10-K 1 fii-10kfy2015.htm FORM 10-K 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, 2015
or
o
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
(State or other jurisdiction of
incorporation or organization)
 
25-1111467
(I.R.S. Employer
Identification No.)
 
 
Federated Investors Tower
Pittsburgh, Pennsylvania
(Address of principal executive offices)
 
15222-3779
(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
(Title of each class)
 
New York Stock Exchange
(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  o
 
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 o   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  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
x
  
Accelerated filer
 
o
Non-accelerated filer (do not check if a smaller reporting company)
 
o
  
Smaller reporting company
 
o
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No  x

The aggregate market value of the Class B Common Stock held by non-affiliates of the registrant as of June 30, 2015 was approximately $3.1 billion, based on the last reported sales price of $33.49 as reported by the New York Stock Exchange as of such date. 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 15, 2016, was 9,000 and 103,851,327, respectively.

Documents incorporated by reference:
Part III of this Form 10-K incorporates by reference certain information from the registrant's 2016 Information Statement.



Table of Contents
 
 
Page
Part I
 
 
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
 
 
Part II
 
 
Item 5
Item 6
Item 7
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Item 8
Item 9
Item 9A
Item 9B
 
 
Part III
 
 
Item 10
Item 11
Item 12
Item 13
Item 14
 
 
Part IV
 
 
Item 15
 
 
 
 
 
 
 
 


2


FORWARD-LOOKING STATEMENTS
Certain statements in this report on Form 10-K 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 Investors, Inc. and its consolidated subsidiaries (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. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "believe," "expect," "anticipate," "current," "intention," "estimate," "position," "projection," "assume," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" and similar expressions. Among other forward-looking statements, such statements include certain statements relating to: asset flows, levels and mix; business mix; sources and levels of revenues, expenses, gains, losses, income and earnings; obligations to make additional contingent or other payments pursuant to acquisition agreements or employment agreements; business and market expansion opportunities; future cash needs and cash flows; uses of treasury stock, legal proceedings; the timing and impact of increased laws, regulations and rules, including potential, proposed and final rules by U.S. and foreign regulators and other authorities; the components and level of, and prospect for distribution-related expenses; classification and consolidation of investments; the ability to raise additional capital; management's assessments, beliefs, expectations, assumptions, projections or estimates, including regarding fee rates, the level, degree, continuance, recovery and impact of fee waivers and reimbursements or assumptions of expenses (fee waivers), the effect, and degree of impact, of changes in customer relationships, the level, timing, degree and impact of changes in interest rates, yields or asset levels or mix, legal proceedings, the timing, impact, effects and other consequences of potential, proposed and final laws, regulations and other rules, borrowing, taxes, product and strategy demand, investor preferences, performance, product development and restructuring options and initiatives, including the plans for and timing of such options and initiatives, compliance, and related legal, compliance and other professional services expenses, interest payments or expenses, dedication of resources, accounting policies, indebtedness and certain investments, and liquidity; future principal uses of cash; performance indicators; the adoption and impact of accounting policies and new accounting pronouncements; interest rate, concentration, market and other risks; guarantee and indemnification obligations; and various items set forth under Item 1A - Risk Factors. Among other risks and uncertainties, market conditions may change significantly resulting in changes to Federated's asset flows, asset levels, asset mix and business mix, which may cause a decline in revenues and net income, result in impairments and increase the amount of fee waivers incurred by Federated. The obligation to make contingent payments is based on net revenue levels and will be affected by the achievement of such levels, and the obligation to make additional payments pursuant to employment arrangements is based on satisfaction of certain conditions set forth in those arrangements. Future cash needs, cash flows and future uses of cash will be impacted by a variety of factors, including the number and size of any acquisitions, Federated's success in developing, structuring and distributing its products and strategies, potential changes in assets under management and/or changes in the terms of distribution and shareholder services contracts with intermediaries who offer Federated's products to customers, and potential increased legal, compliance and other professional services expenses stemming from additional regulation or the dedication of such resources to other initiatives. Federated's risks and uncertainties also include liquidity and credit risks in Federated's money market funds and revenue risk, which will be affected by yield levels in money market fund products, changes in fair values of assets under management, investor preferences and confidence, and the ability of Federated to collect fees in connection with the management of such products. Many of these factors may be more likely to occur as a result of the increased scrutiny of the mutual fund industry by domestic or foreign regulators, and the recent and any ongoing disruption in global financial markets. 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. For more information on these items and additional risks that may impact the forward-looking statements, see Item 1A - Risk Factors.


3


Part I

ITEM 1 – BUSINESS
General
Federated Investors, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, Federated), is a leading provider of investment management products and related financial services. Federated has been in the investment management business since 1955 and is one of the largest investment managers in the United States (U.S.) with $361.1 billion in assets under management (AUM or managed assets) at December 31, 2015.
Federated operates in one operating segment, the investment management business. Federated sponsors, markets and provides investment-related services to various investment products, including mutual funds and Separate Accounts (which include separately managed accounts, institutional accounts, sub-advised funds and other managed products) in both domestic and international markets. Federated's principal source of revenue is investment advisory fee income earned by various domestic 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 (Advisers Act). Federated also has investment adviser subsidiaries that are located outside of the U.S. and registered with foreign regulators. Investment advisers are compensated for their services in the form of investment advisory fees based primarily upon the AUM of the investment products.
Federated provided investment advisory services to 122 Federated-sponsored funds (the Federated Funds) as of December 31, 2015. Federated markets these funds to banks, broker/dealers and other financial intermediaries who use them to meet the needs of customers and/or clients (collectively, customers), including retail investors, corporations and retirement plans. The Federated Funds are domiciled in the U.S., with the exception of Federated International Funds Plc and Federated Unit Trust, both of which are domiciled in Ireland, the Federated Cash Management Funds, which are domiciled in the United Kingdom and the Federated Short-Term Daily U.S. Dollar Fund, Ltd., which is domiciled in the Cayman Islands. In February 2016, the Federated Strategic Value U.S. Equity Dividend Fund, which is domiciled in Canada, was also initially offered. Most of Federated's U.S.-domiciled funds are registered under the Investment Company Act of 1940 (1940 Act) and under other applicable federal laws. Each of the U.S.-domiciled registered funds enters into an advisory agreement that is subject to annual approval by the fund's board of directors or trustees, a majority of whom are not interested persons of the funds or Federated as defined under the 1940 Act. In general, material 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 are generally terminable upon 60 days notice to the investment adviser.
Of the 122 Federated Funds as of December 31, 2015, Federated's investment advisory subsidiaries managed 37 money market funds totaling $221.6 billion in AUM, 49 fixed-income funds with $38.0 billion in AUM and 36 equity funds with $34.1 billion in AUM.
As of December 31, 2015, Federated provided investment advisory services to $67.4 billion in Separate Account assets. These Separate Accounts represent assets of government entities, high-net-worth individuals, pension and other employee benefit plans, corporations, trusts, foundations, endowments, sub-advised mutual funds and other accounts or products owned or sponsored by third parties. Fees for Separate Accounts are typically based on AUM 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 distribution 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 these 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 by such directors or trustees annually as required under applicable law.
Federated also provides a broad range of services to support the operation and administration of the Federated Funds. These services, for which Federated receives fees pursuant to agreements with the Federated Funds, include administrative services and shareholder servicing.

4


Assets Under Management
Total AUM are composed of Federated Funds, Separate Accounts and, prior to its complete liquidation in the fourth quarter of 2014, a liquidation portfolio and represent the balance of AUM at a point in time. Total managed assets for the past three years were as follows:
  
 
As of December 31,
 
2015
vs. 2014

 
2014
vs. 2013

dollars in millions
 
2015

 
2014

 
2013

 
 
Money market
 
$
256,437

 
$
258,772

 
$
275,952

 
(1
)%
 
(6
 )%
Equity
 
53,556

 
51,426

 
44,148

 
4

 
16

Fixed-income
 
51,119

 
52,707

 
50,126

 
(3
)
 
5

Liquidation portfolio
 
0

 
0

 
5,858

 
0

 
(100
)
Total managed assets
 
$
361,112

 
$
362,905

 
$
376,084

 
0
 %
 
(4
)%

Average managed assets represent the average balance of AUM during a period of time. Because substantially all revenue and certain components of distribution expense are generally calculated daily based on AUM, changes in average managed assets are typically a key indicator of changes in revenue earned and asset-based expenses incurred during the same period. Average managed assets for the past three years were as follows:
  
 
Year ended December 31,
 
2015
vs. 2014

 
2014
vs. 2013

dollars in millions
 
2015

 
2014

 
2013

 
 
Money market
 
$
246,539

 
$
254,260

 
$
273,680

 
(3
)%
 
(7
)%
Equity
 
54,149

 
48,317

 
39,474

 
12

 
22

Fixed-income
 
52,805

 
51,333

 
51,340

 
3

 
0

Liquidation portfolio
 
0

 
4,557

 
6,633

 
(100
)
 
(31
)
Total average managed assets
 
$
353,493

 
$
358,467

 
$
371,127

 
(1
)%
 
(3
)%
Changes in Federated's average asset mix year-over-year across both asset classes and product/strategy types have a direct impact on Federated's operating income. Asset mix impacts Federated's total revenue due to the difference in the fee rates earned on each asset class and product/strategy type per invested dollar. Generally, management-fee rates charged for advisory services provided to equity products and strategies are higher than management-fee rates charged on money market and fixed-income products and strategies. Likewise, mutual funds typically have a higher management-fee rate than Separate Accounts. Additionally, certain components of distribution expense can vary depending upon the asset class, distribution channel and/or the size or structure of the customer relationship. Federated generally pays out a larger portion of the revenue earned from managed assets in money market funds than the revenue earned from managed assets in equity or fixed-income funds.
Revenue
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:
  
 
Year ended December 31,
 
2015
vs. 2014

 
2014
vs. 2013

dollars in thousands
 
2015

 
2014

 
2013

 
 
Investment advisory fees, net
 
$
626,325

 
$
557,318

 
$
570,952

 
12
 %
 
(2
)%
Administrative service fees, net
 
211,458

 
213,136

 
222,487

 
(1
)
 
(4
)
Other service fees, net
 
84,910

 
84,039

 
79,608

 
1

 
6

Other, net
 
3,916

 
4,757

 
5,318

 
(18
)
 
(11
)
Total revenue
 
$
926,609

 
$
859,250

 
$
878,365

 
8
 %
 
(2
)%

5


Federated's revenues from domestic and foreign operations over the last three years were as follows:
  
 
Year ended December 31,
 
2015
vs. 2014

 
2014
vs. 2013

dollars in thousands
 
2015

 
2014

 
2013

 
 
Domestic
 
$
907,841

 
$
841,429

 
$
857,480

 
8
%
 
(2
)%
Foreign
 
18,768

 
17,821

 
20,885

 
5

 
(15
)
Total revenue
 
$
926,609

 
$
859,250

 
$
878,365

 
8
%
 
(2
)%
Low Short-Term Interest Rates
In December 2015, the Federal Open Market Committee of the Federal Reserve Board (FOMC) increased the federal funds target rate range by 25 basis points to 0.25%-0.50%, slightly raising short-term interest rates late in the year. The federal funds target rate, which drives short-term interest rates, had been near zero for nearly seven years. As a result of the long-term near-zero interest-rate environment, the gross yield earned by certain money market funds is not sufficient to cover all of the fund's operating expenses. Since the fourth quarter of 2008, Federated has voluntarily waived fees (either through fee waivers or reimbursements or assumptions of expenses) in order for certain money market funds to maintain positive or zero net yields (Voluntary Yield-related Fee Waivers). These fee waivers have been partially offset by related reductions in distribution expense and net income attributable to noncontrolling interests as a result of Federated's mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers.
These Voluntary Yield-related Fee Waivers are calculated as a percentage of AUM in certain money market funds and thus will vary depending upon the asset levels in such funds. In addition, the level of waivers are dependent on several other factors including, but not limited to, yields on instruments available for purchase by the money market funds, changes in expenses of the money market funds and changes in the mix of money market assets. In any given period, a combination of these factors drives the amount of Voluntary Yield-related Fee Waivers. As an isolated variable, an increase in yields on instruments held by the money market funds will cause the pre-tax impact of fee waivers to decrease. Conversely, as an isolated variable, an increase in expenses of the money market funds would cause the pre-tax impact of fee waivers to increase.
With regard to asset mix, changes in the relative amount of money market fund assets in prime and government money market funds (or between such funds and other money market funds or other products) as well as the mix among certain share classes that vary in pricing structure will impact the level of fee waivers. Generally, prime money market funds waive less than government money market funds as a result of higher gross yields on the underlying investments. As such, as an isolated variable, an increase in the relative proportion of average managed assets invested in prime money market funds as compared to total average money market fund assets should typically result in lower Voluntary Yield-related Fee Waivers. Conversely, the opposite would also be true.
These Voluntary Yield-related Fee Waivers impact various components of Federated's Consolidated Statements of Income, including revenue and operating income. See Item 1A - Risk Factors under the caption Potential Adverse Effects of Low Short-Term Interest Rates and Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption Business Developments - Low Short-Term Interest Rates for additional information.
Investment Products
Federated offers a wide range of products and strategies, including money market, equity and fixed-income investments. Federated's mix includes products and strategies that Federated expects to be in demand under a variety of economic and market conditions. Federated has structured its investment process to meet the requirements of fiduciaries and others who use Federated's products and strategies to meet the needs of their customers. Fiduciaries typically have stringent demands regarding portfolio composition, risk and investment performance.
Federated is one of the largest U.S. managers of money market assets, with $256.4 billion in such AUM at December 31, 2015. Federated has developed expertise in managing cash for institutions, which typically have strict requirements for regulatory compliance, relative safety, liquidity and competitive yields. Federated began selling money market fund products to institutions in 1974. Federated also manages retail money market products that are typically distributed through broker/dealers. At December 31, 2015, Federated managed money market assets in the following asset classes: government ($124.2 billion); prime ($105.0 billion); tax-free ($17.8 billion); and non-U.S. domiciled ($9.4 billion).
Federated's equity assets totaled $53.6 billion at December 31, 2015 and are managed across a wide range of styles including: value ($29.3 billion); growth ($10.9 billion); international/global ($5.0 billion); blend ($2.7 billion); and alternative ($0.6 billion). Federated also manages assets in balanced and asset allocation funds ($5.1 billion) which may also invest in fixed-income securities.

6


Federated's fixed-income assets totaled $51.1 billion at December 31, 2015 and are managed in a wide range of categories including: multisector ($23.3 billion); high-yield ($8.1 billion); municipal ($6.4 billion); U.S. corporate ($5.2 billion); U.S. government ($4.8 billion); mortgage-backed ($1.7 billion); and international/global ($1.6 billion).
Investment products are generally 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 disciplines including: fundamental research and credit analysis; quantitative research models; style-consistent and disciplined portfolio construction and management; performance attribution; and trading.
Distribution Channels
Federated's distribution strategy is to provide products and strategies geared toward financial intermediaries, primarily banks, broker/dealers and investment advisers and directly to institutions such as corporations and government entities. Federated provides comprehensive investment management to approximately 8,400 institutions and intermediaries including corporations, government entities, insurance companies, foundations, endowments, banks and broker/dealers. Federated uses its trained sales force of approximately 200 representatives and managers to add new customer relationships and strengthen and expand existing relationships.
Product Markets
Federated's investment products and strategies are distributed in four markets. These markets and the relative percentage of managed assets at December 31, 2015 attributable to such markets are as follows: wealth management and trust (43%); broker/dealer (33%); institutional (20%); and international (4%).
Wealth Management & Trust. Federated pioneered the concept of providing liquidity management to bank trust departments through money market mutual funds in 1974, and has since expanded its services nationwide to institutional cash management and treasury professionals, as well as financial professionals. Today, wealth management professionals across all of these types of firms use a broad range of Federated's equity, fixed-income and money market funds, and Separate Accounts, to invest the assets over which they have discretion.
The majority of Federated's managed assets from the wealth management channel are invested in money market funds. 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 Separate Accounts structured for this market. In addition to bank trust departments and registered investment advisory firms, Federated provides products and services to capital markets customers (institutional brokerages generally within banks) and directly to cash management and treasury departments at major corporations and government entities.
Federated employs a dedicated sales force backed by an experienced support staff to offer products and strategies to the wealth management and trust market. As of December 31, 2015, managed assets in this market included $129.2 billion in money market assets, $16.2 billion in fixed-income assets and $8.9 billion in equity assets.
Broker/Dealer. Federated distributes its products and strategies in this market through a large, diversified group of approximately1,400 national, regional and independent broker/dealers and bank broker/dealers. Federated maintains sales staff dedicated to calling on broker/dealers, bank broker/dealers and insurance interests. Broker/dealers use Federated's products to meet the needs of their customers, who are typically retail investors. Federated also offers money market mutual funds as cash management products designed for use by its broker/dealer customers. As of December 31, 2015, managed assets in the broker/dealer market included $66.2 billion in money market assets, $38.0 billion in equity assets and $15.7 billion in fixed-income assets.
Institutional. Federated maintains a dedicated sales staff to focus on the distribution of its products and strategies to a wide variety of domestic institutional customers including corporations, corporate and public pension funds, government entities, foundations, endowments, hospitals, and non-Federated investment companies. As of December 31, 2015, managed assets in the institutional market included $52.9 billion in money market assets, $16.3 billion in fixed-income assets and $4.6 billion in equity assets.
International. Federated manages assets from customers outside the U.S. through subsidiaries focused on gathering assets in Europe, Canada, Latin America and the Middle East. As of December 31, 2015, managed assets in the international market included $8.1 billion in money market assets, $2.9 billion in fixed-income assets and $2.1 billion in equity assets.
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 2015, there were approximately 8,100 open-end mutual funds of

7


varying sizes and investment objectives 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, deposit brokers, other financial institutions, hedge funds and exchange traded funds.
Competition for sales of investment products and strategies is influenced by various factors, including investment performance, attainment of stated objectives, yields and total returns, fees and expenses, advertising and sales promotional efforts, investor confidence and type and quality of services.
Regulatory Matters
Federated and its investment management business are subject to extensive regulation in the U.S. and abroad. Federated and its products (such as the Federated Funds) and strategies are subject to federal securities laws, principally the Securities Act of 1933 (1933 Act), the Securities Exchange Act of 1934 (1934 Act), the 1940 Act, the Advisers Act, state laws regarding securities fraud, and regulations, or other rules, promulgated by various regulatory authorities, self-regulatory organizations or exchanges, as well as foreign laws, regulations or other rules promulgated by foreign regulatory or other authorities. See Item 1A - Risk Factors under the caption Potential Adverse Effects of Changes in Laws, Regulations and Other Rules on Federated's Investment Management Business for additional information.
Current Regulatory Environment - Domestic
Increased regulation and oversight of the investment management industry in the United States continued in 2015, and Federated anticipates it continuing in 2016. This increased regulation and oversight has required, and is expected to continue to require, additional internal and external resources to be devoted to technology, legal, compliance, operations and other efforts to address regulatory-related matters, and has caused, and may continue to cause, product structure, pricing, offering and development effort adjustments, as well as changes in assets flows and customer relationships. The current regulatory environment has affected, and is expected to continue to affect, to varying degrees Federated's business, results of operations, financial condition and/or cash flows.
The implementation of changes in response to the amendments to Rule 2a-7 under the 1940 Act (Rule 2a-7), and certain other laws and regulations, adopted by the U.S. Securities and Exchange Commission (SEC) on July 23, 2014 (2014 Money Fund Rules), and the related SEC guidance that was last revised by the SEC staff on January 13, 2016 (Money Fund Rules Guidance), persisted in 2015 and is expected to continue in 2016. The 2014 Money Fund Rules built on initial money market fund reforms adopted by the SEC in 2010. Under the 2014 Money Fund Rules, compliance with certain current event and related website disclosure requirements was required on July 14, 2015. In addition to compliance with certain diversification, stress testing, and disclosure requirements by April 14, 2016, compliance with the 2014 Money Fund Rules is required by October 14, 2016 with respect to the floating net asset value (NAV) requirements for institutional prime and municipal (or tax-exempt) money market funds. These requirements will require such funds to utilize market-based valuations to calculate a floating NAV rather than using the amortized cost method for valuing securities maturing in more than 60 days to seek to maintain a stable NAV. Government or retail money market funds will be allowed to continue using the amortized cost method (and/or the penny rounding method of pricing) in calculating their NAVs. Compliance by October 14, 2016 also is required with respect to the provisions of the 2014 Money Fund Rules regarding the liquidity fees and redemption limits (gates) permitted, or in certain cases required, for money market funds (other than government money market funds), as well as related disclosure requirements.
On May 20, 2015, the SEC proposed new rules relating to the modernization of investment company reporting. In addition to other requirements, these proposed rules, if adopted as proposed, would require additional or enhanced reporting relating to portfolio-wide and individual position levels, fund census data, and derivatives and securities lending activities, impose certain data format requirements, and permit website disclosure of fund shareholder reports in lieu of mailing them to shareholders. On May 20, 2015, the SEC also proposed amendments to Form ADV that, if adopted as proposed, would require, among other amendments, additional performance records to be maintained, and additional disclosure of borrowing and derivative information, relating to separately managed accounts. On September 16, 2015, the SEC issued final rules, which became effective on October 26, 2015, that removed all references to credit ratings from Rule 2a-7 and created a uniform credit quality standard under Rule 2a-7 under which a money market fund may invest in a security only if the fund determines that the security presents minimal credit risks after analyzing certain prescribed factors. These amendments also require a money market fund to adopt certain procedures related to an ongoing review of the credit quality of each of the fund's portfolio securities, clarify stress testing requirements for an event indicating or evidencing a credit deterioration of a portfolio security, and subject certain additional securities to the issuer diversification requirements under Rule 2a-7.
On September 22, 2015, the SEC proposed certain rule amendments under the 1940 Act that, if adopted as proposed, would require open-end mutual funds (other than money market funds) and exchange traded funds to have liquidity risk management

8


programs that contain certain required elements, including (among others): (1) classification of fund portfolio assets based on how quickly they could be liquidated; (2) assessment, periodic review and management of a fund's liquidity risk; (3) the establishment of a minimum percentage of assets that could be liquidated in three days; and (4) fund board review and approval. The proposed rules also would provide a framework under which covered mutual funds could elect to use "swing pricing" to effectively pass on the costs stemming from shareholder purchase and redemption transactions to the shareholders transacting in the funds' shares. On December 11, 2015, the SEC proposed new rules that, if adopted as proposed, would enhance the regulation of the use of derivatives by investment companies. Under these proposed rules, a fund would be required (among other requirements) to (1) comply with one of two alternative portfolio limitations designed to limit the amount of leverage the fund may obtain through derivatives and certain other transactions, (2) manage the risks associated with the fund's derivatives transactions by segregating certain assets in an amount designed to enable the fund to meet its obligations, including under stressed conditions, (3) if the fund engages in more than a limited amount of derivatives transactions or uses certain complex derivatives, establish a formalized derivatives risk management program, and (4) if a fund uses certain financial commitment transactions, such as reverse repurchase agreements and short sales, segregate certain assets to cover the fund's obligations under such transactions.
The SEC staff also has engaged, and continues to engage, in a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including certain sweep examinations of investment management companies involving various topics, such as fixed-income and high yield liquidity, liquidity controls, liquid alternatives, cybersecurity, side-by-side management of private funds, private placements, separately managed or wrap-fee accounts, excessive trading, "distribution in guise," and intermediary and other payments and related disclosures. The SEC staff also continued in 2015, and is expected to continue in 2016, to focus its attention on liquidity and redemption risks, leverage, information security, vendor risk management and other operational risks, and the failure/closing of investment industry participants. These investigations, actions and examinations have led, and may lead, to further regulation and scrutiny of the investment management industry. For example, on September 21, 2015, the SEC announced a settlement of an enforcement action brought against a third-party mutual fund investment adviser and distributor relating to alleged improper payments to intermediaries. In 2015, the SEC staff also issued guidance statements on (among other topics) cybersecurity and, in January 2016, issued a guidance statement on mutual fund distribution and sub-accounting fees, which provided guidance based, in part, on the SEC staff's "distribution in guise" sweep examination and outlined the SEC staff's views on issues that may arise when mutual funds make payments to financial intermediaries that provide shareholder and recordkeeping services to shareholders, particularly regarding whether a portion of those payments may be viewed as being used to finance distribution of fund shares.
Regulation or potential regulation by other regulators, in addition to the SEC, also continued in 2015, and is expected to continue in 2016, to affect investment management industry participants, including Federated. Among other regulatory changes, at the time the 2014 Money Fund Rules were adopted, the U.S. Treasury Department (Treasury Department) and Internal Revenue Service (IRS) issued certain rules aimed at, among other things, addressing for investors in an institutional prime or municipal (or tax- exempt) money market fund with a fluctuating NAV the application of wash sale rules and relief from the tax burdens derived from small capital gains and losses for shareholders that frequently purchase or redeem shares (such as through a broker/dealer or bank "sweep arrangement"). On July 31, 2014, the Financial Stability Oversight Counsel (FSOC) indicated that it intended to monitor the effectiveness of the 2014 Money Fund Rules, which prompted concerns that the FSOC may recommend new or heightened regulation for "non-bank financial companies" under Section 120 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which the Board of Governors of the Federal Reserve System (Governors) have indicated can include open-end investment companies, such as money market funds and other mutual funds. Management continues to respectfully disagree with this position and does not believe that asset managers and management products, such as money market funds, create systemic risk. More recently, the FSOC has moved away from potential systemically important financial institution designations of asset managers or investment products, in favor of studying the financial stability implications of the asset management sector. At its September 2015 meeting, the FSOC indicated that it was engaged in an ongoing process of evaluating the asset management industry. Certain proposed legislation currently pending in Congress also seeks to address, among other items relating to the FSOC's authority, the transparency of the FSOC's decision making process.
Finally, debate continued in 2015, and likely will continue in 2016, over a proposed fiduciary standard for broker/dealers and other intermediaries, including the Department of Labor's proposed fiduciary standard applicable to retirement plan advisers. The DOL's proposed fiduciary rule, if adopted as proposed, would address conflicts of interest raised by the receipt of compensation (such as Rule 12b-1 fees) by retirement plan advisers by requiring such advisers to (among other requirements) put their clients' interests before their own profits, acknowledge their fiduciary status, enter into customer contracts addressing standards of impartial conduct, provide disclosure regarding investment fees and costs, adopt certain policies and procedures to address conflicts of interest and retain certain records.

9


Management believes that the floating NAV under the 2014 Money Fund Rules will be detrimental to Federated's money market fund business and could materially and adversely affect Federated's business, results of operations, financial condition and/or cash flows. Federated continues to dedicate internal and external resources to analyzing and addressing the evolving changes to these various regulations applicable to Federated, including the 2014 Money Fund Rules, Money Fund Rules Guidance, and the investment company modernization, uniform credit standard, liquidity, derivative and other final and proposed regulations, guidance, initiatives and actions referred to above (Other Regulatory Developments), and their effect on Federated's business, results of operations, financial condition and/or cash flows. For example, as appropriate, Federated participated, and will continue to participate, either individually or with industry groups in the comment process for proposed regulations. Federated also has expended, and anticipates expending in 2016, legal and compliance resources to adopt, revise and/or implement policies and procedures and to respond to examinations, inquiries and other matters involving its regulators, including the SEC, customers or other third parties. Federated has devoted, and expects in 2016 to devote, resources to technology and system investment, and the development of other investment management and compliance tools, to enable Federated to, among other things, be in a position to address new regulatory requirements. The 2014 Money Fund Rules, Money Fund Rules Guidance, and Other Regulatory Developments, and related regulatory oversight, also impacted, and/or may impact, Federated's customers and vendors, their preferences and their businesses, which has caused, and may cause, certain money market fund products to be less attractive to institutional and other investors, reductions in AUM and revenues, and/or adjustments to product structures and pricing, offerings and development efforts, as well as asset flows and customer relationships. Federated has dedicated, and expects in 2016 to continue to dedicate, resources to planning and implementing product development and restructuring initiatives in response to the 2014 Money Fund Rules, Money Fund Rules Guidance and Other Regulatory Developments. Federated's analysis, planning and implementation efforts have included, and are expected to continue to include, consideration of Federated's legislative, regulatory, product structure and development, information system development, reporting capability, business and other options that have been or may be available in an effort to minimize the potential impact of any adverse consequences.
While significant steps in Federated's efforts to adjust its product line in response to the 2014 Money Fund Rules, Money Fund Rules Guidance, and Other Regulatory Developments have been completed, Federated's plans are not finalized or completed, continue to evolve and remain subject to fund board and, in certain cases, fund shareholder and other review and approvals. Federated has taken, and continues to take, steps to adjust its product line to address the liquidity management needs of its broad array of customers. Federated will continue to offer Treasury and government money market funds without the liquidity fees or gates as permitted by the 2014 Money Fund Rules. Federated's Treasury and government money market funds will continue to seek a $1.00 NAV per share. Federated has designated a subset of its prime and municipal money market funds as retail money market funds under the 2014 Money Fund Rules, and Federated's retail money market funds will continue to seek to maintain an NAV of $1.00 per share and have the required provisions for liquidity fees and gates under the 2014 Money Fund Rules. Federated plans to offer four institutional prime and national municipal (or tax-exempt) money market funds that will, beginning on or about October 14, 2016, have an initial NAV of $1.0000 that fluctuates and have the required provisions for liquidity fees and gates. Federated has filed a registration statement for an institutional 60-day maximum maturity fund, and continues to evaluate converting certain existing Federated Funds to 60-day maximum maturity funds, while other existing funds will remain 397-day maximum maturity funds. Other steps in Federated's product line adjustments have included, or may include, for example, reorganizing, renaming, modifying, making pricing adjustments or adding share classes to certain existing Federated Funds, modifying fund disclosures and developing new products and strategies. For example, Federated continues to explore investment options for certain customers and anticipates launching in 2016 one or more private funds that mirror existing Federated money market funds as investment options for qualified investors. Federated anticipates that the adjustments to Federated's product line will offer investors a full menu of product choices for liquidity management.
Federated will announce any further plans relating to the adjustments to its product line periodically in advance of the October 14, 2016 final mandatory compliance date under the 2014 Money Fund Rules to give customers the opportunity to plan for their liquidity management needs. Subject to Federated Fund board and, in certain cases, shareholder and other approvals and disclosure, Federated expects to implement remaining adjustments to its product line prior to the final mandatory compliance date. Further analysis and planning, or additional refinements to Federated's product line, may be required in response to market, customer or regulatory changes, such as further updates to the Money Fund Rules Guidance, the Other Regulatory Developments or any additional regulation or guidance issued by the SEC or other regulators.
On a cumulative basis, Federated's regulatory, product development and restructuring, and other efforts in response to the 2014 Money Fund Rules, Money Fund Rules Guidance, and Other Regulatory Developments, including the internal and external resources dedicated to such efforts, have had, and may continue to have, a material impact on Federated's expenses and, in turn, financial performance. As of December 31, 2015, given the 2014 Money Fund Rules, Money Fund Rules Guidance and Other Regulatory Developments, and the potential for future additional regulation or guidance, Federated is unable at this time to fully assess the degree of the impact of these regulatory requirements and developments, and Federated's related efforts, on its business, results of operations, financial condition and/or cash flows. These regulatory changes and developments, and

10


Federated's efforts in responding to them, could have a material and adverse effect on Federated's business, results of operations, financial condition and/or cash flows. Federated also is unable to assess whether, or the degree to which, any of the Federated Funds, including money market funds or any of its other products, could ultimately be designated a systemically important non-bank financial company by the FSOC. In management's view, the issuance of final regulations pertaining to systemically important non-bank financial companies is, and any reforms ultimately put into effect would be, detrimental to Federated's money market fund business and could materially and adversely affect Federated's business, results of operations, financial condition and/or cash flows. Federated also is unable to assess at this time whether, or the degree to which, any potential options being evaluated in connection with these regulatory requirements and developments ultimately may be successful.

International
European Union money market fund reform efforts continued in 2015 without reforms being adopted and are expected to continue in 2016. European-based money market funds face regulatory reform pressure in Europe similar to that faced in the U.S. On September 4, 2013, the European Commission released its money market fund reform proposal, which would have permitted either floating NAV money market funds or constant NAV (CNAV) money market funds that would have had to either build a capital buffer of 3% or convert to a floating NAV money market fund. On April 29, 2015, the European Parliament approved its version of money market fund reform, which, if adopted as proposed, would provide for (1) retail CNAV funds (to include charity, not for profit, public body and public foundation investors); (2) government CNAV funds that invest at least 99.5% of assets in government and government-guaranteed securities (and by 2020 in European Union government and government-guaranteed securities only); and (3) institutional funds constituting either (a) low volatility NAV (LVNAV) funds, which would be open to all investors, and could use amortized cost accounting for portfolio securities maturing within 90 days and mark-to-market prices for portfolio securities maturing after 90 days and that are subject to sunset within five years or at the European Commission's review, or (b) variable NAV (VNAV) money market funds (subject to new independent pricing rules not previously applied to VNAV funds in Europe and mark-to-market prices for all their portfolio securities). Under the European Parliament's proposal the retail CNAV, government CNAV and LVNAV funds would be required to have certain triggers in place for liquidity fees and gates, ratings would be permitted for money market funds, and there would be a nine month implementation period starting after the final regulation is promulgated.
The next step in the European reform process is for the European Council, which is made up of representatives from each Member State, to adopt its own version of money market fund reform and to then negotiate at a trialogue with European Parliament to form a final European text. Formal discussions of the money market fund reform file commenced under the Italian Presidency (July 1, 2014 - December 31, 2014). It is unclear whether formal discussions on the money market fund reform file will resume under the Netherlands Presidency (January 1, 2016 - June 30, 2016) or later. Negotiations at the European Council level are likely to continue through 2016 and the proposed money market fund reform could vary materially from that proposed by the European Parliament. Management does not anticipate final resolution on an agreed upon European regulation until the second half of 2016 at the earliest.
Discussions regarding a European Financial Transactions Tax (FTT) also continued in 2015 without the FTT being adopted and are expected to continue in 2016. Notwithstanding challenges to its legality, discussions have continued regarding the scope, application and allocation of the FTT. Proponents of the FTT have sought the widest possible application of the FTT with low tax rates. On December 8, 2015, after one of the 11 participating European Union Member States, Estonia, dropped out of the discussions, and despite opposition by the United Kingdom, the remaining 10 participating Member States agreed on certain fundamental aspects of the tax, including that: (1) the FTT should apply to all (including intra-day) share transactions, except transactions of agents and clearing members when acting as facilitators and, possibly, certain narrowly-defined market making transactions; and (2) the FTT should apply to derivatives based on the principle of the widest possible base and low rates, without impacting the cost of sovereign borrowing, and be determined based on the type of derivative involved in a transaction (e.g., for option-type derivatives, preferably the option premium; for other types of derivatives coming with a maturity, preferably a term-adjusted notional amount or, where available, market value; and for other types of derivatives not coming with a maturity, the notional amount or, where available, market value), with adjustments to the tax base in some cases to avoid distortions and no market making exception. While the remaining participating Member States generally agreed that the jurisdictional scope of the FTT should be based on the location of the parties to the transaction and the share issuer, and that the impact of the FTT on the real economy and pension schemes should be minimized, additional analysis and discussions will be conducted on the FTT's impact, the financial viability of the FTT for each country and certain other issues. The participating Member States agreed to target mid-2016 for a final agreement on the FTT. The Netherlands Presidency of the European Council, however, did not include the FTT among the topics due for political agreement during its six-month term ending June 30, 2016. In late January 2016, Johan Van Overtveldt, the Finance Minister of Belgium, one of the remaining 10 participating Member States, announced that the present drafts of the FTT proposal were unacceptable. A February meeting of

11


ministers from the Member States supporting the FTT also was canceled. If an agreement on the FTT is reached, management does not anticipate any such agreement until the second half of 2016 at the earliest. The time needed to implement any agreement is not known at this time.
After publishing an initial consultative document on "Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions" in January, 2014, the Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) published for comment on March 6, 2015 a second consultative document on "Assessment Methodologies for Identifying Non-Bank Non-Insurer Global Systemically Important Financial Institutions" (Second Consultation), in which the FSB and IOSCO took a more inclusive approach setting forth revised methodologies for assessing the systemic risk of investment funds with an increased focus on leverage, and a new methodology for asset managers that focuses on activities that are conducted by a particular asset manager and may have the potential to generate systemic risk and warrant consideration. Each methodology contemplated the application of a materiality threshold to determine an assessment pool and requires assessment of global systemic importance for entities selected for further analysis by reviewing "impact factors" (e.g., size, interconnectedness, complexity, substitutability, and cross jurisdictional activities) based on sector-specific indicators relating to each of the relevant impact factors. As noted in its May 29, 2015 comment letter submitted to the FSB and IOSCO on the Second Consultation, Federated believes that the application of Second Consultation's criteria should generally result in the exclusion of funds and asset managers that do not make significant use of leverage or derivatives from being designated as non-bank, non-insurance company global systemically important financial institutions under the Second Consultation. Management believes that money market funds should not be designated as non-bank, non-insurance company global systemically important financial institutions. On June 17, 2015, IOSCO announced that its risk analysis will initially focus on industry activities and managers in the broader global financial context in identifying potential systemic risks, rather than on the size of asset managers, but that after that review is complete, work on methodologies for the identification of individual entities should be reassessed. On July 30, 2015, the FSB announced that it has decided to wait to finalize the assessment methodologies for non-bank non-insurance company global systemically important financial institutions until after its current work on financial stability risks stemming from asset management activities is completed. The FSB indicated that, after discussing its initial findings in September 2015, it will develop activities-based policy recommendations by spring 2016. At that time, it is expected that the FSB, together with IOSCO, will conduct further analyses and attempt to finalize the asset management methodology.
European money market reform and the imposition of the FTT, particularly if enacted with broad application, would each be detrimental to Federated's fund business and could materially and adversely affect Federated's business, results of operations, financial condition and/or cash flows. Federated is unable to assess the degree of any potential impact that European money market reform proposals or the FTT may have on its business, results of operations, financial condition and/or cash flows until such proposals are finalized and approved or the FTT is enacted. Federated also is unable to assess whether, or the degree to which Federated, any of its investment management subsidiaries or any of the Federated Funds, including money market funds, or any of its other products, could ultimately be determined to be a non-bank, non-insurance company global systemically important financial institution at this time.
Employees
At December 31, 2015, Federated employed 1,443 persons.

12


Executive Officers of Federated Investors, Inc.
The following section sets forth certain information regarding the executive officers of Federated as of February 19, 2016:
Name
 
Position
  
Age

John F. Donahue
 
Chairman and Director
  
91

 
 
 
 
J. Christopher Donahue
 
President, Chief Executive Officer and Director
  
66

 
 
 
 
Gordon J. Ceresino
 
Vice Chairman and President, Federated International Management Limited
  
58

 
 
 
 
Thomas R. Donahue
 
Vice President, Treasurer and Chief Financial Officer and President, FII Holdings, Inc.
  
57

 
 
 
 
John B. Fisher
 
Vice President and President and Chief Executive Officer of Federated Advisory Companies*
  
59

 
 
 
 
Eugene F. Maloney
 
Executive Vice President and Executive Vice President, Federated Investors Management Company
  
70

 
 
 
 
John W. McGonigle
 
Vice Chairman, Executive Vice President, Chief Legal Officer, Secretary and Director
  
77

 
 
 
 
 
Richard A. Novak
 
Vice President, Assistant Treasurer and Principal Accounting Officer
  
52

 
 
 
 
Thomas E. Territ
 
Vice President and President, Federated Securities Corp.
  
56

 
 
 
 
 
Stephen Van Meter
 
Vice President and Chief Compliance Officer
  
40

 
 
 
 
 
*
Federated Advisory Companies include the following: Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Investment Management Company and Federated MDTA LLC, each wholly owned by Federated, and Passport Research Ltd., a limited partnership.
Mr. John F. Donahue is a co-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 32 investment companies managed by subsidiaries of Federated. Mr. Donahue is the father of J. Christopher Donahue who serves as President, Chief Executive Officer and director of Federated and Thomas R. Donahue who serves as Vice President, Treasurer and Chief Financial Officer of Federated.
Mr. J. Christopher Donahue has served as director, President and Chief Executive Officer of Federated since 1998. He also serves as a director, trustee or officer of various Federated subsidiaries. He is President of 31 investment companies managed by subsidiaries of Federated. He is also director or trustee of 34 investment companies managed by subsidiaries of Federated. Mr. Donahue is the son of John F. Donahue who serves as Chairman and director of Federated and the brother of Thomas R. Donahue who serves as Vice President, Treasurer and Chief Financial Officer of Federated.
Mr. Gordon J. Ceresino has served as Vice Chairman of Federated since 2007. He is President of Federated International Management Limited and Vice Chairman of Federated MDTA LLC, both of which are wholly owned subsidiaries of Federated. He also serves as a director, trustee or President or Chief Executive Officer of certain other wholly owned subsidiaries of Federated involved in Federated's non-U.S. operations. 
Mr. Thomas R. Donahue has served as Vice President, Treasurer and Chief Financial Officer of Federated since 1998. He also serves as an Assistant Secretary of Federated and he is President of FII Holdings, Inc., a wholly owned subsidiary of Federated. Mr. Donahue also serves as a director, trustee or officer of various other Federated subsidiaries.  Mr. Donahue is the son of John F. Donahue who serves as Chairman and director of Federated and the brother of J. Christopher Donahue who serves as director, President and Chief Executive Officer of Federated.
Mr. John B. Fisher has served as Vice President of Federated since 1998. He has also been President and Chief Executive Officer of Federated Advisory Companies since 2006 and serves as a board member for each of these subsidiaries that are wholly owned by Federated. He also serves as a director, trustee or officer of certain other Federated subsidiaries. Prior to 2006, he served as President of the Institutional Sales Division of Federated Securities Corp., a wholly owned subsidiary of Federated. Mr. Fisher is President of three investment companies managed by subsidiaries of Federated since 2004.
Mr. Eugene F. Maloney has served as Executive Vice President of Federated since March 2009. Prior to that time, he served as Vice President of Federated since 1998. He is also 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

13


sales divisions, including regulatory and legal requirements relating to a bank's use of mutual funds in both trust and commercial environments.
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 2003. Mr. McGonigle is also Chairman of Federated International Management Limited, a wholly owned subsidiary of Federated. He is also a director or trustee of certain other subsidiaries of Federated. Mr. McGonigle is a trustee of two investment companies managed by a subsidiary of Federated. Mr. McGonigle is also Secretary of 33 registered investment companies managed by subsidiaries of Federated and Executive Vice President of 33 of those registered investment companies.
Mr. Richard A. Novak has served as Vice President, Assistant Treasurer and Principal Accounting Officer of Federated since 2013. Prior to that time, he served as Fund Treasurer of Federated's domestic mutual funds beginning in 2006 and served as the Controller of Federated from 1997 through 2005. He also serves as Senior Vice President, Treasurer, Assistant Treasurer or Assistant Company Secretary for various other subsidiaries of Federated. Mr. Novak is a Certified Public Accountant.
Mr. Thomas E. Territ has served as Vice President of Federated since 2006. He is President of Federated Securities Corp., a wholly owned subsidiary of Federated. He is also a director, trustee or officer of certain subsidiaries of Federated. 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.
Mr. Stephen Van Meter has served as Chief Compliance Officer of Federated since July 2015. Between October 2011 and July 2015, Mr. Van Meter served as Compliance Operating Officer at Federated. Between October 2007 and October 2011, Mr. Van Meter served as Senior Counsel in the Division of Investment Management, Office of Chief Counsel, at the SEC. Between September 2003 and October 2007, he served as Senior Counsel in the SEC's Division of Enforcement.
Available Information
Federated makes available, free of charge, on its website, www.FederatedInvestors.com, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual information statements and amendments to those reports, including those filed or furnished pursuant to Section 13(a) or 15(d) of the 1934 Act, as soon as reasonably practicable after such information is electronically filed with or furnished to the SEC.
Federated will also provide, free of charge, a copy of its most recent annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual information statements and amendments to those reports upon written request. Send requests to: Corporate Communications, Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
Other Information
All references to the Notes to the Consolidated Financial Statements in this Form 10-K refer to those in Item 8 - Financial Statements and Supplementary Data (Consolidated Financial Statements). All other information required by this Item is contained in Item 6 - Selected Financial Data and Note (3) to the Consolidated Financial Statements.
All cross-references between Items in this 10-K are considered to be incorporated into the Item containing the cross-reference.

ITEM 1A – RISK FACTORS

As an investment manager, risk is an inherent part of Federated's business. U.S. and global markets, by their nature, are prone to uncertainty and subject participants to a variety of risks. If any of the following risks actually occur, Federated's business, results of operations, financial condition and/or cash flows could be materially adversely affected. The risks described below are not the only risks involved in Federated's business. Additional risks not presently known to Federated or that Federated currently considers to be immaterial may also adversely affect its business, results of operations, financial condition and/or cash flows.
Potential Adverse Effects of a Material Concentration in Revenue. For 2015, approximately 46% of Federated's total revenue was attributable to equity assets as compared to 45% and 37% for 2014 and 2013, respectively. The change in the relative proportion of Federated's revenue attributable to equity assets from 2014 to 2015 was primarily the result of higher average equity assets due to net sales. The change in the relative proportion of Federated's revenue attributable to equity assets from 2013 to 2014 was primarily the result of higher average equity assets due to net sales and, to a lesser extent, market appreciation. For 2015, approximately 33% of Federated's total revenue was attributable to money market assets as compared to

14


32% and 39% for 2014 and 2013, respectively. The change in the relative proportion of Federated's revenue attributable to money market assets from 2014 to 2015 was primarily the result of a decrease in Voluntary Yield-related Fee Waivers partially offset by lower average money market assets. The change in the relative proportion of Federated's revenue attributable to money market assets from 2013 to 2014 was primarily the result of lower average money market assets and increases in Voluntary Yield-related Fee Waivers, as well as the increase in average equity assets. A significant change in Federated's investment management business (such as its money market business) or a significant reduction in AUM (such as money market assets) due to regulatory changes or developments, changes in the financial markets, such as significant and rapid increases in interest rates over a short period of time causing certain investors to prefer direct investments in interest-bearing securities, the availability, supply and/or market interest in repurchase agreements and other investments, significant deterioration in investor confidence, a return to declining or additional prolonged periods of low short-term interest rates and resulting fee waivers, investor preferences for deposit products or other FDIC-insured products, or passive investment products, changes in relationships with financial intermediaries, or other circumstances, could have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows.
Potential Adverse Effects of Low Short-Term Interest Rates. In December 2015, the FOMC increased the federal funds target rate range by 25 basis points to 0.25%-0.50%, slightly raising short-term interest rates late in the year. The federal funds target rate, which drives short-term interest rates, had been near zero for nearly seven years. As a result of the long-term near-zero interest-rate environment, the gross yield earned by certain money market funds is not sufficient to cover all of the fund's operating expenses. Since the fourth quarter of 2008, Federated has experienced Voluntary Yield-related Fee Waivers. These fee waivers have been partially offset by related reductions in distribution expense and net income attributable to noncontrolling interests as a result of Federated's mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers. In addition, while increases in short-term interest rates generally have the effect of decreasing these fee waivers for certain money market funds, the corresponding increases in yields and the resulting decrease in fee waivers are not certain nor directly proportional.

These Voluntary Yield-related Fee Waivers are calculated as a percentage of AUM in certain money market funds and thus will vary depending upon the asset levels in such funds. In addition, the level of waivers are dependent on several other factors including, but not limited to, yields on instruments available for purchase by the money market funds, changes in expenses of the money market funds and changes in the mix of money market assets. In any given period, a combination of these factors drives the amount of Voluntary Yield-related Fee Waivers. As an isolated variable, an increase in yields on instruments held by the money market funds will cause the pre-tax impact of fee waivers to decrease. Conversely, as an isolated variable, an increase in expenses of the money market funds would cause the pre-tax impact of fee waivers to increase.

With regard to asset mix, changes in the relative amount of money market fund assets in prime and government money market funds (or between such funds and other money market funds or other products) as well as the mix among certain share classes that vary in pricing structure will impact the level of fee waivers. Generally, prime money market funds waive less than government money market funds as a result of higher gross yields on the underlying investments. As such, as an isolated variable, an increase in the relative proportion of average managed assets invested in prime money market funds as compared to total average money market fund assets should typically result in lower Voluntary Yield-related Fee Waivers. Conversely, the opposite would also be true.

The impact of such fee waivers on various components of Federated's Consolidated Statements of Income was as follows for the years ended December 31:
in millions
 
2015

 
2014

 
2013

   Total Revenue
 
(333.6
)
 
(410.6
)
 
(389.0
)
Less: Reduction in Distribution expense
 
240.6

 
280.9

 
277.1

   Operating income
 
(93.0
)
 
(129.7
)
 
(111.9
)
Less: Reduction in Noncontrolling interest
 
7.1

 
10.7

 
6.8

Pre-tax impact
 
$
(85.9
)
 
$
(119.0
)
 
$
(105.1
)
The negative pre-tax impact of Voluntary Yield-related Fee Waivers decreased in 2015 as compared to 2014 primarily as a result of higher yields on instruments held by the money market funds and, to a lesser extent, by a decrease in average money market assets. During 2014, the negative pre-tax impact of Voluntary Yield-related Fee Waivers increased compared to 2013 primarily as a result of lower yields on instruments held by the money market funds, partially offset by a decrease in average

15


money market assets. See Note (19) to the Consolidated Financial Statements for information regarding the quarterly pre-tax impact of these fee waivers.
On December 16, 2015, the FOMC increased the federal funds target rate range by 25 basis points to 0.25% - 0.50% slightly raising short-term interest rates late in the year. While the FOMC implied in its economic projections that it would continue to raise the federal funds target rate in a measured and gradual way, Federated is unable to predict when, or to what extent, the FOMC will further increase their target for the federal funds rate. As such, Voluntary Yield-related Fee Waivers and the related reduction in distribution expense and net income attributable to noncontrolling interests could continue for the foreseeable future. Assuming asset levels and mix remain constant and based on recent market conditions, Voluntary Yield-related Fee Waivers for the first quarter of 2016 may result in a negative pre-tax impact on income of approximately $11 million, which is less than the impact to each quarter included in 2015 (see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations under the caption Business Developments - Low Short-Term Interest Rates for additional information on management's expectations regarding fee waivers and Note (19) to the Consolidated Financial Statements for additional information on the quarterly impact of these fee waivers). Any potential waiver recovery may be partially offset by changes in customer relationships or arrangements, among other potential factors. An expected change in a customer relationship may reduce pre-tax income by up to $6 million per quarter beginning in late 2016. Collectively, the net impact could result in approximately $5 million of net waiver recovery per quarter after 2016. See additional information in Item 9B - Other Information. While the level of these fee waivers are impacted by various factors, increases in short-term interest rates that result in higher yields on securities purchased in money market fund portfolios would likely reduce the negative pre-tax impact of these waivers. Excluding the possible impact of this customer relationship change, management estimates that an increase of 25 basis points in gross yields on securities purchased in money market fund portfolios will likely reduce the negative pre-tax impact of these waivers to approximately $4 million per quarter and an increase of 50 basis points could reduce the impact to approximately $1 million per quarter. An increase of 75 basis points could nearly eliminate these waivers. The actual amount of future fee waivers, the resulting negative impact of these waivers and Federated's ability to recover the net pre-tax impact of such waivers (that is, the ability to capture the pre-tax impact going forward, not re-capture previously waived amounts) could vary significantly from management's estimates as they are contingent on a number of variables including, but not limited to, changes in assets within the money market funds, yields on instruments available for purchase by the money market funds, actions by the Governors, the FOMC, the Treasury Department, the SEC, FSOC and other governmental entities, changes in fees and expenses of the money market funds, changes in the mix of money market customer assets, changes in customer relationships, changes in money market product structures and offerings, demand for competing products, changes in distribution models, changes in the distribution fee arrangements with third parties, Federated's willingness to continue the fee waivers and changes in the extent to which the impact of the waivers is shared by any one or more third parties. The continuation, duration, level and impact of Voluntary Yield-related Fee Waivers, as well as Federated's ability to recover the net pre-tax impact of such waivers (that is, the ability to capture the pre-tax income going forward, not re-capture previously waived amounts) as money market yields increase, could have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows.
Potential Adverse Effects of Rising Interest Rates. Despite the expectation that further increases in short-term interest rates above the current low rate range of 0.25% - 0.50% will further reduce the impact of the Voluntary Yield-related Fee Waivers, increases in interest rates could also have an adverse effect on Federated's revenue from money market and other fixed-income products and strategies. In a rising short-term interest rate environment, certain investors using money market products and strategies or other short-term duration fixed-income products and strategies 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 products or strategies holding lower-yielding instruments. In addition, rising interest rates will tend to reduce the fair value of securities held in various investment products and strategies. Among other potential adverse effects, rising interest rates may result in decreased liquidity and increased volatility in financial markets and could negatively impact the performance of Federated's products and strategies and Federated's revenue. Management cannot estimate the impact of rising interest rates (including, for example on Federated's revenue), but such impact could have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows.
Potential Adverse Effects of a Decline or Disruption in the Economy or Financial Markets. Economic or financial market downturns, disruptions or other conditions (domestic or international) may cause volatility, illiquidity and other potential adverse effects in the financial markets and adversely affect, potentially in a material way, the supply of investments, such as money market or municipal (tax-exempt) securities and the profitability and performance of, demand for and investor confidence in Federated's investment products and strategies. Such economic or financial market downturns, disruptions or other conditions (domestic or international) may include, for example, disruptions in the securities and credit markets, defaults or poor performance in certain sectors of the economy, unemployment, the commencement, continuation or ending of government policies and reforms, stimulus programs and other market-related actions, changes in monetary policy, increased

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regulation, increases or decreases in interest rates, changes in oil prices, changes in currency values or exchange rates or currency abandonment, inflation or deflation, widening bid/ask spreads, changes in the allocation of capital to market-making, restructuring of government-sponsored entities, imposition of economic sanctions, economic or political weakness or instability in certain countries or regions, technology-related or cyber-attacks or incidents, terrorism, the prospects for or concerns about any of the foregoing factors or events, or other factors or events that affect the financial markets. Each of these factors, among others, may cause or contribute to such economic or financial market downturns, disruptions or other conditions and their potentially adverse effects. In addition, Federated's products and strategies may be adversely affected, potentially in a material way, by changes in U.S. markets, downgrades of U.S. credit ratings, the U.S. debt ceiling or other developments in the U.S., as well as by potential deterioration in international sovereign or currency market conditions.
At December 31, 2015, Federated's liquid assets of $367.4 million included investments in certain Federated-sponsored money market and fluctuating-value funds that may have direct and/or indirect exposures to international sovereign debt and currency risks. Federated and the money market and fluctuating NAV funds managed or distributed by Federated also interact with various other financial industry participants, such as counterparties, broker/dealers, banks, clearing organizations, other investment products and customers, as a result of operations, trading, distribution and other relationships. As a result, Federated's business (including, but not limited to, its reputation), results of operations, financial condition and/or cash flows could be adversely affected by the creditworthiness or financial soundness of other financial industry participants, particularly in times of economic or financial stress or disruption. There can be no assurance that potential losses that may be realized as a result of these exposures will not have a material adverse effect on Federated's business (including, but not limited to, its reputation), results of operations, financial condition and/or cash flows.
The ability of Federated to compete and sustain asset and revenue growth is dependent, in part, on the relative attractiveness of the types of investment products and strategies Federated offers and its investment performance under prevailing market conditions. Adverse market conditions or other events also could impact Federated's customers. In the event of extreme circumstances, such as economic, political, or business crises, Federated's products and strategies may suffer significant net redemptions in AUM causing severe liquidity issues in its short-term sponsored investment products and strategies and declines in the value of and returns on AUM, all of which could cause material adverse effects on Federated's business (including, but not limited to, its reputation), results of operations, financial condition and/or cash flows.
Custody and portfolio accounting services for all of Federated's mutual fund products are outsourced to one of four third-party financial institutions that are leading providers of such mutual fund services. Accounting records for Federated's mutual funds are maintained by these service providers (or vendors). These service providers, or other service providers of Federated and its products or customers, could also be adversely affected by the adverse market conditions described above. It is not possible to predict with certainty the extent to which the services or products Federated receives from such service providers would be interrupted or affected by such situations. Accordingly, there can be no assurance that potential service interruption or Federated's ability to find a suitable replacement would not have a material adverse effect on Federated's business (including, but not limited to, its reputation), results of operations, financial condition and/or cash flows.
Potential Adverse Effects of Changes in Laws, Regulations and Other Rules on Federated's Investment Management Business. Federated and its investment management business are subject to extensive regulation in the U.S. and abroad. Federated and its products (such as the Federated Funds) and strategies are subject to federal securities laws, principally the 1933 Act, 1934 Act, the 1940 Act, the Advisers Act, state laws regarding securities fraud and regulations or other rules promulgated by various regulatory authorities, or self-regulatory organizations or exchanges including, but not limited to, the SEC, the Financial Industry Regulatory Authority (FINRA) and the New York Stock Exchange (NYSE). From time to time, the federal securities laws have been augmented substantially. For example, among other measures, Federated and its products and strategies have been impacted by the Sarbanes-Oxley Act of 2002, the Patriot Act of 2001, the Gramm-Leach-Bliley Act of 1999 and the Dodd-Frank Act. Federated and its domestic products (such as the Federated Funds) and strategies, and any offshore products (such as offshore Federated Funds) and strategies to the extent offered in the U.S., continue to be primarily regulated by the SEC. Federated, and certain Federated Funds, are also subject to regulation by the U.S. Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA), due to certain Federated Funds investing in futures, swaps or certain other commodity interests in more than de minimis amounts. In addition, during the past several years regulators, self-regulatory organizations or exchanges such as the SEC, FINRA, CFTC, NFA and NYSE have adopted other regulations, rules and amendments that have increased Federated's operating expenses and affected the conduct of its business, and may continue to do so. Federated and its products and strategies also are affected by certain regulations governing banks and other financial institutions. Federated's and its products' operations outside of the U.S. are subject to foreign laws and regulation by foreign regulatory or other authorities, such as the U.K. Financial Conduct Authority (FCA) for London-based operations, the Central Bank of Ireland for Dublin-based operations, the German Federal Financial Supervisory Authority for Frankfurt-based operations, and Ontario (and certain other provincial) Securities Commissions for Canadian operations.

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Additional, or changes in, laws, regulations, rules, interpretations or governmental policies, both domestically and abroad, may increase compliance risk and operating expenses, including the costs associated with compliance. As Federated's business expands, the potential impact of such changes in laws, regulations, rules, interpretations or governmental policies, compliance and the risks and costs associated with compliance may increase.
Domestically, in addition to other potential future regulation, the SEC, building on initial money market fund reforms adopted in 2010, adopted additional money market fund reforms in the form of the 2014 Money Fund Rules, the SEC staff issued related Money Fund Rules Guidance in 2015, and regulators, such as the SEC, Treasury Department, IRS, and DOL, among others, have issued or proposed Other Regulatory Developments (see Item 1 - Business under the caption Regulatory Matters for additional information on the 2014 Money Fund Rules, the Money Fund Rules Guidance and Other Regulatory Developments). In addition to promulgating additional regulation, regulators, such as the SEC, have undertaken or may undertake a series of investigations, enforcement actions and/or examinations involving investment management industry participants, including certain sweep examinations of investment management companies involving various topics, such as fixed-income and high yield liquidity, liquidity controls, liquid alternatives, cybersecurity, side-by-side management of private funds, private placements, separately managed or wrap-fee accounts, excessive trading, "distribution in guise," and intermediary and other payments and related disclosures. Among other potential impacts, these regulatory requirements and developments have increased, or will likely increase, compliance risks, as well as costs associated with technology, legal, compliance, operations and other efforts to address regulatory-related matters, and caused, or may cause, product structure, pricing, offering and development effort adjustments, as well as changes in asset flows and customer relationships. These regulatory requirements and developments also could make certain money market fund products less attractive to institutional and other investors and/or result in reductions in AUM and revenues. In addition, the Dodd-Frank Act provided for a new systemic risk regulation regime under which it is possible that Federated, and/or any one or more of its products (such as the Federated Funds), could be subject to designation as a systemically important financial institution by the FSOC, thereby resulting in additional regulation by the Governors in addition to primary regulation by the SEC (see Item 1 - Business under the caption Regulatory Matters for additional information regarding the potential for heightened regulation by the Governors and the FSOC). Among other potential impacts, any such designation would subject the designated entity to enhanced banking-oriented measures, including, for example, capital and liquidity requirements, leverage limits, enhanced public disclosures and risk management requirements, thereby increasing compliance risk and compliance costs.
Management believes that the floating NAV for institutional and municipal (or tax-exempt) money market funds will be detrimental to Federated's money market fund business and could materially and adversely affect Federated's business, results of operations, financial condition and/or cash flows. On a cumulative basis, Federated's regulatory, product development and restructuring, and other efforts in response to the 2014 Money Fund Rules, Money Fund Rules Guidance, and Other Regulatory Developments, including the internal and external resources dedicated to such efforts, have had, and may continue to have, a material impact on Federated's expenses and, in turn, financial performance. Given the 2014 Money Fund Rules, Money Fund Rules Guidance and Other Regulatory Developments, and the potential for future additional regulation or guidance, Federated is unable at this time to fully assess the degree of the impact of these regulatory requirements and developments, and Federated's related efforts, on its business, results of operations, financial condition and/or cash flows. These regulatory changes and developments, and Federated's efforts in responding to them, could have a material and adverse effect on Federated's business, results of operations, financial condition and/or cash flows. Federated also is unable to assess whether, or the degree to which, any of the Federated Funds, including money market funds or any of its other products, could ultimately be designated a systemically important non-bank financial company by the FSOC. In management's view, the issuance of final regulations pertaining to systemically important non-bank financial companies is, and any reforms ultimately put into effect would be, detrimental to Federated's money market fund business and could materially and adversely affect Federated's business, results of operations, financial condition and/or cash flows. Federated also is unable to assess at this time whether, or the degree to which, any potential options being evaluated in connection with these regulatory requirements and developments ultimately may be successful.
Outside of the U.S., international regulators and other authorities, such as the FCA and Central Bank of Ireland, also have adopted and proposed regulations that could increase Federated's operating expenses and adversely affect Federated's business, results of operation, financial condition and/or cash flows. In addition to other potential future regulation, European money market reform and the imposition of the FTT, particularly if enacted with broad application, would each be detrimental to Federated's fund business (see Item 1 - Business under the caption Regulatory Matters for additional information regarding European money market reform and the FTT). Among other potential impacts, compliance risks, the cost of compliance and other operational expenses would likely increase, and certain money market fund products may become less attractive to institutional or other investors, which could result in reductions in AUM, revenues and operating income. The designation as a systemically important non-bank, non-insurance company by the FSB also could have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows (see Item 1- Business under the caption Regulatory

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Matters for additional information regarding systemically important non-bank, non-insurance company designation). Among other potential impacts, any such designation would subject the designated entity to enhanced banking-oriented measures, including, for example, capital and liquidity requirements, leverage limits, enhanced public disclosures and risk management requirements, thereby increasing compliance risk and compliance costs. Federated is unable to assess the degree of any potential impact that European money market reform proposals or the FTT, or the potential for future additional regulation or guidance, may have on its business, results of operations, financial condition and/or cash flows until such proposals are finalized and approved, the FTT is enacted or Federated or a Federated Fund is designated as a systemically important non-bank, non-insurance company.
Changes in laws, regulations, rules, interpretations or governmental policies, domestically and abroad, also impact the financial intermediaries, service providers (or vendors), customers and other third-parties with whom Federated, and its products (such as the Federated Funds), conduct business. For example, provisions of the Dodd-Frank Act or the DOL's proposed fiduciary rule may affect intermediaries in their sale or use of Federated's products or strategies. Among other potential impacts, this could affect Federated's arrangements with these intermediaries, increase fee pressure, increase respective operating expenses and distribution costs, result in lower AUM, change asset flows and otherwise affect the conduct of Federated's or such intermediaries' respective businesses. This also could result in Federated or one or more of these third parties seeking to restructure or alter their compensation or other terms of the business arrangements between Federated or its products (including the Federated Funds) and one or more of these third parties. The above factors could have a material adverse impact on Federated's business, results of operations, financial condition and/or cash flows.
Various service industries, including, for example, mutual fund service providers, have been, and continue to be, the subject of changes in tax policy that impact their state and local tax liability. Changes that have been adopted or proposed include (1) an expansion of the nature of a service company's activities that subject it to tax in a jurisdiction, (2) a change in the methodology by which multi-state companies apportion their income between jurisdictions, and (3) a requirement that affiliated companies calculate their state tax as one combined entity. As adopted changes become effective and additional jurisdictions effect similar changes, among other potential impacts, there could be a material adverse effect on Federated's tax liability and effective tax rate and, as a result, net income. Various investment products also may be impacted by tax changes, which could have an adverse effect on the products and Federated's business, results of operations, financial condition and/or cash flows.
Potential Adverse Effect of Providing Financial Support to Investment Products. Federated may, from time to time, elect to provide financial support to its sponsored investment products (such as the Federated Funds). Providing such support utilizes capital that would otherwise be available for other corporate purposes. Losses on such support, or failure to have or devote sufficient capital to support products, could have a material adverse effect on Federated's business (including, but not limited to, its reputation), results of operations, financial condition and/or cash flows.
Risk of Federated's Money Market Products' Ability to Maintain a Stable Net Asset Value. Approximately 33% of Federated's total revenue for 2015 was attributable to money market assets. An investment in money market funds is neither insured nor guaranteed by the FDIC. Federated's money market funds seek to maintain a stable NAV. Although stable-value money market funds (including, after the 2014 Money Fund Rules become fully effective on October 14, 2016, retail and government money market funds) seek to preserve an NAV of $1.00 per share, it is possible for an investor to lose money by investing in these funds. Once Federated implements changes to its money fund product line up in response to the 2014 Money Fund Rules and offers institutional prime or municipal (or tax-exempt) money market funds with NAVs of $1.0000 that can fluctuate, it also will be possible for an investor to lose money by investing in these funds. Federated devotes substantial resources, such as significant credit analysis to the management of its products and strategies. However, there is no guarantee that a stable value money market fund will be able to preserve a stable NAV in the future. Market conditions could lead to a limited supply of money market fund securities and severe liquidity issues and/or declines in interest rates or additional prolonged periods of low yields in money market products or strategies, and regulatory changes or developments could lead to shifts in asset levels and mix, which could impact money market fund NAVs and performance. If the NAV of a Federated stable-value money market fund (including, after the 2014 Money Fund Rules become fully effective on October 14, 2016, a retail and government money market fund) were to decline to less than $1.00 per share, such Federated money market fund would likely experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated's business, results of operations, financial condition and/or cash flows. It is also possible that, if (after the 2014 Money Fund Rules become fully effective on October 14, 2016) an institutional prime or municipal (or tax-exempt) money market fund's fluctuating NAV consistently or significantly declines to less than $1.0000 per share, such Federated money market fund could experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated's business, results of operations, financial condition and/or cash flows.

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No Assurance of Access to Sufficient Liquidity. From time to time, Federated's operations may require more cash than is available from operations. In these circumstances, it may be necessary to borrow from lending facilities or to raise capital by securing new debt or by selling shares of Federated equity or debt securities. Federated's ability to raise additional capital in the future will be affected by several factors including, for example, Federated's creditworthiness and the fair value of Federated's common stock, as well as general market conditions. There can be no assurance that Federated will be able to obtain these funds and financing on acceptable terms, if at all, and, if Federated cannot obtain such funds, it could have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows.
Recruiting and Retaining Key Personnel. Federated's ability to attract 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, portfolio managers, analysts, traders, sales representatives and other key personnel is extremely competitive. There can be no assurance that Federated will be successful in its efforts to recruit and retain the required personnel. In addition to competing opportunities, personnel elect to pursue other interests for business, personal and other reasons or retire from time to time. Federated 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 Federated. In certain circumstances, the departure of key employees could cause higher redemption rates for certain AUM or the loss of customer accounts. Moreover, since certain of Federated's products and strategies contribute significantly to its revenues and earnings, the loss of even a small number of key personnel associated with these products or strategies could have a disproportionate adverse impact, potentially in a material way, on Federated's business, results of operations, financial condition and/or cash flows.
Various executives, investment, sales and other key personnel own restricted stock subject to vesting periods of up to ten years from the date awarded and to provisions that require resale or forfeiture to Federated 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 activities.
Potential Adverse Effects of Increased Competition in the Investment Management Business. The investment management business is highly competitive. Federated competes in the management and distribution of investment products and strategies (such as mutual funds and Separate Accounts) with other fund management companies and investment advisers, 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, among others, business reputation, investment performance, quality of service, the strength and continuity of management and selling relationships, distribution services offered, the type (e.g. passive versus actively managed, fund versus FDIC-insured deposits) and range of products and strategies offered and fees charged. As with any highly competitive market, competitive pricing structures are important. If competitors charge lower fees for similar products or strategies, Federated may decide to reduce the fees on its own products or strategies (either directly on a gross basis or on a net basis through fee waivers) in order to retain or attract customers. Such fee reductions, or other effects of competition, could have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows.
Many of Federated's products and strategies 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 assets, are held by institutional investors. If or when the structure of institutional investment products, such as money market funds, changes or becomes disfavored by institutions, whether due to regulatory or market changes or otherwise, Federated may be unable to retain or grow its share of this market and this could adversely affect Federated's future profitability and have a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows.

A significant portion of Federated's revenue is derived from providing products (such as mutual funds) and strategies to the wealth management and trust market, comprising approximately 2,500 banks and other financial institutions. Future profitability of Federated will be adversely affected if it is unable to retain or grow its share of this market, and could also be adversely affected by consolidations in the banking industry, as well as regulatory changes or developments impacting its customers.
Potential Adverse Effects of Changes in Federated's Distribution Channels. Federated acts as a wholesaler of investment products and strategies to financial intermediaries, including, for example, banks, broker/dealers, registered investment advisers and other financial planners. Federated also sells investment products and strategies directly to corporations, institutions and other customers. There can be no assurance that Federated will continue to have access to any financial intermediary or financial intermediaries that currently distribute Federated products and strategies or that Federated's relationship with any one

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or more financial intermediaries will continue over time or on existing economic terms. The impact of Voluntary Yield-related Fee Waivers and related reductions in distribution expense can vary depending upon, among other variables, changes in distribution models, changes in the distribution fee arrangements with one or more financial intermediaries, changes in customer relationships and changes in the extent to which the impact of the waivers is shared by one or more financial intermediaries. In addition, exclusive of the impacts of Voluntary Yield-related Fee Waivers and related reductions in distribution expense, Federated has experienced increases in the cost of distribution as a percentage of total revenue from 31% in 2007 to over 38% in 2015. Federated expects such costs to continue to increase in total due to asset growth, and per dollar of revenue due to the competitive pressures of the investment management business. Higher distribution costs reduce Federated's operating and net income.
Potential Adverse Effects of Declines in the Amount of or Changes in the Mix of Assets Under Management. 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 and strategies than on fixed-income and money market products and strategies. Likewise, mutual fund and other fund products generally have a higher management-fee rate than Separate Accounts. Additionally, certain components of distribution expense can vary depending upon the asset class, distribution channel and/or the size or structure of the customer relationship. Consequently, significant fluctuations in the value of securities held by, or the level of redemptions from, the products (such as the Federated Funds) or strategies advised by Federated may materially affect the amount of managed assets and thus Federated's revenue, profitability and growth. Similarly, changes in Federated's average asset mix across both asset and product or strategy types have a direct impact on Federated's revenue and profitability. Federated generally pays out a larger portion of the revenue earned from managed assets in money market funds than the revenue earned from managed assets in equity or fixed-income funds. Substantially all of Federated's managed assets are in investment products or strategies that permit investors to redeem or withdraw their investment at any time. Additionally, changing market conditions may cause a shift in Federated's asset mix towards money market and fixed-income products or strategies, and regulatory changes or developments may cause a shift between money fund products or from money market funds to other products, which may cause a decline in or otherwise affect, potentially in a material way, Federated's revenue and net income.
Potential 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 and strategies. Good performance generally assists retention and growth of managed 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 (including, but not limited to, business prospects), results of operations, financial condition and/or cash flows. Market conditions, such as volatility, illiquidity and rising interest rates, among other conditions, can adversely affect the performance of certain quantitative or other investment strategies or certain products, asset classes or sectors. The effects of poor performance on Federated could be magnified where assets or customers are concentrated in certain strategies, products, asset classes or sectors. In terms of revenue concentration by product, approximately 11% of Federated's total revenue for 2015 was derived from services provided to a sponsored fund, the Federated Kaufmann Fund. A significant and prolonged decline in the AUM in this fund could have a material adverse effect on Federated's future revenues and net income.
Operational Risks. Federated's and its products'/business' operations are supported internally and through management of relationships with various third party service providers (or vendors), both domestically and internationally. In turn, service providers' operations rely on additional relationships with other third parties. Operational risks include, but are not limited to, improper, inefficient, or unauthorized execution, processing, pricing and/or monitoring of transactions, deficiencies in operating systems, business disruptions, inadequacies or breaches in Federated's, its products' or a service provider's internal control processes, unauthorized disclosure of confidential, proprietary or non-public personal information and noncompliance with regulatory requirements. As Federated's and its relevant service providers' businesses expand and require additional scalability, operational risk increases both domestically and internationally. Management relies on its employees, systems and business continuity plans, and those of relevant service providers, to comply with established procedures, controls and regulatory requirements. Breakdown or improper use of systems, human error or improper action by employees or service providers, or noncompliance with regulations or other rules, could cause material adverse effects on Federated's business (including, but not limited to, its reputation), results of operations, financial condition and/or cash flows.
No Assurance of Successful Acquisitions. Federated's business strategy contemplates the acquisition of other investment management companies, as well as investment assets, both domestically and internationally. 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 or consummating desired acquisitions, or successfully

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integrating acquired companies or assets into Federated, or its products or strategies, or that any such acquisitions, if consummated, will prove to be advantageous to Federated.
Impairment Risk. At December 31, 2015, Federated had intangible assets including goodwill totaling $734.5 million on its Consolidated Balance Sheets, the vast majority of which represents assets capitalized in connection with Federated's acquisitions and business combinations. Federated may not realize the value of these assets. Management performs an annual review of the carrying values of goodwill and indefinite-lived intangible assets and periodic reviews of the carrying values of all other assets to determine whether events and circumstances indicate that an impairment in value may have occurred. A variety of factors could cause the carrying value of an asset to become impaired. Should a review indicate impairment, a write-down of the carrying value of the asset would occur, resulting in a noncash charge which would adversely affect Federated's financial position and results of operations for the period.
Systems, Technology and Cybersecurity Risks. Federated utilizes software and related technologies throughout its business (both domestically and internationally) including, for example, both proprietary systems and those provided by outside service providers (or vendors). Service providers to, and customers of, Federated and its products, and third parties on which such service providers and customers rely, also utilize software and related technologies in their businesses. 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 Federated or a third party to address computer system problems. Along with cyber incidents described more fully below, data or model imprecision, software or other technology malfunctions, human error, programming inaccuracies and similar or other circumstances or events may impair the performance of systems and technology. Accordingly, there can be no assurance that potential system interruptions, other technology-related issues or the cost necessary to rectify the problems would not have a material adverse effect on Federated's business (including, but not limited to, business prospects), results of operations, financial condition and/or cash flows.
In addition, like other companies in the investment management industry and elsewhere, the use of the Internet and other electronic media and technology exposes Federated, its business, its products and services, customers, and relevant service providers, and their respective operations, to potential risks from frequent cybersecurity attacks, events or incidents (cyber incidents). For example, Federated and relevant service providers collect, maintain and transmit confidential, proprietary and non-public personal customer information (such as in connection with online account access and performing investment, reconciliation, transfer agent, custodian and other recordkeeping and related functions) that can be targeted by cyber incidents. Cyber incidents may include, for example, unauthorized access to systems, networks or devices (for example, through hacking activity), infection from or spread of malware, computer viruses or other malicious software code, corruption of data, and attacks (including, but not limited to, denial-of-service attacks on websites) which shut down, disable, slow, impair or otherwise disrupt operations, business processes, technology, connectivity or website or internet access, functionality or performance. Like other companies, Federated has experienced, and will continue to experience, cyber-incidents consistently. For example, Federated recently detected malware on certain systems and equipment and devoted internal and external resources to the matter. Cyber incidents have not had a material adverse effect on Federated's business, results of operations, financial condition and/or cash flows. In addition to intentional cyber incidents, unintentional cyber incidents can occur (for example, the inadvertent release of confidential or non-public personal information). A cyber incident may cause Federated, its business, products or services, its employees, customers, or relevant service providers, to lose proprietary, sensitive, confidential or non-public business, customer or personal information, suffer data corruption or business interruption, lose operational capacity (for example, the loss of the ability to process transactions, calculate NAV, or allow the transaction of business), and/or fail to comply with applicable privacy and other laws. Among other potentially harmful effects, cyber incidents also may result in theft, unauthorized monitoring and failures in the physical infrastructure or operating systems. Any cyber incident could cause adverse impacts, the occurrence of financial losses, expenses and exposure related to regulatory penalties, litigation, reputational damage, and additional compliance costs associated with protection, detection, remediation and corrective measures. Cyber incidents affecting issuers in which Federated's or its customers' assets are invested also could cause such investments to lose value. Any of these cyber incidents may become incrementally worse if they were to remain undetected for an extended period of time.
The operating systems of Federated, its products, its customers and relevant service providers are dependent on the effectiveness of information security policies and procedures which seek to ensure that such systems are protected from cyber incidents. Federated has, and believes its products and its service providers have, established risk management systems that are reasonably designed to seek to reduce the risks associated with cyber incidents, however, there is no guarantee that such efforts will be successful, either entirely or partially. Among other reasons, the nature of malicious cyber incidents is becoming increasingly sophisticated and Federated, and its relevant affiliates and products, cannot control the systems and cybersecurity systems of issuers, relevant service providers or other third parties. While Federated cannot predict the financial or reputational impact to its business resulting from any cyber incident, the occurrence of a cyber incident, or a similar situation or incident,

22


could have a material adverse effect on Federated's business (including, but not limited to, its reputation), results of operations, financial condition and/or cash flows.
Potential Adverse Effects of Reputational Harm. Any material losses in customer (including shareholder) confidence in Federated, its products or strategies or in the mutual fund industry as a result of actual or potential regulatory proceedings or litigation, economic or financial market downturns or disruptions, material errors in public news reports, misconduct, a cyber incident, rumors on the Internet or other matters could increase redemptions from and/or reduce sales of Federated's products (such as the Federated Funds) and strategies and other investment management products and services. If such losses were to occur, it could have a material adverse effect on Federated's business (including, but not limited to, business prospects), results of operations, financial condition and/or cash flows.
Potential Adverse Effects of Termination or Failure to Renew Fund Agreements. A substantial majority of Federated's revenues are derived from investment management agreements with sponsored mutual funds (and to a lesser extent, sub-advised mutual 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 mutual fund's board of directors or trustees, including independent members of the board, or its shareholders, as required by law. Failure to renew, changes resulting in lower fees under, or termination of certain or a significant number of, these agreements could have a material adverse impact on Federated. As required by the 1940 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 or other transfer 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 agreements. Federated investment advisory contracts for Separate Accounts that are not investment companies subject to the 1940 Act generally are terminable by Federated's customers upon notice to Federated (or, in certain cases, after a 30 day, 60 day or similar notice period). As required by the Advisers Act, investment advisory agreements for Separate Accounts that are not investment companies subject to the 1940 Act also provide that consent is required from Federated's customers before the agreements may be assigned and an assignment, actual or constructive, also will trigger these consent requirements and may adversely affect Federated's ability to realize the value of these agreements.
Under the terms of a 2005 settlement agreement with the SEC and New York State Attorney General, a Federated investment advisory subsidiary may not serve as investment adviser to any registered investment company unless: (1) at least 75% of the fund's directors are independent of Federated; (2) the chairman of each such fund is independent of Federated; (3) 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 (4) 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.
Potential Adverse Effects of Unpredictable Events. Unpredictable events, such as a natural disaster, pandemic, war and terrorist attack, could adversely impact Federated's, its customer's and their respective service providers' (or vendors') ability to conduct business. Such events could cause disruptions in economic conditions and financial markets, system interruption, loss of life, unavailability of personnel or additional costs. As such, there can be no assurance that unpredictable events, or the costs to address such events, would not have a material adverse effect on Federated's business (including, but not limited to, business prospects), results of operations, financial condition and/or cash flows.
Potential Adverse Effects of Litigation, Investigations, Proceedings and Other Claims. Federated can be subject to routine, sweep and other examinations, inquiries, investigations, proceedings (administrative, regulatory, civil or otherwise) and other claims by its regulators (regulatory claims). Federated also can be subject to customer, and other third-party, complaints, proceedings (such as civil litigation) and other claims (business-related claims). Among other factors, as Federated's business, products and strategies expand, and financial products and other investments, markets and technology increase in complexity, the attention and resources that Federated devotes to compliance increases and the possibility and occurrences of non-compliance may increase. Federated has business-related claims asserted and threatened against it, and is subject to certain regulatory claims (such as routine and sweep examinations and other inquiries), in the ordinary course of business. In addition, Federated may be subject to business-related claims, and administrative, regulatory or civil investigations and proceedings or other regulatory claims, outside of the ordinary course of business. Federated cannot assess or predict whether, when or what types of business-related claims or regulatory claims (collectively, claims) may be threatened or asserted, the types or amounts of damages or other remedies that may be sought (which may be material when threatened or asserted), whether claims that have been threatened will become formal asserted pending investigations, proceedings or litigation, or whether claims ultimately may be successful (whether through settlement or adjudication), entirely or in part, whether or not any such claims

23


are threatened or asserted in or outside the ordinary course of business. Federated may be initially unable to accurately assess a claim's impact. Given that the outcome of any claim is inherently unpredictable and uncertain, a result may arise from time to time that adversely impacts, potentially in a material way, Federated's business, results of operations, financial condition and/or cash flows. In certain circumstances, insurance coverage may not be available or deductible amounts may not be exceeded, and Federated may have to bear the costs related to claims or any losses or other liabilities resulting from any such matters, or from the operation of Federated's business, products and services generally.
Federated's Status as a "Controlled Company." Federated has two classes of common stock: Class A Common Stock, which has voting power, and Class B Common Stock, which is non-voting except in certain limited circumstances. All of the outstanding shares of Federated's Class A Common Stock are held by the Voting Shares Irrevocable Trust for the benefit of certain members of the family of John F. Donahue. The three trustees of this trust are Mr. John F. Donahue, the Chairman of Federated's board of directors, his wife, and his son, Mr. J. Christopher Donahue, who is Federated's President and Chief Executive Officer, as well as a director. Accordingly, Federated qualifies as a "controlled company" under Section 303A of the NYSE Listed Company Manual. As a controlled company, Federated qualifies for and relies upon exemptions from several NYSE corporate governance requirements, including requirements that: (1) a majority of the board of directors consists of independent directors; and (2) the entity maintains a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities. As a result, Federated's board does not have a majority of independent directors nor does it maintain a nominating/corporate governance committee. Federated is also exempt as a "controlled company" from certain additional independence requirements and responsibilities regarding compensation advisers applicable to Compensation Committee members.

ITEM 1B – UNRESOLVED STAFF COMMENTS
None.

ITEM 2 – PROPERTIES
Federated leases space sufficient to meet its operating needs. Federated's operations are headquartered in Pittsburgh, Pennsylvania where it occupies approximately 259,000 square feet in the Federated Investors Tower. Federated leases approximately 94,000 square feet at the Keystone Summit Corporate Park location in Warrendale, Pennsylvania and an aggregate of approximately 25,000 square feet at other locations in the Pittsburgh area. Federated also leases office space in New York, New York, for the operations of Federated Global Investment Management Corp.; in Boston, Massachusetts, for the operations of Federated MDTA LLC; in Rochester, New York, for the operations of Federated Clover Investment Advisors, a division of Federated Global Investment Management Corp.; in Frankfurt, Germany, for the operations of Federated Asset Management GmbH; and in London, England for the operations of Federated Investors (UK) LLP. Federated's leased office space is used for its investment management business.

ITEM 3 – LEGAL PROCEEDINGS
The information required by this item is included in Note (17) to the Consolidated Financial Statements.

ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.


24


Part II

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

Federated's Class B common stock is traded on the NYSE under the symbol FII. The following table summarizes quarterly high and low trading stock prices and quarterly dividends per common share for 2015 and 2014.
 
 
March 31,

 
June 30,

 
September 30,

 
December 31,

2015
 
 
 
 
 
 
 
 
Stock price per share
 
 
 
 
 
 
 
 
High
 
$
35.60

 
$
35.75

 
$
34.53

 
$
32.01

Low
 
30.26

 
33.23

 
28.28

 
27.51

Cash dividends per share
 
0.25

 
0.25

 
0.25

 
0.25

2014
 
 
 
 
 
 
 
 
Stock price per share
 
 
 
 
 
 
 
 
High
 
$
31.20

 
$
31.48

 
$
31.50

 
$
33.96

Low
 
25.63

 
26.82

 
27.80

 
26.99

Cash dividends per share
 
0.25

 
0.25

 
0.25

 
0.25

The approximate number of beneficial shareholders of Federated's Class A and Class B common stock as of February 9, 2016, was 1 and 26,083, respectively.
 

The following table summarizes stock repurchases under Federated's share repurchase program during the fourth quarter of 2015.
 
 
Total Number
of Shares
Purchased

 
Average
Price Paid
per Share

 
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
1

 
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Program
1

October
 
55,000

 
$
28.96

 
55,000

 
3,234,616

November2
 
265,586

 
31.35

 
265,000

 
2,969,616

December2
 
213,050

 
29.47

 
210,000

 
2,759,616

Total
 
533,636

 
$
30.36

 
530,000

 
2,759,616

1
In February 2015, the board of directors authorized a share repurchase program that allows Federated to buy back up to 4.0 million shares of Federated Class B common stock with no stated expiration date. No other programs existed as of December 31, 2015. See Note (12) to the Consolidated Financial Statements for additional information on this program.
2
In November and December of 2015, 586 and 3,050 shares, respectively, of restricted stock with a weighted-average price of $0.00 and $3.00 per share, respectively, were repurchased as employees forfeited restricted stock.

25


Stock Performance Graph

The following performance graph compares the total shareholder return of an investment in Federated's Class B Common Stock to that of the Standard and Poor's MidCap 400® Index (S&P MidCap 400 Index) and to the S&P 1500 Asset Management & Custody Banks Index for the five-year period ended on December 31, 2015.
The graph assumes that the value of the investment in Federated's Class B Common Stock and each index was $100 on December 31, 2010. Total return includes reinvestment of all dividends. As a member of the S&P MidCap 400 Index as of December 31, 2015, Federated is required to include this comparison. The historical information set forth below is not necessarily indicative of future performance. Federated does not make or endorse any predictions as to future stock performance.

 
 
12/31/2011

 
12/31/2012

 
12/31/2013

 
12/31/2014

 
12/31/2015

Federated
 
$
60.64

 
$
91.24

 
$
134.81

 
$
159.46

 
$
143.06

S&P MidCap 400 Index
 
$
98.27

 
$
115.83

 
$
154.64

 
$
169.74

 
$
166.05

S&P 1500 Asset Management & Custody Banks Index
 
$
81.27

 
$
104.07

 
$
155.33

 
$
170.21

 
$
153.59


26


ITEM 6 – SELECTED FINANCIAL DATA

The selected consolidated financial data in this item should be read in conjunction with Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Financial Statements and Supplementary Data. The selected consolidated financial data (except managed assets) of Federated for the five years ended December 31, 2015 have been derived from Federated's audited Consolidated Financial Statements.
in thousands, except per share data and managed assets
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
2015

 
2014

 
2013

 
2012

 
2011

Statement of Income Data1
 
 
 
 
 
 
 
 
 
 
Total revenue
 
$
926,609

 
$
859,250

 
$
878,365

 
$
945,706

 
$
895,114

Operating income
 
279,446

 
237,949

 
251,743

 
312,593

 
257,455

Net income including noncontrolling
   interests in subsidiaries
 
171,986

 
149,822

 
166,355

 
197,628

 
155,083

Net income attributable to Federated Investors, Inc.
 
169,807

 
149,236

 
162,177

 
188,088

 
150,906

Share Data Attributable to Federated Investors, Inc.
 
 
 
 
 
 
 
 
 
 
Earnings per share – Basic and Diluted1
 
$
1.62

 
$
1.42

 
$
1.55

 
$
1.79

 
$
1.45

Cash dividends per share2
 
$
1.00

 
$
1.00

 
$
0.98

 
$
2.47

 
$
0.96

Weighted-average shares outstanding – Basic
 
100,475

 
100,721

 
100,668

 
100,313

 
100,609

Weighted-average shares outstanding – Diluted
 
100,477

 
100,723

 
100,669

 
100,313

 
100,632

Balance Sheet Data at Period End
 
 
 
 
 
 
 
 
 
 
Intangible assets, net and Goodwill
 
$
734,492

 
$
733,847

 
$
735,345

 
$
727,857

 
$
720,926

Total assets
 
1,187,203

 
1,140,519

 
1,135,797

 
1,090,061

 
1,150,856

Long-term debt3
 
191,250

 
216,750

 
198,333

 
276,250

 
318,750

Federated Investors shareholders' equity2
 
647,816

 
609,494

 
566,119

 
495,432

 
541,959

Impact of Voluntary Yield-related Fee Waivers4
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
(333,605
)
 
$
(410,553
)
 
$
(389,031
)
 
$
(290,966
)
 
$
(320,671
)
Less: Reduction in Distribution expense
 
240,610

 
280,851

 
277,168

 
218,479

 
232,336

Operating income
 
(92,995
)
 
(129,702
)
 
(111,863
)
 
(72,487
)
 
(88,335
)
Less: Reduction in Noncontrolling interest
 
7,114

 
10,699

 
6,800

 
1,243

 
6,473

Pre-tax impact
 
(85,881
)
 
(119,003
)
 
(105,063
)
 
(71,244
)
 
(81,862
)
Managed Assets (in millions)
 
 
 
 
 
 
 
 
 
 
As of period end
 
$
361,112

 
$
362,905

 
$
376,084

 
$
379,771

 
$
369,697

Average for the period
 
353,493

 
358,467

 
371,127

 
365,149

 
354,387

1
In 2012, results included pretax insurance recoveries totaling $20.2 million for claims related to various legal proceedings.
2
Federated paid a special dividend to shareholders of $1.51 per share or $156.9 million in 2012.
3
In 2014, Federated amended and restated the 2011 agreement to extend the term of the loan. See Note (9) to the Consolidated Financial Statements for additional information.
4
See Note (3) to the Consolidated Financial Statements for additional information regarding the impact of Voluntary Yield-related Fee Waivers.

27


ITEM 7 – 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 Item 1- Business, Item 1A - Risk Factors, Item 6 - Selected Financial Data and Item 8 - Financial Statements and Supplementary Data.
General
Federated is one of the largest investment managers in the U.S. with $361.1 billion in managed assets as of December 31, 2015. The majority of Federated's revenue is derived from advising the Federated Funds and Separate Accounts in both domestic and international markets. Federated also derives revenue from providing administrative and other mutual fund-related services, including distribution and shareholder servicing.
Federated's investment products and strategies are distributed in four markets. These markets and the relative percentage of managed assets at December 31, 2015 attributable to such markets are as follows: wealth management and trust (43%), broker/dealer (33%), institutional (20%) and international (4%).
Investment advisory fees, administrative service fees and certain fees for other services, such as distribution and shareholder service fees, are contract-based fees that are generally calculated as a percentage of the net assets of managed investment portfolios. Federated's revenue is primarily dependent upon factors that affect the value of managed assets including market conditions and the ability to attract and retain assets. Nearly all managed assets in Federated's investment products and strategies can be redeemed or withdrawn at any time with no advance notice requirement. Fee rates for Federated's services generally vary by asset and service type and may vary based on changes in asset levels. Generally, management-fee rates charged for advisory services provided to equity products and strategies are higher than management-fee rates charged on money market and fixed-income products and strategies. Likewise, mutual funds typically have a higher management-fee rate than Separate Accounts. Accordingly, revenue is also dependent upon the relative composition of average AUM across both asset and product types. Federated may waive certain fees for competitive reasons such as to maintain certain mutual fund expense ratios, to maintain positive or zero net yields on money market funds, to meet regulatory requirements or to meet contractual requirements. Since Federated's products are largely distributed and serviced through financial intermediaries, Federated pays a portion of fees earned from sponsored products to the financial intermediaries that sell these products. These payments are generally calculated as a percentage of net assets attributable to the applicable financial intermediary and represent the vast majority of Distribution expense on the Consolidated Statements of Income. Certain components of Distribution expense can vary depending upon the asset type, distribution channel and/or the size of the customer relationship. Federated generally pays out a larger portion of revenue earned from managed assets in money market funds than revenue earned from managed assets in equity or fixed-income funds.
Federated's most significant operating expenses are Compensation and related expense and Distribution expense as described above. Compensation and related expense includes base salary and wages, incentive compensation and other employee expenses including payroll taxes and benefits. Incentive compensation, which includes stock-based compensation, can vary depending on various factors including, but not limited to, overall results of operations of Federated, investment management performance and sales performance.
The discussion and analysis of Federated's financial condition and results of operations are based on Federated's Consolidated Financial Statements. Federated operates in a single operating segment, the investment management business. Management evaluates Federated's performance at the consolidated level. Management analyzes all expected revenue and expenses and considers market demands in determining an overall fee structure for services provided and in evaluating the addition of new business. Federated's growth and profitability are dependent upon its ability to attract and retain AUM and upon the profitability of those assets, which is impacted, in part, by management's decisions regarding Voluntary Yield-related Fee Waivers. Fees for fund-related services are ultimately subject to the approval of the independent directors or trustees of the mutual funds. Management believes that the most meaningful indicators of Federated's financial performance include AUM, gross and net product sales, total revenue and net income, both in total and per diluted share.

28


Business Developments
Money Market Fund Matters
For the year ended December 31, 2015, approximately 33% of Federated's total revenue was attributable to money market assets as compared to 32% and 39% for 2014 and 2013, respectively. Money market funds expose Federated to regulatory-related changes as well as to the impact from low short-term interest rates. See Item 1A - Risk Factors under the caption Potential Adverse Effects of a Material Concentration in Revenue and Note (3) to the Consolidated Financial Statements for additional information.
(a) Current Regulatory Environment
Federated and its investment management business are subject to extensive regulation in the U.S. and abroad. Federated and its products (such as the Federated Funds) and strategies are subject to federal securities laws, principally the 1933 Act, the 1934 Act, the 1940 Act, the Advisers Act, state laws regarding securities fraud, and regulations, or other rules, promulgated by various regulatory authorities, self-regulatory organizations or exchanges, as well as foreign laws, regulations or other rules promulgated by foreign regulatory or other authorities. In 2014, among other developments, the SEC promulgated new money market reform in the form of the 2014 Money Fund Rules and the SEC staff published the Money Fund Rules Guidance in 2015. Federated continues to analyze the potential impact of these reforms. Internationally, among other developments, European money market fund reforms, similar in some respects to the U.S. reforms, have not been finalized in 2015, and are expected to continue to be considered in 2016. Federated continued to dedicate internal and external resources to analyze the potential impact of the 2014 Money Fund Rules, and certain related regulations and developments, on Federated's business, results of operations, financial condition and/or cash flows. Federated also continued to implement in 2015, and expects to continue to implement in 2016, product development and restructuring initiatives in response to the 2014 Money Fund Rules. See Item 1 - Business under the caption Regulatory Matters and Item 1A - Risk Factors under the caption Potential Adverse Effects of Changes in Laws, Regulations and Other Rules on Federated's Investment Management Business for additional information.
(b) Low Short-Term Interest Rates
In December 2015, the FOMC increased the federal funds target rate range by 25 basis points to 0.25%-0.50%, slightly raising short-term interest rates late in the year. The federal funds target rate, which drives short-term interest rates, had been near zero for nearly seven years. As a result of the long-term near-zero interest-rate environment, the gross yield earned by certain money market funds is not sufficient to cover all of the fund's operating expenses. Since the fourth quarter of 2008, Federated has experienced Voluntary Yield-related Fee Waivers. These fee waivers have been partially offset by related reductions in distribution expense and net income attributable to noncontrolling interests as a result of Federated's mutual understanding and agreement with third-party intermediaries to share the impact of the Voluntary Yield-related Fee Waivers. See Item 1 - Business under the caption Low Short-Term Interest Rates and Item 1A - Risk Factors under the caption Potential Adverse Effects of Low Short-Term Interest Rates for additional information.
Assuming asset levels and mix remain constant and based on recent market conditions, Voluntary Yield-related Fee Waivers for the first quarter of 2016 may result in a negative pre-tax impact on income of approximately $11 million, which is less than the impact to each quarter included in 2015 (see Note (19) to the Consolidated Financial Statements for additional information on the quarterly impact of these fee waivers). Any potential waiver recovery may be partially offset by changes in customer relationships or arrangements, among other potential factors. An expected change in a customer relationship may reduce pre-tax income by up to $6 million per quarter beginning in late 2016. Collectively, the net impact could result in approximately $5 million of net waiver recovery per quarter after 2016. See additional information in Item 9B - Other Information. While the level of these fee waivers are impacted by various factors, increases in short-term interest rates that result in higher yields on securities purchased in money market fund portfolios would likely reduce the negative pre-tax impact of these waivers. Excluding the possible impact of this customer relationship change, management estimates that an increase of 25 basis points in gross yields on securities purchased in money market fund portfolios will likely reduce the negative pre-tax impact of these waivers to approximately $4 million per quarter and an increase of 50 basis points could reduce the impact to approximately $1 million per quarter. An increase of 75 basis points could nearly eliminate these waivers. The actual amount of future fee waivers, the resulting negative impact of these waivers and Federated's ability to recover the net pre-tax impact of such waivers (that is, the ability to capture the pre-tax impact going forward, not re-capture previously waived amounts) could vary significantly from management's estimates as they are contingent on a number of variables including, but not limited to, changes in assets within the money market funds, yields on instruments available for purchase by the money market funds, actions by the Governors, the FOMC, the Treasury Department, the SEC, FSOC and other governmental entities, changes in fees and expenses of the money market funds, changes in the mix of money market customer assets, changes in customer relationships, changes in money market product structures and offerings, demand for competing products, changes in

29


distribution models, changes in the distribution fee arrangements with third parties, Federated's willingness to continue the fee waivers and changes in the extent to which the impact of the waivers is shared by any one or more third parties.
Global Expansion
Federated continues to explore opportunities to further expand its global footprint. In 2015, among other initiatives, Federated focused on growing distribution opportunities for its products and services in Canada and Latin America. For example, in 2015, Federated registered a strategic value dividend fund in Canada and launched a money market fund domiciled in the Cayman Islands, among other initiatives. In 2015, Federated also continued to seek acquisition candidates, both internationally and domestically.


30


Asset Highlights
Managed Assets at Period End
in millions as of December 31,
 
2015

 
2014

 
2015
vs. 2014

By Asset Class
 
 
 
 
 
 
Money market
 
$
256,437

 
$
258,772

 
(1
)%
Equity
 
53,556

 
51,426

 
4

Fixed-income
 
51,119

 
52,707

 
(3
)
Total managed assets
 
$
361,112

 
$
362,905

 
0
 %
By Product Type
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
Money market
 
$
221,615

 
$
225,471

 
(2
)%
Equity
 
34,125

 
33,141

 
3

Fixed-income
 
37,989

 
40,456

 
(6
)
Total mutual fund assets
 
293,729

 
299,068

 
(2
)
Separate Accounts:
 
 
 
 
 
 
Money market
 
$
34,822

 
$
33,301

 
5
 %
Equity
 
19,431

 
18,285

 
6

Fixed-income
 
13,130

 
12,251

 
7

Total separate account assets
 
67,383

 
63,837

 
6

Total managed assets
 
$
361,112

 
$
362,905

 
0
 %

Average Managed Assets
in millions for the years ended December 31,
 
2015

 
2014

 
2013

 
2015
vs. 2014

 
2014
vs. 2013

By Asset Class
 
 
 
 
 
 
 
 
 
 
Money market
 
$
246,539

 
$
254,260

 
$
273,680

 
(3
)%
 
(7
)%
Equity
 
54,149

 
48,317

 
39,474

 
12

 
22

Fixed-income
 
52,805

 
51,333

 
51,340

 
3

 
0

Liquidation portfolio1
 
0

 
4,557

 
6,633

 
(100
)
 
(31
)
Total average managed assets
 
$
353,493

 
$
358,467

 
$
371,127

 
(1
)%
 
(3
)%
By Product Type
 
 
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
Money market
 
$
213,694

 
$
220,742

 
$
239,440

 
(3
)%
 
(8
)%
Equity
 
35,017

 
30,859

 
25,512

 
13

 
21

Fixed-income
 
39,973

 
40,366

 
41,177

 
(1
)
 
(2
)
Total average mutual fund assets
 
288,684

 
291,967

 
306,129

 
(1
)
 
(5
)
Separate Accounts:
 
 
 
 
 
 
 
 
 
 
Money market
 
$
32,845

 
$
33,518

 
$
34,240

 
(2
)%
 
(2
)%
Equity
 
19,132

 
17,458

 
13,962

 
10

 
25

Fixed-income
 
12,832

 
10,967

 
10,163

 
17

 
8

Total average separate account assets
 
64,809

 
61,943

 
58,365

 
5

 
6

Liquidation Portfolio1
 
$
0

 
$
4,557

 
$
6,633

 
(100
)%
 
(31
)%
Total average managed assets
 
$
353,493

 
$
358,467

 
$
371,127

 
(1
)%
 
(3
)%
1
The liquidation portfolio represented a portfolio of distressed bonds at cost. Federated had been retained by a third party to manage these assets through an orderly liquidation process that was completed during the fourth quarter of 2014. Management-fee rates earned from this portfolio were lower than those of traditional Separate Account mandates.


31


Changes in Equity and Fixed-Income Fund and Separate Account Assets
in millions for the years ended December 31,
 
2015
 
 
2014
 
 
Percent Change
 
Equity Funds
 
 
 
 
 
 
 
 
 
  Beginning assets
 
 
$
33,141

 
 
$
28,097

 
 
18
 %
      Sales
 
 
9,801

 
 
10,140

 
 
(3
)
      Redemptions
 
 
(8,159
)
 
 
(6,530
)
 
 
25

          Net sales
 
 
1,642

 
 
3,610

 
 
(55
)
      Net exchanges
 
 
(88
)
 
 
42

 
 
(310
)
      Market gains and losses/reinvestments1
 
 
(570
)
 
 
1,392

 
 
(141
)
  Ending assets
 
 
$
34,125

 
 
$
33,141

 
 
3
 %
Equity Separate Accounts
 
 
 
 
 
 
 
 
 
  Beginning assets
 
 
$
18,285

 
 
$
16,051

 
 
14
 %
      Sales2
 
 
5,790

 
 
4,536

 
 
28

      Redemptions2
 
 
(4,575
)
 
 
(3,883
)
 
 
18

          Net sales2
 
 
1,215

 
 
653

 
 
86

      Net exchanges
 
 
3

 
 
0

 
 
N/A

      Market gains and losses3
 
 
(72
)
 
 
1,581

 
 
(105
)
  Ending assets
 
 
$
19,431

 
 
$
18,285

 
 
6
 %
Total Equity Assets
 
 
 
 
 
 
 
 
 
  Beginning assets
 
 
$
51,426

 
 
$
44,148

 
 
16
 %
      Sales2
 
 
15,591

 
 
14,676

 
 
6

      Redemptions2
 
 
(12,734
)
 
 
(10,413
)
 
 
22

          Net sales2
 
 
2,857

 
 
4,263

 
 
(33
)
      Net exchanges
 
 
(85
)
 
 
42

 
 
(302
)
      Market gains and losses/reinvestments1
 
 
(642
)
 
 
2,973

 
 
(122
)
  Ending assets
 
 
$
53,556

 
 
$
51,426

 
 
4
 %
Fixed-income Funds
 
 
 
 
 
 
 
 
 
  Beginning assets
 
 
$
40,456

 
 
$
39,606

 
 
2
 %
      Sales
 
 
14,496

 
 
16,186

 
 
(10
)
      Redemptions
 
 
(16,588
)
 
 
(16,120
)
 
 
3

          Net (redemptions) sales
 
 
(2,092
)
 
 
66

 
 
(3,270
)
      Net exchanges
 
 
33

 
 
(354
)
 
 
109

      Acquisition-related
 
 
0

 
 
301

 
 
(100
)
      Market gains and losses/reinvestments1
 
 
(408
)
 
 
837

 
 
(149
)
  Ending assets
 
 
$
37,989

 
 
$
40,456

 
 
(6
)%
Fixed-income Separate Accounts
 
 
 
 
 
 
 
 
 
  Beginning assets
 
 
$
12,251

 
 
$
10,520

 
 
16
 %
      Sales2
 
 
1,963

 
 
2,393

 
 
(18
)
      Redemptions2
 
 
(1,061
)
 
 
(1,343
)
 
 
(21
)
          Net sales2
 
 
902

 
 
1,050

 
 
(14
)
      Net exchanges
 
 
(6
)
 
 
230

 
 
(103
)
      Market gains and losses3
 
 
(17
)
 
 
451

 
 
(104
)
  Ending assets
 
 
$
13,130

 
 
$
12,251

 
 
7
 %
Total Fixed-income Assets
 
 
 
 
 
 
 
 
 
  Beginning assets
 
 
$
52,707

 
 
$
50,126

 
 
5
 %
      Sales2
 
 
16,459

 
 
18,579

 
 
(11
)
      Redemptions2
 
 
(17,649
)
 
 
(17,463
)
 
 
1

          Net (redemptions) sales 2
 
 
(1,190
)
 
 
1,116

 
 
(207
)
      Net exchanges
 
 
27

 
 
(124
)
 
 
122

      Acquisition-related
 
 
0

 
 
301

 
 
(100
)
      Market gains and losses/reinvestments1
 
 
(425
)
 
 
1,288

 
 
(133
)
  Ending assets
 
 
$
51,119

 
 
$
52,707

 
 
(3
)%
1
Reflects approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net investment income and the impact of changes in foreign exchange rates.
2
For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of Market gains and losses.
3
Reflects the approximate changes in the fair value of the securities held by the portfolios.


32


Total Changes in Equity and Fixed-Income Assets
in millions for the years ended December 31,
 
 
2015

 
2014

 
Percent Change

Funds
 
 
 
 
 
 
 
Beginning assets
 
 
$
73,597

 
$
67,703

 
9
 %
Sales
 
 
24,297

 
26,326

 
(8
)
Redemptions
 
 
(24,747
)
 
(22,650
)
 
9

Net (redemptions) sales
 
 
(450
)
 
3,676

 
(112
)
Net exchanges
 
 
(55
)
 
(312
)
 
82

Acquisition-related
 
 
0

 
301

 
(100
)
Market gains and losses/reinvestments1
 
 
(978
)
 
2,229

 
(144
)
Ending assets
 
 
$
72,114

 
$
73,597

 
(2
)%
 
 
 
 
 
 
 
 
Separate Accounts
 
 
 
 
 
 
 
Beginning assets
 
 
$
30,536

 
$
26,571

 
15
 %
Sales2
 
 
7,753

 
6,929

 
12

Redemptions2
 
 
(5,636
)
 
(5,226
)
 
8

Net sales2
 
 
2,117

 
1,703

 
24

Net exchanges
 
 
(3
)
 
230

 
(101
)
Market gains and losses3
 
 
(89
)
 
2,032

 
(104
)
Ending assets
 
 
$
32,561

 
$
30,536

 
7
 %
 
 
 
 
 
 
 
 
Total Assets
 
 
 
 
 
 
 
Beginning assets
 
 
$
104,133

 
$
94,274

 
10
 %
Sales2
 
 
32,050

 
33,255

 
(4
)
Redemptions2
 
 
(30,383
)
 
(27,876
)
 
9

Net sales2
 
 
1,667

 
5,379

 
(69
)
Net exchanges
 
 
(58
)
 
(82
)
 
(29
)
Acquisition-related
 
 
0

 
301

 
(100
)
Market gains and losses/reinvestments1
 
 
(1,067
)
 
4,261

 
(125
)
Ending assets
 
 
$
104,675

 
$
104,133

 
1
 %
1
Reflects approximate changes in the fair value of the securities held by the portfolios and, to a lesser extent, reinvested dividends, distributions, net investment income and the impact of changes in foreign exchange rates.
2
For certain accounts, Sales and Redemptions are calculated as the remaining difference between beginning and ending assets after the calculation of Market gains and losses.
3
Reflects the approximate changes in the fair value of the securities held by the portfolios.






33


Changes in Federated's average asset mix year-over-year across both asset classes and product types have a direct impact on Federated's operating income. Asset mix impacts Federated's total revenue due to the difference in the fee rates earned on each asset class and product type per invested dollar and certain components of distribution expense can vary depending upon the asset class, distribution channel and/or the size of the customer relationship. The following table presents the relative composition of average managed assets and the percent of total revenue derived from each asset class and product type over the last three years:
 
 
Percent of Total Average Managed Assets
 
Percent of Total Revenue
 
 
2015

 
2014

 
2013

 
2015

 
2014

 
2013

By Asset Class
 
 
 
 
 
 
 
 
 
 
 
 
Money market assets
 
70
%
 
71
%
 
74
%
 
33
%
 
32
%
 
39
%
Equity assets
 
15
%
 
14
%
 
10
%
 
46
%
 
45
%
 
37
%
Fixed-income assets
 
15
%
 
14
%
 
14
%
 
21
%
 
22
%
 
23
%
Liquidation portfolio
 
--

 
1
%
 
2
%
 
--

 
0
%
 
0
%
Other activities
 
--

 
--

 
--

 
0
%
 
1
%
 
1
%
By Product Type
 
 
 
 
 
 
 
 
 
 
 
 
Mutual Funds:
 
 
 
 
 
 
 
 
 
 
 
 
Money market assets
 
61
%
 
62
%
 
65
%
 
32
%
 
30
%
 
37
%
Equity assets
 
10
%
 
9
%
 
7
%
 
38
%
 
37
%
 
31
%
Fixed-income assets
 
11
%
 
11
%
 
11
%
 
19
%
 
20
%
 
21
%
Separate Accounts:
 
 
 
 
 
 
 
 
 
 
 
 
Money market assets
 
9
%
 
9
%
 
9
%
 
1
%
 
2
%
 
2
%
Equity assets
 
5
%
 
5
%
 
3
%
 
8
%
 
8
%
 
6
%
Fixed-income assets
 
4
%
 
3
%
 
3
%
 
2
%
 
2
%
 
2
%
Liquidation Portfolio
 
--

 
1
%
 
2
%
 
--

 
0
%
 
0
%
Other Activities
 
--

 
--

 
--

 
0
%
 
1
%
 
1
%
Total managed assets represent the balance of AUM at a point in time. By contrast, average managed assets represent the average balance of AUM during a period of time. Because substantially all revenue and certain components of distribution expense are generally calculated daily based on AUM, changes in average managed assets are typically a key indicator of changes in revenue earned and asset-based expenses incurred during the same period.
Average managed assets decreased 1% for the year ended December 31, 2015 compared to the year ended December 31, 2014. Period-end money market assets decreased 1% at December 31, 2015 as compared to December 31, 2014. Average money market assets decreased 3% for 2015 compared to 2014, following the industry trend resulting from a prolonged accommodative monetary policy environment. Short-term interest rates remained low throughout much of the year but trended higher toward the end of 2015, aided by the FOMC's December 16, 2015 decision to raise the federal funds target rate for the first time in nearly ten years by 25 basis points to a still accommodative range of 0.25% - 0.50%. Period-end equity assets increased 4% at December 31, 2015 as compared to December 31, 2014 primarily due to net sales, partially offset by market depreciation. Average equity assets increased 12% for 2015 as compared to 2014. After two key indicators of broad equity-market performance, the S&P 500 and Dow Jones Industrial Average, reached record highs in May 2015, the broader markets experienced a wave of volatility the remainder of the year, initially on concerns about Greece. In August 2015, a surprise devaluation in China's currency raised anxiety about global growth generally, causing already declining oil prices to fall further and adding to concerns about the sustainability of corporate earnings margins. In the bond market, Treasury yields traded in a tight range for much of the year, as it wrestled with conflicting signs of an improving U.S., but slowing global, economy, with spread-sector yields responding appropriately. Period-end fixed-income assets decreased 3% at December 31, 2015 as compared to December 31, 2014 primarily as a result of net redemptions and, to a lesser extent, market depreciation, while average fixed-income assets increased 3% for 2015 as compared to 2014.
As of December 31, 2014, total managed assets decreased 4% from December 31, 2013 primarily as a result of decreases in money market assets and assets in the liquidation portfolio, partially offset by increases in equity and fixed-income assets. Average managed assets decreased 3% for the year ended December 31, 2014 compared to the year ended December 31, 2013. Period-end money market assets decreased 6% at December 31, 2014 as compared to December 31, 2013. Average money market assets decreased 7% for 2014 compared to 2013, following the industry trend resulting from the accommodative monetary policy environment. Short-term interest rates remained low throughout 2014 as the FOMC kept the near-zero federal funds rate unchanged in the continuous pursuit of a sustained economic recovery. Period-end equity assets increased 16% at December 31, 2014 as compared to December 31, 2013 primarily due to net sales, and to a lesser extent, market appreciation. Average equity assets increased 22% for 2014 compared to 2013. Despite greater equity-market volatility late in the third

34


quarter and into the fourth quarter of 2014, both the S&P 500 and Dow Jones Industrial Average, key indicators of broad equity-market performance, reached record highs in late December. Assets in the liquidation portfolio were fully liquidated in the fourth quarter of 2014. In the bond market, Treasury yields moved measuredly, with the yield curve flattening as intermediate rates increased slightly while long-term rates dipped, resulting from continued improvement in the U.S. economy, with spread-sector yields responding appropriately. Period-end fixed-income assets increased 5% at December 31, 2014 as compared to December 31, 2013 primarily as a result of market appreciation, and to a lesser extent, net sales, while average fixed-income assets remained flat for 2014 as compared to 2013.

Results of Operations
Revenue. The following table sets forth components of total revenue for the three years ended December 31:
in millions
 
2015

 
2014

 
2013

 
2015
vs. 2014

 
2014
vs. 2013

Revenue from managed assets
 
$
926.2

 
$
852.1

 
$
868.7

 
9
 %
 
(2
)%
Revenue from sources other than managed assets
 
0.4

 
7.2

 
9.7