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, 2004

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

For the transition period from              to             

Commission file number 1-14818

FEDERATED INVESTORS, INC.

(Exact name of registrant as specified in its charter)

Pennsylvania	25-1111467
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Federated Investors Tower Pittsburgh, Pennsylvania	15222-3779
(Address of principal executive offices)	(zip code)

412-288-1900

(Registrant’s telephone number, including area code)

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

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

The aggregate market value of the Class B Common Stock held by non-affiliates of the registrant as of June 30, 2004 was approximately $2.5 billion, based on the last reported sales price of $30.34 as reported by the New York Stock Exchange. For purposes of this calculation, the registrant has deemed all of its executive officers and directors to be affiliates, but has made no determination as to whether any other persons are “affiliates” within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934. The number of shares of Class A and Class B Common Stock outstanding on February 28, 2005, was 9,000 and 106,890,711, respectively.

Documents incorporated by reference:

Selected portions of the 2004 Annual Report to Shareholders – Part I, Part II and Part IV of this Report.

Selected portions of the 2005 Information Statement – Part III of this Report.

Part I

ITEM 1 – BUSINESS

General

Federated Investors, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, “Federated”), is a leading provider of investment management products and related financial services. Federated has been in the asset management business since 1955 and is one of the largest mutual fund managers in the United States with $179.3 billion in assets under management at December 31, 2004.

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

Federated provided investment advisory services to 133 Federated-sponsored funds as of December 31, 2004. Federated markets these funds to banks, broker/dealers and other financial intermediaries who use them to meet the needs of their customers, including retail investors, corporations and retirement plans. The funds sponsored by Federated are domiciled in the U.S., with the exception of Federated International Funds Plc and Federated Unit Trust, which are domiciled in Dublin, Ireland. Federated’s U.S.-domiciled funds (with the exception of a collective investment trust) are registered under the Investment Company Act of 1940 (“Investment Company Act”) and under applicable federal and state laws. Each of the funds enters into an advisory agreement that is subject to annual approval by the fund directors or trustees, including a majority of the directors who are not “interested persons” of the funds or Federated as defined under the Investment Company Act. In general, amendments to such advisory agreements must be approved by the funds’ shareholders. A significant portion of Federated’s revenue is derived from these advisory agreements, which generally are terminable upon 60 days notice.

Of the 133 mutual funds sponsored by Federated (the “Federated Funds”) as of December 31, 2004, Federated’s investment advisory subsidiaries managed 53 money market funds (and cash equivalents) totaling $110.6 billion in assets, 46 fixed-income funds with $21.1 billion in assets and 34 equity funds with $26.0 billion in assets. Appendix “A” hereto lists all of these funds, including asset levels and dates of inception.

As of December 31, 2004, Federated provided investment advisory services to $21.6 billion in separately managed account assets. These separate accounts (together with the Federated Funds, “Managed Assets”) represented assets from government entities, pension and other employee benefit plans, corporations, trusts, foundations, endowments, mutual funds and other products sponsored by third parties, and other investors. Fees for separate accounts are typically based on the value of assets under management pursuant to investment advisory agreements that may be terminated at any time.

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

Federated also provides a broad range of services to support the operation, administration and distribution of Federated-sponsored funds. These services, for which Federated receives fees pursuant to agreements with the Federated Funds, include administrative services, shareholder servicing and general support. Effective January 1, 2004, Federated was no longer responsible for providing accounting services to the Federated-sponsored funds. Rather the funds began contracting directly with an independent third-party provider of portfolio accounting services. As a result, beginning in 2004, Federated no longer recognized revenue or third-party expenses in the Consolidated Statements of Income for portfolio accounting services provided to the Federated-sponsored funds. On

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June 30, 2004, Federated completed the sale of its transfer agency business to an independent third-party provider of these services. The funds began contracting directly with that independent third-party provider. Federated continues to provide certain limited shareholder servicing functions to the funds. The operating results of this business were reported net of tax as discontinued operations on the Consolidated Financial Statements for all periods presented.

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

Managed Assets by Asset Class

	As of December 31,						Growth Rate
(dollars in millions)	2004		2003		2002		3 Yr. CAGR1		2004
Money Market	$	124,302	$	142,773	$	150,745	(3	)%	(13	)%
Fixed-Income		25,953		29,517		26,541	7	%	(12	)%
Equity		29,013		25,627		18,067	9	%	13	%
Total Managed Assets	$	179,268	$	197,917	$	195,353	0	%	(9	)%

1 Compound Annual Growth Rate

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

Average Managed Assets by Asset Class

	Year ended December 31,						Growth Rate
(dollars in millions)	2004		2003		2002		3 Yr. CAGR1		2004
Money Market	$	134,096	$	149,703	$	145,288	4	%	(10	)%
Fixed-Income		27,248		28,931		23,673	12	%	(6	)%
Equity		26,476		20,849		20,281	6	%	27	%
Total Average Managed Assets	$	187,820	$	199,483	$	189,242	5	%	(6	)%

1 Compound Annual Growth Rate

Federated also derives revenue from providing mutual fund administrative services and various other fund-related services to institutions seeking to outsource all or part of their mutual fund service and distribution functions. Through various subsidiaries, Federated provides its experience and expertise in these areas to expand its relationships with key financial intermediaries, primarily banks, who sponsor proprietary mutual funds. Federated receives fees from these bank-sponsored funds for providing fund services. Federated provided these services for $37.2 billion of assets in funds sponsored by third parties (“Administered Assets”) as of December 31, 2004.

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

Administered Assets

	As of and for the year ended December 31,						Growth Rate
(dollars in millions)	2004		2003		2002		3 Yr. CAGR1		2004
Period-End Administered Assets2	$	37,164	$	43,428	$	34,827	(6	)%	(14	)%
Average Administered Assets		41,208		39,513		38,032	(1	)%	4	%

1 Compound Annual Growth Rate

2 As of January 31, 2005, due to the loss of clients, the period-end administered assets totaled $19,309.

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

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

Revenue

	Year ended December 31,						Growth Rate
(dollars in thousands)	2004		2003		2002		3 Yr. CAGR1		2004
Investment advisory fees, net	$	546,167	$	528,370	$	516,409	4	%	3	%
Administrative service fees, net		135,851		144,873		145,406	0	%	(6	)%
Other service fees, net2		157,464		114,847		112,024	(1	)%	37	%
Other, net		7,482		7,683		5,132	13	%	(3	)%
Total revenue	$	846,964	$	795,773	$	778,971	3	%	6	%

1 Compound Annual Growth Rate

2 Other service fees, net for 2004 and 2001 included certain B-share-related distribution fee income that was not recorded in revenue in 2002 and 2003. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2004 Annual Report for further details.

Investment Products

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

Federated is one of the largest U.S. managers of money market assets, with $124.3 billion in such assets under management at December 31, 2004. Federated has developed expertise in managing cash for institutions, which typically have stringent requirements for regulatory compliance, relative safety, liquidity and competitive yields. Federated has managed money market funds for 30 years and began selling money market fund products to institutions in 1974. Federated also manages retail money market products that are typically distributed through broker/dealers. Federated manages money market assets in the following asset classes: prime corporate ($43.4 billion); government ($55.9 billion); and tax free ($25.0 billion).

In recent years, Federated has emphasized growth of its equity business as an important component of its growth strategy and has broadened its range of equity investment products. Equity assets are managed across a wide range of styles including large cap value ($5.7 billion); small-mid cap growth ($8.6 billion); equity income ($2.2 billion); core equity ($3.5 billion); flexible ($2.8 billion); international ($1.6 billion); and mid-large cap growth ($1.4 billion). Federated also manages assets in equity index funds ($2.4 billion) and balanced and asset allocation funds ($0.8 billion). These asset allocation funds include fixed-income assets.

Federated’s fixed-income assets are managed in a wide range of sectors including multi-sector ($6.4 billion); mortgage-backed ($3.8 billion); high-yield ($3.8 billion); municipal ($3.4 billion); U.S. corporate ($3.5 billion); U.S. government ($3.0 billion); and international ($2.1 billion). Federated’s fixed-income products offer fiduciaries and others a broad range of highly defined products designed to meet many of their investment needs and requirements.

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

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Distribution Channels

Federated’s distribution strategy is to provide products geared to financial intermediaries, primarily banks, broker/dealers, investment advisers and directly to institutions such as corporations and government entities. Through substantial investments in distribution for more than 20 years, Federated has developed relationships with 3,700 intermediaries and sells its products directly to another 2,000 corporations and government entities. Federated uses its trained sales force of approximately 178 representatives and managers to add new customer relationships and strengthen and expand existing relationships.

Product Markets

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

Managed Assets by Market

	As of December 31,						Growth Rate
(dollars in millions)	2004		2003		2002		3 Yr. CAGR1		2004
Trust	$	86,947	$	96,131	$	102,186	(3	)%	(10	)%
Broker/Dealer2		47,706		48,023		44,215	1	%	(1	)%
Institutional2		23,135		30,330		27,575	(5	)%	(24	)%
International		2,855		2,452		1,795	28	%	16	%
Other		18,625		20,981		19,582	35	%	(11	)%
Total Managed Assets	$	179,268	$	197,917	$	195,353	0	%	(9	)%

1 Compound Annual Growth Rate

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

Trust Market. Federated pioneered the concept of providing cash management to bank trust departments through money market mutual funds 30 years ago. In addition, Federated initiated a strategy to provide a broad range of equity and fixed-income funds, termed MultiTrust^™, to meet the evolving needs of bank trust departments. Federated’s bank trust customers invest the assets subject to their control, or upon direction from their customers, in one or more funds managed by Federated. Federated employs a dedicated sales force backed by a support staff to offer its products and services in the trust market. In addition to bank trust departments, Federated provides products and services to bank capital markets (institutional brokerages within banks) and to certain other institutions. Bank Capital Market assets totaled $22.8 billion at December 31, 2004, nearly all of which was in money market funds.

Money market funds contain the majority of Federated’s Managed Assets in the trust market. In allocating investments across various asset classes, investors typically maintain a portion of their portfolios in cash or cash equivalents, including money market funds, irrespective of trends in bond or stock prices. Federated also offers an extensive menu of equity and fixed-income mutual funds and separately managed accounts structured for use in the trust market. As of December 31, 2004, Managed Assets in the trust market included $75.5 billion in money market assets, $6.6 billion in fixed-income assets and $4.8 billion in equity assets.

Broker/Dealer Market. Federated distributes its products in this market through a large, diversified group of approximately 2,600 national, regional, independent and bank broker/dealers. Federated maintains a sales staff dedicated to this market which includes a separate group focused on the bank broker/dealers. Broker/dealers use Federated’s products to meet the needs of their customers, who are typically retail investors. Federated offers products with a variety of commission structures that enable brokers to offer their customers a choice of pricing options. Federated also offers money market mutual funds as cash management products designed for use by its broker/dealer clients. As of December 31, 2004, Managed Assets in the broker/dealer market included $24.5 billion in money market assets, $8.4 billion in fixed-income assets and $14.8 billion in equity assets.

Institutional Market. Federated has structured its investment process to meet the requirements of fiduciaries and others who use Federated’s products to meet the needs of their customers. Fiduciaries typically have stringent

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demands related to portfolio composition, risk and investment performance. Federated maintains a dedicated sales staff to focus on the distribution of its products to a wide variety of users: investment advisers, corporations, corporate and public pension funds, insurance companies, government entities, foundations, endowments, hospitals, and non-Federated investment companies. As of December 31, 2004, Managed Assets in the institutional market included $11.5 billion in money market assets, $6.1 billion in fixed-income assets and $5.5 billion in equity assets.

International Market. Federated continues to broaden distribution to areas outside of the U.S. Federated partnered with LVM-Versicherungen (“LVM”), a large German insurance company, to create a joint-venture company named Federated Asset Management GmbH (“Federated GmbH”), to pursue institutional separate accounts in German-speaking Europe. In addition, Federated sponsors six retail funds (“Federated Unit Trust”) for which Federated GmbH acts as a distributor in German-speaking countries in Europe. LVM also distributes a separate share class of these retail funds through its network of insurance agents throughout Germany. As of December 31, 2004, Managed Assets in the international market included $2.4 billion in fixed-income assets and $0.5 billion in equity assets.

Other Markets. Other markets at December 31, 2004, included assets under management from the following sources: TexPool, a local government investment pool in the state of Texas ($12.0 billion); certain affinity groups and direct sales efforts including the retail assets associated with the Federated Kaufmann Fund ($5.7 billion); and collateralized debt obligation (CDO) products for which Federated acts as the investment adviser ($0.9 billion). The CDOs package Federated’s investment management expertise into an alternative product structure and offer another source of investment advisory fee revenue.

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 2004, there were over 8,000 registered open-end investment companies, of varying sizes and investment policies, whose shares are currently being offered to the public both on a load and no-load basis. In addition to competition from other mutual fund managers and investment advisers, Federated and the mutual fund industry compete with investment alternatives offered by insurance companies, commercial banks, broker/dealers, other financial institutions and hedge funds.

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

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

Recent Acquisitions

In the fourth quarter 2004, Federated reached a definitive agreement to acquire the cash management business of Alliance Capital Management L.P. (Alliance). Currently in connection with this acquisition, up to approximately $25 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services are expected to be transitioned into Federated money market funds in 2005.

In the third quarter 2004, assets of four mutual funds previously advised by Banknorth N.A., a subsidiary of Banknorth Group, Inc., totaling approximately $265 million were acquired by four Federated-sponsored mutual funds. This transaction occurred in connection with an agreement between Federated, Banknorth Group, Inc. and Banknorth N.A.

In the third quarter 2003, Federated signed an agreement with Riggs Investment Advisors, Inc. and Riggs Bank N.A. pursuant to which the assets of eight mutual funds previously advised by Riggs Investment Advisors, Inc. were acquired by eight Federated-sponsored funds. The assets totaled approximately $465 million.

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In the second quarter 2002, Federated signed an agreement with FirstMerit Advisors Inc. pursuant to which the assets previously advised by FirstMerit Advisors, Inc., totaling approximately $250 million, were acquired by various Federated funds.

Federated continues to look for new alliances and acquisition opportunities.

Regulatory Matters

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

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

Employees

At December 31, 2004, Federated employed 1,385 persons. Federated considers its relationships with its employees to be satisfactory.

Forward-Looking Information

Certain statements in this Annual Report on Form 10-K and the 2004 Annual Report to Shareholders, including those related to Federated’s distribution strategy; changes in the number of clients for fund distribution and administration services; the need to make additional contingent payments pursuant to acquisition agreements; the costs associated with the internal review of mutual fund trading activities and other regulatory inquiries; legal proceedings; future cash needs; accounting for intangible assets; accounting for income taxes; market risk to investments and revenue; the impact of increased regulation; and the various items set forth under Risk Factors and Cautionary Statements constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance or achievements of Federated or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Among other risks and uncertainties, is the ability of Federated to execute successfully its distribution strategy; the number of clients for fund administration services is subject to the decisions of the clients to internalize or change service providers and the impact of mergers in the banking industry; the costs associated with the internal review of mutual fund trading activities, other regulatory inquiries, legal proceedings and future cash needs will be impacted by any additional information requests from or fines or penalties paid to

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

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Risk Factors and Cautionary Statements

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

Many of Federated’s products are designed for use by institutions such as banks, insurance companies and other corporations. A large portion of Federated’s Managed Assets, particularly money market and fixed-income Managed Assets, are held by institutional investors. Because most institutional investment vehicles are sold without sales commissions at either the time of purchase or the time of redemption, institutional investors may be more inclined to transfer their assets among various institutional funds than investors in retail mutual funds. Of Federated’s 133 managed funds, 92 are sold without a sales commission.

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

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

Potential Adverse Effects on Money Market and Other Fixed-Income Assets Resulting From Changes in Interest Rates. Approximately 40% of Federated’s revenue in 2004 was from managed assets in money market products. These assets are largely from institutional investors. In a period of rising interest rates, institutional investors may redeem shares in money market funds to invest in direct securities offering higher yields. These redemptions reduce Managed Assets, thereby reducing Federated’s advisory and administrative service fee revenue. In addition, rising interest rates diminish the total return of many bond investments due to lower market valuations of existing bonds in a rising rate environment. Lower total returns or losses may cause investors to redeem their holdings, which reduces Federated’s revenue. As a result of Federal Reserve Bank easings, interest rates reached historic lows in 2003. From these lows, short-term interest rates rose steadily in 2004 and are generally expected to continue to increase in 2005. Federated has been actively diversifying its products to expand its Managed Assets in equity products which may be less sensitive to interest rate increases. There can be no assurance that Federated will be successful in these diversification efforts.

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

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

Potential Adverse Effects of Changes in Laws and Regulations on Federated’s Investment Management Business. Federated and its investment management business are subject to extensive regulation in the United States and abroad. Federated and the Federated Funds are subject to Federal securities laws, principally the Investment Company Act and the Advisers Act, state laws regarding securities fraud and regulations promulgated by the Securities and Exchange Commission, the National Association of Securities Dealers and the New York Stock Exchange. Federated is also affected by the regulations governing banks and other financial institutions and, to the extent operations take place outside the United States, by foreign regulations. During the past five years, the Federal securities laws have been augmented substantially by, among other measures, the Sarbanes-Oxley Act of 2002, the Patriot Act and the Gramm-Leach-Bliley Act of 1999. Currently, several bills are pending in Congress that would amend the Investment Company Act to impose additional requirements and restrictions on Federated and the Federated Funds. In addition, during the past year the Securities and Exchange Commission, National Association of Securities Dealers and the New York Stock Exchange have adopted regulations that will increase Federated’s operating expenses and affect the conduct of its business. The Securities and Exchange Commission has proposed other significant regulations or amendments to regulations that, if adopted, will affect Federated and the Federated Funds, and Federated anticipates that other reforms and regulatory actions affecting the mutual fund industry are likely to occur. Changes in laws or regulations or in governmental policies, and the costs associated with compliance, could materially and adversely affect the business and operations of Federated.

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

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

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

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The two senior portfolio managers of the Federated Kaufmann Fund are subject to employment and non-competition agreements which were entered into in 2000. The non-competition agreements continue into April 2007. The employment agreements run through June 30, 2005. These portfolio managers are eligible to receive contingent payments through 2006 (or 2007 in certain circumstances) related to the products which they manage. Additional information can be found in Item 7 herein. Federated is currently in discussions with the managers to extend their employment agreements.

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

Adverse Effects of Rising Costs of Insurance. Since 2001, insurance expenses have increased and management expects further increases to be significant going forward. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. Renewals of insurance policies may expose the company to additional costs through the assumption of higher deductibles and/or co-insurance liability. Higher insurance costs and incurred deductibles reduce Federated’s operating and net income.

Potential Adverse Effects Related to Federated’s Internal Review into Certain Mutual Fund Trading Practices and Investigations by Regulatory Authorities. In 2003, Federated responded to detailed requests for information from the Securities and Exchange Commission, the New York State Attorney General and the National Association of Securities Dealers regarding a number of mutual fund practices, including market timing, late trading and fair valuation of foreign securities. These requests prompted Federated to conduct an internal review that found instances in which Federated employees improperly permitted frequent trading or improperly accepted orders for fluctuating net asset value funds after the close of the New York Stock Exchange (see Note (23) to the Consolidated Financial Statements incorporated by reference in Item 15(a)(1) herein). Federated has also received requests from the U.S. Attorney’s Office in Pittsburgh and authorities in West Virginia for copies of the information provided to other authorities regarding market timing and late trading. Federated continues to cooperate with all regulatory inquiries. As announced on January 24, 2005, Federated is in settlement discussions with the Securities and Exchange Commission and the New York State Attorney General regarding the mutual fund practices described above.

Settlements with other investment management companies related to frequent trading arrangements have required substantial monetary payments, reductions in advisory fees, changes in corporate and fund governance and retention of independent consultants to review compliance. Regulatory authorities have brought civil actions against other investment management companies seeking similar remedies. As Federated’s involvement with these matters is ongoing, management cannot predict the eventual outcome of its discussions with regulatory authorities, which could have a material adverse effect on Federated’s business, financial condition, results of operations or business prospects. Any material losses in client or shareholder confidence in Federated or in the mutual fund industry could increase redemptions from and reduce sales of Federated Funds and other investment management services, resulting in a decrease in future revenues. Responding to continued requests from regulatory authorities and defending pending litigation will increase Federated’s operating expenses and could have other material adverse effects on Federated’s business.

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Executive Officers

The following table sets forth certain information regarding the executive officers of Federated as of March 4, 2005:

Name	Position	Age
John F. Donahue	Chairman and Director	80
J. Christopher Donahue	President, Chief Executive Officer and Director	55
Thomas R. Donahue	President, Federated Investors Management Company and Vice President, Treasurer and Chief Financial Officer	46
John B. Fisher	President, Institutional Sales Division of Federated Securities Corp. and Federated Investment Counseling	48
James F. Getz	President, Retail Sales Division of Federated Securities Corp. and Federated Financial Services, Inc.	57
Keith M. Schappert	President and/or Chief Executive Officer of Federated Advisory Companies*	54
Brian P. Bouda	Vice President and Chief Compliance Officer	58
Eugene F. Maloney	Executive Vice President, Federated Investors Management Company	59
Denis McAuley III	Vice President and Principal Accounting Officer	58
John W. McGonigle	Vice Chairman, Executive Vice President, Chief Legal Officer, Secretary and Director	66

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

Mr. John F. Donahue is a founder of Federated. He has served as director and Chairman of Federated since Federated’s initial public offering in May 1998. He is Chairman or President and a director or trustee of 40 investment companies managed by subsidiaries of Federated. Mr. Donahue is the father of J. Christopher Donahue who serves as Chief Executive Officer and director of Federated and Thomas R. Donahue who serves as Chief Financial Officer.

Mr. J. Christopher Donahue has served as director, President and Chief Executive Officer of Federated since 1998. He is President or Executive Vice President and director, trustee or managing general partner of 40 investment companies managed by subsidiaries of Federated. Mr. Donahue is the son of John F. Donahue and the brother of Thomas R. Donahue who serves as Chief Financial Officer.

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

Mr. John B. Fisher is President of the Institutional Sales Division of Federated Securities Corp., a wholly owned subsidiary of Federated. He is responsible for the distribution of Federated’s products and services to investment advisers, insurance companies, retirement plans and corporations. In addition, Mr. Fisher serves as President and

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director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates. He is also President – Technology, Federated Services Company, responsible for the technological infrastructure of the various Federated operating companies. He is director of Edgewood Securities Corp. and Federated Investors Trust Company, both of which are wholly owned subsidiaries of Federated.

Mr. James F. Getz is President of the Retail Sales Division of Federated Securities Corp. and President of Federated Financial Services, Inc., both of which are wholly owned subsidiaries of Federated, and is responsible for the marketing and sales efforts in the trust and broker/dealer markets. Mr. Getz is a Chartered Financial Analyst.

Mr. Keith M. Schappert became President and/or Chief Executive Officer of the Federated Advisory Companies in February 2002. Prior to joining Federated, he spent 28 years with J.P. Morgan, most recently in the position of President of J.P. Morgan Fleming Asset Management, Inc. Prior to J.P. Morgan’s merger with Chase Manhattan Corp., Mr. Schappert was President and Chief Executive Officer of J.P. Morgan Asset Management Services.

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

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

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

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

Internet Address and Website Access

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

ITEM 2 – PROPERTIES

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

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ITEM 3 – LEGAL PROCEEDINGS

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

The six excessive fee cases were originally filed in four different federal courts and one state court. Four of the federal cases are now pending in the U.S. District Court for the Western District of Pennsylvania. The fifth federal case was pending in the Western District of Tennessee as of December 31, 2004, but on February 15, 2005, the court granted Federated’s motion to transfer that case to the Western District of Pennsylvania. A state court case was voluntarily dismissed by the plaintiff without prejudice.

In addition to the market timing and excessive fee litigation, certain Federated entities have recently been named defendants in a new class action filed in the U.S District Court for the Eastern District of Pennsylvania. Plaintiffs in this case claim that Federated has failed to ensure that the Federated Funds participated in class action settlements for which they were eligible.

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

For additional information, see the information contained in Federated’s 2004 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Contingent Liabilities” incorporated by reference in Part II, Item 7 of this report, and under the caption “Notes to the Consolidated Financial Statements – Note (23) – Commitments and Contingencies – (c) Internal Review of Mutual Fund Trading Activities and (d) Legal Proceedings” incorporated by reference in Part IV, Item 15(a)(1) of this report.

ITEM 4 – SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

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PART II

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

The following table sets forth information regarding Federated’s stock-based compensation as of December 31, 2004:

Category of stock-based compensation plan	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans
Approved by shareholders	8,140,084	$	19.75	2,178,696
Not approved by shareholders	—		—	—
Total	8,140,084	$	19.75	2,178,696

The following table summarizes stock repurchases under Federated’s share repurchase program during the fourth quarter of 2004. Stock repurchases and dividend payments are subject to the restrictions outlined in Note (12) to the Consolidated Financial Statements contained in Item 8 of this report.

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October	—	$	—	—	6,405,284
November	289,500		29.15	289,500	6,115,784
December	327,900		30.75	327,900	5,787,884
Total	617,400	$	30.00	617,400	5,787,884

¹ Federated’s current share repurchase program was announced in April 2003. The board of directors authorized management to purchase up to 5.0 million shares of Federated Class B common stock through April 30, 2004. In April 2004, the board of directors approved an extension of the current program through April 30, 2005. In October 2004, the board of directors authorized management to purchase up to 5.0 million additional shares of Federated Class B common stock through December 31, 2006. No other plans have expired or been terminated during the fourth quarter 2004.

All other information required by this Item is contained in Federated’s 2004 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to the Consolidated Financial Statements” and is incorporated herein by reference.

ITEM 6 – SELECTED FINANCIAL DATA

The information required by this Item is contained in Federated’s 2004 Annual Report to Shareholders under the caption “Selected Consolidated Financial Data” and is incorporated herein by reference.

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

The information required by this Item is contained in Federated’s 2004 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.

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ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is contained in Federated’s 2004 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is contained in Federated’s 2004 Annual Report to Shareholders under the captions “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements,” “Consolidated Balance Sheets,” “Consolidated Statements of Income,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows,” and “Notes to the Consolidated Financial Statements” and is incorporated herein by reference.

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

None.

ITEM 9A – CONTROLS AND PROCEDURES

Federated carried out an evaluation, under the supervision and with the participation of management, including Federated’s President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Federated’s disclosure controls and procedures as of December 31, 2004. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that Federated’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the registrant in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

There has been no change in Federated’s internal control over financial reporting that occurred during the fourth quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, Federated’s internal control over financial reporting.

All other information required by this Item is contained in Federated’s 2004 Annual Report to Shareholders under the caption “Management’s Assessment of Internal Control Over Financial Reporting” and “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Effectiveness of Internal Control Over Financial Reporting” and is incorporated herein by reference.

PART III

ITEM 10 – DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item (other than the information set forth below) is contained in Federated’s Information Statement for its 2005 Annual Meeting of Shareholders under the captions “Board of Directors and Election of Directors,” “Executive Compensation” and “Security Ownership – Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.

Executive Officers

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

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Code of Ethics

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

ITEM 11 – EXECUTIVE COMPENSATION

The information required by this Item is contained in Federated’s Information Statement for the 2005 Annual Meeting of Shareholders under the captions “Board of Directors and Election of Directors” and “Executive Compensation” and is incorporated herein by reference.

ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is contained in Federated’s Information Statement for the 2005 Annual Meeting of Shareholders under the caption “Security Ownership” and is incorporated herein by reference.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is contained in Federated’s Information Statement for the 2005 Annual Meeting of Shareholders under the caption “Executive Compensation” and is incorporated herein by reference.

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is contained in Federated’s Information Statement for the 2005 Annual Meeting of Shareholders under the caption “Independent Registered Public Accounting Firm” and is incorporated herein by reference.

PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements:

The information required by this Item is contained in Federated’s 2004 Annual Report to Shareholders under the captions “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements,” “Consolidated Balance Sheets,” “Consolidated Statements of Income,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to the Consolidated Financial Statements” and is incorporated herein by reference.

(a)(2) Financial Statement Schedules:

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

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(a)(3) Exhibits:

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

Exhibit Number	Description
2.01	Agreement and Plan of Merger, dated as of February 20, 1998, between Federated Investors and Federated (incorporated by reference to Exhibit 2.01 to the Registration Statement on Form S-1 (File No. 333-48405))
2.02	Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.1 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
2.03	Amendment No. 1, dated April 11, 2001, to the Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.2 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
3.01	Restated Articles of Incorporation of Federated (incorporated by reference to Exhibit 3.01 to the Registration Statement on Form S-1 (File No. 333-48405))
3.02	Restated By-Laws of Federated (incorporated by reference to Exhibit 3.02 to the Registration Statement on Form S-1 (File No. 333-48405))
4.01	Form of Class A Common Stock certificate (incorporated by reference to Exhibit 4.01 to the Registration Statement on Form S-1 (File No. 333-48405))
4.02	Form of Class B Common Stock certificate (incorporated by reference to Exhibit 4.02 to the Registration Statement on Form S-1 (File No. 333-48405))
4.05	Shareholder Rights Agreement, dated August 1, 1989, between Federated and The Standard Fire Insurance Company, as amended January 31, 1996 (incorporated by reference to Exhibit 4.06 to the Registration Statement on Form S-1 (File No. 333-48405))
9.01	Voting Shares Irrevocable Trust dated May 31, 1989 (incorporated by reference to Exhibit 9.01 to the Registration Statement on Form S-1 (File No. 333-48405))
10.06	Federated Program Master Agreement, dated as of October 24, 1997, among Federated, Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and Bankers Trust Company (incorporated by reference to Exhibit 4.09 to the Registration Statement on Form S-1 (File No. 333-48405))
10.07	Federated Investors, Inc. Employee Stock Purchase Plan, amended as of July 20, 1999 (incorporated by reference to Exhibit 10.2 of the June 30, 1999 Quarterly Report on Form 10-Q (File No. 001-14818))
10.08	Federated Investors Program Initial Purchase Agreement, dated as of October 24, 1997, between Federated Funding 1997-1, Inc. and Wilmington Trust Company, solely as Trustee of the PLT Finance Trust 1997-1 (incorporated by reference to Exhibit 4.10 to the Registration Statement on Form S-1 (File No. 333-48405))

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10.09	Federated Investors Program Revolving Purchase Agreement, dated as of October 24, 1997, between Federated Funding 1997-1, Inc. and PLT Finance, L.P. (incorporated by reference to Exhibit 4.11 to the Registration Statement on Form S-1 (File No. 333-48405))
10.10	Federated Investors Program Fee Agreement, dated as October 24, 1997, between Federated Investors and PLT Finance, L.P. (incorporated by reference to Exhibit 4.12 to the Registration Statement on Form S-1 (File No. 333-48405))
10.11	Schedule X to Federated Program Master Agreement, dated as of October 24, 1997, among Federated, Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and Bankers Trust Company (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-1 (File No. 333-48405))
10.12	Stock Incentive Plan, as amended as of July 20, 1999 (incorporated by reference to Exhibit 10.3 to the June 30, 1999 Quarterly Report on Form 10-Q (File No. 001-14818))
10.13	Executive Annual Incentive Plan (incorporated by reference to Exhibit 10.02 to the Registration Statement on Form S-1 (File No. 333-48405))
10.14	Form of Bonus Stock Option Agreement (incorporated by reference to Exhibit 10.13 of the Form 10-K for the fiscal year ended December 31, 1998 (File No. 001-14818))
10.15	Federated Investors Tower Lease dated January 1, 1993 (incorporated by reference to Exhibit 10.03 to the Registration Statement on Form S-1 (File No. 333-48405))
10.16	Federated Investors Tower Lease dated February 1, 1994 (incorporated by reference to Exhibit 10.04 to the Registration Statement on Form S-1 (File No. 333-48405))
10.18	Employment Agreement, dated January 16, 1997, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.06 to the Registration Statement on Form S-1 (File No. 333-48405))
10.19	Employment Agreement, dated December 28, 1990, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.08 to the Registration Statement on Form S-1 (File No. 333-48405))
10.20	Employment Agreement, dated December 22, 1993, between Federated Securities Corp. and an executive officer (incorporated by reference to Exhibit 10.09 to the Registration Statement on Form S-1 (File No. 333-48405))
10.21	Employment Agreement, dated March 17, 1995, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.07 to the Registration Statement on Form S-1 (File No. 333-48405))
10.23	Federated Investors, Inc. Guaranty and Suretyship Agreement, dated as of March 28, 2000 (incorporated by reference to Exhibit 10.2 to the March 31, 2000 Quarterly Report on Form 10-Q (File No. 001-14818))
10.26	Purchase and Sale Agreement, dated as of December 21, 2000, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A., and Citicorp North America, Inc. Company (incorporated by reference to Exhibit 10.26 of the Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 001-14818))

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10.27	Amendment No. 2 to the Federated Investors Program Documents dated as of December 21, 2000, among Federated Investors, Inc., Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, Putnam Lovell Finance L.P., Putnam Lovell Securities Inc., and Bankers Trust Company (incorporated by reference to Exhibit 10.27 of the Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 001-14818))
10.29	Second Amended and Restated Credit Agreement, dated as of January 22, 2002, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.29 of the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-14818))
10.30	Federated Investors, Inc. Stock Incentive Plan, amended as of January 29, 2002 (incorporated by reference to Exhibit 10.30 of the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-14818))
10.31	Federated Investors, Inc. Annual Incentive Plan, dated January 29, 2002 (incorporated by reference to Exhibit 10.31 of the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-14818))
10.32	Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated April 8, 2002, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to the March 31, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.33	Employment agreement, dated May 13, 2002, between Federated Investors, Inc. and an executive officer (incorporated by reference to Exhibit 10.2 to the March 31, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.34	Annual Stock Option Agreement dated April 24, 2002 between Federated Investors, Inc. and the independent directors (incorporated by reference to Exhibit 10.1 to the June 30, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.35	Federated Investors, Inc. Stock Incentive Plan as approved by shareholders April 24, 2002 (incorporated by reference to Exhibit 10.2 to the June 30, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.36	Federated Investors, Inc. Annual Incentive Plan as approved by shareholders April 24, 2002, as amended (incorporated by reference to Exhibit 10.3 to the June 30, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.37	Amendment No. 2 to the Second Amended and Restated Credit Agreement, dated January 20, 2003, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (File No. 001-14818))
10.38	Edgewood Services, Inc. Discretionary Line of Credit Demand Note, dated as of September 30, 2003 (incorporated by reference to Exhibit 10.1 to the September 30, 2003 Quarterly Report on Form 10-Q (File No. 001-14818))
10.39	Federated Investors, Inc. Guaranty and Suretyship Agreement, dated as of September 30, 2003 (incorporated by reference to Exhibit 10.2 to the September 30, 2003 Quarterly Report on Form 10-Q (File No. 001-14818))

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10.40	Amendment to Purchase and Sale Agreement, dated as of December 31, 2003, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A., and Citicorp North America, Inc. Company (incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))
10.41	Amendments No. 6, 5, 4, 3 and 2 to Federated Investors Tower Lease dated as of December 31, 2003; November 10, 2000; June 30, 2000; February 10, 1999; and September 19, 1996 (incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))
10.42	Amendment No. 3 to the Second Amended and Restated Credit Agreement, dated January 16, 2004, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.42 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))
10.43	Federated Investors, Inc. Annual Incentive Plan, amended as of February 5, 2004 (incorporated by reference to Exhibit 10.1 to the March 31, 2004 Quarterly Report on Form 10-Q (File No. 001-14818))
10.44	Exhibit 10.2 Material contracts – Federated Investors, Inc. Stock Incentive Plan, amended as of April 19, 2004 (incorporated by reference to Exhibit 10.2 to the March 31, 2004 Quarterly Report on Form 10-Q (File No. 001-14818))
10.45	Agreement with Boston Financial Data Services (incorporated by reference to Exhibit 10.1 to the June 30, 2004 Quarterly Report on Form 10-Q (File No. 001-14818))
10.46	Agreement with Alliance Capital Management L.P., dated as of October 28, 2004 (Filed herewith)
10.47	Amendment dated December 31, 2004 to the Federated Investors Program Documents dated as of December 21, 2000, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A. and Citicorp North America, Inc. (Filed herewith)
10.48	Amendment No. 4 to the Second Amended and Restated Credit Agreement, dated January 14, 2005, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (Filed herewith)
13.01	Selected Portions of 2004 Annual Report to Shareholders (Filed herewith)
14.01	Federated Investors, Inc. Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.01 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (File No. 001-14818))
21.01	Subsidiaries of the Registrant (Filed herewith)
23.01	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm (Filed herewith)
31.01	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith)
32.01	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith)

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(b) Exhibits:

See (a)(3) above.

(c) Financial Statement Schedules:

See (a)(2) above.

22

SIGNATURES

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

FEDERATED INVESTORS, INC.
By:	/s/ J. Christopher Donahue
	J. Christopher Donahue
	President and Chief Executive Officer
Date:	March 4, 2005

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

Signature	Title	Date
/s/ John F. Donahue	Chairman and Director	March 4, 2005
John F. Donahue
/s/ J. Christopher Donahue	President, Chief Executive Officer and Director (Principal Executive Officer)	March 4, 2005
J. Christopher Donahue
/s/ Thomas R. Donahue	Chief Financial Officer	March 4, 2005
Thomas R. Donahue
/s/ Michael J. Farrell	Director	March 4, 2005
Michael J. Farrell
/s/ David M. Kelly	Director	March 4, 2005
David M. Kelly

23

Signature	Title	Date
/s/ Denis McAuley III	Principal Accounting Officer	March 4, 2005
Denis McAuley III
/s/ John W. McGonigle	Director	March 4, 2005
John W. McGonigle
/s/ James L. Murdy	Director	March 4, 2005
James L. Murdy
/s/ Edward G. O’Connor	Director	March 4, 2005
Edward G. O’Connor

24

EXHIBIT INDEX

Exhibit Number	Description
10.46	Agreement with Alliance Capital Management L.P., dated as of October 28, 2004
10.47	Amendment dated December 31, 2004 to the Federated Investors Program Documents dated as of December 21, 2000, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A. and Citicorp North America, Inc.
10.48	Amendment No. 4 to the Second Amended and Restated Credit Agreement, dated January 14, 2005, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association
13.01	Selected Portions of 2004 Annual Report to Shareholders
21.01	Subsidiaries of the Registrant
23.01	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
31.01	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

25

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/04	Fund Category	Assets as of 12/31/04	Load	Fund Effective Date
EQUITY FUNDS:
FEDERATED AMERICAN LEADERS FUND INC.	5	Large Cap Value Fund	2,695,434,358	Y	2/26/1969
FEDERATED AMERICAN LEADERS FUND II	2	Large Cap Value Fund	327,900,366	N	12/15/1993
FEDERATED CAPITAL APPRECIATION FUND	4	Core Equity Fund	3,525,279,206	Y	11/14/1995
FEDERATED CAPITAL APPRECIATION FUND II	2	Core Equity Fund	27,279,020	N	6/17/2000
FEDERATED CAPITAL INCOME FUND	4	Flexible Fund	500,723,244	Y	5/29/1988
FEDERATED CAPITAL INCOME FUND II	1	Equity Income Fund	78,229,181	N	12/15/1993
FEDERATED CONSERVATIVE ALLOCATION FUND	2	Asset Allocation/Balanced Fund	105,663,386	N	9/2/1976
FEDERATED EQUITY INCOME FUND INC.	4	Equity Income Fund	1,313,614,427	Y	12/30/1986
FEDERATED EQUITY INCOME FUND II	1	Equity Income Fund	72,900,024	N	12/16/1996
FEDERATED GLOBAL EQUITY FUND	3	International/Global Equity Fund	26,027,187	Y	3/8/1998
FEDERATED GROWTH ALLOCATION FUND	2	Asset Allocation/Balanced Fund	83,121,161	N	3/11/1994
FEDERATED INTERNATIONAL CAPITAL APPRECIATION FUND	3	International/Global Equity Fund	146,343,861	Y	6/30/1997
FEDERATED INTERNATIONAL EQUITY FUND	3	International/Global Equity Fund	328,440,187	Y	8/17/1984
FEDERATED INTERNATIONAL EQUITY FUND II	1	International/Global Equity Fund	53,164,069	N	4/4/1995
FEDERATED INTERNATIONAL SMALL COMPANY FUND	3	International/Global Equity Fund	436,979,946	Y	6/21/2000
FEDERATED INTERNATIONAL VALUE FUND	3	International/Global Equity Fund	85,858,355	Y	8/24/1998
FEDERATED KAUFMANN FUND	4	Small-Mid Cap Growth Fund	7,589,238,816	Y	4/23/2001
FEDERATED KAUFMANN FUND II	2	Small-Mid Cap Growth Fund	55,004,640	N	4/30/2002
FEDERATED KAUFMANN SMALL CAP FUND	3	Small-Mid Cap Growth Fund	548,066,431	Y	12/18/2002
FEDERATED LARGE CAP GROWTH FUND	3	Mid-Large Cap Growth Fund	264,044,146	Y	12/23/1998
FEDERATED MARKET OPPORTUNITY FUND	3	Flexible Fund	2,054,776,134	Y	12/4/2000
FEDERATED MAX-CAP INDEX FUND	4	Index Fund	1,468,481,418	N	7/2/1990
FEDERATED MID CAP GROWTH STRATEGIES FUND	3	Mid-Large Cap Growth Fund	718,744,519	Y	8/23/1984
FEDERATED MID CAP GROWTH STRATEGIES FUND II	1	Mid-Large Cap Growth Fund	62,576,159	N	9/30/1995
FEDERATED MID-CAP INDEX FUND	1	Index Fund	792,746,841	N	7/7/1992
FEDERATED MINI-CAP INDEX FUND	2	Index Fund	111,683,164	N	7/7/1992
FEDERATED MODERATE ALLOCATION FUND	2	Asset Allocation/Balanced Fund	141,636,384	N	3/11/1994
FEDERATED MUNI AND STOCK ADVANTAGE FUND	3	Flexible Fund	245,147,343	Y	9/22/2003
FEDERATED STOCK AND BOND FUND INC.	4	Asset Allocation/Balanced Fund	345,774,544	N	10/31/1984
FEDERATED STOCK TRUST	1	Large Cap Value Fund	1,412,262,028	N	3/31/1982
FEDERATED TECHNOLOGY FUND	3	Mid-Large Cap Growth Fund	117,014,221	Y	9/13/1999
LVM EUROPA-AKTIEN	2	International/Global Equity Fund	71,847,131	Y	1/26/2000
LVM INTER-AKTIEN	2	International/Global Equity Fund	50,844,898	Y	1/26/2000
LVM PROFUTUR	2	International/Global Equity Fund	93,935,727	Y	1/26/2000
Total Equity Funds			25,950,782,522

26

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/04	Fund Category	Assets as of 12/31/04	Load	Fund Effective Date
FIXED-INCOME FUNDS:
CAPITAL PRESERVATION FUND	2	Multi-Sector Fund	1,820,802,392	N	8/1/1988
FEDERATED ADJUSTABLE RATE SECURITIES FUND	2	Mortgage-Backed Fund	266,151,989	N	12/3/1985
FEDERATED BOND FUND	4	U.S. Corporate Fund	1,121,336,028	Y	6/27/1995
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND	2	Municipal Fund	77,343,246	Y	11/24/1992
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES	3	Mortgage-Backed Fund	1,139,189,057	Y	10/6/1969
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II	1	Mortgage Backed Fund	376,884,503	N	12/15/1993
FEDERATED GNMA TRUST	2	Mortgage Backed Fund	724,004,887	N	3/23/1982
FEDERATED GOVERNMENT INCOME SECURITIES INC.	4	U.S. Government Fund	750,338,894	Y	8/2/1996
FEDERATED GOVERNMENT ULTRASHORT FUND	3	U.S Government Fund	447,856,970	N	9/29/1999
FEDERATED HIGH INCOME ADVANTAGE FUND	2	High Yield Fund	59,821,752	Y	9/20/1993
FEDERATED HIGH INCOME BOND FUND INC.	3	High Yield Fund	1,875,181,368	Y	11/30/1977
FEDERATED HIGH INCOME BOND FUND II	2	High Yield Fund	422,788,897	N	12/15/1993
FEDERATED HIGH YIELD TRUST	1	High Yield Fund	416,726,374	Y	8/23/1984
FEDERATED INCOME TRUST	2	Mortgage-Backed Fund	540,427,650	N	3/30/1982
FEDERATED INSTITUTIONAL HIGH YIELD BOND FUND	1	High Yield Fund	36,506,859	Y	10/30/2002
FEDERATED INTERMEDIATE CORPORATE BOND FUND	2	U.S. Corporate Fund	340,918,706	N	12/8/1993
FEDERATED INTERMEDIATE MUNICIPAL TRUST	2	Municipal Fund	168,225,208	N	12/26/1985
FEDERATED INTERNATIONAL BOND FUND	3	International/Global Fixed Income Fund	156,809,063	Y	5/15/1991
FEDERATED INTERNATIONAL HIGH INCOME FUND	3	International/Global Fixed Income Fund	160,150,625	Y	9/9/1996
FEDERATED LIMITED DURATION GOVERNMENT FUND INC.	2	U.S. Government Fund	74,009,231	N	3/2/1992
FEDERATED LIMITED TERM MUNICIPAL FUND	2	Municipal Fund	162,212,545	Y	8/31/1993
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST	1	Municipal Fund	215,337,427	Y	9/9/1991
FEDERATED MORTGAGE FUND	2	Mortgage-Backed Fund	296,618,932	N	6/30/1998
FEDERATED MUNICIPAL HIGH YIELD ADVANTAGE FUND INC	4	Municipal Fund	464,486,636	Y	5/3/1996
FEDERATED MUNICIPAL SECURITIES FUND INC.	3	Municipal Fund	492,817,432	N	10/4/1976
FEDERATED MUNICIPAL ULTRASHORT FUND	2	Municipal Fund	736,095,657	N	10/23/2000
FEDERATED NEW YORK MUNICIPAL INCOME FUND	2	Municipal Fund	48,672,549	Y	11/24/1992
FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND	1	Municipal Fund	57,465,503	Y	6/4/1999
FEDERATED OHIO MUNICIPAL INCOME FUND	1	Municipal Fund	97,001,113	Y	10/10/1990
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND	2	Municipal Fund	268,069,717	Y	10/10/1990
FEDERATED PREMIER INTERMEDIATE MUNI INCOME FD	1	Municipal Fund	101,639,826	N	12/19/2002
FEDERATED PREMIER MUNICIPAL INCOME FUND	1	Municipal Fund	90,575,286	N	12/19/2002
FEDERATED QUALITY BOND FUND II	2	U.S. Corporate Fund	582,697,811	N	4/21/1999
FEDERATED SHORT-TERM INCOME FUND	4	U.S. Corporate Fund	388,602,307	N	7/1/1986
FEDERATED SHORT-TERM MUNICIPAL TRUST	2	Municipal Fund	334,905,584	N	8/20/1981
FEDERATED STRATEGIC INCOME FUND	4	Multi-Sector Fund	1,101,057,471	Y	4/5/1994
FEDERATED TOTAL RETURN BOND FUND	6	Multi-Sector Fund	1,387,212,837	N	8/16/2001
FEDERATED TOTAL RETURN GOVERNMENT BOND FUND	2	U.S. Government Fund	268,666,962	N	9/13/1995

27

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/04	Fund Category	Assets as of 12/31/04	Load	Fund Effective Date
FEDERATED U.S.GOVERNMENT BOND FUND	1	U.S. Government Fund	84,597,376	N	12/2/1985
FEDERATED ULTRASHORT BOND FUND	3	Multi-Sector Fund	1,206,891,456	N	10/27/1998
FEDERATED US GOVERNMENT SECURITIES FUND: 1-3 YEARS	3	U.S. Government Fund	471,523,051	N	3/15/1984
FEDERATED US GOVERNMENT SECURITIES FUND: 2-5 YEARS	3	U.S. Government Fund	843,642,385	N	2/18/1983
FEDERATED VERMONT MUNICIPAL INCOME FUND	1	Municipal Fund	65,479,865	Y	9/19/2000
LVM EURO-KURZLAUFER	2	International/Global Fixed Income Fund	144,124,752	Y	1/26/2000
LVM EURO-RENTEN	3	International/Global Fixed Income Fund	197,696,546	Y	1/26/2000
LVM INTER-RENTEN	2	International/Global Fixed Income Fund	53,249,613	Y	1/26/2000
Total Fixed-Income Funds			21,136,814,338
Total Non-Money Market Funds			47,087,596,860
MONEY MARKET FUNDS:
ALABAMA MUNICIPAL CASH TRUST	1	Tax Free Fund	304,294,168	N	12/1/1993
ARIZONA MUNICIPAL CASH TRUST	1	Tax Free Fund	55,992,013	N	5/30/1998
AUTOMATED CASH MANAGEMENT TRUST	2	Prime Fund	2,445,288,919	N	9/19/1996
AUTOMATED GOVERNMENT CASH RESERVES	1	Government Fund	455,541,304	N	2/2/1990
AUTOMATED GOVERNMENT MONEY TRUST	1	Government Fund	851,578,153	N	6/1/1982
AUTOMATED TREASURY CASH RESERVES	1	Government Fund	152,401,626	N	8/5/1991
CALIFORNIA MUNICIPAL CASH TRUST	3	Tax Free Fund	1,433,581,794	N	2/29/1996
CONNECTICUT MUNICIPAL CASH TRUST	1	Tax Free Fund	220,959,678	N	11/1/1989
EDWARD JONES MONEY MARKET FUND	2	Government Fund	9,953,399,172	N	5/9/1980
FEDERATED MASTER TRUST	1	Prime Fund	119,444,448	N	12/16/1977
FEDERATED PRIME MONEY FUND II	1	Prime Fund	83,836,116	N	12/15/1993
FEDERATED SHORT-TERM EURO FUND	4	Prime Fund	58,880,284	N	11/9/1999
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST	1	Government Fund	121,135,080	N	4/16/1987
FEDERATED SHORT-TERM U.S. PRIME FUND	2	Prime Fund	3,155,112,427	N	9/20/1993
FEDERATED SHORT-TERM U.S.GOVT SECURITIES FUND	4	Government Fund	1,591,844,020	N	1/18/1991
FEDERATED SHORT-TERM U.S.TREASURY SECURITIES FUND	2	Government Fund	1,290,959,817	N	4/16/1992
FEDERATED TAX-FREE TRUST	1	Tax Free Fund	186,980,357	N	3/6/1979
FLORIDA MUNICIPAL CASH TRUST	2	Tax Free Fund	1,004,137,698	N	11/16/1995
GEORGIA MUNICIPAL CASH TRUST	1	Tax Free Fund	540,408,134	N	8/14/1995
GOVERNMENT CASH SERIES	1	Government Fund	333,811,315	N	8/15/1989
GOVERNMENT OBLIGATIONS FUND	3	Government Fund	7,873,378,120	N	12/11/1989
GOVERNMENT OBLIGATIONS TAX MANAGED FUND	2	Government Fund	3,536,009,946	N	5/7/1995
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST	2	Government Fund	361,652,252	N	6/6/1980
LIQUID CASH TRUST	1	Government Fund	128,410,611	N	12/12/1980
MARYLAND MUNICIPAL CASH TRUST	1	Tax Free Fund	86,414,857	N	5/4/1994
MASSACHUSETTS MUNICIPAL CASH TRUST	2	Tax Free Fund	330,940,723	N	2/22/1993
MICHIGAN MUNICIPAL CASH TRUST	2	Tax Free Fund	199,929,349	N	2/29/1996
MINNESOTA MUNICIPAL CASH TRUST	2	Tax Free Fund	410,982,701	N	12/31/1990
MONEY MARKET MANAGEMENT INC.	1	Prime Fund	43,906,850	N	2/25/1993
MONEY MARKET TRUST	1	Prime Fund	95,486,949	N	10/13/1978
MUNICIPAL CASH SERIES	1	Tax Free Fund	338,535,041	N	8/15/1989

28

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/04	Fund Category	Assets as of 12/31/04	Load	Fund Effective Date
MUNICIPAL CASH SERIES II	1	Tax Free Fund	507,854,251	N	1/25/1991
MUNICIPAL OBLIGATIONS FUND	3	Tax Free Fund	2,807,866,964	N	2/5/1993
NEW JERSEY MUNICIPAL CASH TRUST	2	Tax Free Fund	245,648,088	N	12/10/1990
NEW YORK MUNICIPAL CASH TRUST	2	Tax Free Fund	897,807,339	N	5/30/1994
NORTH CAROLINA MUNICIPAL CASH TRUST	1	Tax Free Fund	238,312,391	N	12/1/1993
OHIO MUNICIPAL CASH TRUST	3	Tax Free Fund	329,563,186	N	3/26/1991
PENNSYLVANIA MUNICIPAL CASH TRUST	3	Tax Free Fund	461,675,612	N	12/21/1990
PRIME CASH OBLIGATIONS FUND	3	Prime Fund	8,030,208,285	N	2/5/1993
PRIME CASH SERIES	1	Prime Fund	3,175,757,215	N	8/15/1989
PRIME MANAGEMENT OBLIGATIONS FUND	1	Prime Fund	877,089,270	N	12/3/2004
PRIME OBLIGATIONS FUND	3	Prime Fund	17,508,403,211	N	7/5/1994
PRIME VALUE OBLIGATIONS FUND	3	Prime Fund	6,599,447,173	N	2/5/1993
TAX FREE INSTRUMENTS TRUST	2	Tax Free Fund	2,760,836,604	N	12/21/1982
TAX-FREE OBLIGATIONS FUND	2	Tax Free Fund	10,617,832,468	N	12/11/1989
TREASURY CASH SERIES	1	Government Fund	203,983,381	N	2/5/1990
TREASURY CASH SERIES II	1	Government Fund	224,937,201	N	1/25/1991
TREASURY OBLIGATIONS FUND	4	Government Fund	13,208,574,339	N	4/14/1997
TRUST FOR GOVERNMENT CASH RESERVES	1	Government Fund	96,947,228	N	3/30/1989
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES	1	Government Fund	125,526,542	N	12/29/1975
TRUST FOR U.S. TREASURY OBLIGATIONS	1	Government Fund	576,199,914	N	11/8/1979
U.S. TREASURY CASH RESERVES	2	Government Fund	2,838,867,417	N	5/14/1991
VIRGINIA MUNICIPAL CASH TRUST	2	Tax Free Fund	459,981,273	N	8/30/1993
Total Money Market Funds			110,558,553,274
MANAGED FUND TOTAL	288		157,646,150,134
Other Managed Assets*			21,622,339,100
TOTAL MANAGED ASSETS			179,268,489,234

Summary:

Total Number of Load Funds: 41

Total Number of No-Load Funds: 92

Total Number of Funds: 133

* Other Managed Assets include Separate Account, Collateralized Debt Obligation and Repo Assets

29

EX-10.46

Exhibit 10.46

Execution Copy

AGREEMENT

between

FEDERATED INVESTORS, INC.,

and

ALLIANCE CAPITAL MANAGEMENT L.P.

dated as of

October 28, 2004

TABLE OF CONTENTS

				Page
ARTICLE I	CERTAIN DEFINITIONS; CONSTRUCTION			5
	1.1.	Definitions		5
	1.2	Construction		24
ARTICLE II	PURCHASE AND SALE OF ASSETS; THE NEGATIVE CONSENT PROCESS; THE OFFSHORE REDEMPTION IN KIND PROCESS; THE REORGANIZATIONS			24
	2.1.	Sale and Purchase of the Acquired Assets		24
	2.2	Negative Consents, Offshore Redemptions in Kind and Interim Transfers		25
	2.3	The Reorganizations		26
	2.4	Assignment of the Deutsche Bank Agreements		26
	2.5	Payments		26
	2.6	Calculation of Assets for Payment Purposes		27
	2.7	Calculation of Transferred Assets for Purposes of Calculating Deferred Payments		28
	2.8	Clawback		33
	2.9	Allocation Among Acquired Assets		34
	2.10	Closing Dates		34
	2.11	Retained Alliance Liabilities and Retained Alliance Fund Liabilities		35
	2.12	Transfer of Transfer Agent Records		35
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF ALLIANCE			36
	3.1	Representations and Warranties Regarding Alliance		36
		3.1.1	Organization and Qualification	36
		3.1.2	Authority	36
		3.1.3	No Violations	37
		3.1.4	Governmental/Regulatory Authorities; Stockholder Approval	37
		3.1.5	Litigation or Proceedings	37
		3.1.6	Regulatory Compliance	37
		3.1.7	No Undisclosed Liabilities	38

-i-

		3.1.8	Title and Sufficiency of Assets	38
		3.1.9	Intellectual Property	39
		3.1.10	Brokers and Finders	39
	3.2	Representations and Warranties Regarding the Domestic Alliance Funds		39
		3.2.1	Regulation of Each Domestic Alliance Fund	39
		3.2.2	No Convictions, Sanctions or Other Violations	39
		3.2.3	Regulatory Compliance	40
		3.2.4	Tax Qualification	40
		3.2.5	Taxes	40
		3.2.6	Changes	41
		3.2.7	Affiliate Contracts	41
		3.2.8	Third Party Contracts	41
		3.2.9	Litigation	42
	3.3	Representation and Warranties Regarding Each Offshore Alliance Fund		42
		3.3.1	Regulation of Each Offshore Alliance Fund	42
		3.3.2	Regulatory Compliance	42
		3.3.3	Tax Qualifications	42
		3.3.4	Taxes	43
		3.3.5	Changes	43
		3.3.6	Affiliate Contracts	44
		3.3.7	Third Party Contracts	44
		3.3.8	Litigation	44
		3.3.9	Non-U.S. Employees	44
	3.4	Representations and Warranties Regarding Insured Accounts		44
		3.4.1	Regulation of the Insured Accounts	44
		3.4.2	Regulatory Compliance	45
		3.4.3	Effectiveness; No Default	45
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF FEDERATED			45
	4.1	Representations and Warranties of Federated		45
		4.1.1	Incorporation and Qualification	45
		4.1.2	Authority	46
		4.1.3	No Violations	46
		4.1.4	Governmental/Regulatory Authorities	46
		4.1.5	Litigation or Proceedings	46

-ii-

		4.1.6	Regulatory Compliance	47
		4.1.7	Financial Ability	47
		4.1.8	Brokers and Finders	47
	4.2	Representations and Warranties Regarding Each Surviving Fund		47
		4.2.1	Regulation of Each Surviving Fund	48
		4.2.2	No Convictions, Sanctions or Other Violations	48
		4.2.3	Regulatory Compliance	48
		4.2.4	Tax Qualification	49
		4.2.5	Taxes	49
		4.2.6	Changes	49
		4.2.7	Litigation	49
ARTICLE V	COVENANTS AND AGREEMENTS			50
	5.1	Covenants With Respect to the Alliance Funds and Insured Accounts		50
		5.1.1	Conduct of Business	50
		5.1.2	Negative Consent Process; Offshore Redemption in Kind Process	50
		5.1.3	Board Approvals; Shareholder Approval; Prospectus and Statement of Additional Information Supplements; Information in Registration Statement on Form N-14; Other Consents	51
		5.1.4	Alliance Fund Taxes	53
		5.1.5	Insured Account Covenants	54
	5.2	Covenants With Respect to the Surviving Funds and Transferred Insured Accounts		54
	5.3	[Intentionally Omitted]		54
	5.4	Covenant With Respect to Cash Management Assets		54
	5.5	Covenants With Respect to Expenses		55
	5.6	Covenants With Respect to Litigation and Changes in Condition		56
	5.7	Covenants With Respect to Publicity and Third Party Communications		56
	5.8	Restrictive Covenants		57
		5.8.1	Non-Solicitation	57
		5.8.2	Covenant Not to Compete	57
		5.8.3	Enforcement	60

-iii-

	5.9	Covenants With Respect to Further Actions		61
	5.10	Covenants With Respect to Access		61
	5.11	Covenant With Respect to Liquidation of Alliance Funds		61
	5.12	Covenant With Respect to Employees		62
	5.13	Covenant With Respect to Retention Pool		62
	5.14	NAV Catch-Up Payment		62
	5.15	Security Transfer Methodology		62
	5.16	Shared Used Assets		64
ARTICLE VI	CONDITIONS PRECEDENT TO CLOSING
	6.1	Conditions Precedent to First Closing		64
		6.1.1	Consents	64
		6.1.2	Satisfaction of All Requirements Relating to the Negative Consent Process	64
		6.1.3	Expiration of Waiting Period under HSR Act	65
		6.1.4	No Legal Obstruction	65
		6.1.5	Legal Opinions	65
	6.2	Conditions Precedent to Final Closing		65
		6.2.1	Consents	65
		6.2.2	No Legal Obstruction	65
		6.2.3	Continuing Effectiveness of Prior Consents	65
		6.2.4	Legal Opinion	66
	6.3	Conditions Precedent to Obligations of Federated With Respect to All Closings and Interim Transfers		66
		6.3.1	No Breach of Covenants; True and Correct Representations and Warranties	66
		6.3.2	Delivery of Documents	67
		6.3.3	Satisfaction of Conditions under the Reorganization Agreements	67
		6.3.4	No Litigation	67
		6.3.5	Access to and Copies of Books and Records	67
		6.3.6	No MAC	68
	6.4	Conditions Precedent to Obligations of Alliance With Respect To All Closing and Interim Transfers		68
		6.4.1	No Breach of Covenants; True and Correct Representations and Warranties	68
		6.4.2	No MAC	69
		6.4.3	Delivery of Documents	69

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ARTICLE VII	SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS, AND THE ABILITY TO ASSERT CLAIMS		69
	7.1	Survival of Covenants	69
	7.2	Survival of Representation and Warranties	69
	7.3	Survival of Ability to Assert Claims	70
ARTICLE VIII	TERMINATION		70
	8.1	Termination	70
	8.2	Termination of Obligations Relating to Final Closing	71
	8.3	Survival upon Termination	71
ARTICLE IX	INDEMNIFICATION		71
	9.1	Indemnification of Federated by Alliance	71
	9.2	Indemnification of Alliance by Federated	72
	9.3	Indemnification Procedures	73
	9.4	Right of Set-Off	74
	9.5	Exclusive Remedy	74
	9.6	Treatment of Indemnification Payments	74
ARTICLE X	NOTICES		75
ARTICLE XI	ENTIRE AGREEMENT; MODIFICATION		76
ARTICLE XII	MISCELLANEOUS		76
	12.1	Governing Law	76
	12.2	Jurisdiction	76
	12.3	Waiver of Jury Trail	77
	12.4	Assignment; Successors	77
	12.5	Waiver	77
	12.6	Further Assurances	78
	12.7	Counterparts	78
	12.8	Severability	78
	12.9	Third Parties	78

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Exhibits:
Exhibit A	Funds
Exhibit B	Forms of Plan of Reorganization
Exhibit C	Allocation Schedule
Exhibit D	Form of Legal Opinion of Ropes & Gray LLP
Exhibit E	Form of Legal Opinion of Reed Smith LLP
Schedules:
1.1	Alliance Net Revenue Methodology
2.1	Other Assets
2.7(d)	Other Federated Products
2.7(i)	Illustrative Examples of Operation of Asset Tracking Provisions
3.1(b)	Alliance Stock
3.1.4	Alliance Consents
3.1.5	Alliance Litigation
3.1.8	Title Matters
3.2.7	Alliance Contracts
3.2.8	Third Party Contracts
3.3.6	Offshore Alliance Contracts
3.3.7	Offshore Third Party Contracts
3.4.3	Deutsche Bank Agreements
4.1.5	Federated Litigation
5.8.2(c)	Permitted Existing Cash Management Vehicles

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AGREEMENT

THIS AGREEMENT, dated as of October 28, 2004 (this “Agreement”), is between FEDERATED INVESTORS, INC. (“Federated”), a corporation organized under the laws of the Commonwealth of Pennsylvania with its principal business office located at Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania, and ALLIANCE CAPITAL MANAGEMENT L.P. (“Alliance”), a Delaware limited partnership, with headquarters located at 1345 Avenue of the Americas, New York, New York. Certain terms used in this Agreement are defined in Section 1.1 of this Agreement.

W I T N E S S E T H:

WHEREAS, AllianceBernstein Institutional Reserves Prime Portfolio, AllianceBernstein Institutional Reserves Government Portfolio, AllianceBernstein Institutional Reserves Treasury Portfolio, AllianceBernstein Institutional Reserves Tax-Free Portfolio, AllianceBernstein Institutional Reserves California Tax-Free Portfolio, AllianceBernstein Institutional Reserves New York Tax-Free Portfolio (each an “AllianceBernstein Institutional Reserves Portfolio”, and collectively the “AllianceBernstein Institutional Reserves Portfolios”); AllianceBernstein Municipal Trust General Portfolio, AllianceBernstein Municipal Trust New York Portfolio, AllianceBernstein Municipal Trust California Portfolio, AllianceBernstein Municipal Trust Connecticut Portfolio, AllianceBernstein Municipal Trust New Jersey Portfolio, AllianceBernstein Municipal Trust Virginia Portfolio, AllianceBernstein Municipal Trust Florida Portfolio, AllianceBernstein Municipal Trust Massachusetts Portfolio, AllianceBernstein Municipal Trust Pennsylvania Portfolio, AllianceBernstein Municipal Trust Ohio Portfolio (each an “AllianceBernstein Municipal Trust Portfolio”, and collectively the “AllianceBernstein Municipal Trust Portfolios”); AllianceBernstein Capital Reserves Portfolio, AllianceBernstein Money Reserves Portfolio (each an “AllianceBernstein Capital Reserves Portfolio”, and collectively the “AllianceBernstein Capital Reserves Portfolios”); AllianceBernstein Government Reserves Portfolio, AllianceBernstein Treasury Reserves Portfolio (each an “AllianceBernstein Government Reserves Portfolio”, and collectively the “AllianceBernstein Government Reserves Portfolios” and together with the AllianceBernstein Institutional Reserves Portfolios, AllianceBernstein Municipal Trust Portfolios and AllianceBernstein Capital Reserves Portfolios, each a “Domestic Alliance Fund”, and collectively the “Domestic Alliance Funds”); and ACM International Reserves and ACM International Reserves II PLC (each an “Offshore Alliance Fund”, and collectively the “Offshore Alliance Funds” and together with the Domestic Alliance Funds, the “Alliance Funds”) are investment companies or series of certain investment companies as described below; and

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WHEREAS, the AllianceBernstein Institutional Reserves Portfolios are series of AllianceBernstein Institutional Reserves, Inc., a corporation organized under the laws of Maryland and registered under the Investment Company Act of 1940, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder (the “1940 Act”), as an open-end management investment company and whose shares are registered for sale under the Securities Act of 1933, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder (the “1933 Act”) (“Institutional Reserves”); and

WHEREAS, the AllianceBernstein Municipal Trust Portfolios are series of AllianceBernstein Municipal Trust, a business trust organized under the laws of Massachusetts and registered under the 1940 Act as an open-end management investment company and whose shares are registered for sale under the 1933 Act (the “Municipal Trust”); and

WHEREAS, the AllianceBernstein Capital Reserves Portfolios are series of AllianceBernstein Capital Reserves, a business trust organized under the laws of Massachusetts and registered under the 1940 Act as an open-end management investment company and whose shares are registered for sale under the 1933 Act (“Capital Reserves”); and

WHEREAS, the AllianceBernstein Government Reserves Portfolios are series of AllianceBernstein Government Reserves, a business trust organized under the laws of Massachusetts and registered under the 1940 Act as an open-end management investment company and whose shares are registered for sale under the 1933 Act (“Government Reserves” and, together with Institutional Reserves, Capital Reserves and the Municipal Trust, the “Domestic Investment Companies”); and

WHEREAS, ACM International Reserves is an investment company incorporated with limited liability under the laws of the Cayman Islands as an exempted company (“ACM International Reserves” or an “Offshore Alliance Fund”); and

WHEREAS, ACM International Reserves II PLC is an open-ended investment company with variable capital incorporated with limited liability under the laws of Ireland (“ACM International Reserves II” or an “Offshore Alliance Fund”); and

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WHEREAS, Alliance services insured demand deposit accounts (the “Deutsche Bank Insured Accounts”) whereby investors with securities accounts established through intermediaries maintain demand deposits at Deutsche Bank Trust Company Americas (“Deutsche Bank”), and Alliance acts as agent in respect of such demand deposits and all related transactions, including further deposits and withdrawals; and

WHEREAS, Alliance has proposed to be involved in establishing and servicing insured demand deposit accounts with a certain Midwestern trust company previously identified to Federated (the “Trust Company”), whereby investors with securities accounts established through intermediaries will maintain insured demand deposits (the “Trust Insured Accounts”, and together with the Deutsche Bank Insured Accounts, the “Insured Accounts”); and

WHEREAS, Alliance serves as an investment adviser to each Domestic Alliance Fund pursuant to investment advisory agreements, each dated July 22, 1992, between Alliance and each Domestic Investment Company on behalf of each respective Domestic Alliance Fund (as amended, the “Domestic Alliance Funds Advisory Agreements”); and

WHEREAS, Alliance serves as an investment adviser to each Offshore Alliance Fund pursuant to investment advisory agreements between Alliance and each of ACM International Reserves and ACM International Reserves II, dated August 20, 1998 and August 23, 2001, respectively (as amended, the “Offshore Alliance Funds Advisory Agreements”, and together with the Domestic Advisory Agreements, the “Advisory Agreements”); and

WHEREAS, Alliance provides deposit placement, administrative and recordkeeping services in connection with the Deutsche Bank Insured Accounts pursuant to the Third Amended and Restated Money Market Agreement, dated as of November 4, 2003, between Alliance and Deutsche Bank (as amended, and as defined in more detail in Section 1.1 below, the “Deutsche Bank Agreement”; and together with the Advisory Agreements, the “Alliance Agreements”); and

WHEREAS, Federated or an investment advisory subsidiary of Federated is the sponsor to the investment companies registered under the 1940 Act and shares are or will be registered for sale under the 1933 Act (or similar foreign Applicable Law) and identified on Exhibit A to this Agreement (each, together with any successor or transferee of a substantial portion of its assets prior to the Final Closing Date, a “Surviving Fund”, and collectively the “Surviving Funds”); and

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WHEREAS, each Surviving Fund is a duly organized series of a Federated investment company identified on Exhibit A to this Agreement (each, a “Federated Investment Company”, and collectively the “Federated Investment Companies”); and

WHEREAS, Alliance intends to cause the transfer of all of the Alliance Fund Assets associated with the sweep accounts invested in the Alliance Funds (the “Sweep Accounts”) to the appropriate Surviving Funds identified on Exhibit A to this Agreement; and

WHEREAS, as contemplated in this Agreement, such transfers will be effected via a negative written consent process conducted in compliance with Rule 2510 of the National Association of Securities Dealers (“NASD”) and other Applicable Law, whereby Persons with authority over such Sweep Accounts will be sent a negative consent letter informing them of the transfer and advising them that they have thirty (30) days to object to such transfer (the “Negative Consent Process”) to the Surviving Funds; and

WHEREAS, concurrently with the Negative Consent Process, Alliance shall use commercially reasonable efforts to cause each Offshore Alliance Fund to redeem all of its outstanding shares held by its current registered shareholders after the execution of this Agreement and that, in each case, such redemption be effected in kind by the Offshore Alliance Fund transferring, on behalf of and at the direction of each such registered shareholder, all (or substantially all) of its investment assets (and any surplus cash) to the applicable offshore Surviving Fund in return for such Surviving Fund allotting and issuing to each such registered shareholder the appropriate number of fully paid shares of the corresponding class (the “Offshore Redemption in Kind Process”); and

WHEREAS, to the extent that such transfers are not effected pursuant to the processes and means described above, if mutually agreed between Alliance and Federated in accordance with this Agreement, Alliance intends to recommend to the Investment Companies that the Alliance Funds be reorganized with and into the Surviving Funds upon the terms and conditions set forth in this Agreement and in certain Agreements and Plans of Reorganization between the Investment Companies on behalf of the Alliance Funds and the Federated Investment Companies on behalf of the Surviving Funds in forms to be negotiated, and mutually agreed to between the Parties prior to the First Closing, starting from the forms attached as Exhibit B hereto (each, together with such changes as negotiated prior to the First Closing, a “Plan of Reorganization”, and collectively the “Reorganization Agreements”); and

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WHEREAS, Alliance and certain of its Affiliated Persons operate a cash management business used by both retail and institutional clients through Alliance’s and certain of its Affiliated Persons’ provision of investment advisory, investment management and other services to the Alliance Funds and certain distribution and support related services to the Insured Accounts (as defined in more detail in Section 1.1 below, collectively, the “Business”), and Alliance wishes to sell to Federated, and Federated wishes to purchase from Alliance, substantially all of Alliance’s interest in, the Business, including certain assets identified in Section 1.1 below relating to the Business, on the terms and subject to the conditions set forth in this Agreement; and

NOW, THEREFORE, in consideration of the respective representations, warranties and covenants contained in this Agreement, and intending to be legally bound, Alliance and Federated agree as follows:

ARTICLE I

CERTAIN DEFINITIONS; CONSTRUCTION

1.1 Definitions. The following terms have the meanings specified below or are defined in the Sections referred to below. “1933 Act” is defined in the recitals to this Agreement.

“1934 Act” means the Securities Exchange Act of 1934, as amended, and the rules regulations and interpretations promulgated by any Governmental Authority thereunder.

“1940 Act” is defined in the recitals to this Agreement.

“ACM International Reserves” is defined in the recitals to this Agreement.

“ACM International Reserves II” is defined in the recitals to this Agreement.

“Acquired Assets” is defined in Section 2.1(a) of this Agreement.

“Advisory Agreements” is defined in the recitals to this Agreement.

“Advisers Act” means the Investment Advisers Act of 1940, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder.

“Affiliated Person” means, with respect to any Person, an “affiliated person” of such Person as such term is defined in Section 2(a)(3) of the 1940 Act.

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“Agreement” means this Agreement, as it may be amended, modified, supplemented, or restated from time to time.

“Alliance” is defined in the preamble to this Agreement.

“Alliance Agreements” is defined in the recitals to this Agreement.

“AllianceBernstein Capital Reserves Portfolio” is defined in the recitals to this Agreement.

“AllianceBernstein Government Reserves Portfolio” is defined in the recitals to this Agreement.

“AllianceBernstein Institutional Reserves Portfolio” is defined in the recitals to this Agreement.

“AllianceBernstein Municipal Trust Portfolio” is defined in the recitals to this Agreement.

“Alliance Consents” is defined in Section 3.1.4 of this Agreement.

“Alliance Fund Assets” means the net assets of the Alliance Funds and deposits in Insured Accounts (prior to the assets of the Insured Accounts being transferred as contemplated in this Agreement).

“Alliance Funds” is defined in the recitals to this Agreement.

“Alliance Fund Termination Date” shall mean, with respect to any Alliance Fund, the earlier of (a) the date on which all of the Alliance Fund Assets of such Alliance Fund are transferred to a Surviving Fund either through the Negative Consent Process, the Offshore Redemption in Kind Process, an Interim Transfer or pursuant to a Reorganization Agreement, or (b) the Final Closing Date.

“Alliance Indemnitees” is defined in Section 9.2 of this Agreement.

“Alliance Intellectual Property” means all Intellectual Property owned, licensed or used by Alliance or any Alliance Fund, or any Affiliated Person of any of them, in connection with the Business (other than any Retained Asset or Shared Use Asset) and included in the Acquired Assets.

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“Alliance NYAG Settlement” means the settlement evidenced by the Assurance of Discontinuance dated as of September 1, 2004 entered into by Alliance and the New York State Attorney General.

“Alliance SEC Documents” means Alliance Capital Management L.P.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and all other reports, registration statements, definitive proxy statements or information statements, and amendments thereto, filed by Alliance subsequent to March 10, 2004 and prior to the fifth Business Day preceding the date hereof under the 1933 Act or under Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act as filed with the Commission.

“Alliance SEC Settlement” means the settlement detailed in the Order of the Commission contained in Release No. IA-2205A; IC 26312A; Administrative Proceeding File No. 3-11359; dated January 15, 2004.

“Anniversary Payments” means an amount equal to the sum of the First Anniversary Payment, Second Anniversary Payment, Third Anniversary Payment, Fourth Anniversary Payment and the Fifth Anniversary Payment.

“Annualized Pre-First Closing Run Rate Measurement” means the net revenue earned by Alliance or its Affiliated Persons (calculated in a manner consistent with the methodology reflected in Schedule 1.1) on Alliance Fund Assets attributable to Tracked Clients which become Transferred Assets, for the ninety (90) day period ending one day prior to the First Closing Date, annualized by dividing the net revenue for such period by 90 and multiplying the result by 365.

“Annualized 8/31/04 Run Rate Measurement” means the net revenue earned by Alliance or its Affiliated Persons (calculated in a manner consistent with the methodology reflected in Schedule 1.1) on Alliance Fund Assets attributable to Tracked Clients which become Transferred Assets, for the ninety (90) day period ending August 31, 2004, annualized by dividing the net revenue for such period by 90 and multiplying the result by 365.

“Applicable Law” means all applicable provisions of all (i) constitutions, treaties, statutes, laws (including the common law), rules, regulations, ordinances, codes, interpretations or orders of any Governmental Authority, (ii) Governmental Approvals and (iii) orders, decisions, injunctions, judgments, writs, awards, and decrees of, or agreements with, any Governmental Authority.

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“Assumed Alliance Fund Liabilities” means, in the case of any Alliance Fund reorganized through an “F reorganization” under the Code with and into a Surviving Fund pursuant to a Reorganization Agreement at the Final Closing, ordinary course Liabilities specifically identified on the financial statements of the Alliance Fund and expressly assumed by a Surviving Fund pursuant to a Reorganization Agreement as required in connection with such “F reorganization” under the Code or, obligations of the predecessor Alliance Fund assumed in order to succeed to redemption credits pursuant to Section 24(f) of the 1940 Act and former Rule 24e-2 promulgated under the 1940 Act (as in effect prior to October 11, 1997).

“Board” means the Board of Directors or Trustees, as applicable, of (i) in the case of Alliance, the General Partner, (ii) Federated, (iii) any Alliance Fund, or (iv) any Surviving Fund, as applicable.

“Business” is defined in the recitals to this Agreement. For the avoidance of doubt, “Business” also includes the Acquired Assets.

“Business Day” means a day other than a Saturday, Sunday or other day on which commercial banks in New York, New York or Pittsburgh, Pennsylvania, or the New York Stock Exchange, are authorized or required to close.

“Calculation Dispute” is defined in the definition of Dispute Resolution Process in Section 1.1.

“Calculation Statement” shall mean any Closing Date Statement, Interim Period Statement or Clawback Measurement Period Statement, as applicable.

“Capital Reserves” is defined in the recitals to this Agreement.

“Cash Management Vehicle” means (a) (i) any money market fund registered under the 1940 Act or the 1933 Act (or similar foreign Applicable Law), or (ii) any collective investment vehicle that seeks stability of principal and daily or other periodic liquidity in a manner similar to a money market fund and that, but for the exceptions under the 1940 Act, would be an “investment company” thereunder, or (b) any insured demand deposit accounts similar to the Insured Accounts.

“Clawback Measurement Period” means the period beginning on the first day of the seventh (7^th) month after the month in which the First Closing Date occurs and continuing for six (6) months thereafter; provided, however, that if at least seventy-five percent (75%) of the Total

- 8 -

Alliance Fund Assets are not included in the First Closing Fund Assets, then references to the First Closing Date used in determining the Clawback Measurement Period shall be changed to the Final Closing Date.

“Clawback Measurement Period Statement” is defined in Section 2.8(c) of this Agreement.

“Clawback Payment” is defined in Section 2.8(b) of this Agreement.

“Client Split” means the allocation of Transferred Assets attributable to Tracked Clients between Federated and Alliance, as determined in accordance with Section 2.7 of this Agreement.

“Client Statement” is defined in Section 2.7(a) of this Agreement.

“Closing” means the First Closing or the Final Closing, as applicable.

“Closing Fund Assets” means the First Closing Fund Assets, Interim Period Transferred Assets and the Final Closing Fund Assets.

“Closing Date” means the First Closing Date or the Final Closing Date, as applicable.

“Closing Date Statement” is defined in Section 2.6(a) of this Agreement.

“Code” means the Internal Revenue Code of 1986, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder.

“Commission” means the U.S. Securities and Exchange Commission.

“Consent” means any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, or filing or registration with, or report or notice to, any Person, including any Governmental Authority.

“Consideration Amount” means an amount equal to the sum of the First Closing Payment, the Interim Payments, the Final Closing Payment, the Non-Tracked Client Payment, the Anniversary Payments, the Payment Differential and, if applicable, the Contingent Payment, less the Clawback Payment, if any.

“Contingent Payment” means an amount equal to ten million dollars ($10,000,000).

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“Contracts” means, in respect of any Person, all loan agreements, indentures, letters of credit (including related letter of credit applications and reimbursement obligations), mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes, guarantees, surety obligations, warranties, licenses, franchises, permits, powers of attorney, purchase orders, leases, and other agreements, contracts, instruments and similar obligations to which such Person is party or by which they or any of their properties or assets may be bound or affected, in each case as amended, supplemented, waived or otherwise modified.

“Deutsche Bank” is defined in the recitals to this Agreement.

“Deutsche Bank Agreement” is defined in the recitals to this Agreement. “Deutsche Bank Agreement” also shall include any referring institution agreements (or similar selling agreements) to which Alliance is a party relating to the sale of the Deutsche Bank Insured Accounts.

“Deutsche Bank Assignment Documents” means those written Contracts and Consents necessary to assign the Deutsche Bank Agreement to Federated or to otherwise transfer the benefits received by Alliance under such Deutsche Bank Agreement to Federated

“Deutsche Bank Insured Accounts” is defined in the recitals to this Agreement.

“Dispute Resolution Process” means the following process which either Federated or Alliance may invoke by providing written notice to the other Party if Federated and Alliance cannot agree on any Calculation Statement required to be delivered under this Agreement as contemplated in this Agreement (a “Calculation Dispute”). Upon either Party delivering such written notice of a Calculation Dispute:

(a) any undisputed amount shall be paid by the applicable Party on the date required under this Agreement;

(b) the payment of any disputed amount shall be postponed until the date that is three (3) Business Days after the Calculation Dispute is resolved pursuant to this Dispute Resolution Process;

(c) the Calculation Dispute will be escalated to senior executives of Alliance and Federated with authority to resolve the Calculation Dispute, and such senior executives will meet (either in person or via conference call, and with such other representatives of Alliance or Federated (as applicable) as such senior executives deem necessary or desirable), at least once

- 10 -

initially within five (5) Business Days after such written Calculation Dispute notice was delivered, to attempt to resolve the Calculation Dispute; if such senior executives agree upon a resolution to such Calculation Dispute, the applicable Calculation Statement (as modified consistent with such agreement) shall be considered final and conclusive for all purposes;

(d) if such executives cannot resolve such dispute within forty-five (45) calendar days, then either party may thereafter provide written notice to the other that it elects to submit the Calculation Dispute to a nationally recognized independent accounting firm chosen jointly by such executives of Federated and Alliance (the “Neutral Accountants”). Alliance and Federated shall use commercially reasonable efforts to cause the Neutral Accountants to promptly review and resolve the Calculation Dispute no later than thirty (30) days after the delivery of such written notice, using GAAP as applied in the United States (or, if necessary, generally accepted accounting principles as applied in an applicable foreign jurisdiction). The fees and expenses of the Neutral Accountants shall be shared equally by Alliance and Federated, and the decision of the Neutral Accountants shall be final and conclusive for all purposes.

“Domestic Alliance Funds” is defined in the recitals to this Agreement.

“Domestic Alliance Funds Advisory Agreements” is defined in the recitals to this Agreement.

“Domestic Investment Companies” is defined in the recitals to this Agreement.

“Federated” is defined in the preamble to this Agreement.

“Federated Indemnitees” is defined in Section 9.1 of this Agreement.

“Federated Investment Companies” is defined in the recitals to this Agreement.

“Federated NYAG Settlement” means any settlement reached between Federated and the New York Attorney General relating to the matters disclosed in the Federated SEC Documents.

“Federated SEC Documents” means Federated’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003, and all other reports, registration statements, definitive proxy statements or information statements, and amendments thereto, filed by Federated subsequent to June 30, 2003 and prior to the fifth (5th) Business Day preceding the date hereof under the 1933 Act or under Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act as filed with the Commission.

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“Federated SEC Settlement” means any settlement reached between Federated and the Commission relating to the matters disclosed in the Federated SEC Documents.

“Fifth Anniversary Date” means the date which is five (5) Fiscal Years after the First Closing Date.

“Fifth Anniversary Payment” means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the Fourth Anniversary Date.

“Final Closing” is defined in Section 2.10(b) of this Agreement.

“Final Closing Anniversary Date” means the date which is five (5) Fiscal Years after the Final Closing Date.

“Final Closing Date” is defined in Section 2.10(b) of this Agreement. If the Final Closing Date does not occur before August 31, 2005, “Final Closing Date” shall be deemed to mean August 31, 2005 for all purposes of this Agreement (it being understood that, in such instance, no additional Closings or Interim Transfers shall occur after August 31, 2005 and Article VI would not be applicable).

“Final Closing Fund Assets” means the Alliance Fund Assets transferred to the Surviving Funds (or, in the case of the Insured Account assets, as contemplated in this Agreement) (in each case, if any) on the Final Closing Date.

“Final Closing Payment” means an amount equal to (a) twenty-five million dollars ($25,000,000) less (b) the First Closing Payment, less (c) the sum of all Interim Payments.

“First Anniversary Date” means the date which is one (1) Fiscal Year after the First Closing Date.

“First Anniversary Payment” shall mean an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the First Closing Date.

“First Closing” is defined in Section 2.10(a) of this Agreement.

“First Closing Date” is defined in Section 2.10(a) of this Agreement.

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“First Closing Fund Assets” means the Alliance Fund Assets transferred to the Surviving Funds (or, in the case of the Insured Account assets, as contemplated in this Agreement) on the First Closing Date.

“First Closing Payment” means an amount equal to the product of (a) an amount equal to the quotient of (i) First Closing Fund Assets, divided by (ii) Total Alliance Fund Assets, multiplied by (b) twenty-five million dollars ($25,000,000).

“Fiscal Year” means a period of 365 days (or, as applicable in the event of a leap year, 366 days).

“Former Alliance Client” means (a) a client of the Business that is not also a client of Federated on the date of this Agreement and that transfers all or a portion of such client’s assets to a Surviving Fund or Other Federated Cash Management Vehicle, between the date of this Agreement and the First Closing Date, or (b) as mutually agreed (including in terms of the client and the portion of such client’s assets to be included) upon by the Parties prior to the First Closing, a client of the Business that is also a client of Federated on the date of this Agreement and that transfers all or a portion of such client’s assets to a Surviving Fund or Other Federated Cash Management Vehicle between the date of this Agreement and the First Closing Date.

“Fourth Anniversary Date” means the date which is four (4) Fiscal Years after the First Closing Date.

“Fourth Anniversary Payment” means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the Third Anniversary Date.

“Fund” means an Alliance Fund or Surviving Fund, as applicable.

“GAAP” means generally accepted accounting principles in the United States of America.

“General Partner” means Alliance Capital Management Corporation, a Delaware corporation.

“Governing Documents” means (a) with respect to any corporation, its articles or certificate of incorporation, bylaws and other organizational documents, (b) with respect to any limited liability company, its articles or certificate of formation or organization, limited liability company agreement, operating agreement and other organizational documents, (c) with respect

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to any business trust, its declaration of trust, trust agreement and other organizational documents, (d) with respect to any limited partnership, its certificate of partnership, partnership agreement and any other organizational document and (e) with respect to any other Person, its comparable governing agreements and other organizational documents.

“Government Reserves” is defined in the recitals to this Agreement.

“Governmental Approval” means any Consent of, with or to any Governmental Authority.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, any entity, authority or body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, any government authority, agency, department, board, commission or instrumentality of the United States, any State of the United States, any foreign nation, government, commonwealth or province, or any political subdivision thereof; any court, governmental tribunal, or arbitrator; and any self-regulatory organization (as such term is defined in the 1934 Act).

“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder.

“Incidental Money Market Fund” means a Cash Management Vehicle of a Person (other than Alliance or any Non-Compete Affiliate), unless the net revenue of such Person from such Cash Management Vehicle is greater than either (i) seven million five hundred thousand dollars ($7,500,000), or (ii) seven and one-half percent (7½%) of such Person’s net revenue. For the avoidance of doubt, “Incidental Money Market Fund” shall in no event mean a Cash Management Vehicle started by Alliance or any Non-Compete Affiliate either de novo or through the reorganization or other conversion of another one of their respective existing businesses into a Cash Management Vehicle.

“Indemnified Party” is defined in Section 9.3 of this Agreement.

“Indemnifying Party” is defined in Section 9.3 of this Agreement.

“Institutional Reserves” is defined in the recitals to this Agreement.

“Insured Accounts” is defined in the recitals to this Agreement.

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“Intellectual Property” shall mean any United States and foreign patents, trademarks, service marks, trade names, trade dress, logos, business and product names, slogans, copyrights, trade secrets, know-how, and software, spreadsheets, source code, updates, upgrades and versions, and other proprietary rights, or intellectual property, and all applications, registrations, manuals and other documentation related thereto.

“Interim Payment” means a payment to be made by Federated to Alliance with respect to all Interim Period Transferred Assets transferred to a Surviving Fund (or, in the case of Insured Account assets, as contemplated in this Agreement) during any calendar month during which there is an Interim Transfer Date, which payment shall equal the product of (a) an amount equal to the quotient of (i) Interim Period Transferred Assets transferred to a Surviving Fund (or, in the case of Insured Account assets, as contemplated in this Agreement) since the First Closing Date (in the case of the first Interim Payment) or the last Interim Transfer Date (in the case of all subsequent Interim Payments), divided by (ii) Total Alliance Fund Assets, multiplied by (b) twenty five million dollars ($25,000,000).

“Interim Payment Anniversary Date” means the date which is five (5) Fiscal Years after any Interim Transfer Date.

“Interim Payment Date” means the date that is seven (7) days after the end of each calendar month during which there is an Interim Transfer Date, provided that if an Interim Payment Date is a Friday, Saturday, or Sunday, Interim Payment Date shall be the following Monday.

“Interim Period Statement” is defined in Section 2.6(b) of this Agreement.

“Interim Period Transferred Assets” means Alliance Fund Assets transferred in an Interim Transfer.

“Interim Transfer” means the transfer of Alliance Fund Assets to the Surviving Funds (or, in the case of Insured Account assets, as contemplated in this Agreement) by Alliance after the First Closing and before the Final Closing.

“Interim Transfer Date” means each date after the First Closing Date and before the Final Closing Date on which (a) Alliance Fund Assets are transferred pursuant to Section 2.2 or Section 2.4 of this Agreement, and any related Acquired Assets are transferred pursuant to the transactions contemplated in Section 2.1 of this Agreement, or (b) any Alliance Fund Assets, and Acquired Assets related to that portion of the Business being transferred, are transferred to the

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Surviving Funds and Federated, respectively, pursuant to another mutually agreed upon transfer mechanism, in each case upon at least three (3) days prior written notice from Alliance to Federated.

“Investment Companies” means the Domestic Investment Companies and the Offshore Alliance Funds.

“Knowledge” means (a) with respect to Alliance, the actual knowledge, after commercially reasonable inquiry, of (i) the Chairman, Chief Executive Officer, President (if such an office is filled), any Executive Vice President, Chief Compliance Officer, Chief Investment Officer (if such an office is filled), Chief Financial Officer or General Counsel of the General Partner, who are involved with, supervise or are responsible, directly or indirectly, for the Transactions or the operation or management of the Business or the Alliance Funds or Insured Accounts, and each such individual’s direct reports, and/or (ii) the President, the Chief Compliance Officer and Chief Investment Officer of any Alliance Fund, and each such individual’s direct reports, and (b) with respect to Federated, the actual knowledge, after commercially reasonable inquiry, of (i) the Chairman, Chief Executive Officer, President, any Executive Vice President, Chief Compliance Officer, Chief Investment Officer, Chief Financial Officer or General Counsel (as applicable) of Federated, who are involved with, supervise or are responsible for the Transactions or the operation or management of the Surviving Funds, and each such individual’s direct reports, and/or (ii) the President, the Chief Compliance Officer and Chief Investment Officer of any Surviving Fund, and each such individual’s direct reports.

“Liabilities” mean any claim, debt, expense, duty, liability or obligation of any kind whatsoever, whether or not accrued or fixed, known or unknown, absolute or contingent, determined or determinable or when due or to become due.

“Liens” means any mortgage, pledge, lien, encumbrance, charge, liability, obligation, claim (whether pending or, to the Knowledge of the Person against whom the claim is being asserted, threatened in writing), license, rights of others or restriction of any kind affecting title to or use of, or resulting in an encumbrance against, property, real or personal, tangible or intangible, or a security interest of any kind, including, any conditional sale or other title retention agreement, any lease in the nature thereof, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute) of any jurisdiction (other than a financing statement which is filed or given solely to protect the interest of a lessor).

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“Litigation” means any action, cause of action, claim, demand, suit, proceeding, audit, citation, summons, subpoena, inquiry, examination or investigation of any nature, whether legal, civil, criminal, administrative, regulatory or otherwise, pending or, to the Knowledge of the relevant party, threatened, in law or in equity, or before any Governmental Authority.

“Losses” is defined in Section 9.1 of this Agreement.

“MAC” shall mean:

(a) with respect to Alliance, the Business, the Alliance Funds or the Insured Accounts (except to the extent transferred to a Surviving Fund or as otherwise contemplated in this Agreement, as applicable), (i) any event, circumstance or condition which would have a material adverse effect (whether taken individually or in the aggregate with all other effects) on Alliance, the Business, the Alliance Funds and the Insured Accounts, taken as a whole, or (ii) any event, circumstance or condition affecting Alliance, the Business, the Alliance Funds or the Insured Assets, which would materially delay or otherwise materially and adversely affect the enforcement of, or performance or consummation of the Transactions (taken as a whole) by Alliance and the Alliance Funds under, this Agreement, the Reorganization Agreements, or any other Transaction Document; provided, however, that a reduction in Alliance Fund Assets shall not be considered a MAC; and

(b) with respect to Federated, any event, circumstance or condition affecting Federated or the Surviving Funds, which would materially delay or otherwise materially and adversely affect the enforcement of, or performance or consummation of the Transactions (taken as a whole) by Federated and the Surviving Funds under, this Agreement, the Reorganization Agreements, or any other Transaction Document, or Federated’s post-Closing operation and management of the Business (taken as a whole); provided, however, that (i) the Federated SEC Settlement, and (ii) the Federated NYAG Settlement, each shall not be considered a MAC.

“Municipal Trust” is defined in the recitals to this Agreement.

“NASD” means the National Association of Securities Dealers, Inc. or NASD Regulation, Inc., as applicable.

“NAV Catch-Up Payment” means, for any Alliance Fund, the difference between (a) the number of Alliance Fund shares (valued at $1.00 per share) associated with the Alliance Fund Assets being transferred at a Closing or Interim Transfer pursuant to the Transactions contemplated by this Agreement and (b) the sum of (i) the market value of the portfolio

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securities of the Alliance Fund being transferred at such Closing or Interim Transfer (as determined in accordance with Section 5.15(c) below), and (ii) any portfolio cash being transferred at such Closing or Interim Transfer.

“Negative Consent Process” is defined in the recitals to this Agreement.

“Net Revenue” means with respect to any Transferred Assets an amount equal to (a) the sum of (i) net advisory fee revenue, (ii) administrative service fees, (iii) shareholder servicing fees, (iv) 12b-1 fees, and (v) any other revenue earned by Federated from fees charged to the Surviving Funds or any Other Federated Cash Management Vehicle for new services rendered to the Surviving Funds or any Other Federated Cash Management Vehicle beginning on a date after the First Closing Date, in each case after deducting fund expense waivers and reimbursements of expenses, less (b) any payments made to clients, and less (c) any payments made to third parties on behalf of clients, all calculated on a basis consistent with Section 2.7 of this Agreement. With respect to Transferred Assets invested in Insured Accounts, “Net Revenue” shall mean all fees and other revenue earned by Federated in respect of the Insured Accounts (after deducting any expense waivers and reimbursements), less (b) any payments made to clients, less (c) any payments made to third parties on behalf of clients, and less (d) any payments made to Deutsche Bank and/or Trust Company, all calculated on a basis consistent with Section 2.7 of this Agreement. “Net Revenue” earned by Federated calculated under this Agreement shall include any component of Net Revenue earned by any Affiliated Person of Federated.

“Neutral Accountants” is defined in the definition of Dispute Resolution Process in Section 1.1 of this Agreement.

“Non-Compete Affiliate” means (a) Alliance Capital Management Holding L.P., (b) the General Partner or (c) any Person that is directly or indirectly controlled by Alliance.

“Non-Solicitation Period” means the period beginning on the First Closing Date and ending on (and including) the Second Anniversary Date.

“Non-Tracked Client Payment” means an amount (expressed in dollars) equal to (a) 0.017 basis points, multiplied by (b) the sum of (i) the First Closing Fund Assets attributable to Non-Tracked Clients, plus (ii) Interim Period Transferred Assets attributable to Non-Tracked Clients, plus (iii) Final Closing Fund Assets attributable to Non-Tracked Clients. For the avoidance of doubt, the assets of Former Alliance Clients that are Non-Tracked Clients transferred to a Surviving Fund or Other Federated Cash Management Vehicle prior to the Final Closing shall be considered Final Closing Fund Assets attributable to Non-Tracked Clients for purposes of determining the Non-Tracked Client Payment.

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“Non-Tracked Clients” shall mean those clients of Alliance with assets invested in the Alliance Funds or deposited in the Insured Accounts as of the Tracked Client Determination Date that are not Tracked Clients, and certain clients (including certain Former Alliance Clients) of Alliance with $0 balances as of the Tracked Client Determination Date as mutually agreed between Alliance and Federated.

“Offshore Alliance Fund” is defined in the recitals to this Agreement.

“Offshore Alliance Funds Advisory Agreements” is defined in the recitals to this Agreement.

“Offshore Redemption in Kind Process” is defined in the recitals to this Agreement.

“Other Federated Cash Management Vehicle” means a Cash Management Vehicle created, distributed, advised, managed, sold, administered or promoted by Federated; provided, that “Other Federated Cash Management Vehicle” shall not include a Cash Management Vehicle that is (a) distributed, sold, administered or promoted for a third party in a manner similar to which Federated currently provides such services to third parties, and (b) not created, advised or managed by Federated or any Affiliated Person of Federated.

“Parties” means Alliance and Federated.

“Payment Differential” means an amount equal to (a) seventy percent (70%) of the Net Revenue earned by Federated with respect to Transferred Assets relating to Final Closing Fund Assets attributable to Tracked Clients for the period beginning on the first day following the Fifth Anniversary Date and ending on the Final Closing Anniversary Date, plus (b) for each Interim Transfer, seventy percent (70%) of the Net Revenue earned by Federated with respect to Transferred Assets relating to the Interim Period Transferred Assets attributable to Tracked Clients associated with such Interim Transfer for the period beginning on the first day following the Fifth Anniversary Date and ending on the Interim Payment Anniversary Date.

“Permitted Liens” means Liens for Taxes or assessments or governmental charges or levies, including those arising by operation of law, which are not yet due or delinquent or are being challenged in good faith. For the avoidance of doubt, with respect to Acquired Assets that cannot be fully transferred at the First Closing or any Interim Transfer because the Acquired

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Assets cannot be segregated and transferred to Federated until the earlier of the date that all related Alliance Fund Assets are transferred to a Surviving Fund (or, in the case of Insured Account assets, as contemplated in this Agreement) or the liquidation of the related Alliance Fund, “Permitted Liens” also shall include the remaining interest of any Investment Company, Alliance Fund or Insured Account in such Acquired Assets until such Acquired Assets are fully transferred to Federated.

“Person” means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, account or any other entity, whether acting in an individual, fiduciary or other capacity.

“Plan of Reorganization” is defined in the recitals to this Agreement.

“Regulated Investment Company” is as defined under Section 851 of the Code.

“Reorganization Agreements” is defined in the recitals to this Agreement.

“Restricted Activity” is defined in Section 5.8.2(b)(i).

“Restricted Period” means the period beginning on the First Closing Date and ending on the Seventh Anniversary Date.

“Retained Assets” is defined in Section 2.1 of this Agreement.

“Retained Alliance Fund Liabilities” means any Liabilities of or relating to (a) any Alliance Fund or Investment Company, or (b) the Insured Accounts prior to the transfer of the Insured Accounts as contemplated herein, or (c) any officer, director or trustee of any Alliance Fund or Investment Company to the extent relating to them in their capacity as such, or (d) the Alliance Fund Assets. For the avoidance of doubt, and without limiting the foregoing, “Retained Alliance Fund Liabilities” includes any Liabilities (other than Alliance Retained Liabilities) resulting from or relating to (i) the Alliance Fund Assets prior to transfer to a Surviving Fund, or, in the case of the Insured Account assets, as contemplated in this Agreement, (ii) any assets of an Alliance Fund or Insured Account not transferred to a Surviving Fund or, in the case of the Insured Account assets, as contemplated in this Agreement, (iii) the operation of the Alliance Funds or Investment Companies, (iv) the operation of the Insured Accounts prior to the assets of the Insured Accounts being transferred as contemplated in this Agreement, (v) the Alliance SEC Settlement (to the extent of any Liability of any Alliance Fund or Investment Company), (vi) the Alliance NYAG Settlement (to the extent of any Liability of any Alliance

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Fund or Investment Company), (vii) any Taxes due, owing or payable by or in respect of any Alliance Fund, Investment Company or Insured Account and (viii) any Litigation against or involving any Person specified in the first sentence of this definition to the extent relating to any Alliance Fund, Investment Company or Insured Account (prior to the assets of such Insured Accounts being transferred as contemplated in this Agreement) or the Alliance Fund Assets. In the case of any Alliance Fund reorganized through an “F reorganization” under the Code with and into a Surviving Fund pursuant to Reorganization Agreement at the Final Closing, “Retained Alliance Fund Liabilities” shall not include any Assumed Alliance Fund Liabilities.

“Retained Alliance Liabilities” means any Liabilities of or relating to (a) Alliance, or (b) any officer, director or trustee of Alliance to the extent relating to them in their capacity as such, or (c) the Business. For the avoidance of doubt, and without limiting the foregoing, “Retained Alliance Liabilities” includes any Liabilities (other than Retained Alliance Fund Liabilities) resulting from or relating to (i) the Acquired Assets prior to transfer to Federated, (ii) the Retained Assets and any other assets of Alliance not transferred to Federated, (iii) the management of the Alliance Funds or Investment Companies, (iv) the servicing of the Insured Accounts prior to the assets of the Insured Accounts being transferred as contemplated in this Agreement, (v) the Alliance SEC Settlement (to the extent of any Liability of Alliance or relating to the Business), (vi) the Alliance NYAG Settlement (to the extent of any Liability of Alliance or relating to the Business), (vii) any Taxes due, owing or payable by or in respect of Alliance or the Business, (viii) any Litigation against or involving any Person specified in the first sentence of this definition to the extent relating to Alliance or the Business, (ix) any employee or agent of Alliance or the Business in their capacities as such, and (x) the WARN Act.

“Run Rate Multiplier” shall mean eighty percent (80%) of the lower of the Annualized Pre-First Closing Run Rate Measurement or the Annualized 8/31/04 Run Rate Measurement.

“SAI” means the statement of additional information of an Alliance Fund or Surviving Fund, as the case may be.

“Second Anniversary Date” means the date which is two (2) Fiscal Years after the First Closing Date.

“Second Anniversary Payment” means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the First Anniversary Date.

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“Seventh Anniversary Date” means the date which is seven (7) Fiscal Years after the Final Closing Date.

“Shared Use Asset” means any asset (other than a Retained Asset) of Alliance that is (a) used in connection with the operation of the Business, (b) used in connection with the operation of one or more businesses that are not part of the Business, and (c) not reasonably capable of being segregated and transferred to Federated. For the avoidance of doubt, “Shared Use Assets” shall not include (i) any software or other asset that is readily available to Federated in the market (such as “off the shelf” or non-proprietary software) or (ii) any asset of Alliance used exclusively in connection with the operation of the Business.

“Sixth Anniversary Date” means the date which is six (6) Fiscal Years after the First Closing Date.

“Surviving Fund” is defined in the recitals to this Agreement.

“Sweep Accounts” is defined in the recitals to this Agreement.

“Taxes” is defined in Section 3.2.5 of this Agreement.

“Tax Returns” is defined in Section 3.2.5 of this Agreement.

“Third Anniversary Date” means the date which is three (3) Fiscal Years after the First Closing Date.

“Third Anniversary Payment” means an amount equal to seventy percent (70%) of the Net Revenue earned by Federated on the Transferred Assets attributable to Tracked Clients for the Fiscal Year beginning on the day after the Second Anniversary Date.

“Total Alliance Fund Assets” shall mean the total, aggregate Alliance Fund Assets measured as of the First Closing Date.

“Total Payment” means the aggregate amount of the First Closing Payment, any Interim Payments, and the Final Closing Payment, which shall equal, in all events (subject to the terms hereof), twenty-five million dollars ($25,000,000).

“Tracked Client Determination Date” means the close of business on the day that is three (3) Business Days prior to the First Closing Date.

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“Tracked Clients” means those clients of Alliance that have $5,000,000 or more invested in the Alliance Funds and/or deposited in the Insured Accounts as of the Tracked Client Determination Date, and certain other clients of Alliance sourced through correspondents of clearing firms as mutually agreed between Alliance and Federated prior to the First Closing Date, and certain clients (including certain Former Alliance Clients) of Alliance with $0 balances as of the Tracked Client Determination Date as mutually agreed between Alliance and Federated.

“Transactions” means the transactions contemplated by this Agreement, the Reorganization Agreements and the other Transaction Documents.

“Transaction Costs” is defined in Section 5.5(a) of this Agreement.

“Transaction Documents” shall mean this Agreement, the Reorganization Agreements, and any other certificate, filing, agreement, instrument or document executed or delivered in connection with the foregoing documents, and any amendments, modifications, supplements or restatements of any of the foregoing documents.

“Transferred Accounts” shall mean (a) Alliance clients (and successors of such clients as contemplated in this Agreement) whose assets are transferred in whole or in part (i) to the Surviving Funds or any Other Federated Cash Management Vehicle through the Negative Consent Process, the Offshore Redemption in Kind Process or a Reorganization Agreement, or otherwise in accordance with this Agreement, either on the First Closing Date, any Interim Transfer Date, or on the Final Closing Date as contemplated by this Agreement, and (ii) in the case of Insured Account assets, as contemplated in this Agreement through the Deutsche Bank Assignment Documents either on the First Closing Date, any Interim Transfer Date or on the Final Closing Date, and (b) any Former Alliance Clients (and successors of such Former Alliance Clients as contemplated in this Agreement).

“Transferred Assets” shall mean the total assets from time to time of the Transferred Accounts (including increases or decreases therein) as measured on any day after the Final Closing Date in accordance with Section 2.7 whether such assets are in the Surviving Funds, the Insured Accounts or any Other Federated Cash Management Vehicle.

“Trust Company” is defined in the recitals to this Agreement.

“Trust Insured Accounts” is defined in the recitals to this Agreement.

“Valuation Process” is defined in Section 5.8.2(c)(i)(C) of this Agreement.

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“WARN Act” means the Worker Adjustment and Retraining Notification Act, as amended, and the rules, regulations and interpretations promulgated by any Governmental Authority thereunder, and any similar state Applicable Law, providing for notification to employees affected by closing, relocation, sale of a business, mass layoff or similar event.

1.2 Construction. The language used in this Agreement, and the other Transaction Documents, shall be deemed to be the language chosen by the Parties hereto to express their mutual intent, and no rule of construction under which a document is to be construed against the drafter of such document shall apply. Whenever the words “include,” “includes” or “including” are used in this Agreement, or any other Transaction Document, they shall be deemed to be followed by the words “without limitation.” Whenever the context may require, any nouns and pronouns used in this Agreement, or any other Transaction Document, shall include the corresponding masculine, feminine or neuter forms and the singular form of nouns and pronouns shall include the plural and vice versa. The phrases “the date of this Agreement,” “the date hereof” and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth in the first paragraph of this Agreement. The same principle shall be applied with respect to the other Transaction Documents as well. The paragraph headings in this Agreement, and in the other Transaction Documents, are for convenience of reference only and shall not be deemed to alter or affect any provision of this Agreement, or the other Transaction Documents.

ARTICLE II

PURCHASE AND SALE OF ASSETS; THE NEGATIVE CONSENT PROCESS; THE

OFFSHORE REDEMPTION IN KIND PROCESS; THE REORGANIZATIONS

Subject to the other provisions of this Agreement:

2.1 Sale and Purchase of the Acquired Assets.

(a) At the First Closing, upon each Interim Transfer and at the Final Closing, if any, Alliance shall sell, transfer, convey, assign and deliver to Federated, and Federated shall purchase or acquire from Alliance all right, title and interest of Alliance in and to the Business, including: (i) all goodwill of Alliance, as well as workforce in place (as applicable), customer relationships and other customer-based intangibles, and other going concern value related exclusively to that portion of the Business being transferred to Federated at such Closing or upon such Interim Transfer (as applicable) and (ii) the other assets specified on Schedule 2.1 to this Agreement related to that portion of the Business being transferred to Federated at such Closing

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or upon such Interim Transfer (the assets described in the preceding clauses (i) and (ii) each being an “Acquired Asset” and collectively, the “Acquired Assets”). For the avoidance of doubt, the Acquired Assets being transferred to Federated at any Closing or upon any Interim Transfer shall not include any assets constituting property, plant or equipment, or trademarks, trade names, company names or web-site domain names (collectively, “Retained Assets”) or any Shared Use Asset, but shall otherwise include all assets used to operate the portion of the Business being transferred, except, until the Final Closing Date, as contemplated in the definition of Permitted Liens in Section 1.1 above.

(b) Each such sale, transfer, conveyance, assignment and delivery described in this Section 2.1 shall be made to Federated free and clear of any Liens (except for Permitted Liens).

2.2 Negative Consents, Offshore Redemptions in Kind and Interim Transfers.

Without limitation of the other covenants of Alliance or Federated herein:

(a) from the execution of this Agreement through the earlier of (i) the First Closing or (ii) any termination pursuant to Section 8.1 hereof, Alliance shall use commercially reasonable efforts to cause the Negative Consent Process to be undertaken with respect to the Sweep Accounts invested in the Alliance Funds as further described in Section 5.1.2; and

(b) from the execution of this Agreement through the earlier of (i) the First Closing or (ii) any termination pursuant to Section 8.1 hereof, Alliance shall use commercially reasonable efforts to cause the Offshore Redemption in Kind Process to be undertaken with respect to Alliance Fund Assets in the Offshore Alliance Funds as further described in Section 5.1.2; and

(c) from the First Closing through the earlier of (i) any termination pursuant to Section 8.1 or 8.2 hereof, or (ii) the Final Closing Date, Alliance shall use commercially reasonable efforts to effect Interim Transfers from time to time as soon as reasonably possible as contemplated in this Agreement; it being understood and agreed that unless either Party shall have given the other Party written notice of the failure of any condition precedent to its obligations to consummate an Interim Closing to have been satisfied, the consummation of an Interim Transfer shall be deemed to be a certification by Alliance of the satisfaction of the conditions precedent set forth in Section 6.3.1, 6.3.5 and 6.3.6 and by Federated of the conditions precedent set forth in Section 6.4.1 and 6.4.2. Without limiting the foregoing, the Parties acknowledge that such reasonable efforts may include, in the case of Offshore Alliance Funds, amending the Governing Documents of such Offshore Alliance Funds, obtaining the Consents required for and convening an extraordinary general meeting of the shareholders of the Offshore Alliance Funds and obtaining Offshore Alliance Fund approval.

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2.3 The Reorganizations. Without limitation of the other covenants of Alliance or Federated herein, and to the extent mutually deemed necessary by the Parties, from the execution of this Agreement through the earlier of (i) the Final Closing Date or (ii) any termination pursuant to Section 8.1 or 8.2 hereof, Alliance and Federated shall use commercially reasonable efforts to cause each Alliance Fund to be reorganized into the applicable Surviving Funds as contemplated on Exhibit A attached hereto pursuant to the Reorganization Agreements on such date or dates as mutually agreed to by Federated and Alliance.

2.4 Assignment of the Deutsche Bank Agreements. Without limitation of the other covenants of Alliance or Federated herein, from the execution of this Agreement through the earlier of (a) the Final Closing or (b) any termination pursuant to Sections 8.1 or 8.2 hereof, Alliance and Federated shall use commercially reasonable efforts to cause the Deutsche Bank Agreement to be assigned from Alliance to Federated.

2.5 Payments.

(a) As consideration for the Acquired Assets, Federated shall pay to Alliance, and Alliance shall receive, the Consideration Amount in such amounts and at such times as set forth below:

(i) On the First Closing Date, Federated shall pay the First Closing Payment to Alliance.

(ii) On each Interim Payment Date, Federated shall pay an Interim Payment to Alliance.

(iii) On the Final Closing Date, Federated shall pay the Final Closing Payment, and the Non-Tracked Client Payment to Alliance.

(iv) Within the thirty (30) day period following the First Anniversary Date, Federated shall pay the First Anniversary Payment to Alliance.

(v) Within the thirty (30) day period following the Second Anniversary Date, Federated shall pay the Second Anniversary Payment to Alliance.

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(vi) Within the thirty (30) day period following the Third Anniversary Date, Federated shall pay the Third Anniversary Payment to Alliance.

(vii) Within the thirty (30) day period following the Fourth Anniversary Date, Federated shall pay the Fourth Anniversary Payment to Alliance.

(viii) Within the thirty (30) day period following the Fifth Anniversary Date, Federated shall pay the Fifth Anniversary Payment to Alliance.

(ix) Within the thirty (30) day period following the Final Closing Anniversary Date, Federated shall pay the Payment Differential to Alliance.

(x) If Net Revenue attributable to Transferred Assets of the Tracked Clients for the Fiscal Year ending on the Fifth Anniversary Date is equal to or greater than the Run Rate Multiplier, then Federated shall pay Alliance the Contingent Payment within thirty (30) days of the Fifth Anniversary Date.

(b) All payments required to be made under this Section 2.5, Section 2.8 below, or the definition of Dispute Resolution Process in Section 1.1 above shall be payable in U.S. dollars, by wire transfer of immediately available funds to an account designated in writing by the Party that is to receive payment to the Party that is to make payment at least three (3) Business Days in advance of any payment date. If any payment required to be made under this Section 2.5 or Section 2.8 below is subject to a Calculation Dispute, the payment shall be made as contemplated in the definition of Dispute Resolution Process in Section 1.1 above. If any payment required to be made under this Section 2.5, Section 2.8 below or the definition of Dispute Resolution Process in Section 1.1 above is due to be paid on a payment date that is not a Business Day, the payment date for such payment shall be deemed to be the next Business Day.

2.6 Calculation of Assets for Payment Purposes.

(a) As soon as reasonably possible following the close of business on the day which is three (3) Business Days prior to a Closing, Alliance shall deliver to Federated a statement of the Alliance Fund Assets (as of the close of business on such Business Day) relating to specific clients that are to be transferred to a Surviving Fund (or, in the case of the Insured Accounts, as contemplated in this Agreement) on the applicable Closing Date (each, a “Closing Date Statement”). Such Closing Date Statements shall segregate assets attributable to Tracked Clients and Non-Tracked Clients.

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(b) Alliance shall deliver to Federated a statement of the Interim Period Transferred Assets that were transferred to a Surviving Fund (or, in the case of the Insured Accounts, as contemplated in this Agreement) during each calendar month between the First Closing Date and the Final Closing Date no later than three (3) Business Days following the last day of each such calendar month (or three (3) Business Days prior to the Final Closing Date in the case of the calendar month that includes the Final Closing Date) (each, an “Interim Period Statement”). Such Interim Period Statements shall segregate assets attributable to Tracked Clients and Non-Tracked Clients.

(c) Alliance shall make available to Federated and its representatives such books, records, work papers, schedules and other documents, and employees of Alliance, or any of its Affiliated Persons to the extent reasonably requested by Federated in connection with its review of a Closing Date Statement or Interim Period Statement. Federated, Alliance and their respective representatives shall work together in good faith to agree upon each Closing Date Statement and Interim Period Statement, and any changes thereto, on or before each relevant Closing Date or Interim Payment Date. To the extent Federated and Alliance are unable to agree upon any Closing Date Statement or Interim Period Statement, either Party may invoke the Dispute Resolution Process by providing notice to the other Party.

2.7 Calculation of Transferred Assets for Purposes of Calculating Deferred Payments.

It is the intention of the Parties to calculate Net Revenue and Transferred Assets on a per client basis in accordance with the provisions of this Section 2.7.

(a) Alliance has delivered to Federated a schedule listing Alliance’s client relationships and the anticipated Client Splits resulting from the application of the methodology described in this Section 2.7 (“Client Statement”), which Client Statement has been reviewed and accepted by the Parties. On the day that is two Business Days prior to the First Closing Date, Alliance shall update the Client Statement. Such updated Client Statement shall identify those clients that Alliance believes are Tracked Clients and Non-Tracked Clients.

(b) As soon as reasonably possible after receiving such updated Client Statement from Alliance, Federated shall identify, and provide reasonable supporting evidence establishing, each client on the Client Statement with whom Federated, any Surviving Fund or other investment company advised by Federated or any Affiliated Person of Federated also has a client

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relationship. Federated also shall notify Alliance of any disagreements that Federated has with respect to Alliance’s designation of a client as a Tracked Client or Non-Tracked Client, and of the proposed Client Split applicable to each Tracked Client that should be included in the Client Statement.

(c) Federated, Alliance and their respective representatives shall work together in good faith to agree upon the Client Statement, and any changes thereto, on or before the First Closing Date.

(d) Notwithstanding any other provision in this Agreement:

(i) assets that (A) are attributable to Non-Tracked Clients, or (B) are transferred to or exchanged for an investment vehicle other than a Cash Management Vehicle, or (B) any other Federated product identified on Schedule 2.7(d), shall no longer be included in calculating Transferred Assets and Net Revenue for purposes of determining the First Anniversary Payment, Second Anniversary Payment, Third Anniversary Payment, Fourth Anniversary Payment, Fifth Anniversary Payment and Payment Differential; and

(ii) subject to Section 2.7(d)(i) above, assets that are attributable to Tracked Clients or Non-Tracked Clients included in Transferred Accounts that transfer or exchange into an Other Federated Cash Management Vehicle shall continue to be deemed to be Transferred Assets for all purposes of this Agreement.

(e) For purposes of determining the appropriate Client Split to be included in the Client Statement, the following methodology shall be utilized by the Parties:

(i) If a Tracked Client is a client of Alliance on the Tracked Client Determination Date, but is not also a client of Federated on the Tracked Client Determination Date (or other appropriate date specified in Section 2.7(f) below), then (A) such Tracked Client will be assigned a unique dealer number(s) that will be used to calculate Transferred Assets, and (B) subject to Section 2.7(f) below, the Client Split for such Tracked Client shall be 100% for Alliance, meaning that Alliance shall get credit for all assets associated with that dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to such Tracked Client;

(ii) If a Tracked Client is a client of Alliance on the Tracked Client Determination Date, and a client of Federated on the Tracked Client Determination Date (or

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other appropriate date specified in Section 2.7(f) below), and Alliance’s relationship with such Tracked Client is distinct from, and mutually exclusive of, Federated’s relationship with such Tracked Client, then (A) Alliance’s business with such Tracked Client and Federated’s business with such Tracked Client shall each be assigned separate unique dealer number(s), (B) the dealer number(s) assigned to Alliance’s business with such Tracked Client shall be used to calculate Transferred Assets, and (C) subject to Section 2.7(f) below, the Client Split for such Tracked Client will be 100% with respect to Alliance’s business with such Tracked Client, meaning that Alliance shall get credit for all assets associated with Alliance’s dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to that Tracked Client.

(iii) If a Tracked Client is a client of Alliance and a client of Federated on the Tracked Client Determination Date, and Alliance’s relationship with such Tracked Client is not distinct from, and not mutually exclusive of, Federated’s relationship with such Tracked Client, then (A) such Tracked Client will be assigned a unique dealer number(s), and (B) subject to Section 2.7(f) below, the Client Split for such Tracked Client shall be allocated pro rata between Alliance and Federated based on the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client included in the First Closing Fund Assets and the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client already invested with Federated as of the Tracked Client Determination Date (or other appropriate date specified in Section 2.7(f) below), meaning that Alliance shall get credit for a percentage (equal to the portion of the Client Split allocated to Alliance) of the assets associated with the dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to that Tracked Client.

For purposes of Sections 2.7(e)(i), (ii) and (iii), as applicable, and determining the appropriate Client Split for a Tracked Client that is a Former Alliance Client, the assets of such Former Alliance Client that transferred to Federated between the date of this Agreement and the First Closing shall be considered Transferred Assets as of the Tracked Client Determination Date (such that Alliance gets credit for such assets).

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(f) The Client Splits for Tracked Clients determined in accordance with Section 2.7(e) above, shall be mutually redetermined by the Parties at the following times, and any changes in the Client Splits shall be effective only from and after the time as of when such redeterminations are made:

(i) With respect to any Client Split determined in accordance with Section 2.7(e)(iii), such Client Split shall be mutually redetermined by the Parties as of the close of business on the date that is three (3) Business Days prior to the Final Closing Date; in such case, the Client Split for such Tracked Client shall be reallocated pro rata between Alliance and Federated based on the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client included in the First Closing Fund Assets, Interim Period Transferred Assets and Final Closing Fund Assets (as applicable), on the one hand, and the mutually agreed upon annualized projected Net Revenue for such Tracked Client determined using the assets of such Tracked Client already invested with Federated as of the Tracked Client Determination Date, on the other hand, meaning that Alliance shall get credit going forward for a percentage (equal to the portion of the Client Split allocated to Alliance) of the assets associated with the dealer number(s) for such Tracked Client for purposes of determining Transferred Assets attributable to that Tracked Client;

(ii) With respect to any Client Split determined in accordance with Section 2.7(e), such Client Split shall be mutually redetermined by the Parties as of the close of business on any date on which Federated acquires (other than pursuant to the Transactions contemplated by this Agreement) assets attributable to a Tracked Client either (A) through a reorganization, negative consent process, asset purchase, or redemption and exchange transaction similar to the Offshore Redemption In Kind Process, or (B) through a transaction involving Federated making an up-front payment to acquire such assets; in such case, the Client Split for such Tracked Client shall be mutually redetermined by the Parties consistent with the applicable methodology outlined in Section 2.7(e)(ii) or (iii) above, as applicable (it being understood that the level of assets attributable to such Tracked Client shall be mutually determined by the Parties as of the date of any such acquisition consistent with the methodology demonstrated in the example for “Client K” on Schedule 2.7(i)); and

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(iii) With respect to any Client Split determined in accordance with Section 2.7(e), such Client Split shall be mutually redetermined by the Parties as of any date on which dealer number(s) for a Tracked Client are consolidated or changed due to operational needs of a Tracked Client or there is another change in a Tracked Client relationship as a result of merger, consolidation, reorganization, or other change in name or control of such Tracked Client; in such case, the Client Split for such Tracked Client shall be mutually redetermined by the Parties consistent with the applicable methodology outlined in this Section 2.7 (it being understood that the level of assets attributable to such Tracked Client shall be mutually determined by the Parties as of the date that any such consolidation of dealer number(s), or merger, consolidation, reorganization or other change in name or control of such Tracked Client is consummated).

(g) Federated shall provide a report to Alliance as soon as reasonably possible (but in no event later than the thirtieth (30) day after the end of each month) between the First Closing and the Fifth Anniversary Date identifying the amount of Transferred Assets attributable to Tracked Clients and calculating Net Revenue with respect to the Transferred Assets attributable to Tracked Clients for such month.

(h) Alliance and Federated shall make available to the other Party and its representatives such books, records, work papers, schedules and other documents, and employees of Alliance or Federated (as applicable), or any Affiliated Persons of Alliance of Federated (as applicable) to the extent reasonably requested by the other Party in connection with its review of the Client Statement or any of the determinations required to be made under this Section 2.7. Federated, Alliance and their respective representatives shall work together in good faith to agree upon the Client Statement, and any changes thereto, on or before the First Closing Date, and on any changes to any Client Split promptly after the times set forth in Section 2.7(f) above. To the extent Federated and Alliance are unable to agree upon all or a portion of the Client Statement or other determination required under this Section 2.7, such dispute shall be resolved pursuant to the Dispute Resolution Process.

(i) For illustration purposes only, Schedule 2.7(i)sets forth various examples of how this Section 2.7 is intended to operate. The Parties agree that any determinations pursuant to Section 2.7 shall be made consistent with the methodology outlined in this Section 2.7 and demonstrated on Schedule 2.7(i).

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(j) Alliance acknowledges and agrees that no guarantees can be made or given regarding the level of Net Revenues that Federated will earn and receive and nothing in this Section 2.7 is intended to give Alliance or the Alliance Funds, or any Affiliated Person of Alliance or the Alliance Funds, any responsibility for control or decision-making with respect to the post-Closing management and operation of the Business or the Surviving Funds. Subject to the foregoing, Federated agrees not to take any actions that are designed to negatively impact Net Revenues.

2.8 Clawback.

(a) If, for the Clawback Measurement Period, average daily Transferred Assets are:

(i) equal to or more than fifty percent (50%) of the aggregate amount of all Closing Fund Assets, but less than seventy-five percent (75%) of such aggregate Closing Fund Assets, Alliance shall pay Federated five million dollars ($5,000,000); or

(ii) less than fifty percent (50%) of the amount of either (i) Alliance Fund Assets as of August 31, 2004; or (ii) the aggregate amount of all Closing Fund Assets (as finally determined pursuant to Section 2.6 of this Agreement), Alliance shall pay Federated seven million five hundred thousand dollars ($7,500,000).

(b) Any such payment required pursuant to Sections 2.8(a)(i) or 2.8(a)(ii) (the “Clawback Payment”) shall be made within thirty (30) days after the delivery of the Clawback Measurement Period Statement.

(c) As promptly as practicable after the Clawback Measurement Period, but in no event later than thirty (30) days after the Clawback Measurement Period, Federated shall cause to be prepared and delivered to Alliance a statement (the “Clawback Measurement Period Statement”) setting forth the amount of the applicable Closing Fund Assets and the average daily Transferred Assets for the Clawback Measurement Period, and the amount of the Clawback Payment.

(d) Each Party shall make available to the other Party and its representatives such books, records, work papers, schedules and the other documents, and employees, of such Party, or any of its Affiliated Persons, and cooperate with the other Party in such other reasonable respects, as may be necessary for Federated’s preparation of the Clawback Measurement Period Statement. Alliance and its representatives shall have the right to review the work papers, schedules, memoranda and other documents and information prepared or reviewed by Federated

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and to communicate with the Persons who conducted the preparation and review of the Clawback Measurement Period Statement. Federated and Alliance and their respective representatives, shall work together in good faith to agree upon the Clawback Measurement Period Statement before the sixtieth (60^th) day following the end of the Clawback Measurement Period. To the extent Federated and Alliance are unable to agree upon the Clawback Measurement Period Statement by such sixtieth (60^th) day, either Party may invoke the Dispute Resolution Process by providing written notice to the other Party.

(e) In addition to any other remedy that Federated may have under this Agreement, any other Transaction Document, at law, in equity or otherwise, Alliance agrees that Federated shall have an express right (but not obligation), with notice to Alliance, to set-off against, and to appropriate and apply, any payment under Section 2.5 of this Agreement to satisfy (in whole or in part) any obligation or portion thereof of Alliance which has been finally determined under this Section 2.8.

2.9 Allocation Among Acquired Assets.

For financial reporting and income Tax purposes, Federated and Alliance hereby agree to allocate the Total Payment consistent with Exhibit C, which will be mutually agreed to by the Parties and attached to this Agreement prior to the Final Closing. Such allocation shall be made in accordance with Code Section 1060 and the regulations thereunder. The Parties shall report, act and file Tax Returns (including Internal Revenue Service Form 8594) in all respects and for all purposes consistent with such allocation. The Parties will not take any position (whether in audits, Tax Returns or otherwise) which is inconsistent with such allocation unless required to do so by Applicable Law.

2.10 Closing Dates.

(a) The First Closing. The consummation of the transfer of the Alliance Fund Assets pursuant to the transactions contemplated by Section 2.2 and Section 2.4 of this Agreement, and any related Acquired Assets pursuant to the transactions contemplated in Section 2.1 of this Agreement (the “First Closing”), shall take place at the offices of Ropes & Gray LLP, 45 Rockefeller Plaza, New York, New York 10111, on such date and at such time as the Parties may agree, promptly following the date contemplated in the applicable notices constituting part of the Negative Consent Process and the satisfaction or waiver of all conditions to the consummation of the transactions contemplated to be consummated on the First Closing Date pursuant to this Agreement and the other Transaction Documents (other than those

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conditions which are not intended to be fulfilled at the First Closing) (the “First Closing Date”). The Parties agree to exercise commercially reasonable efforts to cause the conditions to the other Party’s obligation to effect the First Closing to be satisfied as soon as reasonably practicable. Reference is made to Section 8.1 for the rights of the Parties under certain circumstances if the First Closing shall not have been consummated.

(b) The Final Closing. The consummation of the transfer of the Alliance Fund Assets pursuant to the transactions contemplated by Section 2.3 of this Agreement, and any related Acquired Assets pursuant to the transactions contemplated in Section 2.1 of this Agreement (the “Final Closing”), shall take place at the offices of Ropes & Gray LLP, 45 Rockefeller Plaza, New York, New York 10111, on such date and at such time as the Parties may agree promptly following the satisfaction or waiver of all conditions to the consummation of the transactions contemplated to be consummated on the Final Closing Date pursuant to this Agreement, the Reorganization Agreements, and the other Transaction Documents (the “Final Closing Date”). If the Final Closing does not occur before August 31, 2005, the Parties will no longer be obligated to affect the Final Closing or any additional Interim Transfers.

2.11 Retained Alliance Liabilities and Retained Alliance Fund Liabilities. Except, in the case of a Final Closing through a “F reorganization,” for any Assumed Alliance Fund Liabilities, nothing in this Agreement or any other Transaction Document shall be construed to transfer any Retained Alliance Fund Liability or Retained Alliance Liability to any Surviving Fund, Federated or any Affiliated Person, officer, director or trustee of any of them. If the Final Closing occurs with respect to any Alliance Fund through a reorganization, Alliance shall use commercially reasonable efforts to cause such Alliance Fund to discharge all of its known Liabilities as of the Final Closing Date. Neither Federated, the Surviving Funds nor any Affiliated Person, officer, director or trustee of any of them, shall assume, or otherwise become liable for, any Retained Alliance Liabilities or any Retained Alliance Fund Liabilities (except, in the case of a Final Closing through a “F reorganization,” for any Assumed Alliance Fund Liabilities).

2.12 Transfer of Transfer Agent Records. Alliance and Federated shall use commercially reasonable efforts to transfer or cause the transfer of, as necessary, on or before each Closing Date or Interim Transfer Date (as applicable), any shareholder records or similar information from the transfer agent for the Alliance Funds reasonably requested by Federated as being necessary to provide transfer agency services to that portion of the Business being transferred on such Closing Date or Interim Transfer Date (as applicable) to the transfer agent for the Surviving Funds. Contemporaneously with obtaining the Consents for the Transactions

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under this Agreement, subject to any fiduciary duties to which a Party may be subject, Alliance and Federated will use commercially reasonable efforts to submit, file, give or obtain the Consents required to consummate such transfers contemplated by this Section 2.12.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF ALLIANCE

3.1 Representations and Warranties Regarding Alliance. Alliance represents and warrants to Federated as follows:

3.1.1 Organization and Qualification.

(a) Alliance is a limited partnership duly organized and presently existing under the laws of the State of Delaware. Alliance has the requisite power and authority to conduct its business (including the Business) as currently conducted and to own, lease and operate the properties and assets (including the Acquired Assets) used in connection therewith. Alliance is duly qualified or licensed to do business and is in good standing in every jurisdiction where its business (including the Business) so requires, except for such failures to be so qualified, licensed or in good standing as would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the financial condition or operation of the Business, the Alliance Funds or the Insured Accounts.

(b) Except as set forth on Schedule 3.1.1(b), Alliance does not own or control, directly or indirectly, capital stock or other equity interests representing more than fifty percent (50%) of the outstanding voting stock or other equity interests of any entity, engaged in the business of providing investment advisory or investment management services to registered investment companies, off-shore mutual funds or accounts similar to the Insured Accounts.

3.1.2 Authority. Alliance has full power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder or thereunder, and to carry out the Transactions contemplated hereby or thereby. Alliance has taken all actions necessary to be taken by it to authorize the execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party, including approval of the Transactions by the Board of General Partner. This Agreement and the other Transaction Documents to which it is a party have been (or will be) duly executed and delivered by Alliance, and are (or will be) valid and legally binding agreements and obligations of Alliance, enforceable against it in accordance with their respective terms, except as may be limited by or subject to any bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the enforcement of creditors’ rights generally, and subject to general principles of equity.

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3.1.3 No Violations. The execution, delivery and performance of this Agreement and the other Transaction Documents to which Alliance is a party will not breach or violate any provision of any Governing Document of Alliance, nor the terms of any material Contract or Applicable Law to which Alliance or the Business is subject or by which any of them is obligated, other than breaches and violations that would not, individually or in the aggregate, (a) prevent or materially delay performance (or enforcement) of this Agreement or any other material Transaction Document by (or against) Alliance or (b) have a material adverse effect on the Business, the Alliance Funds or the Insured Accounts.

3.1.4 Governmental/Regulatory Authorities; Stockholder Approval. Except for Consents deemed to have been given through the Negative Consent Process or the Offshore Redemption in Kind Process and by the holders of a majority of the outstanding shares of the Alliance Funds, and the approval of this Agreement, the other Transaction Documents to which Alliance or any Investment Company is a party and the Transactions by the Board of Alliance or the Investment Companies, as applicable, and any Consents identified on Schedule 3.1.4 as are required for the transfer of the Insured Accounts, Acquired Assets, any Interim Period Transferred Assets or Final Closing Fund Assets (the “Alliance Consents”), none of Alliance, the Investment Companies, the Alliance Funds, or the Insured Accounts or any Affiliated Person of any of them, are required to submit, file, give or obtain any Consent to or from any Governmental Authority or the shareholders or Board of the Alliance Funds or holders of the Insured Accounts or other Person in connection with the execution, delivery and performance by it of this Agreement, or the other Transaction Documents to which Alliance, any Investment Company, any Alliance Fund, or any Insured Account, as applicable, is a party, or the consummation of the Transactions.

3.1.5 Litigation or Proceedings. Except as set forth on Schedule 3.1.5, no Litigation is pending or, to Alliance’s Knowledge, threatened against Alliance in connection with the Business, or relating to this Agreement, the Transaction Documents or the Transactions, or that seeks to delay, hinder, or prohibit the execution, delivery, or performance of this Agreement or the other Transaction Documents or the consummation of the Transactions.

3.1.6 Regulatory Compliance. Except as set forth in the Alliance SEC Documents, Alliance has complied, and is in compliance, in all material respects with all Applicable Law relating to the Business, and with the provisions of all applicable Contracts,

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Governing Documents, investment policies and restrictions of or relating to Alliance or the Business or to which Alliance, any Alliance Fund, any Insured Account or any Investment Company is a designated party; and Alliance possesses all requisite business Consents required under any Applicable Law to conduct the Business and manage and service the Alliance Funds and Insured Accounts as currently conducted and to transact business with the Alliance Funds and Insured Accounts, and is in material compliance with all such Consents and Applicable Law. Alliance does not have Knowledge of any information that is reasonably likely to result in any material non-compliance with Applicable Law not already described in the Alliance SEC Documents.

3.1.7 No Undisclosed Liabilities. Except as disclosed in the Alliance SEC Documents, to Alliance’s Knowledge, neither Alliance nor any Alliance Fund has any Liabilities arising out of or relating to the Business or the Alliance Funds or Insured Accounts, or the Alliance Funds or Insured Accounts, other than Liabilities that (i) were incurred, after the date of the last audited financial statements of Alliance or the Alliance Funds (as applicable) available prior to the date of this Agreement, in the ordinary course of business consistent with past practice, (ii) individually and in the aggregate are not material to the Business, and have not had or resulted in, and will not have or result in, a material adverse effect on the Business, or (iii) do not and will not materially impair the ability of Alliance, the Investment Companies or the Alliance Funds to perform their respective obligations hereunder or under the Reorganization Agreements or any other Transaction Document.

3.1.8 Title and Sufficiency of Assets.

(a) Except as set forth on Schedule 3.1.8, Alliance has, and will transfer to Federated, good and valid title to all of the Acquired Assets, free and clear of all Liens, other than Permitted Liens. The Acquired Assets constitute all of the assets, tangible and intangible, of any nature whatsoever used by Alliance to conduct the Business as currently conducted (except for the Retained Assets and Shared Use Assets); and

(b) At each Closing and in connection with the transfer of Interim Period Transferred Assets (as applicable), upon the terms and subject to the conditions set forth in this Agreement, Alliance will sell, transfer, convey, assign and deliver to Federated all right, title and interest in and to each of the Acquired Assets transferred free and clear of all Liens, other than Permitted Liens.

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3.1.9 Intellectual Property. To Alliance’s Knowledge, Alliance or an Alliance Fund (or an Affiliated Person of Alliance) owns, licenses or otherwise has a right to use all Alliance Intellectual Property. To Alliance’s Knowledge, neither the Alliance Intellectual Property nor Alliance’s operation and management of the Business, infringe or otherwise conflict with any rights of any Person in respect of any Intellectual Property. None of the Alliance Intellectual Property is subject to any outstanding injunction, judgment, order, decree, ruling, charge or other Lien (except Permitted Liens). No Litigation is pending or, to Alliance’s Knowledge, threatened, which challenges the legality, validity, enforceability, use, license or ownership (as applicable) of the Alliance Intellectual Property.

3.1.10 Brokers and Finders. Alliance will pay any financial advisory fees, brokerage fees, commission or finder’s fees incurred with respect to the use of any broker or finder which has acted, directly or indirectly, for Alliance (or any of Alliance’s officers, directors or employees), in connection with this Agreement or the Transactions. Except for such fees and commissions paid by Alliance, no amount is required to be paid by Alliance, the Investment Companies, the Alliance Funds or the Insured Accounts to any such financial adviser, broker or finder.

3.2 Representations and Warranties Regarding the Domestic Alliance Funds. Alliance represents and warrants to Federated as follows:

3.2.1 Regulation of Each Domestic Alliance Fund. To Alliance’s Knowledge, each Domestic Alliance Fund has been, and is, in compliance in all material respects with all Applicable Laws and has been, and is, duly registered or licensed and in good standing under the laws of each jurisdiction in which qualification is necessary, except where the failure to be in compliance, or so registered, licensed or in good standing, would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the financial condition of such Domestic Alliance Fund.

3.2.2 No Convictions, Sanctions or Other Violations. Except as disclosed in Alliance’s current Form ADV or otherwise in writing by Alliance to Federated prior to the date of this Agreement, to Alliance’s Knowledge, no Person “associated” (as defined under the Advisers Act) with Alliance has for a period of five (5) years prior to the date hereof (and each Closing Date) been convicted of any crime or is or has been subject to any disqualification that would be a basis for denial, suspension or revocation of registration of an investment adviser under Section 203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the 1934 Act, and no Affiliated Person of Alliance has during a period of

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five (5) years prior to the date hereof been convicted of any crime or is or has been subject to any disqualification that would be a basis for disqualification as an investment adviser for any investment company pursuant to Section 9(a) of the 1940 Act; and, to Alliance’s Knowledge, there is no basis for, or Litigation that is reasonably likely to become the basis for, any such disqualification, denial, suspension or revocation.

3.2.3 Regulatory Compliance. To Alliance’s Knowledge, each Domestic Alliance Fund has complied, and is in compliance, in all material respects with the terms and conditions of its Governing Documents and the investment policies and restrictions set forth in its registration statement currently in effect for the past three (3) fiscal years. The value of the net assets of each Domestic Alliance Fund has been determined and is being determined using portfolio valuation methods that comply in all material respects with the requirements of the 1940 Act. There is no Litigation pending or, to Alliance’s Knowledge, threatened against any Domestic Alliance Fund that would question the right, power, or capacity of (i) the Domestic Investment Companies or the Domestic Alliance Funds to conduct their businesses as now conducted, or (ii) the Domestic Investment Companies or the Domestic Alliance Funds to enter into any Transaction Document to which any of them is party or to consummate the Transactions. Alliance does not have Knowledge of any information that is reasonably likely to result in any material non-compliance with Applicable Law by a Domestic Alliance Fund.

3.2.4 Tax Qualification. To Alliance’s Knowledge, each Domestic Alliance Fund is qualified, and has been qualified for all taxable years during which it has conducted business, as a Regulated Investment Company.

3.2.5 Taxes. To Alliance’s Knowledge, all returns, reports or statements required to be filed with any Governmental Authority with respect to Taxes (as defined herein) (“Tax Returns”) of each Domestic Alliance Fund that are or have been required to be filed have been duly and timely filed. To Alliance’s Knowledge, all taxes of any kind, including those on or measured by or referred to as income, gross receipts, sales, use, ad valorem, franchise, profits, license, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any Governmental Authority, domestic or foreign (“Taxes”), for all periods covered by such Tax Returns or portions thereof ending through the date hereof (or any Closing Date or Interim Transfer Date, as applicable) have been duly and timely paid in full (or adequate provision for such has been made in its financial statements in accordance with GAAP).

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3.2.6 Changes. To Alliance’s Knowledge, since the dates of the most recent audited financial statements of each Domestic Alliance Fund, each Domestic Alliance Fund has not, except for such actions expressly required under this Agreement or any other Transaction Document to be taken in connection with the Transactions contemplated hereby or thereby:

(a) declared, set aside, made or paid any dividend or other distribution in respect of its equity interests or otherwise purchased or redeemed, directly or indirectly, any of its equity interests, except in the ordinary course of its business;

(b) to the extent applicable, adopted, or amended in any material respect, any deferred compensation or other plan, agreement, trust, fund or arrangement for the benefit of any trustees/directors;

(c) amended its Governing Documents;

(d) changed in any significant respect its accounting practices, policies or principles, except as may be required under Applicable Law or GAAP; or

(e) operated its business in any manner other than in the ordinary course.

3.2.7 Affiliate Contracts. Except for the Contracts identified on Schedule 3.2.7, neither the Domestic Investment Companies nor the Domestic Alliance Funds are party to or subject to any Contract with Alliance or any Affiliated Person thereof. To Alliance’s Knowledge, there does not exist under such Contracts any violation, breach or event of default, or event or condition that would constitute a violation, breach or event of default thereunder, on the part of a Domestic Investment Company, a Domestic Alliance Fund or any other Person. All investment advisory, administrative and related services have been rendered by Alliance or its Affiliated Persons to the Domestic Investment Companies and the Domestic Alliance Funds pursuant to Contracts that were approved by the Board of each Domestic Alliance Fund and, to the extent required by Applicable Law, the holders of shares of beneficial interest in each Domestic Alliance Fund in accordance with all Applicable Law.

3.2.8 Third Party Contracts. Schedule 3.2.8 sets forth a list of all material Contracts to which any Domestic Investment Company or Domestic Alliance Fund is a party (except for any Contracts with Alliance or any Affiliated Person thereof identified on Schedule 3.2.7). Except as set forth on Schedule 3.2.8, to Alliance’s Knowledge, neither any Domestic Investment Company nor any Domestic Alliance Fund is a party to or subject to any material Contract with a third party which is in violation, breach or event of default, or event or condition

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that, after notice or lapse of time or both, would constitute a violation, breach or event of default thereunder, on the part of a Domestic Investment Company, a Domestic Alliance Fund or any other Person.

3.2.9 Litigation. No Litigation is pending or, to Alliance’s Knowledge, threatened against any Domestic Investment Company or any Domestic Alliance Fund, or the properties, assets or business of any Domestic Investment Company or any Domestic Alliance Fund (including the Alliance Fund Assets) before any Governmental Authority.

3.3 Representations and Warranties Regarding Each Offshore Alliance Fund. Alliance represents and warrants to Federated as follows:

3.3.1 Regulation of Each Offshore Alliance Fund. To Alliance’s Knowledge, each Offshore Alliance Fund has been, and is, in compliance in all material respects with all Applicable Laws and has been, and is, duly authorized under the laws of each jurisdiction in which qualification is necessary, except where failure to be in compliance, or so registered, licensed or in good standing, would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the financial condition of an Offshore Alliance Fund or the Business.

3.3.2 Regulatory Compliance. To Alliance’s Knowledge, each Offshore Alliance Fund has complied, and is in compliance, in all material respects with the terms and conditions of its Governing Documents and the investment policies and restrictions set forth in its prospectus currently in effect for the past three (3) fiscal years. The value of the net assets of each Offshore Alliance Fund has been determined and is being determined using portfolio valuation methods that comply in all material respects with the requirements of Applicable Law. There is no Litigation pending or, to Alliance’s Knowledge, threatened against any Offshore Alliance Fund that would question the right, power, or capacity of (i) the Offshore Alliance Funds to conduct their businesses as now conducted, or (ii) the Offshore Alliance Funds to enter into any Transaction Document to which any of them is party or to consummate the Transactions. Alliance does not have Knowledge of any information that is reasonably likely to result in any material non-compliance with Applicable Law by an Offshore Alliance Fund.

3.3.3 Tax Qualifications. To Alliance’s Knowledge, ACM International Reserves is registered as an exempted company under Cayman Islands law and has obtained an undertaking from the Cayman Islands authorities that, for a period of twenty years from 2 June 1998 (being the date of issue of such undertaking), no law which is enacted in the Cayman

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Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the company or its operations; and in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable on or in respect of the shares, debentures or other obligations of the company or by way of withholding in whole or in part of any payment of dividend or other distribution of income or of capital by the company to its shareholders or any payment of principal or interest or other sums due under a debenture or other obligation of the company. To Alliance’s Knowledge, ACM International Reserves II is exempt from Irish tax on its income and gains as an investment company within the meaning of 739B(1) of the Taxes Consolidation Act, 1997.

3.3.4 Taxes. To Alliance’s Knowledge, all Tax Returns of each Offshore Alliance Fund that are or have been required to be filed have been duly and timely filed. To Alliance’s Knowledge, all Taxes for all periods covered by such Tax Returns or portions thereof ending through the date hereof (or any Closing Date or Interim Transfer Date, as applicable) have been duly and timely paid in full (or adequate provision for such has been made in its financial statements in accordance with applicable generally accepted accounting standards).

3.3.5 Changes. To Alliance’s Knowledge, since the dates of the most recent audited financial statements of each Offshore Alliance Fund, each Offshore Alliance Fund has not, except for such actions expressly required under (or otherwise contemplated by) this Agreement or any other Transaction Document to be taken in connection with the Transactions contemplated hereby or thereby:

(i) declared, set aside, made or paid any dividend or other distribution in respect of its equity interests or otherwise purchased or redeemed, directly or indirectly, any of its equity interests, except in the ordinary course of its business;

(ii) to the extent applicable, adopted, or amended in any material respect, any deferred compensation or other plan, agreement, trust, fund or arrangement for the benefit of any trustees/directors;

(iii) amended its Governing Documents;

(iv) changed in any significant respect its accounting practices, policies or principles, except as may be required under Applicable Law; or

(v) operated its business in any manner other than in the ordinary course.

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3.3.6 Affiliate Contracts. Except for the Contracts identified on Schedule 3.3.6, no Offshore Alliance Fund is a party to or subject to any Contract with Alliance or any Affiliated Person thereof. To Alliance’s Knowledge, there does not exist under such Contracts any violation, breach or event of default, or event or condition that would constitute a violation, breach or event of default thereunder, on the part of an Offshore Alliance Fund or any other Person. All investment advisory, administrative and related services have been rendered by Alliance or its Affiliated Persons to the Offshore Alliance Funds pursuant to Contracts that were approved by each Offshore Alliance Fund and, to the extent required by Applicable Law, the holders of shares of beneficial interest in each Offshore Alliance Fund in accordance with all Applicable Law.

3.3.7 Third Party Contracts. Schedule 3.3.7 sets forth a list of all material Contracts to which any Offshore Alliance Fund is a party (except for any Contracts with Alliance or any Affiliated Person thereof identified on Schedule 3.3.6). Except as set forth on Schedule 3.3.7, to Alliance’s Knowledge, no Offshore Alliance Fund is a party to or subject to any Contract with a third party which is in violation, breach or event of default, or event or condition that, after notice or lapse of time or both, would constitute a violation, breach or event of default thereunder, on the part of an Offshore Alliance Fund or any other Person.

3.3.8 Litigation. No Litigation is pending or, to Alliance’s Knowledge, threatened against any Offshore Alliance Fund, or the properties, assets or business of any Offshore Alliance Fund (including the Alliance Fund Assets) before any Governmental Authority.

3.3.9 Non-U.S. Employees. Neither Alliance, any Offshore Alliance Fund nor any Affiliated Person of any of them have employees located in the Republic of Ireland or the Cayman Islands.

3.4 Representations and Warranties Regarding Insured Accounts. Alliance represents and warrants to Federated as follows:

3.4.1 Regulation of the Insured Accounts. To Alliance’s Knowledge (without regard to any duty of inquiry), the Insured Accounts have been, and are, in compliance in all material respects with all Applicable Laws and, if applicable, have been, and are, duly authorized under the laws of each jurisdiction where necessary, except where failure to be in compliance, or so authorized, would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the financial condition of the Insured Accounts or the Business.

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3.4.2 Regulatory Compliance. To Alliance’s Knowledge (with regard to any duty of inquiry), each Insured Account has complied, and is in compliance, in all material respects with the terms and conditions of its Governing Documents. To Alliance’s Knowledge (with regard to any duty of inquiry), the value of the Insured Accounts has been determined and is being determined using methods that comply in all material respects with Applicable Law. There is no Litigation pending, or to Alliance’s Knowledge (with regard to any duty of inquiry), threatened against Alliance or any of its Affiliated Persons before any Governmental Authority relating to or involving the Insured Accounts (including the assets therein). To Alliance’s Knowledge (with regard to any duty of inquiry), there is no Litigation pending or threatened against any other Person before any Governmental Authority that otherwise relates to or involves the Insured Accounts (including the assets therein). Alliance does not have Knowledge (with regard to any duty of inquiry) of any information that is reasonably likely to result in any material non-compliance with Applicable Law by an Insured Account.

3.4.3 Effectiveness; No Default. Schedule 3.4.3 sets forth a list of all of the Deutsche Bank Agreements. Alliance has provided a copy to Federated of the Deutsche Bank Agreements as in effect on the date hereof. Neither Alliance nor, to Alliance’s Knowledge, any other party to the Deutsche Bank Agreements is in default under, or in breach or violation of, any Deutsche Bank Agreement, other than such defaults, breaches and violations as would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the financial condition or operation of the Insured Accounts, the Alliance Funds or the Business.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF FEDERATED

4.1 Representations and Warranties of Federated. Federated represents and warrants to Alliance as follows:

4.1.1 Incorporation and Qualification. Federated is a corporation duly incorporated and presently subsisting under the laws of the Commonwealth of Pennsylvania. Federated has the requisite corporate power and authority to conduct its business as currently conducted and to own, lease, and operate the properties and assets used in connection therewith. Federated is duly qualified or licensed to do business and is in good standing in every jurisdiction where its respective business so requires, except for such failures to be so qualified,

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licensed or in good standing as would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the financial condition or business operations of Federated.

4.1.2 Authority. Federated has full corporate power and authority to enter into this Agreement and the other Transaction Documents to which it is a party, to perform its obligations hereunder or thereunder, and to carry out the Transactions contemplated hereby or thereby. Federated has taken all corporate or other actions necessary to be taken by it to authorize the execution, delivery, and performance of this Agreement and the other Transaction Documents to which it is a party, including approval of the Transactions by Federated’s Board. This Agreement and the other Transaction Documents to which it is a party have been (or will be) duly executed and delivered by Federated, and are (or will be) the valid and binding agreements and obligations of Federated enforceable against it in accordance with their respective terms, except as may be limited by or subject to any bankruptcy, insolvency, reorganization, moratorium, or other similar laws affecting the enforcement of creditors’ rights generally, and subject to general principles of equity.

4.1.3 No Violations. The execution, delivery and performance of this Agreement and the other Transaction Documents to which Federated is a party will not breach or violate any provision of any Governing Document of Federated, nor the terms of any material Contract or Applicable Law to which Federated is subject or by which it is obligated, other than breaches and violations that would not, individually or in the aggregate, prevent or materially delay performance (or enforcement) of this Agreement or any other material Transaction Documents by (or against) Federated.

4.1.4 Governmental/Regulatory Authorities. Federated is not required to submit, file, give or obtain any Consent to or from any Governmental Authority or the shareholders or trustees of the Surviving Funds in connection with the execution, delivery, and performance of this Agreement (other than as contemplated by Section 5.1.4(b) of this Agreement) or the consummation of the Transactions, other than Consents of the Board of Federated, of the Boards of the Surviving Funds and under the HSR Act.

4.1.5 Litigation or Proceedings. Except as set forth on Schedule 4.1.5, no Litigation is pending or, to Federated’s Knowledge, threatened against Federated in connection with the management of the Surviving Funds or relating to this Agreement, the Transaction Documents or the Transactions, or that seeks to delay, hinder, or prohibit the execution, delivery or performance of this Agreement or the other Transaction Documents or the consummation of the Transactions.

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4.1.6 Regulatory Compliance. Except as set forth in the Federated SEC Documents, Federated has complied, and is in compliance, in all material respects with all Applicable Law relating to the management of the Surviving Funds, and with the material provisions of applicable Contracts, Governing Documents, investment policies, and restrictions of or relating to Federated or the Surviving Funds or to which Federated or any Surviving Fund is a designated party; and Federated possesses all requisite business Consents required under any Applicable Law to manage the Surviving Funds as currently conducted and to transact business with the Surviving Funds, and is in material compliance with all such Consents and Applicable Law. Federated does not have Knowledge of any information that is reasonably likely to result in any material non-compliance with Applicable Law not already described in the Federated SEC Documents.

4.1.7 Financial Ability. Federated has the financial resources to enable it to perform its obligations under this Agreement and the other Transaction Documents.

4.1.8 Brokers and Finders. Federated will pay any financial advisory fees, brokerage fees, commission or finder’s fees incurred with respect to the use of any broker or finder which has acted, directly or indirectly, for Federated (or any of Federated’s officers, directors or employees), in connection with this Agreement or the Transactions. Except for such fees and commissions paid by Federated, no amount is required to be paid by Federated or the Surviving Funds to any such financial adviser, broker or finder.

4.2 Representations and Warranties Regarding Each Surviving Fund. For avoidance of doubt, the Parties understand and agree that, if a Surviving Fund is a shell fund that became effective prior to the execution of this Agreement, the representations and warranties in this Section 4.2 will be deemed to have been made, as to such shell fund, as of the date of this Agreement, each Closing Date and each Interim Transfer Date (as applicable), and that, if a Surviving Fund is a shell fund that becomes effective after the execution of this Agreement and prior to the First Closing, the representations and warranties in this Section 4.2 will be deemed to have been made, as to such shell fund, as of the effective date of its registration statement, each Closing Date and each Interim Transfer Date (as applicable).

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Subject to the foregoing, Federated represents and warrants to Alliance as of the date of this Agreement, each Closing Date and each Interim Transfer Date as follows:

4.2.1 Regulation of Each Surviving Fund. To Federated’s Knowledge, each Surviving Fund has been, and is, in compliance in all material respects with all Applicable Laws and has been, and is, duly registered or licensed and in good standing under the laws of each jurisdiction in which qualification is necessary, except where the failure to be in compliance, or so registered, licensed or in good standing, would not, individually or in the aggregate, be reasonably expected to have a material adverse effect on the financial condition of a Surviving Fund.

4.2.2 No Convictions, Sanctions or Other Violations. Except as otherwise disclosed in writing by Federated to Alliance prior to the date of this Agreement, to Federated’s Knowledge, no Person “associated” (as defined under the Advisers Act) with Federated has for a period of five (5) years prior to the date hereof (and each Closing Date) been convicted of any crime or is or has been subject to any disqualification that would be a basis for denial, suspension or revocation of registration of an investment adviser under Section 203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the 1934 Act, and no Affiliated Person of Federated has during a period of five (5) years prior to the date hereof been convicted of any crime or is or has been subject to any disqualification that would be a basis for disqualification as an investment adviser for any investment company pursuant to Section 9(a) of the 1940 Act; and, to Federated’s Knowledge, there is no basis for, or Litigation that is reasonably likely to become the basis for, any such disqualification, denial, suspension or revocation.

4.2.3 Regulatory Compliance. To Federated’s Knowledge, each Surviving Fund has complied, and is in compliance, in all material respects with the terms and conditions of its Governing Documents and the investment policies and restrictions set forth in its registration statement currently in effect for the past three (3) fiscal years. The value of the net assets of each Surviving Fund has been determined and is being determined using portfolio valuation methods that comply in all material respects with the requirements of the 1940 Act. There is no Litigation pending or, to Federated’s Knowledge, threatened against any Surviving Fund that would question the right, power, or capacity of the Surviving Funds (i) to conduct their businesses as conducted now or at any time in the past, or (ii) to enter into any Transaction Document to which any of them are parties or to consummate the Transactions. Federated does not have Knowledge of any information that is reasonably likely to result in any material non-compliance with Applicable Law by a Surviving Fund.

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4.2.4 Tax Qualification. To the Knowledge of Federated, each Surviving Fund is qualified, and has been qualified for all taxable years during which it has conducted business, as a Regulated Investment Company.

4.2.5 Taxes. To the Knowledge of Federated, all Tax Returns of each Surviving Fund that are or have been required to be filed have been duly and timely filed. To the Knowledge of Federated, all Taxes for all periods covered by such Tax Returns or portions thereof ending through the date hereof (or any Closing Date or Interim Transfer Date, as applicable) have been duly and timely paid in full (or adequate provision for such has been made in its financial statements in accordance with GAAP).

4.2.6 Changes. To the Knowledge of Federated, since the dates of the most recent audited financial statements of each Surviving Fund, each Surviving Fund has not, except for such actions expressly required under this Agreement or any other Transaction Document to be taken in connection with the Transactions contemplated hereby or thereby:

(a) declared, set aside, made or paid any dividend or other distribution in respect of its equity interests or otherwise purchased or redeemed, directly or indirectly, any of its equity interests, except in the ordinary course of its business;

(b) to the extent applicable, adopted, or amended in any material respect, any deferred compensation or other plan, agreement, trust, fund or arrangement for the benefit of any trustees/directors;

(c) amended its Governing Documents;

(d) changed in any significant respect its accounting practices, policies or principles, except as may be required under Applicable Law or GAAP; or

(e) operated its business in any manner other than in the ordinary course.

4.2.7 Litigation. No Litigation is pending or, to Federated’s Knowledge, threatened against any Surviving Fund, or the properties, assets or business of any Surviving Fund, before any Governmental Authority, that, if adversely decided, would, individually or in the aggregate, be reasonably expected to have a material adverse effect on the ability of a Surviving Fund to consummate the Transactions contemplated by any Transaction Document to which it is a party.

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ARTICLE V

COVENANTS AND AGREEMENTS

5.1 Covenants With Respect to the Alliance Funds and Insured Accounts.

5.1.1 Conduct of Business. From the date of this Agreement through the earlier of the Final Closing Date or termination of this Agreement, Alliance shall, to the extent consistent with its fiduciary duties: (a) conduct the Business only in the ordinary course and in a manner consistent with its past practices, except to the extent otherwise specifically provided in this Agreement or any other Transaction Document or after agreement in writing by Federated (such agreement not to be unreasonably withheld or delayed by Federated); (b) use commercially reasonable efforts to cause each Alliance Fund not to implement any changes in its respective investment policies and practices set forth in its registration statement or other Governing Documents without prior consultation with Federated; (c) promptly notify Federated of any changes in the policies and practices of each Alliance Funds’ investment adviser or Insured Accounts, including any changes in the personnel responsible for the day-to-day management or servicing of such Alliance Funds’ portfolios or the Insured Accounts, as applicable, (d) not sell, transfer, lease, pledge, or otherwise dispose of any Acquired Assets, (e) not allow any of the Acquired Assets or the Alliance Fund Assets to become subject to any Lien of any nature that will not be discharged in full prior to the transfer thereof under this Agreement (other than Permitted Liens); and (f) not change any fee waiver or expense reimbursement practice or policy with respect to the Alliance Funds without providing prior notice to Federated.

5.1.2 Negative Consent Process; Offshore Redemption in Kind Process. Without limiting the generality of Section 2.2, Alliance and Federated shall cooperate with each other in preparing required notices and other shareholder communications, setting relevant dates and deadlines and resolving objections received in connection with the Negative Consent Process or Offshore Redemption in Kind Process. Each Party shall keep the other Party informed as to the status of the Negative Consent Process and the Offshore Redemption in Kind Process, and shall consult with the other Party regarding such matters.

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5.1.3 Board Approvals; Shareholder Approvals; Prospectus and Statement of Additional Information Supplements; Information in Registration Statement on Form N-14; Other Consents. To the extent that the Transactions contemplated by Section 2.3 of this Agreement are mutually deemed necessary by the Parties:

(a) Alliance shall take all commercially reasonable actions necessary to submit, file, give and obtain all Consents necessary for the Alliance Funds to implement the Reorganization Agreements and the Transactions contemplated thereby and by the other Transaction Documents.

(b) Federated shall, in cooperation with Alliance, with regard to each Domestic Alliance Fund and Surviving Fund, prepare and file with the Commission a proxy statement and registration statement on Form N-14 in order to (i) solicit shareholders of the Domestic Alliance Funds to approve the Reorganization Agreements and the Transactions contemplated thereby and by the other Transaction Documents, all as consistent with all requirements of the 1940 Act and the 1934 Act applicable to such proxy materials, and (ii) to register on behalf of each Surviving Fund the shares of such Surviving Fund to be issued pursuant to the Reorganization Agreements. Regarding Commission comments in response to such filings on Form N-14, (A) Federated shall provide to Alliance copies of any written comments received by Federated from the Commission, and (B) if the Commission provides comments orally to Federated, Federated will record the oral comments and provide Alliance with a summary of such oral comments, and (C) in any event, Federated shall provide Alliance with the opportunity to participate in any subsequent session to clarify or respond to, or written response to, any written or oral Commission comments.

(c) The Parties shall agree on a mutually acceptable timetable for taking the actions contemplated in Sections 5.1.3(a) and (b) above. Each Party shall keep the other Party informed as to the status of, and any matters relating to or affecting, the Consents and Form N-14 matters addressed in Sections 5.1.3(a) and (b) above of which such Party becomes aware, and shall consult with the other Party regarding such matters.

(d) Alliance covenants that any information or data provided by Alliance that describes Alliance or the Domestic Alliance Funds or their Affiliated Persons or any of their business operations or plans in any prospectus or SAI supplements or in the registration statement on Form N-14 or any post-effective amendment thereto filed with the Commission after the date of this Agreement, and required for the Domestic Alliance Funds’ shareholders meeting called for the purpose of obtaining shareholder approval of the Reorganization

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Agreements and the Transactions contemplated thereby and by the other Transaction Documents, and in any other document filed with the Commission or the NASD or any other regulatory body, shall not contain, at the time any such supplements or registration statement on Form N-14 or post-effective amendments thereto become effective, or at the time of such meeting, or at the time such document is furnished to the Commission or the NASD or any other regulatory body, any untrue statement of material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading.

(e) Federated covenants that any information or data that describes Federated or any Surviving Fund or their Affiliated Persons or any of their business operations or plans which is included in any prospectus or SAI supplements or in any Surviving Fund’s registration statement on Form N-14 or a post-effective amendment thereto filed with the Commission after the date of this Agreement and required for the Domestic Alliance Fund’s shareholders meeting called for the purpose of obtaining shareholder approval of the Reorganization Agreements and the Transactions contemplated thereby and by the other Transaction Documents, and in any other document filed with the Commission or the NASD or any other regulatory body, shall not contain, at the time any such supplements or registration statement on Form N-14 or post-effective amendments thereto become effective, or at the time of such meeting, or at the time such document is furnished to the Commission or the NASD or any other regulatory body, any untrue statement of material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading.

(f) Federated acknowledges that Alliance intends that the Transactions shall satisfy the applicable requirements of Section 15(f) of the 1940 Act. Federated agrees that, with respect to each domestic Surviving Fund (including, for avoidance of doubt, each registered investment company for which Federated or an Affiliated Person thereof serves as investment adviser and/or principal underwriter and into which Alliance Fund Assets are invested pursuant to the Transactions contemplated by this Agreement), it shall (subject to its fiduciary duties) use commercially reasonable efforts to, and to cause the Board of each such domestic Surviving Fund to, meet the conditions for the safe harbor set forth in Section 15(f) of the 1940 Act from the First Closing Date through and including the time periods set forth in such Section 15(f), such time periods to be measured by reference to the Final Closing Date. The Parties agree that, if Federated is required under this Section 5.1.3(f) to use commercially reasonable efforts to meet the conditions for the safe harbor set forth in Section 15(f) of the 1940 Act, then, without

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limiting the actions Federated may take, such commercially reasonable efforts can include (and Federated will consider taking the following actions or other appropriate actions under the circumstances): (i) requesting a resignation from the Board of any domestic Surviving Fund from any Person that is an Affiliated Person of Federated or any Affiliated Person thereof; (ii) seeking to add additional members to the Board of any domestic Surviving Fund to the extent that an additional member or members would cause the conditions to the safeharbor in Section 15(f) of the 1940 Act to be satisfied; (iii) seeking an exemptive order which, if obtained, would result in the conditions to the safeharbor set forth in Section 15(f) of the 1940 Act being satisfied; or (iv) ceasing the use of any broker or dealer that would cause a member of the Board of any domestic Surviving Fund to be an “interested person” of Federated or an Affiliated Person of Federated to the extent that such Board member being such an “interested person” causes the conditions for the safeharbor set forth in Section 15(f) of the 1940 Act not to be satisfied.

5.1.4 Alliance Fund Taxes. Alliance shall file, or cause to be filed, any and all Tax Returns (including Internal Revenue Service Forms 1120-RIC and 1099 and comparable returns and reports required by any jurisdiction) which, to Alliance’s Knowledge, are required to be filed by each Alliance Fund with respect to any period ending on or prior to the applicable Closing Date, as well as any final Tax Returns required to be filed prior to, upon or after any liquidation of the Alliance Funds, and shall ensure, to the best of Alliance’s Knowledge, that all Taxes shall have been paid so far as due or provision has been made for the payment thereof. To the best of Alliance’s Knowledge, no such Tax Return is currently under audit and no assessment has been proposed or asserted with respect to such Tax Returns. Federated agrees that it shall file, or cause to be filed, any and all Tax Returns (also including Internal Revenue Service Forms 1120-RIC and 1099 and comparable returns and reports required by any jurisdiction), which, to the Knowledge of Federated, are required to be filed by the Surviving Funds with respect to any period ending after the applicable Closing Date and to ensure (i) that all Taxes shown as payable on such Tax Returns are timely paid by the Surviving Funds and (ii) that the Surviving Funds organized in any jurisdiction of the United States continue to qualify as Regulated Investment Companies after the Final Closing Date. Federated and Alliance shall each assist the other, as may reasonably be requested by the other Party, with the preparation of any Tax Return, any Tax audit, or any other Litigation relating to any Tax in respect of the Alliance Funds. In addition, each Party shall retain (except to the extent transferred to Federated) and provide the other with access upon reasonable notice and during normal business hours to such records or information in respect of the Alliance Funds as may be relevant to such Tax Return, Tax audit, or other Litigation.

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5.1.5 Insured Account Covenants. Alliance shall use commercially reasonable efforts to submit, file, give and obtain all Consents necessary for Alliance to assign the Deutsche Bank Agreements from Alliance to Federated on or after the First Closing. Without limiting the generality of the foregoing, Alliance and Federated shall cooperate with each other preparing required Deutsche Bank Assignment Documents for the Insured Accounts, setting relevant dates and deadlines and resolving objections received in connection with such contemplated assignments. Each Party shall keep the other Party informed as to the status of such contemplated assignments, and shall consult with the other Party regarding such matters.

5.2 Covenants With Respect to the Surviving Funds and Transferred Insured Accounts.

(a) Federated shall use reasonable commercial efforts to submit, file, give and obtain all Consents (including the registration (as required under Applicable Law) of shares of the Surviving Funds) necessary for Federated and the Surviving Funds (as applicable) to implement the Reorganization Agreements and the Transactions contemplated thereby and by the other Transaction Documents, and to effect the assignments of the Deutsche Bank Agreement from Alliance to Federated.

(b) Federated shall provide Alliance with reasonable access, for the period beginning on the First Closing Date through, inclusive of and ending on the Sixth Anniversary Date, and upon advance notice and during normal business hours, to the Surviving Funds’, and their successor funds’ or Other Federated Cash Management Vehicle’s, if applicable, books and records relating to the Surviving Funds (or such successor funds’ or Other Federated Cash Management Vehicle’s, if applicable) and/or the Insured Accounts (to the extent transferred as contemplated herein) for the period beginning on the date of the First Closing Date and ending on the Final Closing Anniversary Date.

5.3 [Intentionally Omitted.]

5.4 Covenant With Respect to Cash Management Assets. Subject to Alliance’s fiduciary duties, Alliance shall use commercially reasonable efforts to transfer, and to encourage its Affiliated Persons to transfer, to the Surviving Funds, certain cash management assets as mutually agreed by the Parties. Federated acknowledges and agrees that Alliance and Affiliated Persons of Alliance have sole discretion in determining whether to transfer cash management assets to the Surviving Funds.

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5.5 Covenants With Respect to Expenses.

(a) Except as otherwise provided in this Section 5.5, Section 5.12 and Section 5.13, each Party shall bear fifty percent (50%) of the Transaction Costs. For purposes of this Agreement and the other Transaction Documents, “Transaction Costs” means: (i) all fees, expenses and costs of agents, representatives, outside counsel, accountants, and proxy solicitors incurred in connection with the drafting, filing, printing and mailing of the proxy/registration statements (or similar documents contemplated herein or in the other Transaction Documents, but excluding, for the avoidance of doubt, fees, expenses and costs associated with the drafting and initial filings of Form N-1A, and blue sky filings for, the Surviving Funds), and related materials to shareholders; (ii) all fees, expenses and costs incurred by the Parties as a result of undertaking the actions contemplated in Section 2.12 of this Agreement; (iii) all fees, expenses and costs associated with the preparation, filing and review of required Consents under the HSR Act; (iv) all fees, expenses and costs associated with the Negative Consent Process and Offshore Redemption in Kind Process; (v) all fees, expenses and costs incurred by the Parties in connection with the engagement of the investment banker contemplated in Section 5.15(c); and (vi) other mutually agreed upon third-party related costs.

(b) Notwithstanding Section 5.5(a) above, Federated shall be responsible for expenses incurred by Federated and each Surviving Fund, and Alliance shall be responsible for expenses incurred by Alliance, each Alliance Fund and the Insured Accounts, in connection with due diligence and the negotiation, execution, delivery and performance of this Agreement and the other Transaction Documents (except for those fees, expenses and costs shared by the Parties pursuant to Section 5.5(a)(i) above). For the avoidance of doubt, and notwithstanding any other contrary provision in this Agreement or any other Transaction Document (and except for those fees, expenses and costs shared by the Parties pursuant to Section 5.5(a)(i) above), transaction expenses relating to the negotiation and signing of this Agreement and the other Transaction Documents (including expenses consisting of outside counsel or accountant fees and due diligence expenses) incurred by Federated and any Surviving Fund or Alliance, any Alliance Funds and the Insured Accounts will be the sole responsibility of the Person that incurred such transaction expenses, and all federal and state registration fees in connection with the sale of shares of the Surviving Funds shall not be the responsibility of Alliance, the Alliance Funds or any Affiliated Person of any of them.

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5.6 Covenants With Respect to Litigation and Changes in Condition.

(a) From the date of this Agreement through the earlier of the Final Closing Date or termination of this Agreement pursuant to its terms, Federated shall notify Alliance promptly of any Litigation as to which Federated becomes aware that (i) is commenced against Federated, the Federated Investment Companies or the Surviving Funds and would reasonably be expected to have a material adverse effect on the Surviving Funds, the Transactions, or this Agreement or any other Transaction Document, or (ii) would delay, restrain, or enjoin the consummation of, or declare unlawful, the Transactions, or cause the Transactions to be rescinded or delay, restrain, or enjoin the performance of this Agreement or any other Transaction Document.

(b) From the date of this Agreement through the earlier of the third anniversary of the date of this Agreement or the termination of this Agreement pursuant to its terms, Alliance shall notify Federated promptly of any Litigation as to which Alliance becomes aware that (i) is commenced against Alliance, the Business, the Alliance Funds or the Insured Accounts, and would reasonably be expected to have a material adverse effect on the Business, the Transactions, or this Agreement or any other Transaction Document, or (ii) would delay, restrain, or enjoin the consummation of, or declare unlawful, the Transactions, or cause the Transactions to be rescinded or delay, restrain, or enjoin the performance of this Agreement or any other Transaction Document.

5.7 Covenants With Respect to Publicity and Third Party Communications. Alliance and Federated agree that all public announcements prior to the Final Closing Date relating to this Agreement, any other Transaction Document or the Transactions shall only be made after each Party has submitted, reasonably in advance, the text of such announcement to the other Party at the addresses set forth in Article X and such other Party has had a reasonable opportunity to comment thereon and has consented to the release of such public announcement (which consent shall not be unreasonably withheld); provided, however, that any Party may make such disclosures as are required by Applicable Law after making commercially reasonable efforts under the circumstances to consult in advance with the other Party. Except as permitted by the preceding sentence, the Parties shall not, and shall direct their Affiliated Persons, legal and financial advisers and other representatives not to, disclose this Agreement or any other Transaction Document, its or their existence, or any of the terms and conditions hereof or thereof to any Person without the prior written consent of the other Party to this Agreement.

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5.8 Restrictive Covenants.

5.8.1 Non-Solicitation. During the Non-Solicitation Period, neither Alliance, the Investment Companies nor any of their Affiliated Persons shall offer employment to, otherwise solicit, hire or engage as an independent contractor or in any other capacity, nor shall Alliance, the Investment Companies or any of their Affiliated Persons assist any other Person to employ, otherwise solicit, hire or engage as an independent contractor or in any other capacity, any employee of Alliance, the Investment Companies or any of their Affiliated Persons hired by Federated or an Affiliated Person of Federated on or after the First Closing Date and prior to or on the Final Closing Date in connection with the Transactions contemplated by this Agreement.

5.8.2 Covenant Not to Compete.

(a) Alliance acknowledges (i) that it is essential in order to permit Federated to obtain the benefits of the Transactions for Alliance and its Non-Compete Affiliates to agree to the restrictions set forth in this Section 5.8, and (ii) that such restrictions are reasonable in duration and scope.

(b) During the Restricted Period, except as otherwise contemplated in, and pursuant to, this Agreement and the other Transaction Documents, Alliance agrees that neither Alliance, the Investment Companies, nor any of their Non-Compete Affiliates shall:

(i) directly or indirectly (A) create, distribute, advise, manage, sell, administer, or otherwise promote or assist in the establishment or operation of any Cash Management Vehicle, nor (B) distribute or otherwise provide to any party the name(s) of any client of any Alliance Fund or Surviving Fund or any holder of an Insured Account except (in the case of clause (B) only) as required by Applicable Law (any activity within this clause (i) being a “Restricted Activity”), or

(ii) directly or indirectly own or acquire the capital stock or other equity securities of any class of any Person that engages in a Restricted Activity;

(iii) directly or indirectly solicit any Tracked Client or Non-Tracked Client to purchase any shares, products or services of a Cash Management Vehicle.

(c) The covenants in Sections 5.8.2(b)(i) and (ii) shall not prohibit:

(i) Alliance or any Non-Compete Affiliate from either:

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(A) creating, distributing, advising, managing, selling, administering or otherwise promoting or assisting (x) the Alliance Funds and Insured Accounts until the applicable Alliance Fund Termination Date or transfer of Alliance Fund Assets relating to such Insured Accounts consistent with this Agreement or (y) any Cash Management Vehicle created, distributed, advised, sold, managed, administered, or otherwise promoted by Alliance or a Non-Compete Affiliate as of the date of this Agreement that is identified on Schedule 5.8.2(c),

(B) acquiring (in one or more transactions) and subsequently distributing, advising, managing, selling, administering, promoting or assisting one or more Cash Management Vehicles that, at the time of their acquisition by Alliance, are Incidental Money Market Funds; provided, that the aggregate net revenue of all such Incidental Money Market Funds acquired and subsequently operated by Alliance and/or its Non-Compete Affiliates at no time exceeds seven million five hundred thousand dollars ($7,500,000) per annum. If such aggregate net revenue of such Incidental Money Market Funds at any time exceeds seven million five hundred thousand dollars ($7,500,000) per annum, then Section 5.2.8(c)(i)(C) shall apply with respect to such Incidental Money Market Funds, or that portion of such Incidental Money Market Funds, that caused such excess, and Alliance shall make a written offer to sell to Federated such Incidental Money Market Fund, or portion thereof, on the terms contemplated in Section 5.2.8(c)(i)(C) below.

(C) acquiring the capital stock or other equity securities of any class of any Person that is engaged in the Restricted Activity, or acquiring all or a portion of the assets of such a Person that include a Restricted Activity, and retaining such Restricted Activity, and providing services in connection with such Restricted Activity, if (1) within thirty (30) days of such acquisition Alliance offers to Federated in writing the right to purchase such Restricted Activity; the Parties agree that such offer will (A) be at a price and on payment terms to be negotiated by the Parties, or determined by an arbitrator, as appropriate, in accordance with the Valuation Process, and (B) provide that such purchase by Federated will be made upon such other commercially reasonable terms and conditions as may be mutually agreed upon between the Parties, and (2) within sixty (60) days after Federated receives such written offer Federated shall not have accepted such offer, and then consummated such transaction within a reasonable period of time thereafter. For purposes of this Section 5.8.2(c)(ii)(C), “Valuation Process” means the process for agreeing upon the price to be paid for a Restricted Activity involving: (x)

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Alliance retaining a reputable investment banking firm (acceptable to Federated, which acceptance will not be unreasonably withheld or delayed) experienced in the cash management industry to value the Restricted Activity using reasonable valuation standards, (y) Federated retaining a reputable investment banking firm (acceptable to Alliance, which acceptance will not be unreasonably withheld or delayed) experienced in the cash management industry to value the Restricted Activity using reasonable valuation standards, and (z) the Parties negotiating in good faith the price (and payment terms) of the Restricted Activity within the range between the prices (and payment terms) recommended by Alliance’s investment banking firm and Federated’s investment banking firm. If the Parties cannot agree on the price and payment terms within a reasonable period of time, the Parties shall jointly retain a mutually agreeable (such agreement not to be unreasonably withheld or delayed by either Party) arbitrator experienced in the cash management industry to which each Party will submit a proposed price and payment terms (which may or may not be the price and payment terms proposed under the preceding sentence). The Parties shall request that such arbitor select the proposal of one of the Parties (which the arbitor believes is most reasonable in light of the circumstances) without modification within thirty (30) days of the proposals being submitted to such arbitor.

(ii) Alliance or any Non-Compete Affiliate from creating, distributing, advising, selling, administering or otherwise promoting or assisting any Cash Management Vehicle used to accommodate cash balances in accounts of investment advisory clients of Alliance or its Non-Compete Affiliates that have given Alliance or such Non-Compete Affiliates investment mandates other than cash management (e.g., an equity, bond or asset allocation mandate). For the avoidance of doubt, such Cash Management Vehicles may include (i) Cash Management Vehicles used for investment of cash collateral derived from securities lending, (ii) Cash Management Vehicles for private clients and (iii) Cash Management Vehicles for wrap account investment advisory clients with such mandates other than cash management.

(iii) Alliance or any Non-Compete Affiliate from, in the aggregate, acquiring, whether through acquisition of capital stock or other equity securities, and owning, not for the purposes of exercising control or influencing the management or policies of a Person, a passive interest in any amount less than 25% in any Person.

(iv) Alliance or any Non-Compete Affiliate from, in the aggregate, creating and operating no more than three (3) Cash Management Vehicles that are the functional

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equivalent of, and operated in a manner similar to the Alliance/Bernstein Exchange Reserves in terms of purpose and clients, if Alliance offers to Federated the ability to act as subadviser, and Federated is approved as subadviser by the Boards, for such funds for an initial two year term (if permitted by Applicable Law); provided, however, that if Federated declines to accept such offer, Alliance may nevertheless operate the fund; and provided, further, however, if Federated is approved by the Boards of such funds for an initial two year term but not at any time re-approved as subadviser, Alliance may only continue to operate the funds if Alliance pays Federated an amount equal to the annual supervisory fee that Federated would have earned over the Restricted Period (less amounts previously earned and paid to Federated) as if Federated’s subadvisory contract had been continued.

(d) Nothing in Section 5.8.2(c) shall relieve Alliance and its Non-Compete Affiliates from the restriction set forth in Section 5.8.2(b)(iii).

(e) At any time from and after the First Closing Date under this Agreement, Alliance will not, directly or indirectly, either for Alliance or for any other Person except for Federated, solicit the proxy or vote of any shareholders of Federated, any registered investment company for which Federated or any Affiliated Person thereof serves as investment advisor, administrator or distributor, including the Surviving Funds, for any reason or purpose.

5.8.3 Enforcement.

(a) Alliance acknowledges that the mere existence of a claim against Federated, whether based on this Agreement, any other Transaction Document or otherwise, shall not in and of itself prevent the enforcement of the covenants set forth in Section 5.8.1 or 5.8.2. Alliance and Federated agree that Federated’s remedies at law for any breach or threat of breach by Alliance or any Affiliate of Alliance of the provisions of Sections 5.8.1 and 5.8.2 will be inadequate, and that Federated shall be entitled to obtain an injunction or injunctions to prevent breaches of the provisions of Sections 5.8.1 and 5.8.2 and to enforce specifically the terms and provisions of such sections, in addition to any other remedy to which Federated may be entitled at law or equity. Should any provision of the restrictive covenants in Section 5.8.1 and 5.8.2 be adjudged to any extent invalid by any competent tribunal, such provision shall be deemed modified to the extent necessary to make it enforceable, and any such invalidity shall not effect the validity or enforceability of such provision as so modified or any other provision of this Agreement or any other Transaction Document.

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(b) If (and only if) (i) Federated notifies Alliance in writing within a reasonable period of time after becoming aware of activity on the part of Alliance or a Non-Compete Affiliate of Alliance that Federated believes violates Section 5.8.2, and (ii) a court of competent jurisdiction determines in a final non-appealable order that Alliance or a Non-Compete Affiliate of Alliance violated Section 5.8.2 at any time during the Restricted Period by engaging in such activity, and (iii) such court determines that (A) the damages to Federated resulting from such violation equal or exceed ten million dollars ($10,000,000) and (B) the revenues to Alliance and its Non-Compete Affiliates from the violative activity equal or exceed ten million dollars ($10,000,000), then (and only then) the length of time for which the covenant in Section 5.8.2 shall be in force shall be extended by the period of time as to which Alliance or any of its Non-Compete Affiliates shall have been found to be in violation of Section 5.8.2 by such court.

5.9 Covenants With Respect to Further Actions. At the reasonable request of Federated or Alliance after the First Closing Date, and upon mutual agreement of the Parties, but without further payment of additional consideration, each Party, as applicable, shall from time to time execute and deliver or cause their Affiliated Persons to execute and deliver, as applicable, such further instruments of transfer, assignment, or consent or other document as may be reasonably necessary or appropriate to consummate the Transactions.

5.10 Covenants With Respect to Access. Prior to the Final Closing Date, and subject to (and without limiting) any other provision of this Agreement, each Party hereto shall afford the other Party hereto access to its personnel, properties, Contracts, books and records, and all other documents and data reasonably necessary or appropriate to carry out the responsibilities of the Party contemplated by this Agreement or any other Transaction Document or to verify or confirm the accuracy of information or data provided to that Party by the other Party to this Agreement. Alliance agrees that it shall retain all books and records relating to the Business, the Alliance Funds and the Insured Accounts that are not delivered to Federated or a Surviving Fund pursuant to the Transaction in accordance with Applicable Law and its respective record retention policies as presently in effect. Without limiting the foregoing, until the Second Anniversary Date, Alliance will use commercially reasonable efforts to prevent the disposal of any such books and records that are not required to be retained under Applicable Law or such policies without first providing Federated with not less than sixty (60) days prior written notice of such destruction and offering to surrender the same to Federated at Federated’s expense.

5.11 Covenant With Respect to Liquidation of Alliance Funds. As promptly as reasonably possible following an Alliance Fund Termination Date with respect to an Alliance

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Fund, Alliance shall (a) take such commercially reasonable actions to cause such Alliance Fund to terminate all of its contractual relationships, and (b) liquidate such Alliance Fund and file on behalf of such Alliance Fund any required Form N-8F filing, and the final Form 24F-2 or Form 24E-2 filing, Form N-SAR and any other required federal or state filings (or similar foreign document), as required by and within the time periods required by Applicable Law and in a manner (after consultation with Federated) that is intended to maximize the economic benefit of redemptions attributable to such Fund(s) for the benefit of the Surviving Funds (it being understood that it is possible that redemptions attributable to such Fund(s) may be used for the benefit of Federated to the extent that Federated has incurred 24F-2 filing fees on behalf of such Surviving Fund).

5.12 Covenant With Respect to Employees. Federated will be given reasonable access to and the opportunity to hire Alliance employees as identified in writing by Alliance prior to the First Closing. All Liabilities associated with any employee not hired by Federated shall remain the obligation of Alliance.

5.13 Covenant With Respect to Retention Pool. Federated and Alliance shall establish a mutually agreeable retention program for the benefit of mutually agreed employees of the Alliance, and each Party will bear fifty percent (50%) of the costs of such retention program.

5.14 NAV Catch-Up Payment. Immediately prior to any Closing or Interim Transfer, Alliance shall contribute to each Alliance Fund any NAV Catch-Up Payment by wire transfer of immediately available funds.

5.15 Security Transfer Methodology. In light of their respective fiduciary duties, Alliance shall assist the Alliance Funds in honoring all redemptions of Alliance Fund shares contemplated by this Agreement, and Federated shall assist the Surviving Funds in investing the securities and cash received by the Surviving Funds pursuant to the Transactions contemplated by this Agreement. In furtherance of the foregoing, and to the extent that portfolio securities are transferred in connection with the Transctions contemplated by this Agreement, the intention of the Parties is that the following transactions be effected sequentially:

(a) for each broker maintaining one or more client accounts in the Alliance Fund that are being transferred at the First Closing or Interim Transfer (as applicable) pursuant to the Transactions contemplated by this Agreement, the Alliance Fund shall accept a redemption order for all of the Alliance Fund shares held in all such accounts and shall establish an account payable to each broker in the amount of $1.00 per share redeemed;

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(b) for each broker maintaining one or more client accounts in the Alliance Fund that are being transferred at the First Closing or Interim Transfer (as applicable) pursuant to the Transactions contemplated by this Agreement, the Surviving Fund shall accept a purchase order for a number of shares of the Surviving Fund equal to the number of shares of the Alliance Fund held in all such accounts and shall establish an account receivable from each broker in the amount of $1.00 per share purchased;

(c) the Surviving Fund shall tender all of the broker accounts receivable created pursuant to subsection (b) above to the Alliance Fund. As compensation therefor, the Alliance Fund shall tender: (i) securities, which, for purposes of this transaction, shall be valued at market price as determined by a mutually acceptable (which acceptance shall not be unreasonably withheld or delayed by either Party) reputable investment banking firm (taking into account any value deemed attributable to a bulk transfer of securities and the make up of the portfolio), and (ii) cash, such that the aggregate value of such securities and cash equals the face amount of the accounts receivable being transferred;

(d) the Surviving Fund shall issue shares to each broker account in the amount corresponding to the purchase order accepted previously pursuant to subsection (b), above;

(e) the Alliance Fund shall offset and cancel each broker account payable established pursuant to subsection (a) above against the corresponding broker account receivable transferred to it by the Surviving Funds pursuant to subsection (c) above, and the Alliance Fund shall cancel all shares for which it accepted redemption orders pursuant to subsection (a) above.

Each Alliance Fund, each Surviving Fund, and Alliance shall execute or deliver any documents, including financing statements or other documents of transfer under the applicable sections of the Uniform Commercial Code as adopted in the relevant state or states, that may be reasonably necessary or desirable to accomplish the transactions described in this Section 5.15. Each Alliance Fund and each Surviving Fund may require the brokers placing orders to consent in writing to the process described in this Section 5.15 and waive their right to receive cash upon redemption.

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5.16 Shared Use Assets. Upon a reasonable request of Federated, and mutual agreement by Alliance (which agreement shall not be unreasonably withheld or delayed), Alliance and Federated shall use commercially reasonable efforts to grant rights to Federated or permit Federated to enjoy the benefits of (whether by transitional services agreement, license agreement, or otherwise), any Shared Use Assets necessary for Federated to own or operate the Business, or any portion thereof, after the Business, or portion thereof, is transferred pursuant to the Transactions contemplated by this Agreement. Unless the Parties mutually agree in writing otherwise, any such transfer, grant or permission shall be made or given without payment (a) by Federated of any additional compensation to Alliance, any Alliance Fund, any Investment Company or Insured Account, or any Affiliated Person of any of them or (b) by Alliance, any Alliance Fund, any Investment Company or Insured Account of any Affiliated Person of any of them to any other Person. The intention of the Parties in this Section 5.16 is to make available, to the extent possible, any such Shared Use Asset to Federated to same extent as if such Shared Use Asset had been included in the Acquired Assets.

ARTICLE VI

CONDITIONS PRECEDENT TO CLOSING

6.1 Conditions Precedent to First Closing. Consummation by the Parties of the Transactions to be consummated upon the First Closing are subject to the fulfillment of the following conditions on or before the First Closing Date:

6.1.1 Consents. All applicable Alliance Consents for Alliance Fund Assets transferring to a Surviving Fund, Acquired Assets transferring to Federated and Insured Account assets transferring as contemplated in this Agreement on the First Closing Date and any applicable Federated Consents for Federated, the Surviving Funds and the Federated Investment Companies shall have been obtained prior to the First Closing Date and shall remain in full force and effect as of the First Closing Date.

6.1.2 Satisfaction of All Requirements Relating to the Negative Consent Process. All requirements required by Applicable Law relating to, and any objections received in response to, the negative consent letters have been dealt with in a manner mutually acceptable to the Parties, completing the Negative Consent Process.

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6.1.3 Expiration of Waiting Period under HSR Act. Any waiting period and any extension thereof applicable to the consummation of the First Closing under the HSR Act shall have terminated or expired.

6.1.4 No Legal Obstruction. No injunction, restraining order or order of any nature shall have been issued by or be pending before any Governmental Authority challenging the validity or legality of the Transactions or restraining or prohibiting the consummation of the Transactions; provided, however, that, in the case of a matter pending before a Governmental Authority, the applicable Closing shall be postponed until such time as such matter is resolved by the applicable Governmental Authority.

6.1.5 Legal Opinions. The delivery of the opinion of Ropes & Gray LLP, counsel for Alliance, addressed to Federated as of the applicable Closing Date, in substantially the form set forth on Exhibit D. The delivery of the opinion of Reed Smith LLP, counsel for Federated, addressed to Alliance as of the applicable Closing Date, in substantially the form set forth on Exhibit E. Alliance shall have received an opinion of outside counsel in the form required by Alliance’s Amended and Restated Agreement of Limited Partnership.

6.2 Conditions Precedent to Final Closing. Consummation by the Parties of the Transactions to be consummated upon the Final Closing is subject to the fulfillment of the following conditions on or before the Final Closing Date:

6.2.1 Consents. All applicable Alliance Consents for Alliance Fund Assets transferring to the Surviving Funds and Acquired Assets transferring to Federated on the Final Closing Date and any applicable Federated Consents for the Surviving Funds and the Federated Investment Companies shall have been obtained prior to the Final Closing Date and shall remain in full force and effect as of the Final Closing Date.

6.2.2 No Legal Obstruction. No injunction, restraining order or order of any nature shall have been issued by or be pending before any Governmental Authority challenging the validity or legality of the Transactions or restraining or prohibiting the consummation of the Transactions; provided, however, that, in the case of a matter pending before a Governmental Authority, the applicable Closing shall be postponed until such time as such matter is resolved by the applicable Governmental Authority.

6.2.3 Continuing Effectiveness of Prior Consents. All Alliance Consents and Federated Consents obtained prior to the Final Closing Date shall remain in full force and effect as of the Final Closing Date.

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6.2.4 Legal Opinion. The delivery of the opinion of Ropes & Gray LLP, counsel for Alliance, addressed to Federated as of the applicable Closing Date, in substantially the form set forth on Exhibit D, or confirmation from Ropes & Gray LLP that any previously issued opinion is still valid. The delivery of the opinion of Reed Smith LLP, counsel for Federated, addressed to Alliance as of the applicable Closing Date, in substantially the form set forth on Exhibit E, or confirmation from Reed Smith LLP that any previously issued opinion is still valid. Alliance shall have received an opinion of outside counsel in the form required by Alliance’s Amended and Restated Agreement of Limited Partnership, or confirmation from such outside counsel that any previously issued opinion is still valid.

6.3 Conditions Precedent to Obligations of Federated With Respect to All Closings and Interim Transfers. In addition to the conditions set forth in Sections 6.1 and 6.2 (as applicable), the obligations of Federated under this Agreement and the other Transaction Documents to consummate the Transactions are subject to the satisfaction, at or prior to the applicable Closing (and, in the case of Section 6.3.1, 6.3.5 or 6.3.6 below, each Interim Transfer) of the following conditions, any one or more of which may be waived at the option of Federated:

6.3.1 No Breach of Covenants; True and Correct Representations and Warranties. In connection with each Closing and Interim Transfer, (a) there shall have been no intentional, grossly negligent or repeated material breach by Alliance in the performance of any of its covenants in any Transaction Document to which it is a party, or by any Alliance Fund in the performance of its covenants in the applicable Reorganization Agreement, to be performed in whole or in part prior to such Closing or Interim Transfer (as applicable) relating to those Transactions being consummated upon such Closing or Interim Transfer (as applicable), and (b) each of the representations and warranties of Alliance contained in Section 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5 and 3.1.8 shall be true and correct in all material respects as of each Closing Date and Interim Transfer Date (as applicable), except for any such representations or warranties that are made by their terms as of a specified date, which shall be true and correct in all material respects as of the specified date and except for representations and warranties that already contain a materiality qualifier which shall be true and correct in all respects. At each Closing, Federated shall receive a certificate of Alliance executed by an authorized executive officer of Alliance certifying to the fulfillment of the foregoing conditions.

Alliance agrees that it will use commercially reasonable efforts to remedy (or cause to be remedied) any breach of any covenant, representation or warranty of Alliance (or any Alliance Fund) set forth in this Agreement or other Transaction Document to the extent such covenant, representation or warranty is not true and correct in all material respects as of such Closing Date

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or Interim Transfer Date (except for any such representations or warranties that are made by their terms as of a specified date, which shall have failed to be true and correct in all material respects as of the specified date, or covenants, representations or warranties that already contain a materiality qualifier which shall have failed to be true and correct in all respects).

6.3.2 Delivery of Documents.

(a) At each Closing and Interim Transfer Date, Federated shall have received from Alliance all documents, certificates and agreements necessary to transfer to Federated good and valid title to the Acquired Assets, free and clear of any Liens thereon, other than Permitted Liens, including a bill of sale, assignment and general conveyance, dated as of the applicable Closing Date or Interim Transfer Date (as applicable), with respect to the Acquired Assets.

(b) At each Closing, such other customary closing certificates and instruments as may be reasonably requested by Federated.

6.3.3 Satisfaction of Conditions under the Reorganization Agreements. Solely in connection with the Final Closing, the Reorganization Agreements shall have been executed and delivered by the Alliance Funds, and all conditions to the applicable Closing under the Reorganization Agreements shall have been satisfied and all documents shall have been delivered that are required thereunder to be delivered to Federated.

6.3.4 No Litigation. No Litigation shall be pending or threatened in writing against any Investment Company, Alliance, the Business, any Alliance Fund, any Insured Account, or any Affiliated Person of any of them, or against or relating to this Agreement, any other Transaction Document or the Transactions, which, either individually or in the aggregate with all such Litigation, is reasonably likely to have a material adverse effect upon Federated, the Business, any Alliance Fund or any Insured Account, if the Transactions were consummated.

6.3.5 Access to and Copies of Books and Records. The Alliance Funds shall have taken any necessary steps to provide Federated full and complete access to or copies of, as reasonably requested, (i) the Alliance Funds’ shares and transfer agency records, (ii) the Alliance Funds’ custodial records, and (iii) all such other assets, records, documents and Contracts as is appropriate to permit the Surviving Funds, Federated and their designated Affiliated Persons and service providers to render ongoing services with respect to the Alliance Funds’ shareholders who become shareholders of the Surviving Funds in connection with the applicable Closing or Interim Transfer.

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6.3.6 No MAC. From the date of this Agreement through the applicable Closing or Interim Transfer, there has not been a MAC (within the meaning of paragraph (a) of the definition of “MAC” in Section 1.1 of this Agreement).

6.4 Conditions Precedent to Obligations of Alliance With Respect to All Closings and Interim Transfers. In addition to the conditions set forth in Section 6.1 and 6.2 (as applicable), the obligations of Alliance under this Agreement to consummate the Transactions shall be subject to the satisfaction, at or prior to each Closing (and, in the case of Section 6.4.1 and 6.4.2 below, each Interim Transfer), of the following condition, which may be waived at the option of Alliance:

6.4.1 No Breach of Covenants; True and Correct Representations and Warranties. In connection with each Closing and Interim Transfer, (a) there shall have been no intentional, grossly negligent or repeated material breach by Federated in the performance of any of its covenants in any Transaction Document to which it is a party, or by any Surviving Fund in the performance of its covenants in the applicable Reorganization Agreement, to be performed in whole or in part prior to such Closing or Interim Transfer (as applicable) relating to those Transactions being consummated upon such Closing or Interim Transfer (as applicable), and (b) each of the representations and warranties of Federated contained in Section 4.1.1, 4.1.2, 4.1.3, 4.1.4 and 4.1.5 shall be true and correct in all material respects as of each Closing Date and Interim Transfer Date (as applicable), except for any such representations or warranties that are made by their terms as of a specified date, which shall be true and correct in all material respects as of the specified date and except for representations and warranties that already contain a materiality qualifier which shall be true and correct in all respects. At each Closing, Alliance shall receive a certificate of Federated executed by an authorized executive officer of Federated certifying to the fulfillment of the foregoing conditions.

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Federated agrees that it will use commercially reasonable efforts to remedy (or cause to be remedied) any breach of any covenant, representation or warranty of Federated (or any Surviving Fund) set forth in this Agreement or other Transaction Document to the extent such covenant, representation or warranty is not true and correct in all material respects as of such Closing Date or Interim Transfer Date (except for any such representations or warranties that are made by their terms as of a specified date, which shall have failed to be true and correct in all material respects as of the specified date, or covenants, representations or warranties that already contain a materiality qualifier which shall have failed to be true and correct in all respects).

6.4.2 No MAC. From the date of this Agreement through the applicable Closing or Interim Transfer, there has not been a MAC (within the meaning of paragraph (b) of the definition of “MAC” in Section 1.1 of this Agreement).

6.4.3 Delivery of Documents. At each Closing, such other customary closing certificates and instruments as may be reasonably requested by Alliance.

ARTICLE VII

SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS, AND THE

ABILITY TO ASSERT CLAIMS

7.1 Survival of Covenants. Unless otherwise limited by the terms of this Agreement, covenants of Alliance and Federated shall survive each Closing and Interim Transfer indefinitely.

7.2 Survival of Representation and Warranties.

(a) Unless otherwise provided by Sections 7.2(b), 7.2(c), (d) or (e) below, the representations and warranties of Alliance and Federated shall survive each Closing and Interim Transfer until the Second Anniversary Date.

(b) the representations and warranties relating to Taxes and Tax Returns contained in Sections 3.2.4, 3.2.5, 3.3.3, 3.3.4, 4.2.4 and 4.2.5 shall survive each Closing and Interim Transfer for the applicable statute of limitations period measured from the Final Closing Date.

(c) the representations and warranties contained in Sections 3.1.10, 3.2.7, 3.3.6 and 4.1.8 shall survive each Closing and Interim Transfer until the Third Anniversary Date.

(d) the representations and warranties contained in Sections 3.2.2, 4.1.7 and 4.2.2 shall survive each Closing and Interim Transfer until the Sixth Anniversary Date.

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(e) the representations and warranties contained in Sections 3.1.1, 3.1.2, 3.1.8 (except for the second sentence of Section 3.1.8(a)), 3.1.9, 4.1.1 and 4.1.2 shall survive each Closing and Interim Transfer indefinitely.

7.3 Survival of Ability to Assert Claims.

(a) A claim may be made or suit instituted at any time, without limitation, in the case of a claim or suit based on fraud.

(b) A claim may be made or suit instituted seeking indemnification pursuant to Article IX at any time, without limitation, in the case of a claim or suit pursuant to Sections 9.1(b), (c) or (d) or 9.2(b), (c) or (d) of this Agreement, or in the case of a claim or suit pursuant to Sections 9.1(a) or 9.2(a) based on the breach or violation of a representation, warranty or covenant that survives indefinitely.

(c) A claim may be made or suit instituted seeking indemnification pursuant to Article IX at any time during the applicable survival period in the case of a claim or suit pursuant to Sections 9.1(a) or 9.2(a) based on a breach or violation of a representation, warranty or covenant that does not survive indefinitely.

(d) A claim or suit shall be considered made or instituted for purposes of this Agreement upon a Party providing a written notice to the other Party describing a claim in reasonable detail in light of the facts and/or circumstances then known to the Indemnified Party.

ARTICLE VIII

TERMINATION

8.1 Termination of Agreement. Federated or Alliance may terminate this Agreement by written notice to the other after 5:00 p.m., New York time, on March 31, 2005, if the First Closing shall not have occurred, unless such date is extended by the mutual written consent of the Parties hereto prior to such date. Such termination shall be without liability of one Party to the other, except as provided below. This Agreement may be terminated prior to the First Closing Date (a) by the written consent of the Parties hereto, (b) by Federated if Alliance is in material breach of any representation, warranty, covenant, or agreement set forth herein and such breach is not cured within thirty (30) days of receipt of notice identifying such breach, (c) by Federated (but only on or prior to the thirtieth (30^th) day following the date of this Agreement) if Federated is not satisfied with the results of its financial, business, legal and regulatory due diligence regarding Alliance, the Business, the Alliance Funds or the Insured Accounts, or (d) by

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Alliance if Federated is in material breach of any representation, warranty, covenant, or agreement set forth herein and such breach is not cured within thirty (30) days of receipt of notice identifying such breach. Any such termination shall be without prejudice to the non-breaching Parties’ rights to seek damages for such breach.

8.2 Termination of Obligations Relating to Final Closing. The Parties obligation to consummate any Interim Transfer or the Final Closing may be terminated prior to the Final Closing Date (a) by the written consent of the Parties hereto, (b) by Federated, if Alliance is in material breach of any representation, warranty, covenant, or agreement set forth herein and such breach is not cured within thirty (30) days of receipt of notice identifying such breach, or (c) by Alliance, if Federated is in material breach of any representation, warranty, covenant, or agreement set forth herein and such breach is not cured within thirty (30) days of receipt of notice identifying such breach; provided that the Parties’ obligation to consummate the Interim Transfers and the Final Closing shall automatically terminate on August 31, 2005 and, to the extent not previously liquidated, Alliance shall liquidate the Alliance Funds as contemplated in Section 2.10(c) and 5.11 of this Agreement. Any such termination shall (i) not relieve Federated of its obligation to pay the Consideration Amount under this Agreement, (ii) be without liability of one Party to the other, except as provided above, and (iii) be without prejudice to the non-breaching Party’s rights to seek damages for such breach.

8.3 Survival upon Termination. Articles I, VII, IX and XII shall survive any termination of this Agreement.

ARTICLE IV

INDEMNIFICATION

9.1 Indemnification of Federated by Alliance. From and after the First Closing Date, Alliance shall indemnify, defend, and hold harmless Federated, the Surviving Funds, and their respective directors, trustees, officers, controlling persons and other Affiliated Persons, and their respective successors and assigns (collectively, the “Federated Indemnitees”) against any and all claims, demands, Liabilities, obligations, losses, fines, costs, expenses, royalties, Litigation, deficiencies, amounts paid in settlement or damages (whether absolute, accrued, conditional or otherwise and whether or not resulting from third party claims), including interest and penalties with respect thereto and out-of-pocket expenses and reasonable attorneys’ and accountants’ fees and expenses incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of their respective rights hereunder (collectively, “Losses”), that any of them may become subject to, or shall incur or suffer, that arise out of, result from, or relate to:

(a) any breach of, inaccuracy in, or failure by Alliance to perform, any of its representations and warranties, covenants, or agreements in this Agreement or any other Transaction Document delivered or to be delivered to Federated by Alliance under this Agreement or any other Transaction Document;

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(b) any untrue or allegedly untrue statement of a material fact, or any omission to state a material fact required to be stated or necessary to make the statements therein not misleading, contained in any prospectus or SAI supplement of the Alliance Fund’s or the Surviving Fund’s registration statement on Form N-14 (or similar document) or any post-effective amendments thereto filed with the Commission after the date of this Agreement in connection with obtaining shareholder approval, or any marketing or advertising material; provided, however, that such indemnification shall relate only to any statement or fact relating to Alliance, its Affiliated Persons or the Alliance Funds included in any such prospectus or SAI supplement, registration statement (or similar document) or post-effective amendment or to any omission to state a material fact required to be stated or necessary to make any of such statements not misleading in light of the circumstances;

(c) any action undertaken by Alliance or any party acting at its direction to implement the Transactions; and

(d) any Retained Asset, Retained Alliance Liability or Retained Alliance Fund Liability.

9.2 Indemnification of Alliance by Federated. From and after each Closing Date, Federated shall indemnify, defend, and hold harmless Alliance, any Investment Company, and their respective directors, trustees, officers, controlling persons and other Affiliated Persons, and their respective successors and assigns (collectively, the “Alliance Indemnitees”) against any Losses that any of them may become subject to, or shall incur or suffer, that arise out of, result from, or relate to:

(a) any breach of, inaccuracy in, or failure by Federated to perform, any of its representations, warranties, covenants, or agreements contained in this Agreement or any other Transaction Document delivered or to be delivered to Alliance under this Agreement or any other Transaction Document;

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(b) any untrue or allegedly untrue statement of a material fact, or any omission to state a material fact required to be stated or necessary to make the statements therein not misleading, contained in any prospectus or SAI supplement of the Alliance Funds or the Surviving Fund’s registration statement on Form N-14 (or similar document) or any post-effective amendments thereto filed with the Commission after the date of this Agreement in connection with obtaining shareholder approval, or any marketing or advertising material; provided, however, that such indemnification shall relate only to any statement or fact relating to Federated, its Affiliated Persons or the Surviving Funds included in any such prospectus or SAI supplement, registration statement (or similar document) or post-effective amendment or to any omission to state a material fact required to be stated or necessary to make any of such statements not misleading in light of the circumstances;

(c) any action undertaken by Federated or any party acting at its direction to implement the Transactions; or

(d) post-Closing management and operation of the Business.

9.3 Indemnification Procedures. In the case of any claim asserted by a third party against a Party that may be entitled to indemnification under this Agreement (the “Indemnified Party”), notice shall promptly be given by the Indemnified Party to the Party required to provide indemnification (the “Indemnifying Party”), and the Indemnified Party shall permit the Indemnifying Party (at the expense of such Indemnifying Party) to assume the defense of any Litigation resulting therefrom, provided, that (i) counsel for the Indemnifying Party who shall conduct the defense of such Litigation shall be reasonably satisfactory to the Indemnified Party, and the Indemnified Party may participate in such defense at such Indemnified Party’s expense, and (ii) the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement except to the extent that such Indemnifying Party is materially prejudiced as a result of such failure to give notice. Except with the prior written consent of the Indemnified Party, no Indemnifying Party, in the defense of any such Litigation, shall consent to entry of any judgment or enter into any settlement that provides for injunctive or other nonmonetary relief affecting the Indemnified Party or that does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnified Party of a release from all liability with respect to such Litigation. In the event that any claim subject to indemnification hereunder or any proposed settlement of any such claim by the Indemnifying Party will materially adversely affect the Indemnified Party’s Tax liability, the Indemnifying Party shall not settle such Litigation without the written consent of the Indemnified Party. In each case, such consent will not be unreasonably withheld.

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In the event that the Indemnified Party may have available to it one or more defenses or counterclaims that are inconsistent with one or more of those that may be available to the Indemnifying Party in respect of such Litigation relating thereto, the Indemnified Party shall have the right to take over and assume control over the defense, settlement, negotiations or Litigation relating to any such claim at the sole cost of the Indemnifying Party, provided, that if the Indemnified Party does so take over and assume control, the Indemnified Party shall not settle such Litigation without the written consent of the Indemnifying Party, such consent not to be unreasonably withheld. In the event that the Indemnifying Party does not accept the defense of any matter as above provided, the Indemnified Party shall have the full right to defend against any such Litigation, and shall be entitled to settle or agree to pay in full such Litigation; it being understood that the result of any such Litigation or any settlement or payment shall not be evidence with respect to the right to receive indemnification under this Agreement. Alliance and Federated shall reasonably cooperate with one another, and provide access to books and records in their possession or control that is reasonable under the circumstances, in connection with the defense of any claim under this Section 9.3.

9.4 Right of Set-Off. In addition to, and without limiting, any remedy that either Party may have under this Agreement, at law, in equity or otherwise, to the extent that an amount owing to such Party by the other Party under this Article IX has been finally determined by a court of competent jurisdiction in a judgment not subject to appeal, each Party agrees that such Party shall have an express right (but not obligation), with notice to the other Party, to set-off against, and to appropriate and apply, any payment under Section 2.5 or 2.8 of this Agreement or other amount that such Party may have an obligation to pay to the other Party under this Agreement or any other Transaction Document to satisfy (in whole or in part) such payment obligation of the other Party under this Article IX.

9.5 Exclusive Remedy. From and after the First Closing Date, in the absence of fraud, or violation of Applicable Law (where such Applicable Law provides for statutory damages or other remedies not specified herein), and except for the right of set-off, and specific performance, injunctive or other equitable remedies, the sole and exclusive remedy of each Party as against any Person, with respect to any and all claims of any kind whatsoever relating to this Agreement or certificates delivered pursuant to this Agreement, shall be governed by the provisions of this Article IX.

9.6 Treatment of Indemnification Payments. All indemnification payments made under this Article IX shall be deemed adjustments to the Consideration Amount.

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ARTICLE X

NOTICES

All notices and other communications under this Agreement must be in writing and shall be deemed to have been duly given or delivered when delivered by hand (including by Federal Express or similar express courier) or three (3) days after being mailed by prepaid registered or certified mail, return receipt requested:

To Alliance:

Alliance Capital Management L.P.

1345 Avenue of the Americas

New York, New York 10105

Attn: General Counsel

Copy to:

Joseph B. Kittredge, Jr., Esq.

Ropes & Gray LLP

One International Place

Boston, Massachusetts 02110

To Federated:

Federated Investors, Inc.

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

Attn: Chief Financial Officer

With a copy to:

Reed Smith LLP

Federated Investors Tower

1001 Liberty Avenue

Pittsburgh, PA 15222-3779

Attn: George F. Magera, Esq. / Gregory P. Dulski, Esq.

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or to any other address that a Party to this Agreement shall have last designated by notice given in accordance with this Article X.

ARTICLE XI

ENTIRE AGREEMENT; MODIFICATION

This Agreement, together with its Exhibits and Schedules, and the other Transaction Documents, contains the entire agreement and all understandings, and supersedes all prior agreements and understandings, both written and oral, between the Parties with respect to the Transactions. This Agreement and the other Transaction Documents shall not be modified, supplemented, changed, or amended except by an instrument in writing signed by, or on behalf of, all Parties to this Agreement or the other Transaction Documents (as applicable), making specific reference to this Agreement or the other Transaction Documents (as applicable).

Notwithstanding the foregoing, the Exclusivity Letter Agreement, dated September 21, 2004, between Federated and Alliance, the Nondisclosure Letter Agreement, dated October 1, 2004, between Federated and Alliance relating to Federated proprietary information, and the Nondisclosure Letter Agreement, dated March 26, 2004, between Federated and Alliance relating to Alliance confidential information, each shall remain in full force and effect in accordance with their terms.

ARTICLE XII

MISCELLANEOUS

12.1 Governing Law. This Agreement and, unless otherwise specified therein, each Transaction Document, and any statements, actions, claims or Losses relating hereto and thereto (whether for breach of contract, tort, specific performance or otherwise, and whether at law, in equity or otherwise), shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to contracts entered into and to be performed solely in the State of New York, without regard to the principles of conflicts of laws that would result in the application of the Applicable Laws of another jurisdiction; provided that nothing herein shall be construed in a manner inconsistent with the 1940 Act or the Advisers Act.

12.2 Jurisdiction. The Parties each hereby irrevocably submit to the exclusive jurisdiction of the (a) United States District Court for the Western District of Pennsylvania, located in Pittsburgh, Pennsylvania (or, if, and only if, such court will not exercise jurisdiction over any claim, the Pennsylvania Court of Common Pleas, located in Pittsburgh, Pennsylvania with respect to such claim), with respect to any claim by Alliance arising under or relating to this

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Agreement and (b) United States District Court for the Southern District of New York, located in New York, New York (or, if, and only if, such court will not exercise jurisdiction over any claim, any New York State court located in New York, New York with respect to such claim), with respect to any claim by Federated, in each case arising under or relating to this Agreement and hereby waive, and agree not to assert, as a defense in any proceeding that it is not subject thereto or that such proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement or any other Transaction Document may not be enforced in or by said courts, and the Parties hereto irrevocably agree that all claims with respect to such proceeding shall be heard and determined in such a Federal (or, if necessary, state) court. The Parties hereto also hereby consent to and grant any such Federal (or, if necessary) state court jurisdiction over the person of such Parties and over the subject matter of any such dispute and agree that mailing of process or other papers in connection with any such proceeding in the manner provided in Article X, or in such other manner as may be permitted by Applicable Law, shall be valid and sufficient service thereof.

12.3 Waiver of Jury Trial. Each Party hereby waives to the fullest extent permitted by Applicable Law all rights to trial by jury in any Litigation (whether based upon contract, tort or otherwise) arising out of or relating to this Agreement, the Transaction Documents or any of the transactions contemplated herein or therein.

12.4 Assignment; Successors. No Party shall delegate its obligations hereunder without the prior written consent of the other Party. No Party shall assign or otherwise transfer its rights under this Agreement (including by operation of law) without the prior written consent of the other Party; and provided further, that no consent shall be required in respect of (a) the assignment and delegation of this Agreement to an acquirer of all or substantially all of the assets of the assigning Party who agrees in writing to be bound by all of the obligations of the assigning Party hereunder (including any obligation under Sections 2.5, 2.8 and 5.8 and Article IX of this Agreement), or (b) the merger of a Party with another Person, provided the other Person agrees in writing to be bound by all of the obligations of the Party hereunder (including any obligation under Sections 2.5, 2.8 and 5.8 and Article IX of this Agreement. Any purported assignment or delegation other than as permitted by the express terms of this Agreement shall be void and unenforceable. This Agreement shall bind and inure to the benefit of the Parties hereto and their legal representatives and respective successors and permitted assigns.

12.5 Waiver. No waiver by any Party to this Agreement of its rights under any provisions of this Agreement shall be effective unless it shall be made in writing. No failure by any Party to this Agreement to take any action with regard to any breach of this Agreement or

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default by the other Party to this Agreement shall constitute a waiver of such Party’s right to enforce any provision of this Agreement or to take action with regard to the breach or default or any subsequent breach or default by the other Party.

12.6 Further Assurances. From time to time after the First Closing, each Party shall cooperate and take such actions as may be reasonably requested by the other Party hereto (at the expense of such other Party) in order to carry out the Transactions with respect to that portion of the Transactions that have theretofore been consummated.

12.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Once each Party to this Agreement has executed a copy of this Agreement, this Agreement shall be considered fully executed and effective, notwithstanding that all Parties have not executed the same copy.

12.8 Severability. In the event that any one or more of the provisions contained in this Agreement, or the application thereof in any circumstances, is held invalid, illegal, or unenforceable in any respect for any reason, then (a) the validity, legality, and enforceability of any such provision in every other respect and in any other case or circumstance and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Parties hereto shall be enforceable to the fullest extent permitted by Applicable Law, and (b) any such provision shall be ineffective in such case or circumstance only to the extent of such invalidity, illegality or unenforceability, and shall be enforced in such case or circumstance to the greatest extent permitted by law in such case or circumstance.

12.9 Third Parties. Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any Alliance Fund, the shareholders of any Alliance Fund or any other Persons, other than the Parties hereto and their respective successors, or permitted assigns, nor is anything in this Agreement intended to relieve or discharge the obligation or liability of any third parties to any Party to this Agreement, nor shall any provision give any third parties any right of subrogation or action over or against any Party to this Agreement.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Parties to this Agreement have executed this Agreement as of the date first written above.

FEDERATED INVESTORS, INC.
By:	/s/ Thomas R. Donahue
Name:	Thomas R. Donahue
Title:	Vice President and Chief Financial Officer
ALLIANCE CAPITAL MANAGEMENT L.P.
BY: Alliance Capital Management Corporation, its general partner
By:	/s/ Gerald M. Lieberman
Name:	Gerald M. Lieberman
Title:	Chief Operating Officer

EX-10.47

Exhibit 10.47

AGREEMENT OF AMENDMENT

Dated as of December 31, 2004

Reference is made to that certain Purchase and Sale Agreement dated as of December 21, 2000 (as from time to time amended prior to the date hereof, the “Purchase Agreement”) among Federated Investors Management Company (the “Transferor”), Federated Securities Corp. (the “Distributor”), Federated Funding 1997-1, Inc. (the “Seller”), Federated Investors, Inc. (the “Parent”), Citibank, N.A., as Purchaser, and Citicorp North America, Inc., as Program Agent. Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the Purchase Agreement.

The parties hereto agree that, effective as of the date hereof, the definition “Purchase Limit” set forth in Appendix A to the Purchase Agreement is hereby amended by replacing the amount “$150,000,000” set forth therein, with the amount “$75,000,000”.

Each of the Seller, the Distributor, the Transferor and the Parent represents and warrants that (i) this Agreement of Amendment has been duly authorized, executed and delivered by it and each of its obligations hereunder constitute its legal, valid and binding obligation enforceable against it in accordance with its terms, and (ii) immediately after giving effect to this Agreement of Amendment and the transactions contemplated hereunder, its representations and warranties set forth in the Program Documents will be true and correct and no Event of Termination has occurred, or will result therefrom.

This Agreement of Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

THIS AGREEMENT OF AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed and delivered by their duly authorized officers as of the date first above written.

CITICORP NORTH AMERICA, INC., as Program Agent		CITIBANK, N.A., as Purchaser
By:	/s/ Signature illegible	By:	/s/ Signature illegible
Name:		Name:
Title:		Title:
FEDERATED INVESTORS MANAGEMENT COMPANY, as Transferor		FEDERATED SECURITIES CORP., as Distributor, Principal Shareholder Servicer and Servicer
By:	/s/ Raymond J. Hanley	By:	/s/ Raymond J. Hanley
Name:	Raymond J. Hanley	Name:	Raymond J. Hanley
Title	Senior Vice President	Title:	Vice President
FEDERATED FUNDING 1997-1, INC., as Seller		FEDERATED INVESTORS, INC., as Parent
By:	/s/ Raymond J. Hanley	By:	/s/ Denis McAuley
Name:	Raymond J. Hanley	Name:	Denis McAuley
Title:	Vice President	Title:	Vice President

EX-10.48

Exhibit 10.48

AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

THIS AMENDMENT NO. 4 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AND AMENDMENT TO GUARANTY AGREEMENT (this “Amendment”) is dated as of January 14, 2005, and is by and among FEDERATED INVESTORS, INC., a Pennsylvania corporation (the “Borrower”), the BANKS set forth herein (collectively, the “Banks”), and PNC BANK, NATIONAL ASSOCIATION, as agent for the Banks (the “Agent”).

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

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

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

1. Definitions.

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

2. Amendment of Credit Agreement and Guaranty Agreement.

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

Revolving Credit Expiration Date shall mean January 13, 2006 (which is the date 364 days after the effective date of Amendment No. 4 to Second Amended and Restated Credit Agreement and Amendment to Guaranty Agreement among the Borrower, the Banks and the Agent) or such later date as determined pursuant to Section 2.13(a).

(b) Schedule 1.1(a) [Commitments of the Banks] of the Credit Agreement is hereby deleted in its entirety and Schedule 1.1(a) attached hereto is inserted in lieu thereof.

(c) The Guaranty Agreement is hereby amended by releasing each of Edgewood Services, Inc., a New York corporation, Federated Financial Services, Inc., a Pennsylvania corporation, and Federated Securities Corp., a Pennsylvania corporation, as Guarantors thereunder.

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

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

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

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

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

(c) Notes. There shall be delivered to the Agent for the benefit of each Bank which is having its Revolving Credit Commitment amended pursuant to this Amendment a Revolving Credit Note executed by the Borrower which reflects its new Revolving Credit Commitment as set forth on Schedule 1.1 (a) hereto.

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

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

- 2 -

(f) Amendment Fee. The Borrower shall pay to each of the Banks which executes this Amendment on or before January 12, 2005 in immediately available funds an amendment fee equal to five (5) basis points of each Bank’s Revolving Credit Commitment, determined as of the date of this Amendment.

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

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

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

[SIGNATURE PAGES FOLLOW]

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SIGNATURE PAGE 1 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Amendment No. 4 to Second Amended and Restated Credit Agreement and Amendment to Guaranty Agreement as of the date first above written.

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

SIGNATURE PAGE 2 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

PNC BANK, NATIONAL ASSOCIATION individually and as Agent
By:	/s/ Enrico Della Corna
Name:	Enrico Della Corna
Title:	Vice President

SIGNATURE PAGE 3 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

BANK OF AMERICA, NATIONAL ASSOCIATION
By:	/s/ Sean Cassidy
Name:	Sean Cassidy
Title:	Senior Vice President

SIGNATURE PAGE 4 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

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

SIGNATURE PAGE 5 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

JPMORGAN CHASE BANK
By:	/s/ Marybeth Mullen
Name:	Marybeth Mullen
Title:	Vice President

SIGNATURE PAGE 6 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

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

SIGNATURE PAGE 7 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

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

SIGNATURE PAGE 8 OF 8 TO AMENDMENT NO. 4

TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

AND AMENDMENT TO GUARANTY AGREEMENT

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

CONFIRMATION

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

On the date hereof, the Borrower, the Banks and the Agent are entering into that certain Amendment No. 4 to Second Amended and Restated Credit Agreement (the “Amendment”), a copy of which has been provided to the undersigned. This Confirmation is delivered to the Bank pursuant to Section 3(d) of the Amendment.

Pursuant to the Credit Agreement, (i) the Guarantors are party to that certain Continuing Agreement of Guaranty and Suretyship dated as of January 22, 2002 in favor of the Agent for the benefit of the Banks (the “Guaranty Agreement”) and (ii) the Borrower and its Subsidiaries are party to that certain Intercompany Subordination Agreement dated as of January 22, 2002 in favor of the Agent for the benefit of the Banks (the “Intercompany Subordination Agreement”). This Confirmation will confirm to the Agent and the Banks that the undersigned Guarantors and Subsidiaries of the Borrower have read and understand the Amendment which provides for, subject to certain conditions set forth in the Credit Agreement, the extension of the Revolving Credit Expiration Date and the release of Edgewood Services, Inc., Federated Financial Services, Inc. and Federated Securities Corp. as Guarantors under the Guaranty Agreement.

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

This Confirmation is dated as of January 14, 2005.

[SIGNATURE PAGES FOLLOW]

[SIGNATURE PAGE 1 OF 6 OF CONFIRMATION]

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

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

[SIGNATURE PAGE 2 OF 6 OF CONFIRMATION]

FEDERATED INVESTORS TRUST COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Assistant Treasurer
FEDERATED FINANCIAL SERVICES, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer
FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Assistant Treasurer
FEDERATED INTERNATIONAL MANAGEMENT LIMITED
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Director
FEDERATED INVESTORS, INC
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Vice President

[SIGNATURE PAGE 3 OF 6 OF CONFIRMATION]

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

[SIGNATURE PAGE 4 OF 6 OF CONFIRMATION]

FII HOLDINGS, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Director
PASSPORT RESEARCH, LTD.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Assistant Treasurer
FEDERATED INTERNATIONAL HOLDINGS BV
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Director
FEDERATED INTERNATIONAL - EUROPE GMBH
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Director

[SIGNATURE PAGE 5 OF 6 OF CONFIRMATION]

FEDERATED ASSET MANAGEMENT GMBH
By:	/s/ J. Christopher Donahue
Name:	J. Christopher Donahue
Title:	Supervisory Board Member
FEDERATED PRIVATE ASSET MANAGEMENT, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Assistant Treasurer
INVESTLINK TECHNOLOGIES, INC.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Assistant Treasurer
RETIREMENT PLAN SERVICE COMPANY OF AMERICA
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Assistant Treasurer
FEDERATED ADVISORY SERVICES COMPANY
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Assistant Treasurer

[SIGNATURE PAGE 6 OF 6 OF CONFIRMATION]

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

SCHEDULE 1.1(a)

COMMITMENTS OF THE BANKS

Bank	Amount of Commitment for Revolving Credit Loans (US$)		Ratable Share %
PNC Bank, National Association	$	27,500,000	18.333333333	%
Bank of America, National Association	$	22,500,000	15.000000000	%
Citibank, N.A.	$	22,500,000	15.000000000	%
Fifth Third Bank	$	22,500,000	15.000000000	%
JPMorgan Chase Bank	$	22,500,000	15.000000000	%
State Street Bank and Trust Company	$	22,500,000	15.000000000	%
Citizens Bank of Pennsylvania	$	10,000,000	6.666666667	%
TOTAL	$	150,000,000	100.000000000	%

FEDERATED INVESTORS, INC.

INCUMBENCY CERTIFICATION

THE UNDERSIGNED, Joseph M. Huber, the duly elected and qualified Assistant Secretary of Federated Investors, Inc., a Pennsylvania corporation (the “Corporation”) does hereby certify, pursuant to Amendment No. 4 to Second Amended and Restated Credit Agreement as amended among the Corporation, the Banks set forth therein, and PNC Bank, National Association, as Agent for the Banks (the “Credit Agreement”) that:

I. Attached hereto as Exhibit A is a true and correct copy of resolutions of the Board of Directors of the Corporation authorizing the execution and delivery of Amendment No. 4 to the Credit Agreement and the performance by the Corporation of the transactions contemplated thereby. Such resolutions are in full force and effect as of January 13, 2005 and have not been amended, modified or supplemented.

II. Denis McAuley III is authorized to sign and execute Amendment No. 4 to the Credit Agreement, and all other documents related thereto on behalf of the Corporation.

III. Denis McAuley III is authorized to sign and execute the Confirmation, and all other documents related to the Credit Agreement on behalf of the following subsidiaries of the Corporation:

1. Edgewood Services, Inc.;

2. FII Holdings, Inc.;

3. Federated Administrative Services;

4. Federated Administrative Services, Inc.;

5. Federated Advisory Services Company

6. Federated Equity Management Company of Pennsylvania

7. Federated Financial Services, Inc.;

8. Federated Global Investment Management Corp.;

9. Federated Investment Counseling;

10. Federated Investment Management Company;

11. Federated Investors Management Company;

12. Federated Investors Trust Company;

13. Federated Private Asset Management, Inc.;

14. Federated Securities Corp.;

15. Federated Services Company;

16. Federated Shareholder Services Company;

17. InvestLink Technologies, Inc.;

18. Passport Research Ltd.;

19. Passport Research Ltd. II;

20. Retirement Plan Service Company of America

IV. J. Christopher Donahue is authorized to sign and execute all documents related to Amendment No. 4 to the Credit Agreement on behalf of the following entities:

1. Federated Asset Management GmbH;

2. Federated International Holdings, BV;

3. Federated International Management Ltd.; and

4. Federated International-Europe GmbH.

5. Federated Investors (UK) Ltd.

V. J. Christopher Donahue and Denis McAuley III are present incumbents of the Corporation and its subsidiaries as of the date hereof.

VI. The signature set forth opposite the individual’s name is a true and correct signature.

NAME	SIGNATURE
J. Christopher Donahue	/s/ J. Christopher Donahue
Denis McAuley III	/s/ Denis McAuley III

IN WITNESS WHEREOF, the undersigned Assistant Secretary has executed this certificate as of the 13th day of January, 2005.

By:	/s/ Joseph M. Huber
	Assistant Secretary

EXHIBIT A

FEDERATED INVESTORS, INC.

UNANIMOUS CONSENT OF DIRECTORS

The undersigned, being all of the Directors of FEDERATED INVESTORS, INC. (“Corporation”), hereby consent, in accordance with Section 1727 of the Pennsylvania Business Corporation Law of 1988, as amended, and Article IV Section 4.10(b) of the Restated Bylaws of the Corporation to the adoption of the following resolution with the same effect as though it had been adopted at a Meeting of the Board of Directors of the Corporation:

WHEREAS,	the Corporation, the Banks set forth therein and PNC Bank, National Association, as Agent, are parties to that certain Second Amended and Restated Credit Agreement, dated as of January 22, 2002 as amended by Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of April 8, 2002, Amendment No. 2 to the Second Amended and Restated Credit Agreement dated as of January 20, 2003, and Amendment No. 3 to the Second Amended and Restated Credit Agreement dated as of January 16, 2004 (the “Credit Agreement”); and
WHEREAS,	the parties desire to amend the Credit Agreement in consideration of the premises and mutual covenants set forth in Amendment No. 4 to the Credit Agreement (“Amendment No. 4”) dated as of January 14, 2005.
NOW, THEREFORE, be it:
RESOLVED,	that pursuant to the terms of Amendment No. 4, the Board of Directors hereby approves and adopts Amendment No. 4 to the Credit Agreement substantially in the form attached hereto.

FURTHER RESOLVED, that the appropriate officers of the Corporation be, and they hereby are, authorized and directed to execute such documents and take such other actions as they deem necessary or appropriate to carry out the foregoing resolution.

WITNESS the due execution hereof as of the 14^th day of January, 2005.

/s/ John F. Donahue	/s/ John W. McGonigle
John F. Donahue	John W. McGonigle
/s/ J. Christopher Donahue	/s/ James L. Murdy
J. Christopher Donahue	James L. Murdy
/s/ Michael J. Farrell	/s/ Edward G. O’Connor
Michael J. Farrell	Edward G. O’Connor
/s/ David M. Kelly
David M. Kelly

EX-13.01

Exhibit 13.01

SELECTED CONSOLIDATED FINANCIAL DATA

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

The selected consolidated financial data below should be read in conjunction with Federated Investors, Inc. and its subsidiaries’ (Federated) Consolidated Financial Statements and Notes. The selected consolidated financial data (except managed and administered assets) of Federated for the five years ended December 31, 2004, have been derived from the audited Consolidated Financial Statements of Federated. See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements which follow.

Years Ended December 31,	2004		2003		2002		2001		2000
Statement of Income Data1
Total revenue2	$	846,964	$	795,773	$	778,971	$	784,104	$	714,650
Operating income2,3		316,964		307,374		324,300		305,033		263,027
Income from continuing operations before income taxes2,3		289,264		294,333		308,036		252,715		232,363
Income from continuing operations2,3		179,058		188,061		198,769		161,739		148,757
Income from discontinued operations3		2,121		3,424		4,991		6,708		6,603
Net income2,3		181,179		191,485		203,760		168,447		155,360
Share Data
Basic earnings per share1
Income from continuing operations	$	1.66	$	1.74	$	1.77	$	1.41	$	1.27
Income from discontinued operations		0.02		0.03		0.04		0.06		0.06
Net income4		1.68		1.78		1.81		1.46		1.32
Diluted earnings per share1
Income from continuing operations	$	1.62	$	1.68	$	1.69	$	1.35	$	1.22
Income from discontinued operations		0.02		0.03		0.04		0.06		0.05
Net income4		1.64		1.71		1.74		1.40		1.27
Book value per share at period end	$	4.28	$	3.64	$	3.03	$	2.06	$	1.26
Cash dividends per share	$	0.4140	$	0.2970	$	0.2170	$	0.1750	$	0.1387
Weighted-average shares outstanding – basic		107,615		107,839		112,375		115,012		117,557
Weighted-average shares outstanding – assuming dilution		110,410		112,059		117,304		119,992		122,295
Balance Sheet Data at Period End
Total assets	$	954,688	$	879,228	$	795,451	$	693,748	$	704,750
Long-term debt—recourse5		8		542		1,385		0		70,174
Long-term debt—nonrecourse		284,915		327,142		319,328		312,871		323,818
Total liabilities and minority interest		496,935		483,375		454,734		456,651		556,882
Shareholders’ equity		457,753		395,853		340,717		237,097		147,868
Managed and Administered Assets (in millions)
As of period end:
Managed assets	$	179,268	$	197,917	$	195,353	$	179,687	$	139,584
Administered assets		37,164		43,428		34,827		44,684		39,732
Average for the period:
Managed assets		187,820		199,483		189,242		160,593		128,394
Administered assets		41,208		39,513		38,032		41,982		41,966

1 The Consolidated Financial Statements for the years ended December 31, 2004 and 2003 included a $31.2 million and a $21.1 million pretax charge respectively, related to Federated’s internal review and estimated settlement related to past mutual fund trading practices. See Note (23) to the Consolidated Financial Statements for information concerning the review and estimated settlement.

2 Revenue and expenses for the years ended December 31, 2004, 2001 and 2000 included certain Class B share distribution- and financing-related income and expenses. In 2002 and 2003, Federated did not recognize such B-share distribution- and financing-related income or expenses. See Note (1)(k) to the Consolidated Financial Statements.

3 Beginning January 1, 2002, Federated no longer amortizes goodwill which is in accordance with the provisions of Statement of Financial Accounting Standards No.142, “Goodwill and Other Intangible Assets” (SFAS 142).

4 Totals may not sum due to rounding.

5 On December 31, 2001, Federated repaid the remaining balance of its recourse debt which was scheduled to mature in June 2006.

16

MANAGEMENT’S DISCUSSION AND ANALYSIS

of Financial Condition and Results of Operations

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

General

Federated Investors, Inc. (together with its subsidiaries, Federated) is one of the largest investment managers in the United States with $179.3 billion in managed assets as of December 31, 2004. The majority of Federated’s revenue is derived from advising and administering Federated mutual funds, separately managed accounts and other Federated-sponsored products, in both domestic and international markets. Federated also derives revenue from administering mutual funds sponsored by third parties and from providing various other mutual fund-related services, including distribution, shareholder servicing, trade clearing and retirement plan recordkeeping services (collectively, Other Services).

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

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

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

Business Developments

The Consolidated Financial Statements for the years ended December 31, 2004 and 2003 reflect a $31.2 million and $21.1 million pretax charge, respectively, for various legal, regulatory and compliance matters, including costs incurred and estimated to complete Federated’s internal review as well as costs incurred on behalf of the funds. Of these amounts, $17.4 million and $7.6 million, respectively, represent management’s current estimate of the costs relating to an anticipated settlement of governmental investigations concerning market timing and late trading allegations (Settlement Charge). Neither the Securities and Exchange Commission (SEC) nor the New York State Attorney General has passed on the establishment or amount of this Settlement Charge. In order to estimate the accrual for expenses relating to remedying any damages to the Federated Funds, management made assumptions concerning the timing and effort involved to complete the internal review. If actual experience differs significantly from the judgments used to determine the initial estimate, the amount accrued as of December 31, 2004 would be subject to further revision. In addition, Federated’s management is unable to estimate the ultimate impact of any settlement proceedings, including the tax deductibility of these costs, and therefore final resolution of these matters may have a material impact on Federated’s consolidated results of operations, financial position or cash flows.

In the fourth quarter 2004, Federated reached a definitive agreement to acquire the cash management business of Alliance Capital Management L.P. (Alliance). Currently in connection with this acquisition, up to approximately $25 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services is expected to be transitioned into Federated money market funds. This transaction has been approved by the boards of directors of both Federated and Alliance, as well as by each mutual fund’s board of directors/trustees. This transaction, which is expected to close in phases between the first and third quarters of 2005, includes upfront cash payments totaling approximately $25 million due at the transaction closing dates as well as contingent purchase price payments payable over five years. The contingent purchase price payments will be calculated as a percentage of revenue less operating expenses directly attributed to these assets. At the current levels, these additional payments would approximate $68 million over five years. This acquisition will be accounted for using the purchase method of accounting. In the third quarter 2004, assets of four mutual funds previously advised by Banknorth N.A., a subsidiary of Banknorth Group, Inc., totaling approximately $265 million were acquired by four Federated-sponsored mutual funds. This transaction occurred in connection with an agreement between Federated, Banknorth Group, Inc. and Banknorth N.A. In the third quarter 2003, assets of eight mutual funds previously advised by Riggs Investment Advisors, Inc., a subsidiary of Riggs National Corporation, totaling approximately $465 million were acquired by eight Federated-sponsored mutual funds (Riggs Acquisition). This acquisition occurred in connection with an agreement between Federated, Riggs Investment Advisors, Inc., and Riggs Bank N.A. In the second quarter 2002, Federated signed an agreement with

Federated Investors 2004 Annual Report    17

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

FirstMerit Advisors, Inc. and FirstMerit Corporation pursuant to which assets totaling approximately $250 million, previously advised by FirstMerit, were acquired by various Federated funds (FirstMerit Acquisition).

On June 30, 2004, Federated completed the sale of its transfer agency function to an independent third-party provider of these services. The operating results of this business were reported net of tax as discontinued operations on the Consolidated Financial Statements included elsewhere in this report for all periods presented.

Effective January 1, 2004, Federated was no longer responsible for providing accounting services to the Federated-sponsored funds. Rather, the funds began contracting directly with an independent third-party provider of portfolio accounting services. As a result, beginning in 2004, Federated no longer recognizes revenue or third-party expenses in the Consolidated Statements of Income for portfolio accounting services provided to the Federated-sponsored funds. Federated’s revenue in 2003 and 2002 included $16.6 million and $16.3 million, respectively, for these portfolio accounting services.

Since 1997, Federated has funded the payment of commissions on the sale of Class B shares of Federated-sponsored mutual funds by selling its right to future cash flow streams associated with the B-share deferred sales commissions to independent third parties. During this period, these funding arrangements were accounted for as financings or sales based on the terms of the arrangements. Since December 2003, after discussions with the staff at the SEC, Federated has recorded deferred sales commissions and nonrecourse debt in the Consolidated Balance Sheets to reflect financing accounting treatment consistently for all such funding arrangements. Federated previously applied sale accounting treatment to account for the sale of distribution fees (including CDSCs) in the Consolidated Statements of Income for 2003 and 2002. No adjustments were made to the Consolidated Statements of Income for 2003 or 2002 to reflect financing accounting based on materiality. Beginning January 1, 2004, the sale of distribution fees (including CDSCs) are reflected as financing arrangements in the Consolidated Statement of Income. For purposes of evaluating trends in the company’s operating results, management generally excludes the impact of these income and expense items. See Note (9) to the Consolidated Financial Statements for more information regarding Federated’s accounting for B-share funding arrangements.

18

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Asset Highlights

Managed and Administered Assets at Period End

in millions as of December 31,	2004		2003		Percent Change
Managed Assets
By Asset Type
Money market	$	124,302	$	142,773	(13	)%
Fixed-income		25,953		29,517	(12	)%
Equity		29,013		25,627	13	%
Total managed assets	$	179,268	$	197,917	(9	)%
By Product Type
Mutual Funds:
Money market	$	110,559	$	128,878	(14	)%
Fixed-income		21,137		24,004	(12	)%
Equity		25,951		22,817	14	%
Total mutual fund assets		157,647		175,699	(10	)%
Separate Accounts:
Money market		13,743		13,895	(1	)%
Fixed-income		4,816		5,513	(13	)%
Equity		3,062		2,810	9	%
Total separate account assets		21,621		22,218	(3	)%
Total managed assets	$	179,268	$	197,917	(9	)%
Administered Assets	$	37,164	$	43,428	(14	)%

Average Managed and Administered Assets

in millions for the years ended December 31,	2004		2003		2002		2004 vs. 2003		2003 vs. 2002
Average Managed Assets
By Asset Type
Money market	$	134,096	$	149,703	$	145,288	(10	)%	3	%
Fixed-income		27,248		28,931		23,673	(6	)%	22	%
Equity		26,476		20,849		20,281	27	%	3	%
Total average managed assets	$	187,820	$	199,483	$	189,242	(6	)%	5	%
By Product Type
Mutual Funds:
Money market	$	119,745	$	134,413	$	135,506	(11	)%	(1	)%
Fixed-income		22,301		23,869		19,773	(7	)%	21	%
Equity		23,827		18,702		18,483	27	%	1	%
Total average mutual fund assets		165,873		176,984		173,762	(6	)%	2	%
Separate Accounts:
Money market		14,351		15,290		9,782	(6	)%	56	%
Fixed-income		4,947		5,062		3,900	(2	)%	30	%
Equity		2,649		2,147		1,798	23	%	19	%
Total average separate account assets		21,947		22,499		15,480	(2	)%	45	%
Total average managed assets	$	187,820	$	199,483	$	189,242	(6	)%	5	%
Average Administered Assets	$	41,208	$	39,513	$	38,032	4	%	4	%

Federated Investors 2004 Annual Report    19

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

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

	Percentage of Total Average Managed Assets						Percent of Total Revenue
	2004		2003		2002		2004		2003		2002
Money market assets	71	%	75	%	77	%	40	%	48	%	51	%
Fixed-income assets	15	%	15	%	12	%	19	%	20	%	17	%
Equity assets	14	%	10	%	11	%	37	%	27	%	26	%
Other activities	—		—		—		4	%	5	%	6	%

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

Federated grew total and average assets in 2003. Period-end managed assets increased slightly over 2002 period-end managed assets principally as a result of significant growth in total equity assets at a rate of 42% for the year. Equity assets benefited from improved market conditions and strong net sales during the year. Strong fixed-income asset sales in the first half of 2003 also contributed to overall growth in assets in 2003. Money market assets declined during the year as the rate advantage from the Federal Reserve Bank easings in late 2002 and in the first half of 2003 dissipated and as equity markets improved during the second half of 2003. Average managed assets grew 5% in 2003 due in large part to significant growth in fixed-income assets during the latter half of 2002 and the first half of 2003. Average equity assets also grew 3% in 2003 primarily as a result of market appreciation and to a lesser extent, positive net sales in equity fund assets during 2003. Money market average assets grew 3% in 2003 and ended the year with an average of $149.7 billion in assets.

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

in millions for the years ended December 31,	2004			2003			Percent Change
Equity Funds
Beginning assets	$	22,817		$	16,240		40	%
Sales		5,972			6,320		(6	)%
Redemptions		(5,532	)		(5,208	)	6	%
Net sales		440			1,112		(60	)%
Net exchanges		257			298		(14	)%
Acquisition related		105			47		123	%
Other1		2,332			5,120		(54	)%
Ending equity fund assets	$	25,951		$	22,817		14	%
Fixed-Income Funds
Beginning assets	$	24,004		$	22,169		8	%
Sales		7,719			14,206		(46	)%
Redemptions		(11,209	)		(13,134	)	(15	)%
Net (redemptions) sales		(3,490	)		1,072		(426	)%
Net exchanges		11			(362	)	103	%
Acquisition related		220			118		86	%
Other1		392			1,007		(61	)%
Ending fixed-income fund assets	$	21,137		$	24,004		(12	)%

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

20

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Federated’s investment products are primarily distributed in four markets. These markets and the relative percentage of managed assets at December 31, 2004 attributable to such markets are as follows: trust market (49%), broker/dealer market (27%), institutional market (13%) and international market (2%).

Results of Operations

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

in millions	2004		2003		2002		2004 vs. 2003		2003 vs. 2002
Revenue from managed assets
Investment advisory fees, net	$	546.2	$	528.4	$	516.4	3	%	2	%
Administrative service fees, net		121.9		129.6		127.9	(6	)%	1	%
All other, net		139.8		99.9		96.8	40	%	3	%
Revenue from managed assets		807.9		757.9		741.1	7	%	2	%
Revenue from sources other than managed assets		39.1		37.9		37.9	3	%	0	%
Total revenue	$	847.0	$	795.8	$	779.0	6	%	2	%

Revenue from managed assets increased $50.0 million in 2004 as compared to 2003 due to 1) an increase of $69.6 million resulting from significant asset growth in average equity assets under management, 2) a $49.0 million increase in “Other service fees, net – affiliates” relating to the application of financing treatment in 2004 to account for all B-share funding arrangements, 3) a $3.0 million reduction in advisory fee waivers due to reduced portfolio accounting expenses of the funds, offset by 4) a reduction in fixed-income and money market assets resulted in a $56.8 million decrease in revenue from managed assets, 5) a $16.3 million reduction in “Other service fees, net – affiliates” due to changes in the Federated-fund-related portfolio accounting contracts effective for 2004 and 6) a reduction of $1.4 million in “Other service fees, net – affiliates” due to the accrual for the return of shareholder service fees to various Federated funds resulting from an administrative delay in the implementation of contractual terms.

Revenue from managed assets increased $16.8 million in 2003 as compared to 2002. Significant asset growth in equity and fixed-income products contributed to an increase in revenue from managed assets of $32.8 million while a reduction in money market assets resulted in a $10.9 million decrease in revenue from managed assets. Revenue from managed assets grew to a lesser degree than growth in average assets due to a higher composition of money market and fixed-income products.

Revenue from sources other than managed assets increased $1.2 million in 2004 as compared to 2003 and remained flat in 2003 as compared to 2002. The increase in 2004 primarily reflects increased revenue of $2.7 million resulting from increased assets for clearing and retirement services partially offset by a decrease of $2.1 million due to a reduction in the number of bank clients for fund administration and accounting services. Management estimates a $7.3 million reduction in revenue from sources other than managed assets in 2005 as compared to 2004 as a direct result of these reductions in the number of bank clients for fund administration and accounting services. These reductions will be partially offset by revenue from managed assets to be earned on certain previously administered assets acquired by Federated in 2004 and a reduction in related marketing and distribution expenses. After giving consideration to these offsets, management expects the net reduction in operating income resulting from these client changes to approximate $5.5 million for 2005 as compared to 2004.

Future revenue may be adversely affected by the recent and ongoing increased scrutiny by regulators and the financial press on fee levels associated with the mutual fund industry.

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

in millions	2004		2003		2002		2004 vs. 2003		2003 vs. 2002
Compensation and related	$	171.8	$	169.7	$	165.4	1	%	3	%
Marketing and distribution		156.4		156.1		146.2	0	%	7	%
Amortization of deferred sales commissions		55.7		14.9		14.5	274	%	3	%
Amortization of intangible assets		10.7		10.5		11.2	2	%	(6	)%
Other		135.4		137.2		117.4	(1	)%	17	%
Total operating expenses	$	530.0	$	488.4	$	454.7	9	%	7	%

The Consolidated Financial Statements for the years ended December 31, 2004 and 2003 reflect a $31.2 million and $21.1 million pretax charge, respectively, for various legal, regulatory and compliance matters, including costs incurred and estimated to complete Federated’s internal review as well as costs incurred on behalf of the funds. Of these amounts, $17.4 million and $7.6 million, respectively, relate to the Settlement Charge. Neither the SEC nor the New York State Attorney General has passed on the

Federated Investors 2004 Annual Report    21

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

establishment or amount of this Settlement Charge. In order to estimate the accrual for expenses relating to remedying any damages to the Federated Funds, management made assumptions concerning the timing and effort involved to complete the internal review. If actual experience differs significantly from the judgments used to determine the initial estimate, the amount accrued as of December 31, 2004 would be subject to further revision. In addition, Federated’s management is unable to estimate the ultimate impact of any settlement proceedings, including the tax deductibility of these costs, and therefore final resolution of these matters may have a material impact on Federated’s consolidated results of operations, financial position or cash flows.

Total operating expenses for 2004 increased 9% or $41.6 million over 2003. Compensation and related expense increased $2.1 million in 2004 over 2003 due to 1) a $1.8 million increase in the accrual for contingent incentive compensation associated with the acquisition of substantially all of the business of the former advisor of the Kaufmann Fund (Kaufmann Acquisition), 2) a $2.2 million increase in other bonus programs, 3) a $1.7 million increase in employer-related taxes due principally to the exercise of options and taxable transfer of restricted stock, 4) a $1.1 million increase in salary levels, offset by 5) a $5.5 million reduction relating to a new bonus program available to certain employees in 2004, pursuant to which a portion of the bonus earned in 2004 will be paid out in the form of restricted stock to be granted in the first quarter 2005 with a three-year prospective vesting term.

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

All other expenses decreased $1.8 million in 2004 as compared to 2003. This decrease relates primarily to decreases in “Professional service fees,” “Advertising and promotional” and “Office and Occupancy” partially offset by an increase in “Other.” The $10.4 million decrease in “Professional service fees” is composed primarily of a $13.7 million decrease related to the elimination of portfolio accounting expenses resulting from changes in the Federated-fund-related contracts partially offset by an increase of $2.9 million due to increased legal fees. The $2.0 million decrease in “Advertising and promotional” was due primarily to a $0.9 million reduction in marketing materials expense primarily as a result of decreased sales and a $1.0 million decrease in Federated’s advertising campaign. The $2.8 million decrease in “Office and occupancy” was due to: 1) a decrease of $1.4 million caused by an amendment in early 2004 to the building lease for Federated’s corporate headquarters which included the surrender of certain floors and resulted in the reversal of unamortized balances of related refurbishment allowances and deferred rent associated with these surrendered floors, 2) a $0.7 million decrease in postage expenses associated with the internal investigation into past mutual fund trading activities and 3) a $0.7 million decrease in depreciation expense due to certain capitalized projects becoming fully depreciated in 2004. The $13.7 million increase in “Other” is composed primarily of 1) a $9.8 million increase as a result of the Settlement Charge, 2) a $1.9 million charge to return shareholder service fees to various Federated funds resulting from an administrative delay in the implementation of contractual terms, and 3) a $1.7 million charge for remedial actions related to various fund transactions and trading issues.

Total operating expenses for 2003 increased 7% or $33.7 million over 2002. Compensation and related expense increased $4.3 million in 2003 over 2002. This increase relates to 1) a $2.3 million increase in the accrual for contingent incentive compensation associated with the Kaufmann Acquisition, 2) a $3.9 million increase related to other bonus programs, offset by 3) a decrease of $2.3 million due to the outsourcing of Federated’s mutual fund legal staff in 2002.

The 7% increase in marketing and distribution expense primarily reflects an increase of $7.5 million due to increases in the cost of distributing Federated products through intermediaries during the year, an increase of $3.7 million related to increased equity and fixed-income assets, partially offset by a decrease of $3.3 million related to decreased money market assets. Other operating expenses for 2003 included a $21.1 million charge for the internal review and estimated settlement related to past mutual fund trading practices, which was primarily recorded in “Professional service fees” ($12.5 million) and “Other” ($7.6 million Settlement Charge).

Nonoperating Income (Expenses). The following table sets forth nonoperating income (expenses) for the three years ended December 31:

in millions	2004			2003			2002			Note Reference
Collateralized Debt Obligation (CDO) impairments	$	0		$	0		$	(1.8	)	(3)
Performance seed investment losses		0			0			(0.2	)
All other nonoperating expenses, net		(17.7	)		(2.8	)		(3.4	)
Total nonoperating expenses, net	$	(17.7	)	$	(2.8	)	$	(5.4	)

Federated’s total net nonoperating expense increased $14.9 million in 2004 as compared to 2003 primarily as a result of applying financing treatment in 2004 to account for all B-share funding arrangements, which increased expense by $16.8 million in 2004 and was partially offset by a $1.4 million increase in dividend income.

Federated reported total net nonoperating expenses of $2.8 million for 2003 as compared to $5.4 million for 2002. Of the $2.6 million decline in net nonoperating expenses for 2003, $2.0 million related to investment losses recognized in 2002 for other-than-temporary

22

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

and realized declines in the fair values of certain of Federated’s CDO and performance seed investments. The remaining $0.6 million decrease in net nonoperating expenses for 2003 primarily relates to realized losses of $0.7 million on the sale of trading securities in 2002, partially offset by $0.1 million in lower interest and dividend income in 2003.

Income Taxes on Continuing Operations. The income tax provision for continuing operations for 2004, 2003 and 2002 was $110.2 million, $106.3 million and $109.3 million, respectively. The change in the provision for 2004 as compared to 2003 is primarily due to the non-deductible portion of the Settlement Charge ($3.5 million) and increased state taxes ($3.1 million) whereas the change in the provision for 2003 as compared to 2002 primarily reflects changes in the level of income from continuing operations before income taxes. The effective tax rate was 38.1% for 2004, 36.1% for 2003 and 35.5% for 2002.

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

in millions, except per share data	2004		2003		2002		2004 vs. 2003		2003 vs. 2002
Income from continuing operations	$	179.1	$	188.1	$	198.8	(5	)%	(5	)%
Income from discontinued operations		2.1		3.4		5.0	(38	)%	(31	)%
Net income		181.2		191.5		203.8	(5	)%	(6	)%
Diluted earnings per share:
Income from continuing operations	$	1.62	$	1.68	$	1.69	(4	)%	(1	)%
Income from discontinued operations	$	0.02	$	0.03	$	0.04	(33	)%	(25	)%
Net income1	$	1.64	$	1.71	$	1.74	(4	)%	(2	)%
Weighted-average shares outstanding – assuming dilution		110.4		112.1		117.3	(1	)%	(4	)%

1 Totals may not sum due to rounding.

Income from continuing operations decreased 5% or $9.0 million in 2004 as compared to 2003 primarily as a result of the changes in revenues and expenses noted above. In 2004, diluted earnings per share for income from continuing operations decreased 4% or $0.06 per diluted share as the impact of decreased income from continuing operations was slightly offset by lower weighted-average diluted shares outstanding.

Income from continuing operations decreased 5% or $10.7 million in 2003 as compared to 2002 primarily as a result of the changes in revenues and expenses noted above. In 2003, diluted earnings per share for income from continuing operations decreased 1% or $0.01 per diluted share from 2002 as the impact of decreased income from continuing operations was largely offset by lower weighted-average diluted shares outstanding.

Income from Discontinued Operations. Discontinued operations reflect the sale of Federated’s transfer agency business on June 30, 2004. The sale did not result in a material gain or loss on disposal. For the years ended December 31, 2004, 2003, and 2002, Federated reported income from discontinued operations of $2.1 million, $3.4 million and $5.0 million, respectively, which primarily reflects the after-tax results of operations of the sold business (see Note (2) to the Consolidated Financial Statements).

Liquidity and Capital Resources

At December 31, 2004, liquid assets, consisting of cash and cash equivalents, marketable securities and receivables, totaled $292.1 million as compared to $272.3 million in 2003. The balance at the end of 2004 was higher than the balance at the end of 2003 as a result of cash generated by operations during 2004. Federated also had a B-share funding arrangement with an independent third party and $150.0 million available for borrowings under its credit facility as of December 31, 2004 (see Notes (8) and (9) to the Consolidated Financial Statements).

Operating Activities. Net cash provided by operating activities totaled $297.0 million for 2004 as compared to $248.8 million for 2003. The change in 2004 to financing accounting treatment of all B-share funding arrangements resulted in the elimination of proceeds from sale of certain B-share-related future revenues and was the primary cause of the significant increases in both the amortization of deferred sales commissions ($40.8 million) and the contingent deferred sales charges received ($24.5 million). Deferred sales commissions paid decreased $26.3 million primarily as a result of reduced sales of the B-share asset class. An increase of $36.0 million in the tax benefit from stock-based compensation resulted from the vesting and employee tax realization of 1.9 million shares of restricted stock and the exercise of 2.1 million options during the year. This tax benefit was recorded as an increase to “Class B Common Stock”, and due to the nature of the calculation of estimated federal income taxes, served to increase “Prepaid and other current assets” as of December 31, 2004. Cash provided by operating activities for the year ended December 31, 2004 also included the receipt of $16.5 million related to an insurance recovery for a claim submitted to cover costs associated with the internal review into past mutual fund trading practices (see Note (7) to the Consolidated Financial Statements).

Federated Investors 2004 Annual Report    23

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Investing Activities. In 2004, Federated used $71.8 million for investing activities. Of this amount, Federated paid $66.2 million in contingent purchase price payments related to the Kaufmann Acquisition, which resulted in additional goodwill. In addition, Federated paid $5.5 million to acquire property and equipment, $3.5 million of which was computer related.

Financing Activities. In 2004, Federated used $201.5 million for financing activities. Of this amount, Federated used $119.6 million to repurchase 4.1 million shares of Class B common stock in the open market and in private transactions under the stock repurchase program. As of December 31, 2004, Federated can repurchase an additional 5.8 million shares through its authorized programs through December 31, 2006.

Federated paid dividends to holders of its common stock in 2004 equal to $44.7 million or $0.414 per share. Federated’s board of directors declared a dividend of $0.125 per share, effective February 3, 2005, that was paid on February 28, 2005.

Stock repurchases and dividend payments are subject to restrictions under the Second Amended and Restated Credit Agreement, as amended. These restrictions limit cash payments for additional stock repurchases and dividends to 50% of net income from January 1, 2000 to and including the payment date. After considering earnings through December 31, 2004 Federated, given current debt covenants as disclosed in the Subsequent Events footnote (Note (24) to the Consolidated Financial Statements), has the ability to make additional stock repurchase or dividend payments of more than $137 million.

Contractual Obligations and Contingent Liabilities

Contractual. The following table presents as of December 31, 2004, Federated’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent amounts contractually due to the recipient and do not include any unamortized discounts or other similar carrying value adjustments. Further discussion of the nature of each obligation is included either in the referenced Note to the Consolidated Financial Statements or in a footnote to the table.

in millions	Note Reference	Payments due in								Total
		2005		2006-2007		2008-2009		After 2009
Capital lease obligations	(8)	$	0.6	$	0	$	0	$	0	$	0.6
Operating lease obligations	(13)		13.1		23.9		18.6		39.1		94.7
Purchase obligations1			10.7		12.5		0.8		0		24.0
Employment-related commitments2			5.0		1.5		0		0		6.5
Kaufmann contingent payment	(4)		29.5		0		0		0		29.5
Total		$	58.9	$	37.9	$	19.4	$	39.1	$	155.3

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

2 Federated has certain domestic and international employment arrangements pursuant to which Federated is obligated to make minimum compensation payments. These contracts expire on various dates through the year 2007.

Pursuant to various acquisition agreements entered into by Federated in 2001, 2002 and 2003, Federated may be required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In 2001, Federated completed the Kaufmann Acquisition. In addition to the upfront purchase price paid at the date of the acquisition, the acquisition agreement provides for additional payments based upon the achievement of specified revenue growth through April 2007. As of December 31, 2004, $29.5 million of contingent payments have been accrued in “Other current liabilities—affiliates” to be paid in 2005. In addition to the $29.5 million accrued at December 31, 2004, Federated could pay an additional $50.1 million between 2005 and 2007 as contingent payments if revenue targets are met.

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

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

24

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

counsel for the Federated mutual funds, participated in the review and reported on its progress to the independent directors of the funds.

In February 2004, the Company announced that the special investigative committee of the Board of Directors had substantially completed its assessment of the impact of past mutual fund trading issues. Based upon the findings of the internal review and of an independent expert retained by the Federated mutual funds, Federated paid restoration of $8.0 million (of which a $7.6 million Settlement Charge was recorded in 2003) to compensate for the detrimental impact from the improper trading activities identified in the review. Federated has substantially completed its review of information relating to trading activities.

Federated announced on January 24, 2005 that it was in settlement discussions with the SEC and New York State Attorney General.

The Consolidated Financial Statements for the years ended December 31, 2004 and 2003 reflect a $31.2 million and $21.1 million pretax charge, respectively, for various legal, regulatory and compliance matters, including costs incurred and estimated to complete Federated’s internal review as well as costs incurred on behalf of the funds. Of these amounts, $17.4 million and $7.6 million, respectively, relate to the Settlement Charge. Neither the SEC nor the New York State Attorney General has passed on the establishment or amount of this Settlement Charge. In order to estimate the accrual for expenses relating to remedying any damages to the Federated Funds, management made assumptions concerning the timing and effort involved to complete the internal review. If actual experience differs significantly from the judgments used to determine the initial estimate, the amount accrued as of December 31, 2004 would be subject to further revision. In addition, Federated’s management is unable to estimate the ultimate impact of any settlement proceedings, including the tax deductibility of these costs, and therefore final resolution of these matters may have a material impact on Federated’s consolidated results of operations, financial position or cash flows.

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

The six excessive fee cases were originally filed in four different federal courts and one state court. Four of the federal cases are now pending in the U.S. District Court for the Western District of Pennsylvania. The fifth federal case was pending in the Western District of Tennessee as of December 31, 2004, but on February 15, 2005, the court granted Federated’s motion to transfer that case to the Western District of Pennsylvania. A state court case was voluntarily dismissed by the plaintiff without prejudice.

In addition to the market timing and excessive fee litigation, certain Federated entities have recently been named defendants in a new class action filed in the U.S District Court for the Eastern District of Pennsylvania. Plaintiffs in this case claim that Federated has failed to ensure that the Federated Funds participated in class action settlements for which they were eligible.

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

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

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

In September 2004, a wholly owned subsidiary of Federated entered into a discretionary line of credit agreement with a bank under which it can borrow up to $50 million for the payment of obligations associated with daily net settlements of mutual funds processed through the National Securities Clearing Corporation. Borrowings under this 364-day agreement bear interest at a rate mutually agreed

Federated Investors 2004 Annual Report    25

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

upon by the bank and the borrower at the time of the borrowing and are payable on demand. At December 31, 2004, the outstanding balance under this agreement was zero. Federated guarantees the payment of any obligation owed by the subsidiary in connection with this line of credit.

Variable Interest Entities

In 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities,” (FIN 46). FIN 46 provides guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. Under FIN 46, a VIE must be consolidated by the entity that will absorb a majority of the VIE’s expected losses and/or receive a majority of the VIE’s expected residual returns. The consolidating entity is referred to as the primary beneficiary of the VIE.

At December 31, 2004, Federated acted as the investment manager for two high-yield CDO products and a mortgage-backed CDO product pursuant to the terms of an investment management agreement between Federated and each CDO. The CDOs are alternative investment vehicles created in 1999 and 2000 for the sole purpose of issuing collateralized debt instruments that offer investors the opportunity for returns that vary with the risk level of their investment. Certain securities issued by the CDOs are subject to greater risk than traditional investment products. The notes issued by the CDOs are backed by diversified portfolios consisting primarily of structured debt and had original expected maturities of five to twelve years. As a result of their corporate governance, the CDOs meet the definition of a VIE under FIN 46. After performing an expected cash flow analysis for each CDO, management determined that Federated is not the primary beneficiary of the CDOs as defined by FIN 46 and thus has not consolidated the financial condition and results of operations of these CDOs in Federated’s Consolidated Financial Statements. As of December 31, 2004, aggregate total assets and aggregate total obligations of the CDOs approximated $1 billion, respectively.

Federated holds an investment in each CDO, which exposes it to risk of loss to the extent of the carrying value of the investments. As of December 31, 2004, the remaining $0.6 million carrying value of one of these investments represented Federated’s maximum exposure to loss over the remaining life of the CDOs. In January 2005, this investment was liquidated for $0.7 million.

In addition, a number of Federated-sponsored investment products, including offshore money market and fluctuating-value fund products, closed-end fixed-income funds and a group trust meet the definition of VIEs under FIN 46. Federated is not the primary beneficiary of these VIEs and therefore Federated has not consolidated these entities. As of December 31, 2004, total assets under management in these investment products approximated $9 billion. Federated’s investments in these products represent its maximum exposure to loss. As of December 31, 2004, Federated’s investment in these investment products was $25.3 million, of which $25.1 million was invested in Irish-domiciled money market funds.

Recent Accounting Pronouncements

In December 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities”. In accordance with the applicable transition provisions, management applied a two-step approach to its adoption of FIN 46. As of December 31, 2003, management adopted the provisions of FIN 46 for all special-purpose entities and concluded that its relationship with the CDO products, for which Federated acts as investment manager, met the definition of significant variable interests. As of March 31, 2004, management completed its analysis of the impact of adopting FIN 46 to account for any additional VIEs with which Federated is involved. The adoption did not have a material impact on Federated’s results of operations or financial position. See Note (19) Variable Interest Entities for a discussion regarding Federated’s significant variable interests as of December 31, 2004.

On December 16, 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), “Share-Based Payment,” which is a revision of SFAS 123, “Accounting for Stock-Based Compensation”. SFAS 123(R) supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and amends SFAS 95, “Statement of Cash Flows.” Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123, which as discussed in Note (1)(o), Federated adopted on a prospective basis as of January 1, 2003. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123(R) must be adopted no later than the first interim or annual period beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued.

SFAS 123(R) permits public companies to adopt its requirements using one of two methods. (1) A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date. (2) A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

26

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Federated plans to adopt SFAS 123(R) no later than July 1, 2005, but has not yet determined which method of adoption it will use. Federated adopted the fair-value-based method of accounting for share-based payments effective January 1, 2003 using the prospective method described in SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Currently, Federated uses the Black-Scholes formula to estimate the value of stock options granted to employees and expects to continue to use this acceptable option valuation model upon the required adoption of SFAS 123(R). Because SFAS 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and because Federated adopted SFAS 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for certain previously granted awards that were not recognized under SFAS 123 will be recognized under SFAS 123(R). However, had Federated adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note (1)(o). SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While Federated cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such tax deductions were $39.5 million, $3.5 million, and $0.1 million in 2004, 2003 and 2002, respectively.

In December 2004, the FASB issued Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004” (FSP 109-2) which provides guidance with respect to reporting the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004. FSP 109-2 allows additional time beyond the financial reporting period to evaluate the effects under which the repatriation of certain foreign earnings will qualify for preferential tax treatment. See Note (14) to the Consolidated Financial Statements for the required disclosure of FSP 109-2.

Critical Accounting Policies

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

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

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

The level, if any, of impairment of customer-related intangible assets, such as investment advisory contract intangible assets, is highly dependent upon the remaining level of managed assets acquired in connection with an acquisition. Approximately 80% of the carrying value of Federated’s customer-related intangible assets as of December 31, 2004 relates to a single renewable investment advisory contract with one fund. Consecutive annual declines in the managed asset balance in this particular fund in excess of 60% over its remaining useful life could have a considerable impact on the underlying value of Federated’s customer-related intangible assets. To date, the actual compound annual rate of change in the acquired assets in this fund since the acquisition in 2001 has been more favorable than the assumed rate. No changes have been made to this estimate in the current year.

Accounting for Income Taxes. Significant management judgment is required in developing Federated’s provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. As of December 31, 2004, Federated had not recorded a valuation allowance on the $6.6 million deferred tax asset relating to Federated’s CDO other-than-temporary impairment losses. In January 2005, Federated’s investment in one CDO was liquidated. Federated considered the following facts in connection with its evaluation of the realizability of the deferred tax asset: (1) the majority of the impairment losses have not been realized for tax purposes, (2) the actual amount of capital loss associated with Federated’s remaining investment in the CDOs will not be known until such time as those investments are either redeemed by the CDOs or sold by Federated, (3) the January 2005 liquidation of Federated’s investment in one of the CDOs resulted in the realization of $0.6 million of the deferred tax asset which may be offset within the 2005 tax year before recognition as a capital loss carryforward, (4) the carry-forward period for capital losses is five years, and (5) Federated has historically generated capital gains in times of favorable market

Federated Investors 2004 Annual Report    27

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

conditions. Based on these factors, management believes it is more likely than not that Federated will be able to utilize these losses in the future. In the event that Federated’s preliminary strategies do not materialize, Federated may be required to record a valuation allowance of as much as $6.6 million for these deferred tax assets.

Accounting for Stock-Based Employee Compensation. In 2003, Federated adopted the fair-value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation” as amended by SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” for employee stock-based compensation for all stock-based awards granted, modified or settled on or after January 1, 2003. Awards granted prior to 2003 continue to be accounted for using the intrinsic-value method prescribed by APB 25, “Accounting for Stock Issued to Employees.”

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

in millions, except per share data	2004			2003			2002
Net income	$	181.2		$	191.5		$	203.8
Add back: Stock-based employee compensation expense included in reported net income, net of related tax effects		0.5			0.2			0.0
Deduct: Total stock-based employee compensation expense determined under fair-value-based method for all awards1, net of related tax effects		(2.9	)		(5.6	)		(7.8	)
Pro forma net income	$	178.8		$	186.1		$	196.0
Earnings per share:
Basic earnings per share	$	1.68		$	1.78		$	1.81
Pro forma basic earnings per share	$	1.66		$	1.73		$	1.74
Diluted earnings per share	$	1.64		$	1.71		$	1.74
Pro forma diluted earnings per share	$	1.62		$	1.66		$	1.67

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

Federated estimated the grant-date fair value using the Black-Scholes option-pricing model with the following weighted-average assumptions for options granted in 2004, 2003 and 2002, respectively: dividend yields of 1.34%, 1.03% and 0.72%; expected volatility factors of 24.9%, 27.8% and 28.4%; risk-free interest rates of 3.69%, 2.77% and 4.22%; and an expected life of 5.6 years, 5.0 years and 6.7 years.

The effects of applying SFAS 123 on the pro forma disclosures may not be representative of the effects on pro forma disclosures for future years.

Accounting for Loss Contingencies. In accordance with SFAS 5, “Accounting for Contingencies,” Federated accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that a liability has been incurred and the costs can be reasonably estimated. Accruals are reviewed at least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter. Significant differences could exist between the actual cost required to investigate, litigate and/or settle a claim or the ultimate outcome of a suit and management’s estimate. These differences could have a material impact on Federated’s results of operations, financial position or cash flows.

Certifications

J. Christopher Donahue and Thomas R. Donahue have provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002. These certifications are included as Exhibit 31.01 of Federated’s Form 10-K for the year ended December 31, 2004. As required by the New York Stock Exchange (NYSE), on May 18, 2004, J. Christopher Donahue submitted his annual certification to the NYSE as required by Section 303A.12 of the NYSE Corporate Governance Rules.

28

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Market Risk – Investments. In the normal course of our business, Federated is exposed to the risk of loss due to fluctuations in the securities market and general economy. Management is responsible for identifying, assessing and managing market and other risks. Federated’s securities investments are primarily money market funds and mutual funds with investments which have a duration of two years or less. Federated also invests in mutual funds sponsored by Federated (initial seedings) in order to provide investable cash to the fund thereby allowing the fund to establish a performance history. Federated may use derivative financial instruments to hedge these investments. At December 31, 2004, Federated was exposed to price risk with regard to its $1.0 million of investments in fluctuating-value mutual funds. Price risk is the risk that the fair value of the investments will decline and ultimately result in the recognition of a loss for Federated. At December 31, 2004, Federated also held a $0.5 million investment in the common stock of large-cap companies which exposed it to price risk. Federated did not hold any derivative investments at December 31, 2004.

During 2002, Federated recorded a $1.8 million pretax impairment charge related to an other-than-temporary decline in the fair value of its investment in its mortgage-backed CDO product. Federated’s remaining investment in this product, which totaled $0.6 million at December 31, 2004, is subject to interest rate risk and may be adversely affected by increases in interest rates. In January 2005, this investment was liquidated for $0.7 million.

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

Approximately 40% of Federated’s revenue in 2004 was from managed assets in money market products. After reaching record lows, short-term interest rates began to rise in 2004 and are expected to continue to increase. In a rising rate environment, certain institutional investors using money market funds and other short-term duration fixed-income products for cash management purposes may shift these investments to direct investments in comparable instruments in order to realize higher yields than those available in money market and other fund products holding lower-yielding instruments. In addition, rising interest rates will tend to reduce the market value of bonds held in various mutual fund portfolios and other products. Thus, increases in interest rates could have an adverse effect on Federated’s revenue from money market funds and from other fixed-income products.

For further discussion of managed assets and factors that impact Federated’s revenue, see the sections entitled “General,” “Asset Highlights” and “Contractual Obligations and Contingent Liabilities” herein as well as the sections entitled “Regulatory Matters” and “Risk Factors and Cautionary Statements” in Federated’s Annual Report on Form 10-K for the year ended December 31, 2004 on file with the Securities and Exchange Commission.

Federated Investors 2004 Annual Report    29

MANAGEMENT’S ASSESSMENT OF INTERNAL CONTROL OVER FINANCIAL REPORTING

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

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

Management assessed the effectiveness of Federated’s internal control over financial reporting as of December 31, 2004, in relation to criteria for effective internal control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2004, its system of internal control over financial reporting is properly designed and operating effectively to achieve the criteria of the “Internal Control – Integrated Framework.” Ernst & Young LLP, independent registered public accounting firm, has audited the consolidated financial statements included in this annual report and has issued an audit report on management’s assessment of Federated’s internal control over financial reporting.

Federated Investors, Inc.
J. Christopher Donahue	Thomas R. Donahue
President and Chief Executive Officer	Chief Financial Officer

March 2, 2005

30

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,

ON CONSOLIDATED FINANCIAL STATEMENTS

The Shareholders and Board of Directors

Federated Investors, Inc.

We have audited the accompanying consolidated balance sheets of Federated Investors, Inc. and subsidiaries (Federated) as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of Federated’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federated Investors, Inc. and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Federated Investors, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2005, expressed an unqualified opinion thereon.

Pittsburgh, Pennsylvania

March 2, 2005

Federated Investors 2004 Annual Report    31

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM,

ON EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING

The Shareholders and Board of Directors

Federated Investors, Inc.

We have audited management’s assessment, included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting, that Federated Investors, Inc. maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Federated Investors, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, management’s assessment that Federated Investors, Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Federated Investors, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Federated Investors, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004, of Federated Investors, Inc. and our report dated March 2, 2005, expressed an unqualified opinion thereon.

Pittsburgh, Pennsylvania

March 2, 2005

32

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

December 31,	2004			2003
Current Assets
Cash and cash equivalents	$	256,213		$	232,464
Marketable securities		2,058			1,526
Receivables—affiliates		30,790			33,196
Receivables—other, net of reserve of $52 and $289, respectively		3,037			5,065
Accrued revenue—affiliates		1,146			958
Accrued revenue—other		6,078			6,041
Current deferred tax asset, net		8,916			3,545
Prepaid and other current assets		14,262			8,537
Total current assets		322,500			291,332
Long-Term Assets
Goodwill		260,045			165,007
Intangible assets, net		51,929			61,261
Deferred sales commissions, net of accumulated amortization of $298,033 and $240,657, respectively		286,650			327,717
Property and equipment, net		27,166			30,892
Other long-term assets		6,398			3,019
Total long-term assets		632,188			587,896
Total assets	$	954,688		$	879,228
Current Liabilities
Cash overdraft	$	3,811		$	4,629
Current portion of long-term debt—recourse		533			1,043
Current portion of long-term debt—nonrecourse		3,016			0
Accrued compensation and benefits		42,603			51,412
Accounts payable and accrued expenses—affiliates		10,263			10,217
Accounts payable and accrued expenses—other		62,496			59,491
Income taxes payable		2,171			1,819
Other current liabilities—affiliates		29,468			0
Other current liabilities—other		21,006			1,790
Total current liabilities		175,367			130,401
Long-Term Liabilities
Long-term debt—recourse		8			542
Long-term debt—nonrecourse		284,915			327,142
Long-term deferred tax liability, net		23,479			19,614
Other long-term liabilities—affiliates		4,000			0
Other long-term liabilities—other		8,580			5,116
Total long-term liabilities		320,982			352,414
Total liabilities		496,349			482,815
Minority interest		586			560
Commitments and contingencies (Note (23))
Shareholders’ Equity
Common stock:
Class A, no par value, 20,000 shares authorized, 9,000 issued and outstanding		189			189
Class B, no par value, 900,000,000 shares authorized, 129,505,456 shares issued		137,401			87,932
Additional paid-in capital from treasury stock transactions		0			3,809
Retained earnings		865,348			749,410
Treasury stock, at cost, 22,505,641 and 20,849,698 shares Class B common stock, respectively		(536,446	)		(445,153	)
Employee restricted stock awards		(9,268	)		(706	)
Accumulated other comprehensive income, net of tax		529			372
Total shareholders’ equity		457,753			395,853
Total liabilities, minority interest, and shareholders’ equity	$	954,688		$	879,228

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

Federated Investors 2004 Annual Report    33

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

Years Ended December 31,	2004			2003			2002
Revenue
Investment advisory fees, net—affiliates	$	527,237		$	511,618		$	503,409
Investment advisory fees, net—other		18,930			16,752			13,000
Administrative service fees, net—affiliates		121,847			129,612			127,862
Administrative service fees, net—other		14,004			15,261			17,544
Other service fees, net—affiliates		134,428			95,021			93,510
Other service fees, net—other		23,036			19,826			18,514
Other, net		7,482			7,683			5,132
Total revenue		846,964			795,773			778,971
Operating Expenses
Compensation and related		171,846			169,749			165,417
Marketing and distribution		156,442			156,093			146,235
Professional service fees		34,900			45,254			27,530
Office and occupancy		21,737			24,507			24,029
Systems and communications		19,562			19,326			20,555
Advertising and promotional		15,391			17,437			21,323
Travel and related		12,259			12,864			12,655
Amortization of deferred sales commissions		55,716			14,911			14,513
Amortization of intangible assets		10,673			10,494			11,215
Other		31,474			17,764			11,199
Total operating expenses		530,000			488,399			454,671
Operating income		316,964			307,374			324,300
Nonoperating Income (Expenses)
Interest and dividends		3,385			1,962			2,057
Gain/(loss) on securities, net		37			4			(2,547	)
Debt expense—recourse		(373	)		(491	)		(484	)
Debt expense—nonrecourse		(20,655	)		(4,215	)		(4,304	)
Other, net		(143	)		(95	)		(134	)
Total nonoperating expenses, net		(17,749	)		(2,835	)		(5,412	)
Income from continuing operations before minority interest and income taxes		299,215			304,539			318,888
Minority interest		9,951			10,206			10,852
Income from continuing operations before income taxes		289,264			294,333			308,036
Income tax provision		110,206			106,272			109,267
Income from continuing operations		179,058			188,061			198,769
Discontinued operations, net of tax		2,121			3,424			4,991
Net income	$	181,179		$	191,485		$	203,760
Earnings Per Share—basic
Income from continuing operations	$	1.66		$	1.74		$	1.77
Income from discontinued operations		0.02			0.03			0.04
Net income1	$	1.68		$	1.78		$	1.81
Earnings Per Share—diluted
Income from continuing operations	$	1.62		$	1.68		$	1.69
Income from discontinued operations		0.02			0.03			0.04
Net income1	$	1.64		$	1.71		$	1.74
Cash dividends per share	$	0.414		$	0.297		$	0.217

¹ Totals may not sum due to rounding.

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

34

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands)

Years Ended December 31, 2004, 2003 and 2002

	Shares					Common Stock			Additional Paid-in Capital from Treasury Stock Transactions			Retained Earnings			Treasury Stock			Employee Restricted Stock Awards			Accumulated Other Comprehensive Income (Loss), Net of Tax			Total Shareholders’ Equity
	Class A	Class B		Treasury
Balance at January 1, 2002	9,000	115,360,941		14,144,515		$	82,488		$	3,543		$	411,447		$	(259,626	)	$	(469	)	$	(286	)	$	237,097
Net income	0	0		0			0			0			203,760			0			0			0			203,760
Other comprehensive income, net of tax:
Unrealized loss on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			0			113			113
Foreign currency translation	0	0		0			0			0			0			0			0			194			194
Comprehensive income																									204,067
Amortization of employee restricted stock and other compensation plans	0	0		0			165			0			0			0			101			0			266
Restricted stock forfeitures	0	(146,250	)	146,250			(172	)		0			0			(16	)		172			0			(16	)
Dividends declared	0	0		0			0			0			(24,789	)		0			0			0			(24,789	)
Exercise of stock options	0	14,000		(14,000	)		82			67			0			151			0			0			300
Purchase of treasury stock	0	(2,676,970	)	2,676,970			0			0			0			(76,208	)		0			0			(76,208	)
Balance at December 31, 2002	9,000	112,551,721		16,953,735			82,563			3,610			590,418			(335,699	)		(196	)		21			340,717
Net income	0	0		0			0			0			191,485			0			0			0			191,485
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			0			77			77
Foreign currency translation	0	0		0			0			0			0			0			0			274			274
Comprehensive income																									191,836
Amortization of employee restricted stock and other compensation plans	0	0		0			1,191			0			0			0			373			0			1,564
Restricted stock issuance	0	40,000		(40,000	)		883			116			0			4			(883	)		0			120
Dividends declared	0	0		0			0			0			(32,493	)		0			0			0			(32,493	)
Exercise of stock options	0	479,037		(479,037	)		3,469			83			0			4,068			0			0			7,620
Purchase of treasury stock	0	(4,415,000	)	4,415,000			0			0			0			(113,526	)		0			0			(113,526	)
Other	0	0		0			15			0			0			0			0			0			15
Balance at December 31, 2003	9,000	108,655,758		20,849,698			88,121			3,809			749,410			(445,153	)		(706	)		372			395,853
Net income	0	0		0			0			0			181,179			0			0			0			181,179
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			0			35			35
Foreign currency translation	0	0		0			0			0			0			0			0			122			122
Comprehensive income																									181,336
Amortization of employee restricted stock and other compensation plans	0	0		0			936			0			0			0			682			0			1,618
Restricted stock issuance	0	362,000		(362,000	)		28,655			(320	)		(3,019	)		4,425			(9,244	)		0			20,497
Dividends declared	0	0		0			0			0			(44,703	)		0			0			0			(44,703	)
Exercise of stock options	0	2,135,958		(2,135,958	)		20,085			(3,489	)		(17,519	)		25,679			0			0			24,756
Purchase of treasury stock	0	(4,153,901	)	4,153,901			0			0			0			(121,397	)		0			0			(121,397	)
Other	0	0		0			(207	)		0			0			0			0			0			(207	)
Balance at December 31, 2004	9,000	106,999,815		22,505,641		$	137,590		$	0		$	865,348		$	(536,446	)	$	(9,268	)	$	529		$	457,753

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

Federated Investors 2004 Annual Report    35

CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in thousands)

Years Ended December 31,	2004			2003			2002
Operating Activities
Net income	$	181,179		$	191,485		$	203,760
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Amortization of deferred sales commissions		55,716			14,911			14,513
Depreciation and other amortization		18,995			20,632			19,229
Minority interest		9,951			10,206			10,852
Gain on disposal of assets		(110	)		(4,669	)		(3,223	)
(Benefit) provision for deferred income taxes		(1,592	)		1,992			7,654
Tax benefit from stock-based compensation		39,497			3,469			82
Net payments for trading securities		(483	)		0			(640	)
Deferred sales commissions paid		(48,431	)		(74,724	)		(78,391	)
Contingent deferred sales charges received		25,081			595			716
Proceeds from sale of certain B-share-related future revenues		0			63,152			66,766
Other changes in assets and liabilities:
Decrease (increase) in receivables, net		4,072			(1,387	)		1,396
(Increase) decrease in other assets		(5,855	)		1,023			(437	)
(Decrease) increase in accounts payable and accrued expenses		(3,967	)		24,694			372
Increase (decrease) in income taxes payable		352			1,099			(14,835	)
Increase (decrease) in other current liabilities		16,428			(3,350	)		202
Increase (decrease) in other long-term liabilities		6,212			(311	)		(12,219	)
Net cash provided by operating activities		297,045			248,817			215,797
Investing Activities
Proceeds from disposal of property and equipment		60			18			116
Additions to property and equipment		(5,527	)		(6,288	)		(7,323	)
Net proceeds from business disposal		1,211			0			0
Cash paid for business acquisitions		(67,589	)		(1,263	)		(33,487	)
Purchases of securities available for sale		(41	)		(834	)		(414	)
Proceeds from redemptions of securities available for sale		73			451			4,656
Net cash used by investing activities		(71,813	)		(7,916	)		(36,452	)
Financing Activities
Distributions to minority interest		(9,925	)		(10,228	)		(10,635	)
Dividends paid		(44,703	)		(32,493	)		(24,789	)
Proceeds from shareholders for stock-based compensation and other		5,546			4,286			218
Purchases of treasury stock		(119,558	)		(120,037	)		(69,714	)
Proceeds from new borrowings—nonrecourse		42,720			12,935			13,675
Payments on debt—recourse		(1,043	)		(997	)		(654	)
Payments on debt—nonrecourse		(74,306	)		(11,572	)		(10,771	)
Payments on acquired customer relationship obligation		(214	)		(240	)		(277	)
Net cash used by financing activities		(201,483	)		(158,346	)		(102,947	)
Net increase in cash and cash equivalents		23,749			82,555			76,398
Cash and cash equivalents, beginning of year		232,464			149,909			73,511
Cash and cash equivalents, end of year	$	256,213		$	232,464		$	149,909
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest	$	89		$	160		$	2,279
Income taxes		77,879			103,032			133,270

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

36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(December 31, 2004, 2003 and 2002)

(1) Summary of Significant Accounting Policies

(a) Nature of Operations

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

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

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

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

(b) Basis of Presentation

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

(c) Prior Period Financial Statements

The Consolidated Statements of Income for 2003 and 2002 reflect the reclassification of the results of the transfer agency business as discontinued operations to reflect the sale of this business.

In addition, certain other items previously reported have been reclassified to conform with the current year presentation.

(d) Principles of Consolidation

Voting interest entities

The Consolidated Financial Statements include the accounts of Federated Investors, Inc. and entities in which Federated holds a controlling financial interest as determined by the extent of Federated’s decision-making ability and participation in the economic risks and rewards of ownership. Federated provides for minority interests in consolidated entities for which Federated’s controlling financial interest is less than 100 percent. All significant intercompany accounts and transactions have been eliminated.

The equity method of accounting is used to account for investments in entities in which Federated’s ownership is between 20 and 50 percent. The equity investment is carried at Federated’s share of net assets and is included in “Other long-term assets” on the Consolidated Balance Sheets. The proportionate share of income or loss is included in “Revenue – Other, net” in the Consolidated Statements of Income.

Variable interest entities

In 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46). FIN 46 established a new consolidation model for certain entities in which equity investors do not have the characteristics of a controlling financial interest or which require subordinated financial support in excess of the equity investment at risk. Under the FIN 46 consolidation model, these entities, referred to as Variable Interest Entities (VIEs), must be consolidated by the entity that will absorb a majority of the VIE’s expected losses or receive a majority of the VIE’s expected residual returns. The consolidating entity is referred to as the primary beneficiary of the VIE. As prescribed by FIN 46, expected losses and residual returns of a VIE represent the present value of the expected variability in net income or loss of the VIE. Determining the expected losses and residual returns of the VIE require management to make certain assumptions, including the timing and level of future cash flows and discount rates.

In determining whether consolidation of a VIE is appropriate, Federated applies the provisions of FIN 46 to determine whether Federated is the primary beneficiary of the entity. See Note (19) Variable Interest Entities for information regarding VIEs with which Federated is involved.

Federated Investors 2004 Annual Report    37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(e) Business Combinations

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

(f) Cash and Cash Equivalents

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

(g) Marketable Securities

Marketable securities include available-for-sale and trading securities held by Federated. Federated’s available-for-sale securities include investments in fluctuating-value mutual funds and asset-backed securities. These investments are carried at fair value based on quoted market prices or, in the absence of quoted market prices, discounted cash flows. These investments are classified as current or long-term assets and are included in “Marketable securities” or “Other long-term assets,” respectively, on the Consolidated Balance Sheets based on management’s intention to sell the investment. At December 31, 2004 and 2003, Federated did not hold any available-for-sale securities that were classified as long-term assets. The unrealized gains or losses on securities available-for-sale are included net of tax in “Accumulated other comprehensive income, net of tax” on the Consolidated Balance Sheets. Realized gains and losses on these securities are computed on a specific identification basis and recognized in “Gain/(loss) on securities, net” in the Consolidated Statements of Income.

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

Federated classifies an investment as a trading security when it is management’s intent at the time of purchase to sell the security within a short period of time. Trading securities are carried at fair value based on quoted market prices. Federated’s trading securities held at December 31, 2004 are classified as current and are included in “Marketable securities” on the Consolidated Balance Sheets. Federated did not hold any trading securities at December 31, 2003. The unrealized and realized gains and losses on trading securities are recognized in “Gain/(loss) on securities, net” in the Consolidated Statements of Income.

(h) Property and Equipment

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

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

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

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

38

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(j) Intangible Assets

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

In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) which Federated adopted in January 2002, Federated no longer amortizes goodwill but rather tests it for impairment at least annually or when indicators of potential impairment exist. Federated uses a two-step process to test for and measure impairment that begins with an estimation of the fair value of its reporting unit. This first step is a screen for potential impairment, and if impairment has occurred, the second step measures the amount of impairment.

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

(k) Deferred Sales Commissions

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

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

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

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

Federated Investors 2004 Annual Report    39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

Sale accounting treatment was applied to account for the sale of distribution fees and CDSCs pursuant to the B-share funding arrangements in 2003 and 2002. As a result, B-share-related distribution fees and related expenses are not reflected in Federated’s Consolidated Statements of Income for 2003 and 2002. In addition, the Consolidated Statement of Cash Flows for 2003 and 2002 reflect sale accounting treatment while 2004 reflects financing treatment.

(l) Foreign Currency Translation

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

(m) Treasury Stock

Federated accounts for acquisitions of treasury stock at cost and reports total treasury stock held as a deduction from total shareholders’ equity on the Consolidated Balance Sheets. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a specific identification basis. The “Additional paid-in capital from treasury stock transactions” account on the Consolidated Balance Sheets is increased as Federated reissues treasury stock for more than the cost of the shares. If Federated issues treasury stock for less than its cost, “Additional paid-in capital from treasury stock transactions” is reduced up to any credit amount in this account. Once this account is at zero, any further required reductions are recorded to “Retained earnings” on the Consolidated Balance Sheets.

(n) Revenue Recognition

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

Federated has contractual arrangements with third parties to provide certain fund-related services. Management considers various factors to determine whether Federated’s revenue should be recorded based on the gross amount payable by the funds or net of payments to third-party service providers. Our analysis is based on whether Federated is acting as the principal service provider or is performing as an agent. The primary factors considered include: (1) whether the customer holds Federated or the service provider responsible for the fulfillment and acceptability of the services to be provided; (2) whether Federated has any practical latitude in negotiating the price to pay a third-party provider; (3) whether Federated or the customer selects the ultimate service provider; and (4) whether Federated has credit risk in the arrangement. Generally, the less the customer is directly involved with or participates in making decisions regarding the ultimate third-party service provider, the more supportive the facts are that Federated is acting as the principal in these transactions and should therefore report gross revenues. As a result of considering these factors, investment advisory fees, administrative service fees, distribution fees and certain other service fees are recorded gross of payments made to third parties. By contrast, management determined that in the case of shareholder services Federated acts as an agent; thus Federated records shareholder service fees net of certain third-party payments. Management reached this conclusion based largely on the fact that given the personalized nature of shareholder services, the customer, in this case the shareholder, has a direct relationship with their financial intermediary for the provision of shareholder services. Third-party payments for shareholder services recorded as an offset to revenue for the years ended December 31, 2004, 2003 and 2002 were $165.8 million, $171.5 million and $176.4 million, respectively.

(o) Stock-Based Compensation

Effective January 1, 2003, Federated adopted, on a prospective basis, the fair-value-based method of accounting for stock-based awards under the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS 123). As a result of this adoption, Federated recognizes the estimated fair value of stock-based awards granted, modified or settled on or after January 1, 2003 as compensation expense on a straight-line basis over the awards’ vesting periods, which vary in length from zero to ten years. For all employee-related stock option awards granted prior to 2003, Federated continues to apply the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25) and related interpretations. Under APB 25, compensation expense is not recognized for stock option awards granted with an exercise price equal to or greater than the market value of Federated’s Class B common stock on the date of grant.

With respect to restricted stock awards, the fair value of the award (the difference between the market value of Federated’s Class B common stock on the date of grant and the purchase price paid by the employee) is charged to “Employee restricted stock awards” on the Consolidated Balance Sheets when the restricted stock is awarded and recognized as compensation expense on a straight-line or modified straight-line basis over the period of employee performance during which the awards vest, which ranges from five to ten years. The adoption of the expense recognition provisions of SFAS 123 did not have a significant impact on the determination of compensation expense for restricted stock awards.

40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

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

in thousands, except per share data	2004			2003			2002
Net income	$	181,179		$	191,485		$	203,760
Add back: Stock-based employee compensation expense included in reported net income, net of related tax effects		540			217			30
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards1, net of related tax effects		(2,884	)		(5,600	)		(7,800	)
Pro forma net income	$	178,835		$	186,102		$	195,990
Earnings per share:
Basic earnings per share	$	1.68		$	1.78		$	1.81
Pro forma basic earnings per share	$	1.66		$	1.73		$	1.74
Diluted earnings per share	$	1.64		$	1.71		$	1.74
Pro forma diluted earnings per share	$	1.62		$	1.66		$	1.67

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

Federated estimated the grant-date fair value using the Black-Scholes option-pricing model with the following weighted-average assumptions for options granted in 2004, 2003 and 2002, respectively: dividend yields of 1.34%, 1.03% and 0.72%; expected volatility factors of 24.9%, 27.8% and 28.4%; risk-free interest rates of 3.69%, 2.77% and 4.22%; and an expected life of 5.6 years, 5.0 years and 6.7 years.

The effects of applying SFAS 123 on the pro forma disclosures may not be representative of the effects on pro forma disclosures for future years.

(p) Advertising Costs

Federated expenses the cost of all advertising as incurred. Advertising expense for 2004, 2003 and 2002 was $0.4 million, $1.4 million and $4.5 million, respectively.

(q) Income Taxes

Federated accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Federated recognizes a valuation allowance if, based on the weight of available evidence regarding future taxable income, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

(r) Earnings Per Share

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

(s) Comprehensive Income

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

(t) Loss Contingencies

In accordance with SFAS 5, “Accounting for Contingencies,” Federated accrues for estimated costs related to existing lawsuits, claims and proceedings when it is probable that a liability has been incurred and the costs can be reasonably estimated. Accruals are reviewed at

Federated Investors 2004 Annual Report    41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

least quarterly and are adjusted to reflect the impact and status of settlements, rulings, advice of counsel and other information pertinent to a particular matter. Significant differences could exist between the actual cost required to investigate, litigate and/or settle a claim or the ultimate outcome of a suit and management’s estimate. These differences could have a material impact on Federated’s results of operations, financial position or cash flows.

(u) Business Segments

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

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

(v) Recent Accounting Pronouncements

In December 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities”. In accordance with the applicable transition provisions, management applied a two-step approach to its adoption of FIN 46. As of December 31, 2003, management adopted the provisions of FIN 46 for all special-purpose entities and concluded that its relationship with the three collateralized debt obligation (CDO) products, for which Federated acts as investment manager, met the definition of significant variable interests. As of March 31, 2004, management completed its analysis of the impact of adopting FIN 46 to account for any additional variable interest entities with which Federated is involved. The adoption did not have a material impact on Federated’s results of operations or financial position. See Note (19) Variable Interest Entities for a discussion regarding Federated’s significant variable interests as of December 31, 2004.

On December 16, 2004, the FASB issued SFAS 123 (revised 2004), “Share-Based Payment”, which is a revision of SFAS 123, “Accounting for Stock-Based Compensation” (SFAS 123(R)). SFAS 123(R) supersedes APB 25, and amends SFAS 95, “Statement of Cash Flows”. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123, which as discussed above in Note (1)(o), Federated adopted on a prospective basis as of January 1, 2003. However, SFAS 123(R) requires all share-based payments to employees, including prior grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. SFAS 123(R) must be adopted no later than the first interim or annual period beginning after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued.

SFAS 123(R) permits public companies to adopt its requirements using one of two methods. (1) A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date; or (2) a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

Federated plans to adopt SFAS 123(R) no later than July 1, 2005, but has not yet determined which method of adoption it will use. Federated adopted the fair-value-based method of accounting for share-based payments effective January 1, 2003 using the prospective method described in SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” Currently, Federated uses the Black-Scholes formula to estimate the value of stock options granted to employees and expects to continue to use this acceptable option valuation model upon the required adoption of SFAS 123(R). Since (1) SFAS 123(R) must be applied not only to new awards but to previously granted awards that are not fully vested on the effective date, and (2) Federated adopted SFAS 123 using the prospective transition method (which applied only to awards granted, modified or settled after the adoption date), compensation cost for certain previously granted awards that were not recognized under SFAS 123 will be recognized under SFAS 123(R). However, had Federated adopted SFAS 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in Note (1)(o). SFAS 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While Federated cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such tax deductions were $39.5 million, $3.5 million, and $0.1 million in 2004, 2003 and 2002, respectively.

42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

In December 2004, the FASB issued Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Repatriation Provision within the American Jobs Creation Act of 2004” (FSP 109-2) which provides guidance with respect to reporting the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the Jobs Act). FSP 109-2 allows additional time beyond the financial reporting period to evaluate the effects under which the repatriation of certain foreign earnings will qualify for preferential tax treatment. See Note (14) for the required disclosure of FSP 109-2.

(2) Discontinued Operations

On June 30, 2004, Federated completed the sale of its transfer agency business to Boston Financial Data Services. Total net assets included in the transfer agency sale were approximately $1.1 million and consisted primarily of $0.7 million of goodwill and $0.7 million of fixed assets offset by $0.3 million of unamortized balances of specifically identified refurbishment allowances and deferred rent associated with the assignment of a building lease. There was no material gain or loss associated with this transaction.

The results of operations of the transfer agency business included in discontinued operations were as follows for the years ended December 31:

in thousands	2004		2003		2002
Net revenue from discontinued operations	$	14,738	$	27,499	$	29,801
Pre-tax income from discontinued operations		3,097		5,268		7,678
Income tax provision		976		1,844		2,687
Income from discontinued operations, net of tax	$	2,121	$	3,424	$	4,991

(3) Marketable Securities

Marketable securities as of December 31, 2004 included available-for-sale and trading securities, while marketable securities as of December 31, 2003 included available-for-sale securities only. All marketable securities as of December 31, 2004 and 2003 were classified as current and are included in “Marketable securities” on the Consolidated Balance Sheets. Marketable securities (see Note (1)(g)) were as follows:

in thousands	Cost		Gross Unrealized				Estimated Market Value
			Gains		(Losses)
Fluctuating-value mutual funds	$	819	$	166	$	0	$	985
Trading securities		481		28		0		509
Asset-backed securities1		564		0		0		564
Total as of December 31, 2004	$	1,864	$	194	$	0	$	2,058
Fluctuating-value mutual funds	$	852	$	110	$	0	$	962
Asset-backed securities1		564		0		0		564
Total as of December 31, 2003	$	1,416	$	110	$	0	$	1,526

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

The following table presents gains and losses recognized in connection with marketable securities for the years ended December 31:

in thousands	2004			2003		2002
CDO impairment losses1	$	0		$	0	$	(1,836	)
Unrealized gain on trading security		28			0		105
Realized gains2		12			4		23
Realized losses2		(3	)		0		(839	)
Gain/(loss) on securities, net	$	37		$	4	$	(2,547	)

1 In 2002, an impairment loss was recognized on the mortgage-backed CDO investment due to the significant declines in the value of the underlying securities held by the CDO.

2 Of the 2002 realized gains and (losses), $10 and $(650), respectively, related to the disposal of trading securities previously held by Federated.

Federated Investors 2004 Annual Report    43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(4) Intangible Assets and Goodwill

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

in thousands	WAA1 (in years)	2004							2003
		Cost		Accumulated Amortization			Carrying Value		Cost		Accumulated Amortization			Carrying Value
Investment advisory contracts	10.5	$	74,175	$	(26,467	)	$	47,708	$	72,834	$	(19,255	)	$	53,579
Noncompete agreements	5.0		15,400		(11,379	)		4,021		15,400		(8,299	)		7,101
Other	4.4		1,612		(1,412	)		200		1,612		(1,031	)		581
Total identifiable intangible assets	9.5	$	91,187	$	(39,258	)	$	51,929	$	89,846	$	(28,585	)	$	61,261

¹ Weighted average amortization period

Amortization expense for identifiable intangible assets was $10.7 million, $10.5 million and $11.2 million for the years ended December 31, 2004, 2003 and 2002, respectively. Following is a schedule of expected aggregate annual amortization expense for intangible assets in each of the five years following December 31, 2004 assuming no new acquisitions or impairments:

in thousands
2005	$	10,560
2006		8,161
2007		7,159
2008		7,102
2009		7,050

Goodwill at December 31, 2004 and 2003 was $260.0 million and $165.0 million, respectively. During the first quarter 2004, Federated recorded $66.2 million of additional goodwill to account for the contingent purchase price paid in May 2004 in connection with the acquisition of substantially all of the business of the former advisor of the Kaufmann Fund in 2001 (Kaufmann Acquisition). With this payment, 60% of the total contingent purchase price payment available to be paid over the first six years following the acquisition’s closing date has been paid. During the fourth quarter 2004, Federated recorded an additional $29.5 million of goodwill to account for the portion of the contingent purchase price to be paid in May 2005, but earned as of December 31, 2004. See Note (23) for details regarding the potential remaining payments. Approximately 89% and 82% of the balances at December 31, 2004 and 2003, respectively represented goodwill resulting from this acquisition.

On June 30, 2004, Federated sold $0.7 million in goodwill in connection with the sale of the transfer agency business. See Note (2) for further discussion of this sale transaction.

In accordance with SFAS 142, which Federated adopted in January 2002, Federated no longer amortizes goodwill but rather tests it for impairment at least annually or when indicators of potential impairment exist (see Note (1)(j)).

(5) Other Long-Term Assets

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

in thousands	2004		2003
Lease-related receivable	$	3,399	$	0
Equity investment		2,578		2,618
Security deposits		301		306
Prepaid and other assets		120		95
Other long-term assets	$	6,398	$	3,019

The lease-related receivable represents a refurbishment allowance associated with Federated’s recently amended operating lease for its corporate headquarters. This allowance is payable in 2006 and was recorded as a long-term receivable as of January 1, 2004, the effective date of the amendment.

44

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(6) Property and Equipment

Property and equipment consisted of the following at December 31:

in thousands	Estimated Useful Life	2004			2003
Computer equipment1	1 to 6 years	$	20,170		$	23,220
Transportation equipment	3 or 25 years		11,873			11,933
Leasehold improvements	Up to term of lease		8,879			10,992
Software development	Up to 4 years		8,874			10,114
Office furniture and equipment	2 to 10 years		8,772			9,055
Total cost/fair value			58,568			65,314
Accumulated depreciation and amortization			(31,402	)		(34,422	)
Property and equipment, net		$	27,166		$	30,892

¹ Amounts include $3,185 recorded under capital lease arrangements for 2004 and 2003, respectively.

Depreciation and amortization expense was $8.1 million, $8.9 million and $8.0 million for the years ended December 31, 2004, 2003 and 2002, respectively, and included the depreciation of assets recorded under capital lease arrangements.

During the fourth quarter 2002, Federated evaluated the recoverability of the assets associated with its retirement services operations, consisting primarily of internally developed software. The implementation date of the internally developed software was significantly delayed as a result of ongoing development efforts. This delay negatively impacted the estimate of future cash flows expected to be generated by the assets. Based on this evaluation, management determined that the assets were impaired and recorded a $2.1 million pretax charge in “Operating Expenses – Other” to write down the carrying value of the assets to estimated fair value as of December 31, 2002. Fair value was estimated based on expected future cash flows discounted using a risk-free rate.

(7) Other Current Liabilities

Federated’s Other current liabilities – other as of December 31, 2004 included $16.5 million related to an insurance recovery for a claim submitted to cover costs associated with the internal review into past mutual fund trading practices. See Note (23) for further information on the internal review of mutual fund trading activities. The retention of this advance payment is contingent upon approval of the claim. In the event that all or a portion of the claim is denied, Federated will be required to repay all or a portion of this advance payment. Because the outcome of this claim is uncertain at this time, Federated recorded the advance payment as a liability and will continue to evaluate the contingency until it is resolved.

(8) Recourse Debt

Federated’s total recourse debt balance of $0.5 million and $1.6 million at December 31, 2004 and 2003, respectively, represented liabilities on capital leases. Federated entered into a new capital lease for computer hardware in 2003. The capital leases carry interest rates ranging from 2.90% to 4.55% with weighted-average interest rates of 3.60% and 3.77% at December 31, 2004 and 2003, respectively. The four capital leases outstanding at December 31, 2004 have expiration dates that range from the first quarter 2005 to the first quarter 2006. The aggregate contractual maturities of the capital leases is $0.6 million in 2005. This contractual maturity amount includes minimal amounts for executory costs and imputed interest costs.

As of December 31, 2004, Federated was able to borrow up to $150.0 million under the provisions of the Second Amended and Restated Credit Agreement as amended (the Credit Facility), the term of which expired in January 2005. Under this agreement, Federated paid a facility fee of 0.10% on the revolving credit commitment. At December 31, 2004, the outstanding balance under the Credit Facility was zero. The Credit Facility contained various financial and nonfinancial covenants. Federated was in compliance with all such covenants at December 31, 2004. On January 14, 2005, Federated renewed the Credit Facility (see Note (24)) for an additional 364-day term. Several of Federated’s wholly owned subsidiaries guarantee any obligation of Federated that arises pursuant to the Credit Facility.

In September 2004, a wholly owned subsidiary of Federated entered into a discretionary line of credit agreement with a bank under which it can borrow up to $50.0 million for the payment of obligations associated with daily net settlements of mutual funds processed through the National Securities Clearing Corporation. Borrowings under this 364-day agreement bear interest at a rate mutually agreed upon by the bank and the borrower at the time of the borrowing and are payable on demand. At December 31, 2004, there was no outstanding balance under this agreement. Federated guarantees the payment of any obligation owed by the subsidiary in connection with this line of credit.

Federated Investors 2004 Annual Report    45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(9) Deferred Sales Commissions and Nonrecourse Debt

Deferred sales commissions consisted of the following at December 31:

in thousands	2004		2003
Deferred sales commissions on B shares, net	$	283,056	$	324,030
Other deferred sales commissions, net		3,594		3,687
Deferred sales commissions, net	$	286,650	$	327,717

In 2004 and at December 31, 2003, Federated recorded deferred sales commissions on B shares to reflect financing accounting treatment.

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

dollars in thousands	Weighted-Average Interest Rates				Remaining Amortization Period	2004		2003
	20041		20032
Financings through March 1997	7.60	%	7.60	%	0.3 years	$	3,016	$	13,239
Financings between April 1997 and September 2000	8.21	%	8.06	%	3.8 years		124,370		146,967
Financings between October 2000 and December 2003	5.34	%	5.55	%	7.0 years		125,031		166,936
Financings between January 2004 and December 2004	4.75	%	N/A		8.0 years		35,514		0
Total long-term debt – nonrecourse						$	287,931	$	327,142

1 As of December 31, 2004

2 As of December 31, 2003

In 2004 and 2003, Federated recorded nonrecourse debt to reflect financing accounting treatment.

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

Management accelerates the write off of these asset and debt balances when reasonably estimable future cash flows indicate that cash flows will not be sufficient to fully amortize the remaining deferred sales commission asset and nonrecourse debt balance.

In December 2003, Federated signed an agreement with an independent financial institution to continue funding the B-share sales commissions through December 2006.

(10) Employee Benefit Plans

(a) 401(k)/Profit Sharing Plan

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

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

Matching contributions to the 401(k) plan recognized in “Compensation and related” expense amounted to $3.0 million, $3.0 million and $3.2 million for the years ended December 31, 2004, 2003 and 2002, respectively.

A Federated employee becomes eligible to participate in the Profit Sharing Plan upon the first day of employment. The Profit Sharing Plan is a defined contribution plan to which Federated may contribute amounts as authorized by its board of directors. No contributions have been made to the Profit Sharing Plan in 2004, 2003 or 2002. At December 31, 2004, the Profit Sharing Plan held 1.4 million shares of Federated Class B common stock.

46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(b) Employee Stock Purchase Plan

Federated offers an Employee Stock Purchase Plan which allows employees to purchase a maximum of 750,000 shares of Class B common stock. Employees may contribute up to 10% of their salary to purchase shares of Federated’s Class B common stock on a quarterly basis at the market price. The shares under the plan may be newly issued shares, treasury shares or shares purchased on the open market. As of December 31, 2004, 71,697 shares were purchased by the plan on the open market since the plan’s inception in 1998.

(11) Other Compensation Plans

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

(a) Restricted Stock

Under the Stock Incentive Plan and subject to restrictions, Federated has sold shares of Class B common stock to certain key employees. During the restricted period, the recipient receives dividends on the shares. Forfeitures of 146,250 shares occurred in 2002; no forfeitures occurred in either 2004 or 2003. The following table presents information on restricted stock grants made under the Stock Incentive Plan during the years ending:

	2004		2003		2002
Number of shares granted		362,000		40,000	0
Weighted-average grant-date fair value per share	$	25.53	$	22.08	N/A

Compensation expense related to restricted stock was $0.7 million, $0.4 million and $0.1 million for the years ended December 31, 2004, 2003 and 2002, respectively.

Beginning in 2004, Federated instituted a program in which certain key employees will receive a portion of their bonus in the form of restricted stock. Shares will be awarded, beginning in 2005, at a 15% discount from fair market value of Federated’s stock price on the bonus payment date. This restricted stock will vest over a future three-year service period. During the restricted period, the recipient will receive dividends on the shares.

(b) Stock Options

In 2002, 430,000 employee stock options were granted, 200,000 options were awarded to executive officers in lieu of a portion of their 2001 earned bonus awards, 315,624 options were awarded to executive and senior management in connection with their 2002 earned bonus awards and 6,750 options were awarded to independent directors. In 2003 and 2004, independent directors were awarded 6,750 and 16,500 employee stock options, respectively. Each vested option may be exercised, during the stated exercise period, for the purchase of one share of Class B common stock at the exercise price. In 2004, 2003 and 2002, 2,135,958, 479,037 and 14,000 stock options, respectively, were exercised.

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

	Options		Weighted-Average Exercise Price		Options Exercisable	Weighted-Average Exercise Price
Outstanding at beginning of 2002	11,556,405		$	15.00	1,259,880	$	13.07
Granted	952,374		$	28.96
Exercised	(14,000	)	$	15.55
Forfeited	(583,975	)	$	15.13
Outstanding at end of 2002	11,910,804		$	16.11	1,771,254	$	17.37
Granted	6,750		$	27.22
Exercised	(479,037	)	$	8.67
Forfeited	(292,975	)	$	10.55
Outstanding at end of 2003	11,145,542		$	16.58	1,302,217	$	20.64
Granted	16,500		$	30.42
Exercised	(2,135,958	)	$	2.19
Forfeited	(886,000	)	$	22.34
Outstanding at end of 2004	8,140,084		$	19.75	1,155,709	$	21.69

Federated Investors 2004 Annual Report    47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

Additional information regarding stock options outstanding at December 31, 2004 follows:

Range of Exercise Prices	Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in Years)	Exercisable	Weighted-Average Exercise Price of Exercisable Options
$1.28 to $1.29	270,792	$	1.28	1.1	95,292	$	1.28
$4.00	1,484,325	$	4.00	2.5	0	$	0.00
$11.04 to $13.29	1,573,350	$	12.65	4.3	318,300	$	12.50
$18.08 to $25.35	2,173,137	$	24.21	6.6	311,887	$	25.35
$26.95 to $35.00	2,638,480	$	31.08	6.7	430,230	$	30.36
	8,140,084	$	19.75	5.3	1,155,709	$	21.69

Information regarding the fair value of options granted in 2004, 2003 and 2002 follows:

	2004		2003		2002
Exercise price equals market price on date of grant:
Weighted-average grant-date fair value	$	7.97	$	7.16	$	10.29
Weighted-average exercise price	$	30.42	$	27.22	$	28.96

No awards were granted with an exercise price that was less than or greater than the market price on the date of grant in 2004, 2003 or 2002.

Total compensation expense related to stock options was $0.9 million, $1.2 million and $0.2 million for the years ended December 31, 2004, 2003 and 2002, respectively.

(12) Common Stock

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

Cash dividends of $44.7 million, $32.5 million and $24.8 million were paid in 2004, 2003 and 2002, respectively, to holders of common stock.

In 2004, 2003 and 2002, the board of directors approved various share repurchase programs authorizing executive management to purchase Federated Class B common stock. Under the programs, shares can be repurchased in open market and private transactions through the life of the program. The programs authorize executive management to determine the timing and the amount of shares for each purchase. The repurchased stock will be held in treasury for employee benefit plans, potential acquisitions and other corporate activities. As of December 31, 2004, under these programs, Federated can repurchase an additional 5.8 million shares.

Stock repurchases and dividend payments are subject to restrictions under Federated’s Credit Facility, as amended. These restrictions limit cash payments for additional stock repurchases and dividends to 50% of net income earned during the period from January 1, 2000, to and including the payment date, less certain payments for dividends and stock repurchases. As of December 31, 2004, Federated, given current debt covenants as disclosed in Note (24), had the ability to make additional stock repurchase or dividend payments of more than $137 million under these restrictions.

(13) Leases

Federated has various operating lease agreements primarily involving facilities, office and computer equipment and vehicles. These leases are noncancelable and expire on various dates through the year 2014. Most leases include renewal options and, in certain leases, escalation clauses.

Federated extended the term of its operating lease for its corporate headquarters building in Pittsburgh, Pennsylvania, by signing an amendment, dated as of December 31, 2003, to the original lease agreement. The amended building lease expires in 2014, with renewal options for two successive terms of five years each. The amendment also provides for escalation clauses and certain penalties for early termination.

48

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

The following is a schedule by year of future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2004:

in thousands
2005	$	13,079
2006		12,419
2007		11,511
2008		10,414
2009		8,202
2010 and thereafter		39,041
Total minimum lease payments	$	94,666

Federated began subleasing certain leased property in 2002. As of December 31, 2004, aggregate future minimum rentals to be received under a noncancelable sublease that expires in 2007 totaled $1.6 million.

Rental expenses were $11.2 million, $13.0 million and $15.0 million for the years ended December 31, 2004, 2003 and 2002, respectively.

(14) Income Taxes

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

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

in thousands	2004			2003		2002
Current:
Federal continuing operations	$	105,954		$	100,027	$	99,335
Federal discontinued operations		976			1,844		2,687
State		5,206			3,655		1,760
Foreign		638			598		518
		112,774			106,124		104,300
Deferred:
Federal		(3,157	)		1,992		7,654
State		1,565			0		0
Total	$	111,182		$	108,116	$	111,954

For the years ended December 31, 2004, 2003 and 2002, the foreign subsidiaries had net income of $4.0 million, $4.7 million and $4.0 million, respectively, for which income tax expense of $1.6 million, $1.9 million and $1.6 million, respectively, has been provided.

Federated’s effective income tax rate from continuing operations was 38.1%, 36.1% and 35.5% for the years ended December 31, 2004, 2003 and 2002, respectively.

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

	2004		2003		2002
Expected statutory rate	35.0	%	35.0	%	35.0	%
Increase:
State income taxes, net of Federal benefit	1.5		0.8		0.4
Non-deductible expenses relating to the Settlement Charge1	1.2		0.0		0.0
Other	0.4		0.3		0.1
Total	38.1	%	36.1	%	35.5	%

¹ Federated’s results of operations for the years ended December 31, 2004 and 2003 include a charge to income of $17.4 million and $7.6 million, respectively, representing management’s current estimate of the costs relating to an anticipated settlement of governmental investigations concerning market timing and late trading allegations (Settlement Charge). Neither the Securities and Exchange Commission (SEC) nor the New York State Attorney General has passed on the establishment or amount of this Settlement Charge. Federated’s management is unable to estimate the ultimate impact of any settlement proceedings, including the tax deductibility of these costs, and therefore final resolution of these matters may have a material impact on Federated’s consolidated results of operations, financial position or cash flows.

Federated Investors 2004 Annual Report    49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

On December 21, 2004, the FASB issued Staff Position No. 109-2 which provides guidance with respect to reporting the potential impact of the repatriation provisions of the Jobs Act. The Jobs Act provides conditions under which the repatriation of certain foreign earnings in either 2004 or 2005 will qualify for preferential tax treatment. If these conditions are met, a maximum 5.25% income tax rate rather than the maximum regular tax rate of 35% would apply to eligible repatriations of certain foreign earnings.

Federated is currently evaluating these provisions in conjunction with an analysis of its foreign earnings subject to tax upon repatriation to determine the feasibility of developing and implementing a plan that would qualify it for this preferential tax treatment. Additional interpretive guidance relating to the application of these provisions is anticipated and may impact this analysis which is expected to be completed in 2005. At this time, the amount under consideration for application of this one-time reduced tax rate ranges from $0 to $4.6 million resulting in an estimated impact to Federated’s federal income tax provision ranging from $0 to a benefit of approximately $1.4 million.

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

in thousands	2004			2003
Deferred Tax Assets
Advisory fees	$	1,750		$	0
Deferred income		5,760			0
Unrealized losses and impairment losses on marketable securities1		7,204			7,041
Capital losses2		3,061			2,968
Contingent payments		1,658			3,268
State taxes		714			0
Other		1,782			1,350
Total gross deferred tax asset		21,929			14,627
Valuation allowance for capital loss carry-forwards2		(2,560	)		(2,348	)
Total deferred tax asset, net of valuation allowance	$	19,369		$	12,279
Deferred Tax Liabilities
Property and equipment	$	3,738		$	1,562
Intangible assets		4,507			635
Deferred sales commissions		19,835			22,183
Costs of internal-use software		1,885			2,164
State taxes		2,067			0
Other		1,900			1,804
Total gross deferred tax liability	$	33,932		$	28,348
Net deferred tax liability	$	14,563		$	16,069

1 $6,614 of this amount represents deferred tax assets generated by the impairment charges recorded to write down the value of Federated’s three CDOs. One of these three CDO investments was liquidated in January 2005 resulting in the realization of $0.6 million of the deferred tax asset and may be offset within the 2005 tax year before recognition as a capital loss carry-forward. The amount of actual capital loss associated with Federated’s remaining investment in the CDOs will not be known until such time as Federated’s investments in the CDOs are either redeemed or sold. The five-year carry-forward period will begin in the first tax year after Federated’s CDO investments are disposed. Management believes it is more likely than not that Federated will be able to utilize these losses in the future.

2 $2,849, $270, $95 and $104 of this capital loss deferred tax asset will be carried forward and will expire in 2006, 2007, 2008 and 2009, respectively. A valuation allowance has been recognized on a portion of this deferred tax asset due to management’s uncertainty of realizing the benefit of these capital loss carry-forwards.

50

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(15) Earnings Per Share

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

in thousands, except per share data	2004		2003		2002
Numerator
Income from continuing operations	$	179,058	$	188,061	$	198,769
Income from discontinued operations		2,121		3,424		4,991
Net income	$	181,179	$	191,485	$	203,760
Denominator
Denominator for basic earnings per share - weighted-average shares less nonvested restricted stock		107,615		107,839		112,375
Effect of dilutive securities:
Dilutive potential shares from stock-based compensation		2,795		4,220		4,929
Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions		110,410		112,059		117,304
Basic earnings per share
Income from continuing operations	$	1.66	$	1.74	$	1.77
Income from discontinued operations		0.02		0.03		0.04
Net income1	$	1.68	$	1.78	$	1.81
Diluted earnings per share
Income from continuing operations	$	1.62	$	1.68	$	1.69
Income from discontinued operations		0.02		0.03		0.04
Net income1	$	1.64	$	1.71	$	1.74

1 Totals may not sum due to rounding.

Federated uses the treasury stock method to reflect the dilutive effect of unvested restricted stock and unexercised stock options in diluted earnings per share. For the years ended December 31, 2004, 2003 and 2002, options to purchase 1.7 million, 2.9 million and 1.8 million shares of common stock, respectively, at a weighted-average exercise price per share of $32.41, $31.37 and $32.93, respectively, were outstanding but not included in the computation of diluted earnings per share for each year due to the option exercise price being greater than the average market price of Federated Class B common stock. Under the treasury stock method, in the event the options become dilutive, their dilutive effect would result in the addition of a net number of shares to the weighted-average number of shares used in the calculation of diluted earnings per share.

Federated Investors 2004 Annual Report    51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(16) Accumulated Other Comprehensive Income

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

In thousands	Unrealized Gain/(Loss) on Securities Available for Sale			Foreign Currency Translation Gain/(Loss)			Total
Balance at January 1, 2002	$	(118	)	$	(168	)	$	(286	)
Total change in market value1		(1	)		0			(1	)
Reclassification adjustment – net realized loss2		114			0			114
Gain on currency conversion3		0			194			194
Balance at December 31, 2002		(5	)		26			21
Total change in market value1		78			0			78
Reclassification adjustment – net realized gain2		(1	)		0			(1	)
Gain on currency conversion3		0			274			274
Balance at December 31, 2003		72			300			372
Total change in market value1		41			0			41
Reclassification adjustment – net realized gain2		(6	)		0			(6	)
Gain on currency conversion3		0			122			122
Balance at December 31, 2004	$	107		$	422		$	529

1 The tax (expense)/benefit on the change in market value of securities available for sale was $(23), $(42) and $1 for 2004, 2003 and 2002, respectively.

2 The tax (expense)/benefit on the reclassification adjustment for securities available for sale was $(3), $(1) and $62 for 2004, 2003 and 2002, respectively.

3 The tax (expense) on the foreign currency translation gain was $(66), $(148) and $(104) for 2004, 2003 and 2002, respectively.

(17) Disclosures of Fair Value

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

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

• Cash and cash equivalents

• Receivables—affiliates

• Receivables—other

• Accrued revenue – affiliates

• Accrued revenue – other

• Accrued compensation and benefits

• Accounts payable and accrued expenses—affiliates

• Accounts payable and accrued expenses—other

Marketable securities are carried at fair value (see Note (1)(g)).

Federated’s recourse debt is comprised of capital lease liabilities. The fair value of each capital lease liability is estimated based on the current market rate for debt with a similar remaining maturity. Based on this fair value estimate, the carrying value of capital lease liabilities appearing in the Consolidated Balance Sheets approximates fair value.

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

(18) Minority Interest in Subsidiaries and Equity Investments

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

A second subsidiary of Federated Investors, Inc. has a majority interest (50.5%) and acts as the general partner in Passport Research II, Ltd., a limited partnership. Edward D. Jones & Co., L.P. is the limited partner with a 49.5% interest. The partnership acts as investment adviser to a registered investment company.

52

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

A third subsidiary of Federated Investors, Inc. owns a majority interest (95%) in InvestLink Technologies, Inc., a software developer and marketer of applications for the recordkeeping, administration and servicing of defined contribution plans.

Federated owns a 50% interest in a joint-venture company, Federated Asset Management GmbH (FAM), which administers separate accounts and distributes Federated offshore fund products in Germany and other German-speaking countries in Europe. This joint venture is accounted for under the equity method of accounting.

(19) Variable Interest Entities

At December 31, 2004, Federated acted as the investment manager for two high-yield CDO products and a mortgage-backed CDO product pursuant to the terms of an investment management agreement between Federated and each CDO. The CDOs are alternative investment vehicles created in 1999 and 2000 for the sole purpose of issuing collateralized debt instruments that offer investors the opportunity for returns that vary with the risk level of their investment. Certain securities issued by the CDOs are subject to greater risk than traditional investment products. The notes issued by the CDOs are backed by diversified portfolios consisting primarily of structured debt and had original expected maturities of five to twelve years. As a result of their corporate governance, the CDOs meet the definition of a VIE under FIN 46. After performing an expected cash flow analysis for each CDO, management determined that Federated is not the primary beneficiary of the CDOs as defined by FIN 46 and thus has not consolidated the financial condition and results of operations of these CDOs in Federated’s Consolidated Financial Statements. As of December 31, 2004, aggregate total assets and aggregate total obligations of the CDOs approximated $1 billion, respectively.

Federated holds an investment in each CDO, which exposes it to risk of loss to the extent of the carrying value of the investments. As of December 31, 2004, the remaining $0.6 million carrying value of one of these investments represented Federated’s maximum exposure to loss over the remaining life of the CDOs. In January 2005, this investment was liquidated for $0.7 million.

In addition, a number of Federated-sponsored investment products, including offshore money market and fluctuating-value fund products, closed-end fixed-income funds and a group trust meet the definition of VIEs under FIN 46. Federated is not the primary beneficiary of these VIEs and therefore Federated has not consolidated these entities. As of December 31, 2004, total assets under management in these investment products approximated $9 billion. Federated’s investments in these products represent its maximum exposure to loss. As of December 31, 2004, Federated’s investment in these investment products was $25.3 million, of which $25.1 million was invested in Irish-domiciled money market funds.

(20) Related Party Transactions

Federated has classified certain entities as affiliates in accordance with SFAS 57 “Related Party Disclosures.”

At December 31, 2004 and 2003, Receivables—affiliates totaled $30.8 million and $33.2 million, respectively and Accrued revenue—affiliates totaled $1.1 million and $1.0 million, respectively relating to services provided to various Federated products.

At December 31, 2004 and 2003, Accounts payable and accrued expenses—affiliates totaled $10.3 million and $10.2 million, respectively. For 2004 and 2003, $3.6 million and $9.1 million, respectively of this amount related to the internal review and estimated settlement related to past mutual fund trading practices (see Note (23) for more detail) while for 2004, $3.3 million related to shareholder service fees payable to various Federated funds resulting from an administrative delay in the implementation of contractual terms, $2.0 million related to remedial actions in connection with various fund transactions and trading issues, $0.6 million related to distribution fees payable to FAM and $0.3 million related to a contribution to a foundation. The remaining amounts primarily represent fund-related expenses assumed by Federated in certain cases in order to make the fund more competitive or to meet regulatory requirements.

At December 31, 2004, Other long-term liabilities—affiliates totaled $4.0 million and represented the long-term portion of the Settlement Charge (see Note (23)).

At December 31, 2004, Other current liabilities—affiliates totaled $29.5 million and represented the accrual for the contingent purchase price payment earned as of December 31, 2004 related to the Kaufmann Acquisition (see Note (4)).

(21) Concentration Risk

In terms of revenue concentration by product, approximately 15% of Federated’s total revenue for 2004 was derived from services provided to one Federated-sponsored fund. In addition, approximately 12% of Federated’s total revenue for 2004 related to one customer. In both cases, the majority of this revenue is dependent upon the level of assets under management in numerous individual fund shareholder accounts.

(22) Business Combinations and Acquisitions

In the fourth quarter 2004, Federated reached a definitive agreement to acquire the cash management business of Alliance Capital Management L.P. (Alliance). Currently in connection with this acquisition, up to approximately $25 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services is expected to be transitioned into Federated

Federated Investors 2004 Annual Report    53

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

money market funds. This transaction has been approved by the boards of directors of both Federated and Alliance, as well as by each mutual fund’s board of directors/trustees. This transaction, which is expected to close in phases between the first and third quarters of 2005, includes upfront cash payments totaling approximately $25 million due at the transaction closing dates as well as contingent purchase price payments payable over five years. The contingent purchase price payments will be calculated as a percentage of revenue less operating expenses directly attributed to these assets. At the current levels, these additional payments would approximate $68 million over five years. This acquisition will be accounted for using the purchase method of accounting.

In the third quarter 2004, assets of four mutual funds previously advised by Banknorth N.A., a subsidiary of Banknorth Group, Inc., totaling approximately $265 million were acquired by four Federated-sponsored mutual funds. This transaction occurred in connection with an agreement between Federated, Banknorth Group, Inc. and Banknorth N.A. As a result of this transaction, Federated recorded $1.1 million as an investment advisory contract intangible asset, which included the capitalization of transaction costs. This asset is being amortized on an accelerated basis over a ten-year useful life.

In the third quarter 2003, assets of eight mutual funds previously advised by Riggs Investment Advisors, Inc., a subsidiary of Riggs National Corporation, totaling approximately $465 million were acquired by eight Federated-sponsored mutual funds (Riggs Acquisition). This acquisition occurred in connection with an agreement between Federated, Riggs Investment Advisors, Inc., and Riggs Bank N.A. In the second quarter 2002, Federated signed an agreement with FirstMerit Advisors, Inc. and FirstMerit Corporation pursuant to which assets totaling approximately $250 million, previously advised by FirstMerit, were acquired by various Federated funds (FirstMerit Acquisition). In the fourth quarter 2001, assets of three mutual funds previously advised by Rightime Econometrics, Inc., totaling approximately $148 million, were acquired by Federated Capital Appreciation Fund in connection with an agreement between Federated, Lincoln Investment Planning, Inc. and Rightime Econometrics, Inc. (Rightime Acquisition). The upfront purchase price for each of these acquisitions was capitalized as an investment advisory contract intangible asset. The agreements also require Federated to pay certain contingent payments on a periodic basis (either monthly or quarterly) over the three- to five-year periods following the completion of the acquisitions calculated as a percentage of assets under management. See Note (23) for information regarding these contingent payments.

In the second quarter 2001, Federated completed the acquisition of substantially all of the business of Edgemont Asset Management Corporation, the former adviser of The Kaufmann Fund. The purchase price for this acquisition was $182.9 million. This price included cash payments of $174.0 million, including transaction costs, and 315,732 shares of Federated Class B common stock valued at $8.9 million. The acquisition agreement provides for additional purchase price payments and incentive compensation payments based upon the achievement of specified revenue growth through April 2007 (see Note (23)). This acquisition was accounted for using the purchase method of accounting and, accordingly, the fair value of the assets acquired, primarily $77.0 million of identifiable intangible assets and $105.7 million of goodwill as of the acquisition date, as well as the results of those assets were included in Federated’s Consolidated Financial Statements beginning on the date of acquisition. The amount assigned to intangible assets represents the fair value of the advisory contract, the noncompete agreement and the workforce as of the acquisition date. These assets are being amortized on a straight-line basis over their useful lives, which range from four to ten years with a weighted average life of nine years. In addition, $66.2 million and $33.1 million of additional purchase price was paid in 2004 and 2002, respectively, and was recorded as goodwill.

(23) Commitments and Contingencies

(a) Contractual

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

	Payments due in										Total
in millions	2005		2006		2007		2008		2009
Purchase obligations1	$	10.7	$	9.6	$	2.9	$	0.8	$	0.0	$	24.0
Employment-related commitments2		5.0		1.3		0.2		0.0		0.0		6.5
Total	$	15.7	$	10.9	$	3.1	$	0.8	$	0.0	$	30.5

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

2 Federated has certain domestic and international employment arrangements pursuant to which Federated is obligated to make minimum compensation payments. These contracts expire on various dates through the year 2007.

54

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

Pursuant to various acquisition agreements entered into by Federated in 2003, 2002 and 2001, Federated is required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In 2001, Federated completed the acquisition of substantially all of the business of the former advisor of the Kaufmann Fund. Pursuant to this acquisition agreement, Federated could pay an additional $66.2 million as contingent purchase price ($29.5 million of which is accrued at December 31, 2004 (see Note (4))) and $13.4 million as contingent incentive compensation ($4.7 million of which is accrued at December 31, 2004) between 2005 and 2007 if certain revenue targets are met. The purchase price payments are recorded as additional goodwill at such time as performance targets have been met, while the incentive compensation payments are recognized as compensation expense during the periods in which the payments are earned. In 2004, Federated made contingent payments of $79.6 million, $66.2 million of which was recorded as goodwill. In 2003, no contingent payments were made. In 2002, Federated made contingent payments of $39.9 million, $33.1 million of which was recorded as goodwill.

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

(b) Guarantees and Indemnifications

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

(c) Internal Review of Mutual Fund Trading Activities

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

In February 2004, the Company announced that the special investigative committee of the Board of Directors had substantially completed its assessment of the impact of past mutual fund trading issues. Based upon the findings of the internal review and of an independent expert retained by the Federated mutual funds, Federated paid restoration of $8.0 million (of which $7.6 million was recorded in 2003) to compensate for the detrimental impact from the improper trading activities identified in the review. Federated has substantially completed its review of information relating to trading activities.

Federated announced on January 24, 2005 that it was in settlement discussions with the SEC and New York State Attorney General.

The Consolidated Financial Statements for the years ended December 31, 2004 and 2003 reflect a $31.2 million and $21.1 million pretax charge, respectively, for various legal, regulatory and compliance matters, including costs incurred and estimated to complete Federated’s internal review as well as costs incurred on behalf of the funds. Of these amounts, $17.4 million and $7.6 million, respectively, relate to the Settlement Charge. Neither the SEC nor the New York State Attorney General has passed on the establishment or amount of this Settlement Charge. In order to estimate the accrual for expenses relating to remedying any damages to the Federated Funds, management made assumptions concerning the timing and effort involved to complete the internal review. If actual experience differs significantly from the judgments used to determine the initial estimate, the amount accrued as of December 31, 2004 would be subject to further revision. In addition, Federated’s management is unable to estimate the ultimate impact of any settlement proceedings, including the tax deductibility of these costs, and therefore final resolution of these matters may have a material impact on Federated’s consolidated results of operations, financial position or cash flows.

Federated Investors 2004 Annual Report    55

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(d) Legal Proceedings

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

The six excessive fee cases were originally filed in four different federal courts and one state court. Four of the federal cases are now pending in the U.S. District Court for the Western District of Pennsylvania. The fifth federal case was pending in the Western District of Tennessee as of December 31, 2004, but on February 15, 2005, the court granted Federated’s motion to transfer that case to the Western District of Pennsylvania. A state court case was voluntarily dismissed by the plaintiff without prejudice.

In addition to the market timing and excessive fee litigation, certain Federated entities have recently been named defendants in a new class action filed in the U.S District Court for the Eastern District of Pennsylvania. Plaintiffs in this case claim that Federated has failed to ensure that the Federated Funds participated in class action settlements for which they were eligible.

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

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

(24) Subsequent Events

On January 7, 2005, a termination event, as defined in the applicable CDO agreement, occurred requiring the liquidation and distribution of the CDO’s collateral. As a result of this liquidation, Federated received $0.7 million as a return of capital on that investment, resulting in a $0.1 million gain which was recorded in 2005.

On January 14, 2005, Federated renewed its $150.0 million Credit Facility by signing Amendment No. 4 to the Second Amended and Restated Credit Agreement (the Renewed Credit Facility). The Renewed Credit Facility has a term of 364 days and can be renewed for additional 364-day terms. Under the Renewed Credit Facility, borrowings bear interest, at the option of Federated, at a defined prime rate or at a spread over the Federal Funds rate or the London Interbank Offering Rate. The Renewed Credit Facility contains restrictions that limit cash payments for dividends and stock repurchases. Cash payments for dividends and stock repurchases are restricted to 50% of net income earned during the period from January 1, 2000, to and including the payment date, less certain payments for dividends and stock repurchases. The Renewed Credit Facility includes financial and nonfinancial covenants, which are similar in nature to the covenants contained in the Second Amended and Restated Credit Agreement, as previously amended. In addition, certain registered broker/dealer subsidiaries of Federated were released from the Guaranty Agreement.

Federated’s board of directors declared a $0.125 per share dividend, effective February 3, 2005, which was paid on February 28, 2005.

56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2004, 2003 and 2002)

(25) Supplementary Quarterly Financial Data (Unaudited)

in thousands, except per share data, for the quarters ended	March 31,		June 30,		September 30,			December 31,
2004
Revenue1	$	220,680	$	213,084	$	205,189		$	208,011
Operating income2		88,265		83,170		81,373			64,156
Income from continuing operations2		51,187		48,649		47,201			32,021
Income (loss) from discontinued operations		546		2,000		(150	)		(275	)
Net income2		51,733		50,649		47,051			31,746
Basic earnings per share
Income from continuing operations2		0.47		0.45		0.44			0.30
Income (loss) from discontinued operations		0.01		0.02		(0.00	)		(0.00	)
Net income2		0.48		0.47		0.44			0.30
Diluted earnings per share
Income from continuing operations2		0.46		0.44		0.43			0.29
Income (loss) from discontinued operations		0.00		0.02		(0.00	)		(0.00	)
Net income2		0.46		0.46		0.43			0.29
Cash dividends per share		0.085		0.102		0.102			0.125
Stock price per share4
High		33.79		32.45		30.34			31.74
Low		28.78		27.70		26.72			27.07
2003
Revenue1	$	187,364	$	195,735	$	203,074		$	209,600
Operating income2		77,755		78,745		81,621			69,252
Income from continuing operations2		47,994		48,210		49,905			41,952
Income from discontinued operations		717		850		1,035			822
Net income2		48,711		49,060		50,940			42,774
Basic earnings per share
Income from continuing operations2		0.44		0.45		0.47			0.39
Income from discontinued operations		0.01		0.01		0.01			0.01
Net income2,3		0.44		0.46		0.48			0.40
Diluted earnings per share
Income from continuing operations2		0.42		0.43		0.45			0.38
Income from discontinued operations		0.01		0.01		0.01			0.01
Net income2,3		0.43		0.44		0.46			0.38
Cash dividends per share		0.057		0.070		0.085			0.085
Stock price per share4
High		27.83		28.70		30.94			31.90
Low		23.85		25.24		26.96			26.50

1 Previously reported revenue reflects certain reclassifications to conform with current year presentation (see Note (1)(c) Summary of Significant Accounting Policies-Prior Period Financial Statements).

2 The Consolidated Financial Statements for the quarters ended December 31, 2004 and 2003 included a $20.6 million and a $20.0 million pretax charge respectively, related to Federated’s internal review and estimated settlement related to past mutual fund trading practices. See Note (23) for information concerning the review and estimated settlement.

3 Totals may not sum due to rounding.

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

The approximate number of beneficial shareholders of Federated’s Class A and Class B common stock as of February 24, 2005, was one and 15,217, respectively.

Federated Investors 2004 Annual Report    57

EX-21.01

EXHIBIT 21.01

SIGNIFICANT SUBSIDIARIES OF FEDERATED INVESTORS, INC.:

Federated Securities Corp., a Pennsylvania corporation

Federated Investors Management Company, a Pennsylvania corporation

FII Holdings, Inc., a Delaware corporation

Federated Investment Management Company, a Delaware statutory trust

Federated Investment Counseling, a Delaware statutory trust

Federated Global Investment Management Corp., a Delaware corporation

Federated International Management Limited, an Ireland company

Passport Research Ltd., a Pennsylvania general partnership

Federated Services Company, a Pennsylvania corporation

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

Federated Investors Trust Company, a New Jersey bank

Federated Administrative Services, a Delaware statutory trust

Federated Shareholder Services Company, a Delaware statutory trust

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

Edgewood Services, Inc., a New York corporation

Federated Administrative Services, Inc., a Pennsylvania corporation

Federated Private Asset Management, Inc., a Delaware corporation

Federated International Holdings B.V., a Netherlands company

InvestLink Technologies, Inc., a Delaware corporation

Federated International – Europe GmbH, a German company

Federated Advisory Services Company, a Delaware statutory trust

Federated Financial Services, Inc., a Pennsylvania corporation

Federated Equity Management Company of Pennsylvania, Delaware statutory trust

Passport Research II, Ltd., a Pennsylvania general partnership

Federated Investors (UK) Ltd., an English Company

EX-23.01

Exhibit 23.01

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

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-56429) pertaining to the Federated Investors, Inc. Employee Stock Purchase Plan and the Registration Statement (Form S-8 No. 333-62471) pertaining to the Federated Investors, Inc. 2000 Stock Incentive Plan of our reports dated March 2, 2005, with respect to the consolidated financial statements of Federated Investors, Inc., Federated Investors, Inc. management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Federated Investors, Inc., incorporated by reference in the Annual Report (Form 10-K) for the year ended December 31, 2004.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

March 3, 2005

EX-31.01

EXHIBIT 31.01

CERTIFICATIONS

I, J. Christopher Donahue, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date March 4, 2005	By:	/s/ J. Christopher Donahue
		J. Christopher Donahue
		President and Chief Executive Officer

CERTIFICATIONS

I, Thomas R. Donahue, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date March 4, 2005	By:	/s/ Thomas R. Donahue
		Thomas R. Donahue
		Chief Financial Officer

EX-32.01

EXHIBIT 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Federated Investors, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date March 4, 2005	By:	/s/ J. Christopher Donahue
		J. Christopher Donahue
		President and
		Chief Executive Officer
Date March 4, 2005		/s/ Thomas R. Donahue
		Thomas R. Donahue
		Chief Financial Officer