31, 2005, September 30, 2005, June 30, 2005 and March 31, 2005 included a $3.2 million, ($21.9) million, $6.9 million and $53.4 million pretax charge, net of insurance-related proceeds, respectively, related to Federated’s internal review and settlement regarding past mutual fund trading practices. The Consolidated Financial Statements for the quarters ended December 31, 2004, September 30, 2004, June 30, 2004 and March 31, 2004 included a $21.2 million, $2.0 million, $5.4 million and $4.3 million pretax charge, respectively, related to Federated’s internal review and settlement regarding past mutual fund trading practices. See Note (23)(c) for information concerning the internal review and settlement.

3 Totals may not sum due to rounding.

4 Federated’s common stock is traded on the New York Stock Exchange under the symbol “FII.”

The approximate number of beneficial shareholders of Federated’s Class A and Class B common stock as of February 22, 2006, was one and 19,039, respectively.

EX-21.01

EXHIBIT 21.01

SIGNIFICANT SUBSIDIARIES OF FEDERATED INVESTORS, INC.*:

Edgewood Services, Inc., a New York corporation

Federated Administrative Services, a Delaware statutory trust

Federated Administrative Services, Inc., a Pennsylvania corporation

Federated Advisory Services Company, a Delaware statutory trust

Federated Asset Management, a German company

Federated Equity Management Company of Pennsylvania, Delaware statutory trust

Federated Funding 1997-1, Inc., a Delaware corporation

Federated Global Investment Management Corp., a Delaware corporation

Federated International – Europe GmbH, a German company

Federated International Holdings B.V., a Netherlands company

Federated International Management Limited, an Ireland company

Federated Investment Counseling, a Delaware statutory trust

Federated Investment Management Company, a Delaware statutory trust

Federated Investors Management Company, a Pennsylvania corporation

Federated Investors Trust Company, a New Jersey bank

Federated Investors (UK) Ltd., an English Company

Federated Private Asset Management, Inc., a Delaware corporation

Federated Securities Corp., a Pennsylvania corporation

Federated Services Company, a Pennsylvania corporation

Federated Shareholder Services Company, a Delaware statutory trust

FII Holdings, Inc., a Delaware corporation

Retirement Plan Service Company of America, a Delaware statutory trust, doing business as “Federated Retirement Plan Services Company” and “Federated Retirement Solutions”

Passport Research Ltd., a Pennsylvania general partnership

Passport Research II, Ltd., a Pennsylvania general partnership

Southpointe Distribution Services, Inc., a Pennsylvania corporation

* The names of certain subsidiaries have been omitted from this list inasmuch as the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary of Federated Investors, Inc. as of December 31, 2005.

EX-23.01

Exhibit 23.01

Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-56429) pertaining to the Federated Investors, Inc. Employee Stock Purchase Plan and the Registration Statement (Form S-8 No. 333-62471) pertaining to the Federated Investors, Inc. 2000 Stock Incentive Plan of our reports dated February 15, 2006, with respect to the consolidated financial statements of Federated Investors, Inc., Federated Investors, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Federated Investors, Inc., incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

February 27, 2006

EX-31.01

EXHIBIT 31.01

CERTIFICATIONS

I, J. Christopher Donahue, certify that:

1. I have reviewed this annual report on Form 10-K of Federated Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date March 2, 2006	By:	/s/ J. Christopher Donahue
		J. Christopher Donahue
		President and Chief Executive Officer

EXHIBIT 31.01

CERTIFICATIONS

I, Thomas R. Donahue, certify that:

1. I have reviewed this annual report on Form 10-K of Federated Investors, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date March 2, 2006	By:	/s/ Thomas R. Donahue
		Thomas R. Donahue
		Chief Financial Officer

EX-32.01

EXHIBIT 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Federated Investors, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date March 2, 2006	By:	/s/ J. Christopher Donahue
		J. Christopher Donahue
		President and Chief Executive Officer
Date March 2, 2006	By:	/s/ Thomas R. Donahue
		Thomas R. Donahue
		Chief Financial Officer