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, 2006

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

For the transition period from              to             

Commission file number 1-14818

FEDERATED INVESTORS, INC.

(Exact name of registrant as specified in its charter)

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

412-288-1900

(Registrant’s telephone number, including area code)

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

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

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

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

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

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  þ    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer  þ    Accelerated filer  ¨    Non-accelerated filer  ¨

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

The aggregate market value of the Class B Common Stock held by non-affiliates of the registrant as of June 30, 2006 was approximately $2.8 billion, based on the last reported sales price of $31.50 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 23, 2007, was 9,000 and 103,551,916, respectively.

Documents incorporated by reference:

Selected portions of the 2006 Annual Report to Shareholders – Part I, Part II and Part IV of this Report.

Selected portions of the 2007 Information Statement – Part III of this Report.

Table of Contents

		Page
Part I
Item 1	Business	3
Item 1A	Risk Factors	11
Item 1B	Unresolved Staff Comments	15
Item 2	Properties	15
Item 3	Legal Proceedings	15
Item 4	Submission of Matters to a Vote of Security Holders	15
Part II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters	16
Item 6	Selected Financial Data	17
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A	Quantitative and Qualitative Disclosures about Market Risk	18
Item 8	Financial Statements and Supplementary Data	18
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	18
Item 9A	Controls and Procedures	18
Item 9B	Other Information	18
Part III
Item 10	Directors, Executive Officers and Corporate Governance	19
Item 11	Executive Compensation	19
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	19
Item 13	Certain Relationships and Related Transactions, and Director Independence	19
Item 14	Principal Accountant Fees and Services	20
Part IV
Item 15	Exhibits and Financial Statements Schedules	20
Signatures		26
Exhibit Index		27

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Part I

ITEM 1 – BUSINESS

General

Federated Investors, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, “Federated” or “the Company”), is a leading provider of investment management products and related financial services. Federated has been in the asset management business since 1955 and is one of the largest mutual fund managers in the United States with $237.4 billion in assets under management at December 31, 2006.

Federated sponsors, markets and provides investment-related services to various investment products, including mutual funds and Separate Accounts (which include separately managed accounts, institutional accounts and sub-advised funds, both variable annuity and other). 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 Separate Account.

Federated provided investment advisory services to 148 Federated-sponsored funds as of December 31, 2006. 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. Most of Federated’s U.S.-domiciled funds 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 148 funds sponsored by Federated (the “Federated Funds”) as of December 31, 2006, Federated’s investment advisory subsidiaries managed 51 money market funds (and cash equivalents) totaling $155.2 billion in assets, 48 fixed-income funds with $18.1 billion in assets and 49 equity funds with $28.7 billion in assets.

As of December 31, 2006, Federated provided investment advisory services to $35.4 billion in separate account assets. These separate accounts (together with the Federated Funds, “Managed Assets”) represented assets from high net worth individuals, government entities, pension and other employee benefit plans, corporations, trusts, foundations, endowments, mutual funds and other products sponsored by third parties. Fees for separate accounts are typically based on the value of assets under management pursuant to investment advisory agreements that may be terminated at any time.

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

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

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

Managed Assets by Asset Type

	As of December 31,						Growth Rate
(dollars in millions)	2006		2005		2004		3 Yr. CAGR1		2006
Money Market	$	173,644	$	160,621	$	124,302	7	%	8	%
Equity		40,894		29,785		29,013	17	%	37	%
Fixed-Income		22,902		23,017		25,953	(8	)%	(0	)%
Total Managed Assets	$	237,440	$	213,423	$	179,268	6	%	11	%

¹ Compound Annual Growth Rate

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

Average Managed Assets by Asset Type

	Year ended December 31,						Growth Rate
(dollars in millions)	2006		2005		2004		3 Yr. CAGR1		2006
Money Market	$	163,901	$	144,356	$	134,096	3	%	14	%
Equity		34,542		28,940		26,476	18	%	19	%
Fixed-Income		22,259		24,351		27,248	(8	)%	(9	)%
Total Average Managed Assets	$	220,702	$	197,647	$	187,820	3	%	12	%

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. The following chart shows period-end and average assets in funds sponsored by third parties (“Administered Assets”) for the past three years:

Administered Assets

	As of and for the year ended December 31,						Growth Rate
(dollars in millions)	2006		2005		2004		3 Yr. CAGR1		2006
Period-End Administered Assets	$	17,778	$	18,271	$	37,164	(26	)%	(3	)%
Average Administered Assets		18,272		18,239		41,208	(23	)%	0	%

¹ Compound Annual Growth Rate

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

Revenue from Continuing Operations

	Year ended December 31,						Growth Rate
(dollars in thousands)	2006		2005		2004		3 Yr. CAGR1		2006
Investment advisory fees, net	$	614,436	$	570,695	$	546,167	5	%	8	%
Administrative service fees, net		147,865		135,070		135,851	1	%	9	%
Other service fees, net		210,082		183,215		140,814	28	%	15	%
Other, net		6,475		7,258		7,482	(5	)%	(11	)%
Total revenue	$	978,858	$	896,238	$	830,314	8	%	9	%

¹ Compound Annual Growth Rate

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In terms of revenue concentration by product, approximately 17% of Federated’s total revenue for 2006 was derived from services provided to one sponsored fund (the Federated Kaufmann Fund). In addition, in terms of revenue concentration by customer, two intermediary customers (Edward D. Jones & Co. and the Bank of New York, including Pershing (a subsidiary of the Bank of New York)) accounted for a total of approximately 26% of Federated’s total revenue for 2006. Although in both cases the majority of this revenue is dependent upon the level of assets under management in numerous individual fund shareholder accounts in multiple sponsored products, significant changes in Federated’s relationship with these intermediary customers could have a significant adverse effect on Federated’s future revenues and, to a lesser extent, net income.

Federated’s revenues from domestic and foreign operations over the last three years were as follows:

Revenue from Continuing Operations

	Year ended December 31,						Growth Rate
(dollars in thousands)	2006		2005		2004		3 Yr. CAGR1		2006
Domestic	$	942,710	$	862,241	$	796,693	8	%	9	%
Foreign		36,148		33,997		33,621	6	%	6	%
Total revenue	$	978,858	$	896,238	$	830,314	8	%	9	%

¹ Compound Annual Growth Rate

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 $173.6 billion in such assets under management at December 31, 2006. Federated has developed expertise in managing cash for institutions, which typically have stringent requirements for regulatory compliance, relative safety, liquidity and competitive yields. Federated has managed money market funds for over 30 years and began selling money market fund products to institutions in 1974. Federated also manages retail money market products that are typically distributed through broker/dealers. Federated manages money market assets in the following asset classes: government ($78.7 billion); prime corporate ($67.2 billion); and tax free ($27.7 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 total $40.9 billion at December 31, 2006 and are managed across a wide range of styles including small-mid cap growth ($12.2 billion); core equity ($9.1 billion); large-cap value ($5.4 billion); flexible ($4.3 billion); equity income ($3.2 billion); international/global ($2.2 billion); and mid-large cap growth ($1.1 billion). Federated also manages assets in equity index funds ($2.7 billion) and balanced and asset allocation funds ($0.7 billion). These asset allocation funds may include fixed-income assets.

Federated’s fixed-income assets total $22.9 billion at December 31, 2006 and are managed in a wide range of sectors including multi-sector ($6.2 billion); mortgage-backed ($3.7 billion); municipal ($2.9 billion); U.S. corporate ($2.9 billion); high-yield ($2.6 billion); U.S. government ($2.6 billion); and international/global ($2.0 billion). Federated’s fixed-income products offer fiduciaries and others a broad range of highly defined products designed to meet many of their investment needs.

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

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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 50 years, Federated has developed relationships with 3,500 intermediaries and sells its products directly to another 1,800 corporations and government entities. Federated uses its trained sales force of approximately 167 representatives and managers to add new customer relationships and strengthen and expand existing relationships.

Product Markets

Federated’s investment products are distributed in three principal markets: the wealth management and trust market, the broker/dealer market and the global institutional 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)	2006		2005		2004		3 Yr. CAGR1		2006
Wealth Management & Trust	$	106,350	$	105,918	$	99,684	(2	%)	0	%
Broker/Dealer2		103,081		82,886		55,886	21	%	24	%
Global Institutional2		20,785		18,592		17,120	7	%	12	%
Other		7,224		6,027		6,578	(6	%)	20	%
Total Managed Assets	$	237,440	$	213,423	$	179,268	6	%	11	%

¹ Compound Annual Growth Rate

² Federated’s market definitions changed as of January 1, 2006. Channels that had been included in the former Institutional market are now included in the Broker/Dealer and the Wealth Management & Trust markets. For further explanations of these changes and historical data, please see the Historical Assets under New Market Definition chart on the About Us page of FederatedInvestors.com.

Wealth Management & Trust, Global Capital Markets and Institutional Cash. Federated pioneered the concept of providing cash management to bank trust departments through money market mutual funds over 30 years ago. Today, wealth management professionals in bank trust departments and at registered investment advisory firms (“RIAs”) use a broad range of Federated’s equity and fixed-income funds to invest the assets over which they have discretion. Federated also supports our clients’ asset allocation programs through Federated’s PRISM^® series, which is comprised of quarterly market outlooks, asset allocation models and online proposals for investors.

Money market funds contain the majority of Federated’s Managed Assets in the wealth management channel. In allocating investments across various asset classes, investors typically maintain a portion of their portfolios in cash or cash equivalents, including money market funds, irrespective of trends in bond or stock prices. In addition, Federated offers an extensive menu of equity and fixed-income mutual funds and Separate Accounts structured for use in the wealth management and trust market. In addition to bank trust departments and RIAs, Federated provides products and services to capital markets clients (institutional brokerages generally within banks) and directly to cash management and treasury departments at major corporations and government entities. Assets from these clients totaled $36.5 billion, $35.9 billion of which was in money market assets as of December 31, 2006.

Federated employs dedicated sales forces backed by experienced support staffs to offer products and services to each of the above sub-categories of the wealth management and trust market. As of December 31, 2006, Managed Assets in this market included $92.8 billion in money market assets, $7.1 billion in fixed-income assets and $6.5 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 and independent broker/dealers and bank broker/dealers. Federated maintains sales staff dedicated to calling on broker/dealers, bank broker/dealers and insurance interests. Broker/dealers use Federated’s products to meet the needs of their customers, who are typically retail investors. Federated offers products with a variety of commission structures that enable brokers to offer their customers a choice of pricing

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options. Federated also offers money market mutual funds as cash management products designed for use by its broker/dealer clients. As of December 31, 2006, Managed Assets in the broker/dealer market included $63.9 billion in money market assets, $29.3 billion in equity assets and $9.9 billion in fixed-income assets.

Global Institutional Market. Federated has structured its investment process to meet the requirements of fiduciaries and others who use Federated’s products to meet the needs of their customers. Fiduciaries typically have stringent demands related to portfolio composition, risk and investment performance. Federated maintains a dedicated sales staff to focus on the distribution of its products to a wide variety of global institutional customers: corporations, corporate and public pension funds, government entities, foundations, endowments, hospitals, and non-Federated investment companies. Federated includes institutional assets gathered in the U.S. in this market, including two local government investment pools in the state of Texas ($16.0 billion). In addition, assets gathered from Federated’s distribution to areas outside the U.S. through Federated International Management Ltd. and Federated Asset Management GmbH, a venture with LVM Insurance, are included in this market. As of December 31, 2006, Managed Assets in the global institutional market included $16.3 billion in money market assets, $3.2 billion in fixed-income assets and $1.3 billion in equity assets.

Other Markets. Other markets at December 31, 2006, included assets under management from the following sources: certain affinity groups and direct sales efforts including the retail assets associated with the Federated Kaufmann Fund ($2.9 billion); and collateralized debt obligation (CDO) products for which Federated acts as the investment adviser ($1.2 billion).

Competition

The investment management business is highly competitive. Competition is particularly intense among mutual fund providers. According to the Investment Company Institute, at the end of 2006, there were over 8,000 open-end mutual funds, of varying sizes and investment objectives, whose shares are currently being offered to the public both on a sales-load and no-sales-load basis. In addition to competition from other mutual fund managers and investment advisers, Federated and the mutual fund industry compete with investment alternatives offered by insurance companies, commercial banks, broker/dealers, 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. 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 Federated’s fund administration revenue 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 2006, assets of three mutual funds previously advised by Sentinel Asset Management, Inc. totaling approximately $73 million were acquired by three sponsored mutual funds.

In the third quarter 2006, Federated acquired MDTA LLC (MDTA) which, through its registered investment advisory division, MDT Advisers, oversaw approximately $6.7 billion in managed assets as of July 14, 2006. MDTA grew its business using quantitative investment techniques, having successfully developed a disciplined quantitative process to invest in equities. As a result of the acquisition, Federated has enhanced its product offerings by adding a quantitative line of equity mutual funds to complement Federated’s existing equity mutual funds.

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In the first quarter 2006, assets of an equity mutual fund previously advised by Wayne Hummer Asset Management Company, a direct subsidiary of Wintrust Financial Corporation, totaling approximately $158 million were acquired by a sponsored mutual fund.

In the first quarter 2006, assets of an equity mutual fund previously advised by Mason Street Advisors, LLC, a wholly owned company of Northwestern Mutual, totaling approximately $218 million, were acquired by a sponsored mutual fund.

In the first quarter 2006, Federated purchased the non-controlling interest in Passport Research II, Ltd., a registered investment advisor organized as a limited partnership between an indirect, wholly owned subsidiary of Federated and Edward D. Jones & Co.

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 “SEC”) under the Investment Advisers Act of 1940 and with certain states. All of the mutual funds managed, distributed, and administered by Federated are registered with the SEC under the Investment Company Act. Certain wholly owned subsidiaries of Federated are registered as broker/dealers with the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and with various states and are members of the National Association of Securities Dealers (the “NASD”). Their activities are regulated by the SEC, the NASD and the various states in which they are registered. These subsidiaries are required to meet capital requirements established by the SEC pursuant to the Exchange Act. Two other subsidiaries are registered with the SEC as transfer agents. One subsidiary is regulated by the New Jersey Department of Banking and Insurance. Amendments to current laws and regulations or newly promulgated laws and regulations governing Federated’s operations, the compliance with which may require substantial resources, could have a material adverse impact on Federated.

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

For further details regarding recent regulatory matters, see Note (22) to the Consolidated Financial Statements incorporated by reference in Item 8 of Part II of this Form 10-K.

Employees

At December 31, 2006, Federated employed 1,243 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 2006 Annual Report to Shareholders, including those related to Federated’s distribution strategy; its efforts to diversify its product mix; the ability to retain market share; expectations regarding market growth and the demand for money market assets; the pursuit of acquisitions; changes in the demand for mutual fund distribution and administration services; obligations to make additional contingent

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payments pursuant to acquisition agreements; the costs associated with the settlement with the Securities and Exchange Commission and the New York State Attorney General; legal proceedings; future cash needs; accounting for intangible assets; accounting for fair value measurements; accounting for income taxes; market risk of investments and revenue; the impact of Federated’s reclassification within the Edward Jones brokerage firm; the impact of increased regulation; and the various items set forth under Risk Factors constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance or achievements of Federated or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Among others, Federated’s risks and uncertainties include Federated’s ability to successfully execute its distribution strategy; to successfully diversify its product mix; to identify and complete suitable acquisitions; and to take actions necessary to retain experienced money managers. The number of clients for fund administration services is subject to the decisions of the clients to internalize or change service providers and the impact of mergers in the banking industry and the costs associated with the settlement may vary based in part on net assets of certain funds and costs associated with compliance with the terms of the settlement. Federated’s risks and uncertainties also include other regulatory inquiries, legal proceedings and future cash needs, which will be impacted by any additional information requests from or fines or penalties paid to governmental agencies; the cost associated with private litigation; and the costs to implement regulatory changes; the accounting for intangible assets and loss contingencies, which are based upon estimates and will be affected if actual results differ significantly; the accounting for fair value measurements; the accounting for income taxes; investments, which will be impacted by fluctuations in the securities markets; and revenue, which will be affected by changes in market values of assets under management; the impact of Federated’s reclassification within the Edward Jones brokerage firm; and the impact of interest changes on money market and fixed-income funds. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism and the increased scrutiny of 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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Executive Officers

The following section sets forth certain information regarding the executive officers of Federated as of February 28, 2007:

Name	Position	Age
John F. Donahue	Chairman and Director	82
J. Christopher Donahue	President, Chief Executive Officer and Director	57
Brian P. Bouda	Vice President and Chief Compliance Officer	60
Thomas R. Donahue	Vice President, Treasurer and Chief Financial Officer and President, FII Holdings, Inc.	48
John B. Fisher	Vice President and President and Chief Executive Officer of Federated Advisory Companies*	50
Eugene F. Maloney	Vice President and Executive Vice President, Federated Investors Management Company	61
Denis McAuley III	Vice President, Principal Accounting Officer and President of Federated Shareholder Services Company	60
John W. McGonigle	Vice Chairman, Executive Vice President, Chief Legal Officer, Secretary and Director	68
Thomas E. Territ	Vice President and President, Federated Securities Corp.	47

*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, Federated Investment Counseling, Federated Investment Management Company and Federated MDTA LLC.

Mr. John F. Donahue is a founder of Federated. He has served as director and Chairman of Federated since Federated’s initial public offering in May 1998. He is a director or trustee of 44 investment companies managed by subsidiaries of Federated. Mr. Donahue is the father of J. Christopher Donahue who serves as Chief Executive Officer and director of Federated and Thomas R. Donahue who serves as Chief Financial Officer.

Mr. J. Christopher Donahue has served as director, President and Chief Executive Officer of Federated since 1998. He is President of 40 investment companies managed by subsidiaries of Federated. He is also director, trustee or managing general partner of 44 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 has served as Vice President, Treasurer and Chief Financial Officer of Federated since 1998. He is President of FII Holdings, Inc., a wholly owned subsidiary of Federated. Prior to joining Federated, Mr. Donahue was in the venture capital business and was employed by PNC Bank in its Investment Banking Division. Mr. Donahue is the son of John F. Donahue and the brother of J. Christopher Donahue.

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

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

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

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

Mr. John W. McGonigle has been a director of Federated since 1998. He has served as Executive Vice President, Chief Legal Officer and Secretary of Federated since 1998 and as Vice Chairman since 2001. Mr. McGonigle is also Chairman of Federated International Management Limited a wholly owned subsidiary of Federated. Mr. McGonigle is also Executive Vice President and Secretary of 44 investment companies managed by subsidiaries of Federated.

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

Available Information

Federated makes available, free of charge on its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 as soon as reasonably practicable after Federated electronically files such material with, or furnishes it to, the SEC. Reports may be viewed and obtained on the Company’s website, FederatedInvestors.com, or by calling Investor Relations at 412-288-1934.

The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxies and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

Other Information

All other information required by this Item is contained in Federated’s 2006 Annual Report to Shareholders under the captions “Consolidated Balance Sheets,” “Consolidated Statements of Income” and “Notes to the Consolidated Financial Statements” (including, but not limited to Note (21)) and is incorporated herein by reference.

ITEM 1A – RISK FACTORS

Potential Adverse Effects of Increased Competition in the Investment Management Business. The investment management business is highly competitive. Federated competes in the distribution of mutual funds and Separate 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,

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investment performance, quality of service, the strength and continuity of management and selling relationships, marketing and distribution services offered, the range of products offered and fees charged. See “Business—Competition” above.

Many of Federated’s products are designed for use by institutions such as banks, insurance companies and other corporations. A large portion of Federated’s Managed Assets, particularly money market and fixed-income Managed Assets, are held by institutional investors. Because most institutional investment vehicles are sold without sales commissions at either the time of purchase or the time of redemption, institutional investors may be more inclined to transfer their assets among various institutional funds than investors in retail mutual funds. Of Federated’s 148 managed funds, 95 are sold without a sales commission.

A significant portion of Federated’s revenue is derived from providing mutual funds to the wealth management and trust market, comprising approximately 1,600 banks and other financial institutions. Future profitability of Federated will be affected by its ability to retain its share of this market, and could also be adversely affected by the general consolidation occurring in the banking industry, as well as regulatory changes. In addition, bank consolidation trends could not only cause changes in Federated’s customer mix, but could also affect the scope of services provided and fees received by Federated, depending upon the degree to which banks internalize administrative functions attendant to proprietary mutual funds.

Potential Adverse Effects of Changes in our Distribution Channels. Federated acts as a wholesaler of investment products to financial intermediaries including banks, broker/dealers, registered investment advisers and other financial planners. Federated also sells investment products directly to corporations and institutions. Approximately 26% of Federated’s total revenue for 2006 was attributable to two financial intermediaries. If one or more of the major financial intermediaries that distribute Federated’s products were to cease operations or limit or otherwise end the distribution of Federated’s investment products, it could have a significant adverse effect on Federated’s future revenues and, to a lesser extent, net income. There can be no assurance that Federated will continue to have access to the financial intermediaries that currently distribute Federated products. In addition, Federated has experienced increases in the cost of distribution as a percentage of total revenue over the years and such costs could continue to rise. Higher distribution costs reduce Federated’s operating and net income.

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 market value 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 47% and 13% of Federated’s revenue in 2006 was from managed assets in money market and fixed-income products, respectively. These assets are largely from institutional investors. After reaching record lows, short-term interest rates began to rise in 2004 and may continue to increase. In a rising-rate environment, certain institutional investors using money market products and other short-term duration fixed-income products for cash management purposes may shift these investments to direct investments in comparable instruments in order to realize higher yields than those available in money market and other fund products holding lower-yielding instruments. These redemptions reduce Managed Assets, thereby reducing Federated’s revenue. In addition, rising interest rates will tend to reduce the market value of bonds held in various investment portfolios and other products. Thus, increases in interest rates could have an adverse effect on Federated’s revenue from money market portfolios and from other fixed-income products. 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.

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Adverse Effects of Poor Investment Performance. Success in the investment management business is largely dependent on investment performance relative to market conditions and the performance of competing products. Good performance generally assists retention and growth of assets, resulting in additional revenues. Conversely, poor performance tends to result in decreased sales and increased redemptions with corresponding decreases in revenues to Federated. Poor performance could, therefore, have a material adverse effect on Federated’s business, results of operations or business prospects. In terms of revenue concentration by product, approximately 17% of Federated’s total revenue for 2006 was derived from services provided to one sponsored fund (the Federated Kaufmann Fund). Sustained poor performance in this fund could have a material adverse effect on Federated’s results of operations.

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

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

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

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

During 2006, the two senior portfolio managers of the Federated Kaufmann Fund, which generated 17% of Federated’s revenue in 2006, were subject to non-competition agreements which were entered into in 2000 and continue into April 2007. Since the employment agreements expired in 2005, Federated reached agreements with these portfolio managers on new terms of employment including performance-based incentive compensation. These portfolio managers are no longer parties to formal employment contracts with Federated, which is generally consistent with Federated’s policy for portfolio managers.

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

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

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

Potential Adverse Effects Related to Federated’s Settlement of Past Mutual Fund Trading Issues and Related Legal Proceedings. In 2005, Federated entered into settlement agreements with the SEC and New York State Attorney General (NYAG) to resolve the past mutual fund trading issues. Since October 2003, Federated has been named as a defendant in twenty-three cases filed in various federal district courts and state courts involving allegations relating to market timing, late trading and excessive fees. All of these lawsuits seek unquantified damages, attorneys’ fees and expenses. Federated is defending 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 to Federated’s reputation, financial position, results of operations and/or liquidity.

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

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

Under the terms of the settlement agreement with the SEC and NYAG, a Federated investment advisory subsidiary may not serve as investment advisor to any registered investment company unless: (i) at least 75% of the fund’s directors are independent of Federated; (ii) the chairman of each such fund is independent of Federated; (iii) no action may be taken by the fund’s board of directors or trustees or any committee thereof unless approved by a majority of the independent board members of the fund or committee, respectively; and (iv) the fund appoints a

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senior officer who reports to the independent directors or trustees and is responsible for monitoring compliance by the fund with applicable laws and fiduciary duties and for managing the process by which management fees charged to a fund are approved.

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.

ITEM 2 – PROPERTIES

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

ITEM 3 – LEGAL PROCEEDINGS

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

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

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

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. It is possible that an unfavorable determination will cause a material adverse impact on Federated’s financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

For additional information, see the information contained in Federated’s 2006 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 (22) – Commitments and Contingencies – (c) Past Mutual Fund Trading Issues and Related Legal Proceedings and (d) Other Legal Proceedings” incorporated by reference in Part II, Item 8 of this Form 10-K.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table summarizes stock repurchases under Federated’s share repurchase program during the fourth quarter of 2006. Stock repurchases and dividend payments are subject to the restrictions outlined in Note (13) to the Consolidated Financial Statements incorporated by reference in Part II, Item 8 of this Form 10-K.

	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs1	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October	43,000	$	33.97	43,000	8,540,200
November2	588,200		33.64	586,300	7,953,900
December2	717,300		33.18	713,500	7,240,400
Total	1,348,500	$	33.41	1,342,800	7,240,400

¹ The first of Federated’s share repurchase programs available during the quarter ending December 31, 2006 was announced in October 2004, whereby the board of directors authorized management to purchase up to 5.0 million shares of Federated Class B common stock. This program was fulfilled prior to its expiration at December 31, 2006. In July 2006, the board of directors authorized management to purchase an additional 7.5 million shares of Federated Class B common stock through December 31, 2008. No other plans existed as of December 31, 2006.

² 1,900 shares and 3,800 shares in November and December, respectively, represent shares of restricted stock repurchased due to employee separations.

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The following performance graph compares the total shareholder return of an investment in Federated’s Class B Common Stock to that of the Standard and Poor’s 500 ^® Index (“S&P 500 Index”), and to a Peer Group Index of publicly traded asset management firms for the five-year period ending on December 31, 2006. The graph assumes that the value of the investment in Federated’s Class B Common Stock and each index was $100 on December 31, 2001. Total return includes reinvestment of all dividends. According to Standard & Poor’s, the S&P 500 Index is a market-value-weighted index of 500 stocks that tend to be the leading companies in leading industries within the U.S. economy. As a member of the S&P 500 Index, Federated is required to include this comparison. Peer Group returns are weighted by the market capitalization of each firm at the beginning of each measurement period. The historical information set forth below is not necessarily indicative of future performance. Federated does not make or endorse any predictions as to future stock performance.

	12/31/02	12/31/03	12/31/04	12/31/05	12/31/06
Federated	80.16	93.75	98.42	122.12	113.65
S&P 500 ® Index	77.90	100.25	111.15	116.61	135.03
Peer Group *	85.45	128.70	172.41	217.51	263.57

* The following companies are included in the Peer Group: Affiliated Managers Group, Inc.; Eaton Vance Corp.; Franklin Resources, Inc.; Nuveen Investments, Inc.; T. Rowe Price Group, Inc.; and Waddell & Reed Financial, Inc.

All other information required by this Item is contained in Federated’s 2006 Annual Report to Shareholders under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to the Consolidated Financial Statements” (including, but not limited to Note (24)) and is incorporated herein by reference.

ITEM 6 – SELECTED FINANCIAL DATA

The information required by this Item is contained in Federated’s 2006 Annual Report to Shareholders under the caption “Selected Consolidated Financial Data” and is incorporated herein by reference.

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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 2006 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information contained in Federated’s 2006 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference. Management is not required to, and has not provided all the information required by this Item due to the immateriality of Federated’s market risk exposure.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is contained in Federated’s 2006 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, 2006. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that Federated’s disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by the registrant in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There has been no change in Federated’s internal control over financial reporting that occurred during the fourth quarter ended December 31, 2006 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 2006 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.

ITEM 9B – OTHER INFORMATION

None.

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PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item (other than the information set forth below) is contained in Federated’s Information Statement for its 2007 Annual Meeting of Shareholders under the captions “Board of Directors and Election of Directors,” “Executive Compensation” and “Security Ownership – Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.

Executive Officers

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

Code of Ethics

In October 2003, Federated adopted a code of ethics for its senior financial officers. This code meets the requirements provided by Item 406 of Regulation S-K and is incorporated by reference in Part IV, Item 15(a)(3) of this report as Exhibit 14.01. The code of ethics is available at FederatedInvestors.com. 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 (b) of Item 406 of Regulation S-K, Federated would post such information on its internet website.

ITEM 11 – EXECUTIVE COMPENSATION

The information required by this Item is contained in Federated’s Information Statement for the 2007 Annual Meeting of Shareholders under the captions “Board of Directors and Election of Directors” and “Executive Compensation” and is incorporated herein by reference.

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

The following table sets forth information regarding Federated’s share-based compensation as of December 31, 2006:

Category of share-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	5,919,410	$	22.79	4,912,751
Not approved by shareholders	0		0	0
Total	5,919,410	$	22.79	4,912,751

All other information required by this Item is contained in Federated’s Information Statement for the 2007 Annual Meeting of Shareholders under the caption “Security Ownership” and is incorporated herein by reference.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is contained in Federated’s Information Statement for the 2007 Annual Meeting of Shareholders under the caption “Executive Compensation” and is incorporated herein by reference.

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ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is contained in Federated’s Information Statement for the 2007 Annual Meeting of Shareholders under the caption “Independent Registered Public Accounting Firm” and is incorporated herein by reference.

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements:

The information required by this Item is contained in Federated’s 2006 Annual Report to Shareholders under the captions “Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements,” “Consolidated Balance Sheets,” “Consolidated Statements of Income,” “Consolidated Statements of Changes in Shareholders’ Equity,” “Consolidated Statements of Cash Flows” and “Notes to the Consolidated Financial Statements” and is incorporated herein by reference.

(a)(2) Financial Statement Schedules:

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

(a)(3) Exhibits:

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

Exhibit Number	Description
2.01	Agreement and Plan of Merger, dated as of February 20, 1998, between Federated Investors and Federated (incorporated by reference to Exhibit 2.01 to the Registration Statement on Form S-1 (File No. 333-48405))
2.02	Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.1 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
2.03	Amendment No. 1, dated April 11, 2001, to the Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.2 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
2.04	Sale, Purchase and Put/Call Agreement dated as of May 11, 2006 among Federated Investors, Inc., MDTA LLC, HBSS Acquisition Co. and the Selling Parties (incorporated by reference to Exhibit 2.1 to the June 30, 2006 Quarterly Report on Form 10-Q (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))

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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))
10.09	Federated Investors Program Revolving Purchase Agreement, dated as of October 24, 1997, between Federated Funding 1997-1, Inc. and PLT Finance, L.P. (incorporated by reference to Exhibit 4.11 to the Registration Statement on Form S-1 (File No. 333-48405))
10.10	Federated Investors Program Fee Agreement, dated as of October 24, 1997, between Federated Investors and PLT Finance, L.P. (incorporated by reference to Exhibit 4.12 to the Registration Statement on Form S-1 (File No. 333-48405))
10.11	Schedule X to Federated Program Master Agreement, dated as of October 24, 1997, among Federated, Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and Bankers Trust Company (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-1 (File No. 333-48405))
10.14	Form of Bonus Stock Option Agreement (incorporated by reference to Exhibit 10.13 of the Form 10-K for the fiscal year ended December 31, 1998 (File No. 001-14818))
10.15	Federated Investors Tower Lease dated January 1, 1993 (incorporated by reference to Exhibit 10.03 to the Registration Statement on Form S-1 (File No. 333-48405))
10.16	Federated Investors Tower Lease dated February 1, 1994 (incorporated by reference to Exhibit 10.04 to the Registration Statement on Form S-1 (File No. 333-48405))
10.18	Employment Agreement, dated January 16, 1997, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.06 to the Registration Statement on Form S-1 (File No. 333-48405))
10.19	Employment Agreement, dated December 28, 1990, between Federated Investors and an executive officer (incorporated by reference to Exhibit 10.08 to the Registration Statement on Form S-1 (File No. 333-48405))

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

22

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

23

10.53	Amendment No. 5 to the Second Amended and Restated Credit Agreement, dated November 22, 2005, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 001-14818))
10.54	Agreement, effective March 13, 2006, by and among Federated Investors, Inc., Federated Investment Management Company, Federated Global Investment Management Corp., Federated Investment Counseling, Federated Advisory Services Company, Passport Research Ltd., Federated Equity Management Company of Pennsylvania, Passport Research II, Ltd. and Keith M. Schappert (incorporated by reference to Exhibit 10.1 to the March 16, 2006 Report on Form 8-K (File No. 001-14818))
10.55	Asset Purchase Agreement dated as of February 15, 2006 by and between Matrix Settlement & Clearing Services, LLC and Edgewood Services, Inc. (incorporated by reference to Exhibit 10.1 to the March 31, 2006 Quarterly Report on Form 10-Q (File No. 001-14818))
10.56	Federated Investors, Inc. Stock Incentive Plan most recently amended as of April 27, 2006 (incorporated by reference to Exhibit 10.1 to the June 30, 2006 Quarterly Report on Form 10-Q (File No. 001-14818))
10.57	Amendment No. 6 to the Second Amended and Restated Credit Agreement, dated September 29, 2006, 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 September 30, 2006 Quarterly Report on Form 10-Q (File No. 001-14818))
10.58	Federated Investors, Inc. Employee Stock Purchase Plan, amended as of October 26, 2006 (incorporated by reference to Exhibit 10.2 to the September 30, 2006 Quarterly Report on Form 10-Q (File No. 001-14818))
10.59	Credit Agreement, dated as of October 31, 2006, by and among Federated Investors, Inc., certain of its subsidiaries, the banks set forth therein and PNC Bank, National Association (filed herewith)
10.60	Amendment dated December 29, 2006 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)
13.01	Selected Portions of 2006 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)

24

(b) Exhibits:

See (a)(3) above.

(c) Financial Statement Schedules:

See (a)(2) above.

25

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:	February 28, 2007

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	February 28, 2007
John F. Donahue
/s/ J. Christopher Donahue	President, Chief Executive Officer	February 28, 2007
J. Christopher Donahue	and Director (Principal Executive Officer)
/s/ Thomas R. Donahue	Chief Financial Officer	February 28, 2007
Thomas R. Donahue
/s/ Michael J. Farrell	Director	February 28, 2007
Michael J. Farrell
/s/ David M. Kelly	Director	February 28, 2007
David M. Kelly
/s/ Denis McAuley III Denis McAuley III	Principal Accounting Officer	February 28, 2007
/s/ John W. McGonigle John W. McGonigle	Director	February 28, 2007
/s/ James L. Murdy James L. Murdy	Director	February 28, 2007
/s/ Edward G. O’Connor Edward G. O’Connor	Director	February 28, 2007

26

EXHIBIT INDEX

Exhibit Number	Description
10.59	Credit Agreement, dated as of October 31, 2006, by and among Federated Investors, Inc., certain of its subsidiaries, the banks set forth therein and PNC Bank, National Association
10.60	Amendment dated December 29, 2006 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.
13.01	Selected Portions of 2006 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

27

EX-10.59

Exhibit 10.59

$200,000,000 REVOLVING CREDIT FACILITY

CREDIT AGREEMENT

by and among

FEDERATED INVESTORS, INC.

THE GUARANTORS PARTY HERETO

and

THE BANKS PARTY HERETO

and

PNC BANK, NATIONAL ASSOCIATION, As Agent

Dated as of October 31, 2006

TABLE OF CONTENTS

Section				Page
1.	CERTAIN DEFINITIONS			1
	1.1	Certain Definitions.		1
	1.2	Construction.		18
		1.2.1	Number; Inclusion.	18
		1.2.2	Determination.	18
		1.2.3	Agent’s Discretion and Consent.	18
		1.2.4	Documents Taken as a Whole.	18
		1.2.5	Headings.	18
		1.2.6	Implied References to this Agreement.	19
		1.2.7	Persons.	19
		1.2.8	Modifications to Documents.	19
		1.2.9	From, To and Through.	19
		1.2.10	Shall; Will.	19
	1.3	Accounting Principles.		19
2.	REVOLVING CREDIT FACILITY			20
	2.1	Commitments.		20
		2.1.1	Revolving Credit Commitments.	20
		2.1.2	Swing Loan Commitment.	20
	2.2	Nature of Banks’ Obligations with Respect to Revolving Credit Loans.		20
	2.3	Certain Fees.		21
		2.3.1	Facility Fees.	21
		2.3.2	Usage Fees.	21
	2.4	Permanent Reductions of Commitments.		21
		2.4.1	Voluntary Reductions	21
		2.4.2	Effect of Reductions	21
	2.5	Loan Requests.		22
		2.5.1	Revolving Loan Requests.	22
		2.5.2	Swing Loan Requests.	22
	2.6	Making Loans.		23
		2.6.1	Making Revolving Credit Loans; Borrowings to Repay Swing Loans.	23
		2.6.2	Making Swing Loans.	23
		2.6.3	Borrowings to Repay Swing Loans.	23
	2.7	Notes.		24
		2.7.1	Revolving Credit Notes.	24
		2.7.2	Swing Note.	24
	2.8	Use of Proceeds.		24
	2.9	Letter of Credit Subfacility.		24

i

TABLE OF CONTENTS

Section				Page
		2.9.1	Issuance of Letters of Credit.	24
		2.9.2	Letter of Credit Fees.	24
		2.9.3	Disbursements, Reimbursement.	25
		2.9.4	Repayment of Participation Advances.	26
		2.9.5	Documentation.	26
		2.9.6	Determinations to Honor Drawing Requests.	27
		2.9.7	Nature of Participation and Reimbursement Obligations.	27
		2.9.8	Indemnity.	28
		2.9.9	Liability for Acts and Omissions.	29
	2.10	Increase in Commitments.		30
3.	[INTENTIONALLY OMITTED]			31
4.	INTEREST RATES			31
	4.1	Interest Rate Options.		31
		4.1.1	Revolving Credit Interest Rate Options.	31
		4.1.2	Swing Loan Interest Rate Options.	32
		4.1.3	Rate Quotations.	32
		4.1.4	Change in Fees or Interest Rates.	32
	4.2	Interest Periods.		33
		4.2.1	Amount of Borrowing Tranche.	33
		4.2.2	Renewals.	33
	4.3	Interest After Default.		33
		4.3.1	Letter of Credit Fees, Interest Rate.	33
		4.3.2	Other Obligations.	33
		4.3.3	Acknowledgment.	33
	4.4	Euro-Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available.		34
		4.4.1	Unascertainable.	34
		4.4.2	Illegality; Increased Costs; Deposits Not Available.	34
		4.4.3	Agent’s and Bank’s Rights.	34
	4.5	Selection of Interest Rate Options.		35
5.	PAYMENTS			35
	5.1	Payments.		35
	5.2	Pro Rata Treatment of Banks.		36
	5.3	Interest Payment Dates.		36
	5.4	Voluntary Prepayments.		36
		5.4.1	Right to Prepay.	36
		5.4.2	Replacement of a Bank.	37

ii

TABLE OF CONTENTS

Section				Page
		5.4.3	Change of Lending Office.	38
	5.5	Settlement Date Procedures.		38
	5.6	Additional Compensation in Certain Circumstances.		38
		5.6.1	Increased Costs or Reduced Return Resulting from Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc.	38
		5.6.2	Indemnity.	39
6.	REPRESENTATIONS AND WARRANTIES			40
	6.1	Representations and Warranties.		40
		6.1.1	Organization and Qualification.	40
		6.1.2	Subsidiaries.	40
		6.1.3	Power and Authority.	41
		6.1.4	Validity and Binding Effect.	41
		6.1.5	No Conflict.	41
		6.1.6	Litigation.	41
		6.1.7	Title to Properties.	42
		6.1.8	Financial Statements.	42
		6.1.9	Use of Proceeds; Margin Stock; Section 20 Subsidiaries.	42
		6.1.10	Full Disclosure.	43
		6.1.11	Taxes.	43
		6.1.12	Consents and Approvals.	43
		6.1.13	No Event of Default; Compliance with Instruments.	44
		6.1.14	Patents, Trademarks, Copyrights, Licenses, Etc.	44
		6.1.15	Insurance.	44
		6.1.16	Compliance with Laws.	44
		6.1.17	Material Contracts; Burdensome Restrictions.	44
		6.1.18	Investment Companies; Regulated Entities.	45
		6.1.19	Plans and Benefit Arrangements.	45
		6.1.20	Employment Matters.	45
		6.1.21	Environmental Matters.	46
		6.1.22	Senior Debt Status.	46
		6.1.23	Anti-Terrorism Laws.	46
		6.1.24	Existing Business.	47
	6.2	Updates to Schedules.		47
7.	CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT			48
	7.1	First Loans and Letters of Credit.		48
		7.1.1	Officer’s Certificate.	48
		7.1.2	Secretary’s Certificate.	48
		7.1.3	Delivery of Loan Documents.	49

iii

TABLE OF CONTENTS

Section				Page
		7.1.4	Opinion of Counsel.	49
		7.1.5	Legal Details.	49
		7.1.6	Payment of Fees.	49
		7.1.7	Consents.	49
		7.1.8	Officer’s Certificate Regarding MACs.	49
		7.1.9	No Violation of Laws.	49
		7.1.10	No Actions or Proceedings.	50
		7.1.11	Termination of Existing Credit Agreement.	50
	7.2	Each Additional Loan or Letter of Credit.		50
8.	COVENANTS			50
	8.1	Affirmative Covenants.		50
		8.1.1	Preservation of Existence, Etc.	50
		8.1.2	Payment of Liabilities, Including Taxes, Etc.	51
		8.1.3	Maintenance of Insurance.	51
		8.1.4	Maintenance of Properties and Leases.	51
		8.1.5	Maintenance of Patents, Trademarks, Etc.	51
		8.1.6	Visitation Rights.	51
		8.1.7	Keeping of Records and Books of Account.	52
		8.1.8	Plans and Benefit Arrangements.	52
		8.1.9	Compliance with Laws.	52
		8.1.10	Ownership of Subsidiaries.	52
		8.1.11	New Subsidiaries.	52
		8.1.12	Subordination of Intercompany Loans.	53
		8.1.13	Anti-Terrorism Laws.	53
	8.2	Negative Covenants.		53
		8.2.1	Indebtedness.	53
		8.2.2	Liens.	54
		8.2.3	Guaranties.	54
		8.2.4	Loans and Investments.	54
		8.2.5	Dividends and Related Distributions.	55
		8.2.6	Liquidations, Mergers, Consolidations, Acquisitions.	56
		8.2.7	Dispositions of Assets or Subsidiaries.	56
		8.2.8	Affiliate Transactions.	57
		8.2.9	Continuation of or Change in Business.	57
		8.2.10	Plans and Benefit Arrangements.	58
		8.2.11	Fiscal Year; Accounting Methods.	58
		8.2.12	Intercompany Transactions.	58
		8.2.13	Change in Ownership.	58
		8.2.14	Maximum Leverage Ratio.	59

iv

TABLE OF CONTENTS

Section				Page
		8.2.15	Minimum Interest Coverage Ratio.	59
	8.3	Reporting Requirements.		59
		8.3.1	Quarterly Financial Statements.	59
		8.3.2	Annual Financial Statements.	59
		8.3.3	Certificate of the Borrower.	60
		8.3.4	Notice of Default.	60
		8.3.5	Notice of Litigation.	60
		8.3.6	Certain Events.	60
		8.3.7	Other Notices, Reports and Information.	61
		8.3.8	Notices Regarding Plans and Benefit Arrangements.	61
		8.3.9	Notices Regarding Special Purpose Subsidiaries.	62
		8.3.10	Notice of Change in Debt Rating.	62
9.	DEFAULT			63
	9.1	Events of Default.		63
		9.1.1	Payments Under Loan Documents.	63
		9.1.2	Breach of Warranty.	63
		9.1.3	Breach of Certain Covenants.	63
		9.1.4	Breach of Other Covenants.	63
		9.1.5	Defaults in Other Agreements or Indebtedness.	63
		9.1.6	Final Judgments or Orders.	64
		9.1.7	Loan Document Unenforceable.	64
		9.1.8	Proceedings Against Assets.	64
		9.1.9	Notice of Lien or Assessment.	64
		9.1.10	Insolvency.	64
		9.1.11	Events Relating to Plans and Benefit Arrangements.	64
		9.1.12	Cessation of Business.	65
		9.1.13	Involuntary Proceedings.	65
		9.1.14	Voluntary Proceedings.	65
	9.2	Consequences of Event of Default.		66
		9.2.1	Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings.	66
		9.2.2	Bankruptcy, Insolvency or Reorganization Proceedings.	66
		9.2.3	Set-off.	66
		9.2.4	Suits, Actions, Proceedings.	67
		9.2.5	Application of Proceeds; Collateral Sharing.	67
		9.2.6	Other Rights and Remedies.	67
10.	THE AGENT			68
	10.1	Appointment.		68

v

TABLE OF CONTENTS

Section				Page
	10.2	Delegation of Duties.		68
	10.3	Nature of Duties; Independent Credit Investigation.		68
	10.4	Actions in Discretion of Agent; Instructions From the Banks.		69
	10.5	Reimbursement and Indemnification of Agent by the Borrower.		69
	10.6	Exculpatory Provisions; Limitation of Liability.		70
	10.7	Reimbursement and Indemnification of Agent by Banks.		70
	10.8	Reliance by Agent.		71
	10.9	Notice of Default.		71
	10.10	Notices.		71
	10.11	Banks in Their Individual Capacities; Agent in its Individual Capacity.		71
	10.12	Holders of Notes.		72
	10.13	Equalization of Banks.		72
	10.14	Successor Agent.		72
	10.15	Agent’s Fee.		73
	10.16	Availability of Funds.		73
	10.17	Calculations.		74
	10.18	No Reliance on Agent’s Customer Identification Program.		74
	10.19	Beneficiaries.		74
11.	MISCELLANEOUS			74
	11.1	Modifications, Amendments or Waivers.		74
		11.1.1	Increase of Commitment; Extension of Expiration Date.	75
		11.1.2	Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment.	75
		11.1.3	Release of Guarantor.	75
		11.1.4	Miscellaneous.	75
	11.2	No Implied Waivers; Cumulative Remedies; Writing Required.		75
	11.3	Reimbursement and Indemnification of Banks by the Borrower; Taxes.		76
	11.4	Holidays.		76
	11.5	Funding by Branch, Subsidiary or Affiliate.		77
		11.5.1	Notional Funding.	77
		11.5.2	Actual Funding.	77
	11.6	Notices.		77
	11.7	Severability.		78
	11.8	Governing Law.		78
	11.9	Prior Understanding.		79
	11.10	Duration; Survival.		79
	11.11	Successors and Assigns.		79
	11.12	Confidentiality.		80
		11.12.1	General.	80

vi

TABLE OF CONTENTS

Section				Page
		11.12.2	Sharing Information With Affiliates of the Banks.	81
	11.13	Counterparts.		81
	11.14	Agent’s or Bank’s Consent.		81
	11.15	Exceptions.		81
	11.16	CONSENT TO FORUM; WAIVER OF JURY TRIAL.		81
	11.17	Certifications From Banks and Participants.		82
		11.17.1	Tax Withholding.	82
		11.17.2	USA Patriot Act.	83
	11.18	Joinder of Parties to Loan Documents.		83

vii

LIST OF SCHEDULES AND EXHIBITS

SCHEDULES
SCHEDULE 1.1(A)		PRICING GRID
SCHEDULE 1.1(B)	—	COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
SCHEDULE 1.1(P)	—	PERMITTED LIENS
SCHEDULE 6.1.2	—	SUBSIDIARIES
SCHEDULE 8.2.1	—	PERMITTED INDEBTEDNESS
SCHEDULE 8.2.4	—	PERMITTED LOANS AND INVESTMENTS
EXHIBITS
EXHIBIT 1.1(A)	—	ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(G)	—	GUARANTY AGREEMENT
EXHIBIT 1.1(I)	—	INTERCOMPANY SUBORDINATION AGREEMENT
EXHIBIT 1.1(L)(1)		LENDER JOINDER
EXHIBIT 1.1(L)(2)	—	LOAN DOCUMENT JOINDER
EXHIBIT 1.1(R)	—	REVOLVING CREDIT NOTE
EXHIBIT 1.1(S)	—	SWING NOTE
EXHIBIT 2.5.1	—	REVOLVING LOAN REQUEST
EXHIBIT 2.5.2	—	SWING LOAN REQUEST
EXHIBIT 7.1.4	—	OPINION OF COUNSEL
EXHIBIT 8.3.3	—	QUARTERLY COMPLIANCE CERTIFICATE

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Exhibit 10.59

CREDIT AGREEMENT

THIS CREDIT AGREEMENT is dated as of October 31, 2006 and is made by and among FEDERATED INVESTORS, INC., a Pennsylvania corporation (the “Borrower”), each of the GUARANTORS (as hereinafter defined), the BANKS (as hereinafter defined), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as agent for the Banks under this Agreement (hereinafter referred to in such capacity as the “Agent”).

WITNESSETH:

WHEREAS, the Borrower has requested the Banks to provide a revolving credit facility to the Borrower in an aggregate principal amount not to exceed $200,000,000 as such amount may be increased from time to time up to an amount not to exceed $300,000,000 pursuant to Section 2.10 hereof; and

WHEREAS, the revolving credit facility shall be used for general corporate purposes; and

WHEREAS, the Banks are willing to provide such credit upon the terms and conditions hereinafter set forth;

NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows:

1. CERTAIN DEFINITIONS

1.1 Certain Definitions.

In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise:

Affiliate as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 5% or more of any class of the voting or other equity interests of such Person, or (iii) 5% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. Control, as used in this definition, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be.

Agent shall mean PNC Bank, National Association, and its successors and assigns.

Agent’s Fee shall have the meaning assigned to that term in Section 10.15.

Agent’s Letter shall have the meaning assigned to that term in Section 10.15.

Agreement shall mean this Credit Agreement, as the same may be supplemented or amended from time to time, including all schedules and exhibits.

Applicable Facility Fee Rate shall mean the percentage rate per annum at the indicated level of Debt Rating in the pricing grid on Schedule 1.1(A) below the heading “Facility Fee.” The Applicable Facility Fee Rate shall be computed in accordance with the parameters set forth on Schedule 1.1(A).

Applicable Letter of Credit Fee Rate shall mean the percentage rate per annum at the indicated level of Debt Rating in the pricing grid on Schedule 1.1(A) below the heading “Letter of Credit Fee.” The Applicable Letter of Credit Fee Rate shall be computed in accordance with the parameters set forth on Schedule 1.1(A).

Applicable Margin shall mean, as applicable:

(A) the percentage spread to be added to Base Rate under the Revolving Credit Base Rate Option or Swing Loan Base Rate Option at the indicated level of Debt Rating in the pricing grid on Schedule 1.1(A) below the heading “Revolving Credit or Swing Base Rate Spread.”

(B) the percentage spread to be added to Euro Rate under the Revolving Credit Euro-Rate Option at the indicated level of Debt Rating in the pricing grid on Schedule 1.1(A) below the heading “Revolving Credit Euro-Rate Spread.”

The Applicable Margin shall be completed in accordance with the parameters set forth on Schedule 1.1(A).

Anti-Terrorism Laws shall mean any Laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA Patriot Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing Laws may from time to time be amended, renewed, extended, or replaced).

Assignment and Assumption Agreement shall mean an Assignment and Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and the Agent, as Agent and on behalf of the remaining Banks, substantially in the form of Exhibit 1.1(A).

Audited Statements shall have the meaning assigned to that term in Section 6.1.8.

Authorized Officer shall mean those individuals, designated by written notice to the Agent from the Borrower, authorized to execute notices, reports and other documents on behalf of the Loan Parties required hereunder. The Borrower may amend such list of individuals from time to time by giving written notice of such amendment to the Agent.

Banks shall mean the financial institutions named on Schedule 1.1(B) and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Bank.

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Base Rate shall mean the greater of (i) the interest rate per annum announced from time to time by the Agent at its Principal Office as its then prime rate, which rate may not necessarily be the lowest rate then being charged commercial borrowers by the Agent, or (ii) the Federal Funds Open Rate plus 0.50% per annum.

Base Rate Option shall mean the Revolving Credit Base Rate Option.

Benefit Arrangement shall mean at any time an “employee benefit plan,” within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a Multiemployer Plan and which is maintained, sponsored or otherwise contributed to by any member of the ERISA Group.

Blocked Person shall have the meaning assigned to such term in Section 6.1.23.2.

Borrower shall mean Federated Investors, Inc., a corporation organized and existing under the laws of the Commonwealth of Pennsylvania.

Borrowing Date shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day.

Borrowing Tranche shall mean specified portions of Loans outstanding as follows: (i) any Loans to which a Euro-Rate Option applies which become subject to the same Interest Rate Option under the same Loan Request by the Borrower and which have the same Interest Period shall constitute one Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall constitute one Borrowing Tranche.

Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania and if the applicable Business Day relates to any Loan to which the Euro-Rate Option applies, such day must also be a day on which dealings are carried on in the London interbank market.

CDOs shall mean collateralized debt obligation structures for which any of the Loan Parties provides investment advice.

Class A Shares shall mean the Class A Common Stock of the Borrower.

Closing Date shall mean October 31, 2006.

Commitment shall mean as to any Bank its Revolving Credit Commitment, and Commitments shall mean the aggregate of the Revolving Credit Commitments of all of the Banks.

Compliance Certificate shall have the meaning assigned to such term in Section 8.3.3.

Consideration shall mean, with respect to any acquisition pursuant to Section 8.2.6(ii), the aggregate of (i) the cash paid by any of the Loan Parties or any Subsidiary

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of a Loan Party, directly or indirectly, to the seller in connection therewith, (ii) the Indebtedness incurred or assumed by any of the Loan Parties or any Subsidiary of a Loan Party, whether in favor of the seller or otherwise and whether fixed or contingent, (iii) any Guaranty given or incurred by any Loan Party or any Subsidiary of a Loan Party in connection therewith, and (iv) any other consideration given or obligation incurred by any of the Loan Parties or any Subsidiary of a Loan Party in connection therewith.

Consolidated EBITDA as of the end of any fiscal quarter for the four (4) fiscal quarters then ended shall mean (i) the sum of net income, depreciation, amortization, other non-cash charges to net income (excluding any non-cash charges which require an accrual or reserve for cash charges for any future period), interest expense and income tax expense minus (ii) non-cash credits to net income, in each case of the Borrower and its Consolidated Subsidiaries for such period determined in accordance with GAAP; provided that if the Borrower and Consolidated Subsidiaries shall make one or more acquisitions or dispositions of the capital stock of any Person or all or substantially all of the assets of any Person permitted by Sections 8.2.6 or 8.2.7 during such period, Consolidated EBITDA for such period shall be adjusted on a pro forma basis in a manner satisfactory to the Agent to give effect to all such acquisitions or dispositions as if they had occurred at the beginning of such period.

Consolidated Subsidiaries shall mean and include those subsidiaries or other entities whose accounts are consolidated with the accounts of the Borrower in accordance with GAAP provided that (i) for the purpose of calculating the financial ratios in Sections 8.2.14 and 8.2.15 the impact of the sale or assignment of any Designated Assets, in either case pursuant to the Master Agreement, the Purchase and Sale Agreement or any similar agreement or program and in accordance with Section 8.2.7(i), shall be excluded and (ii) to the extent that FIN 46 requires the consolidation of the account of any Funds with the account of the Borrower, the impact of FIN 46 shall be excluded.

Contamination shall mean the presence or release or threat of release of Regulated Substances in, on, under or emanating to or from the Property, which pursuant to Environmental Laws requires notification or reporting to an Official Body, or which pursuant to Environmental Laws requires the investigation, cleanup, removal, remediation, containment, abatement of or other response action or which otherwise constitutes a violation of Environmental Laws.

Debt Rating shall mean the rating of the Borrower’s senior unsecured long-term debt or long-term counterparty credit by Standard & Poor’s or Moody’s.

Designated Assets shall mean the right to receive deferred sales charges, including 12b-1 and contingent deferred sales charges, and any comparable fees from a Fund relating to the sale of Fund shares or sales of other interest in or obligations of Funds and the maintenance of customer accounts, including shareholder servicing fees.

Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the United States of America.

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Domestic Subsidiaries shall mean any Subsidiary of the Borrower that is organized or incorporated under the Laws of any state or commonwealth in the United States of America.

Drawing Date shall have the meaning assigned to that term in Section 2.9.3.2.

Environmental Complaint shall mean any written complaint by any Person or Official Body setting forth a cause of action for personal injury or property damage, natural resource damage, contribution or indemnity for response costs, civil or administrative penalties, criminal fines or penalties, or declaratory or equitable relief arising under any Environmental Laws or any order, notice of violation, citation, subpoena, request for information or other written notice or demand of any type issued by an Official Body pursuant to any Environmental Laws.

Environmental Laws shall mean all federal, state, local and foreign Laws and any consent decrees, settlement agreements, judgments, orders, directives, policies or programs issued by or entered into with an Official Body pertaining or relating to: (i) pollution or pollution control; (ii) protection of human health or the environment; (iii) employee safety in the workplace; (iv) the presence, use, management, generation, manufacture, processing, extraction, treatment, recycling, refining, reclamation, labeling, transport, storage, collection, distribution, disposal or release or threat of release of Regulated Substances; (v) the presence of Contamination; (vi) the protection of endangered or threatened species; and (vii) the protection of Environmentally Sensitive Areas.

Environmentally Sensitive Area shall mean (i) any wetland as defined by applicable Environmental Laws; (ii) any area designated as a coastal zone pursuant to applicable Laws, including Environmental Laws; (iii) any area of historic or archeological significance or scenic area as defined or designated by applicable Laws, including Environmental Laws; (iv) habitats of endangered species or threatened species as designated by applicable Laws, including Environmental Laws; or (v) a floodplain or other flood hazard area as defined pursuant to any applicable Laws.

ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

ERISA Group shall mean, at any time, the Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrower, are treated as a single employer under Section 414 of the Internal Revenue Code.

Euro-Rate shall mean, with respect to the Loans comprising any Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the average of the London interbank offered rates for U.S. Dollars quoted by

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the British Bankers’ Association as set forth on Moneyline Telerate (or appropriate successor or, if the British Bankers’ Association or its successor ceases to provide such quotes, a comparable replacement determined by the Agent) display page 3750 (or such other display page on the Moneyline Telerate service as may replace display page 3750) two (2) Business Days prior to the first day of such Interest Period for an amount comparable to such Borrowing Tranche and having a borrowing date and a maturity comparable to such Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula:

		Average of London interbank offered rates quoted by BBA or appropriate successor as shown on
Euro-Rate	=	Moneyline Telerate Service display page 3750
		1.00 - Euro-Rate Reserve Percentage

The Euro-Rate shall be adjusted with respect to any Loan to which the Euro-Rate Option applies that is outstanding on the effective date of any change in the Euro-Rate Reserve Percentage as of such effective date. The Agent shall give prompt notice to the Borrower of the Euro-Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.

Euro-Rate Option shall mean the Revolving Credit Euro-Rate Option.

Euro-Rate Reserve Percentage shall mean as of any day the maximum percentage in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as “Eurocurrency Liabilities”).

Event of Default shall mean any of the events described in Section 9.1 and referred to therein as an “Event of Default.”

Executive Order No. 13224 shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

Expiration Date shall mean, with respect to the Revolving Credit Commitments, October 31, 2011.

Facility Fee shall have the meaning assigned to that term in Section 2.3.

Federal Funds Effective Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate” as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the “Federal Funds Effective Rate” for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.

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Federal Funds Open Rate shall mean the rate per annum determined by the Agent in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the “open” rate for federal funds transactions as of the opening of business for federal funds transactions among members of the Federal Reserve System arranged by federal funds brokers on such day, as quoted by Garvin Guybutler, any successor entity thereto, or any other broker selected by the Agent, as set forth on the applicable Telerate display page; provided, however; that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the “open” rate on the immediately preceding Business Day, or if no such rate shall be quoted by a Federal funds broker at such time, such other rate as determined by the Agent in accordance with its usual procedures.

Federated Bank shall mean Federated Investors Trust Company, a state chartered bank under the laws of New Jersey.

FIN 46 shall mean the Financial Accounting Standards Board Interpretation No. 46 “Consolidation of Variable Interest Entities,” as revised December, 2003.

Foreign Subsidiaries shall mean the Subsidiaries of the Borrower that are not Domestic Subsidiaries.

Fund Fees shall mean the management, administrative, shareholder services, 12b-1, contingent deferred sales charges and other similar fees contractually due any of the Loan Parties or any Subsidiary of a Loan Party from the Funds.

Funds shall mean the mutual funds, CDOs, investment conduits or other entities for which any of the Loan Parties or any Subsidiary of a Loan Party serves as an advisor, an administrator, a distributor or a servicer.

GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3, and applied on a consistent basis both as to classification of items and amounts.

Governmental Acts shall have the meaning assigned to that term in Section 2.9.8.

Guarantor shall mean each of the parties to this Agreement which is designated as a “Guarantor” on the signature page to the Guaranty Agreement and each other Person which joins the Guaranty Agreement as a Guarantor after the date hereof pursuant to Section 11.18.

Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business.

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Guaranty Agreement shall mean the Guaranty and Suretyship Agreement in substantially the form of Exhibit 1.1(G) executed and delivered by each of the Guarantors to the Agent for the benefit of the Banks.

Historical Statements shall have the meaning assigned to that term in Section 6.1.8.

Increasing Lender shall have the meaning assigned to such term in Section 2.10.

Indebtedness shall mean, as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations (contingent or otherwise) under any letter of credit, currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (iv) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than thirty (30) days past due), or (v) any Guaranty of Indebtedness for borrowed money.

Ineligible Security shall mean any security which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.

Insolvency Proceeding shall mean, with respect to any Person, (a) a case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or Subsidiary thereof or otherwise relating to the liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person’s creditors generally or any substantial portion of its creditors; undertaken under any Law.

Intercompany Subordination Agreement shall mean a Subordination Agreement among the Loan Parties and the Subsidiaries of the Loan Parties in the form attached hereto as Exhibit 1.1(I).

Interest Period shall mean the period of time selected by the Borrower in connection with (and to apply to) any election permitted hereunder by the Borrower to have Revolving Credit Loans bear interest under the Euro-Rate Option. Subject to the last sentence of this definition, such period shall be one, two, three, six or twelve Months. Such Interest Period shall commence on the effective date of such Interest Rate Option, which shall be (i) the Borrowing Date if the Borrower is requesting new Loans, or (ii) the date of renewal of or

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conversion to the Euro-Rate Option if the Borrower is renewing or converting to the Euro-Rate Option applicable to outstanding Loans. Notwithstanding the second sentence hereof: (A) any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, and (B) the Borrower shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date.

Interest Rate Option shall mean any Euro-Rate Option or Base Rate Option.

Interim Statements shall have the meaning assigned to that term in Section 6.1.8.

Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

Investment Company Act shall mean the Investment Company Act of 1940, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

Labor Contracts shall mean all employment agreements, employment contracts, collective bargaining agreements and other agreements among any Loan Party or Subsidiary of a Loan Party and its employees.

Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award by or settlement agreement with any Official Body.

Lender Joinder shall have the meaning assigned to such term in Section 2.10(x).

Letter of Credit shall have the meaning assigned to that term in Section 2.9.1.

Letter of Credit Borrowing shall have the meaning assigned to such term in Section 2.9.3.4.

Letter of Credit Fee shall have the meaning assigned to that term in Section 2.9.2.

Letters of Credit Outstanding shall mean at any time the sum of (i) the aggregate undrawn face amount of outstanding Letters of Credit and (ii) the aggregate amount of all unpaid and outstanding Reimbursement Obligations and Letter of Credit Borrowings.

Leverage Ratio shall mean the ratio of Total Indebtedness to Consolidated EBITDA.

Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any

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assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing).

Limited Investments shall mean the following: (i) investments or contributions by a Loan Party directly or indirectly in the capital stock of or other payments (except in connection with transactions for fair value in the ordinary course of business, including usual and customary service and occupancy contracts) to any of the Special Purpose Subsidiaries, (ii) loans by a Loan Party or a Subsidiary of a Loan Party directly or indirectly to any of the Special Purpose Subsidiaries, (iii) guarantees by a Loan Party or a Subsidiary of a Loan Party directly or indirectly of the obligations of any of the Special Purpose Subsidiaries, or (iv) other obligations, contingent or otherwise, of the Loan Parties or a Subsidiary of a Loan Party to or for the benefit of any of the Special Purpose Subsidiaries.

Liquidity shall mean the sum of cash, cash equivalents and undrawn Revolving Credit Commitments.

LLC Interests shall have the meaning given to such term in Section 6.1.2.

Loan Documents shall mean this Agreement, the Agent’s Letter, the Guaranty Agreement, the Intercompany Subordination Agreement, and any other instruments, certificates or documents delivered or contemplated to be delivered hereunder or thereunder or in connection herewith or therewith, as the same may be supplemented or amended from time to time in accordance herewith or therewith, and Loan Document shall mean any of the Loan Documents.

Loan Parties shall mean the Borrower and the Guarantors.

Loan Document Joinder shall mean a joinder by a Person as a party (to the extent required by Section 8.1.11) under this Agreement, the Guaranty Agreement and the other Loan Documents in the form of Exhibit 1.1(L)(2).

Loan Request shall have the meaning given to such term in Section 2.5.

Loans shall mean collectively and Loan shall mean separately all Revolving Credit Loans and the Swing Loans or any Revolving Credit Loan or any Swing Loan.

Master Agreement shall mean the Federated Investors Program Master Agreement dated as of October 24, 1997, among Federated Investors, Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., the Owner Trustee of the PLT Finance Trust 1997-1, PLT Finance, L.P., Putnam, Lovell & Thorton Inc., and Bankers Trust Company, as amended or replaced from time to time as permitted under this Agreement.

Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, results of operations or prospects of the Loan Parties and their Subsidiaries taken as a whole, (c) impairs materially or could reasonably be expected to impair materially the ability of

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the Loan Parties and their Subsidiaries taken as a whole to duly and punctually pay or perform their Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Agent or any of the Banks, to the extent permitted, to enforce their legal remedies pursuant to this Agreement or any other Loan Document.

Month, with respect to an Interest Period under the Euro-Rate Option, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any Euro-Rate Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month.

Multiemployer Plan shall mean any employee benefit plan which is a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five Plan years, has made or had an obligation to make such contributions.

New Lender shall have the meaning assigned to such term in Section 2.10.

Multiple Employer Plan shall mean a Plan which has two or more contributing sponsors (including the Borrower or any member of the ERISA Group) at least two of whom are not under common control, as such a plan is described in Sections 4063 and 4064 of ERISA.

Notes shall mean the Revolving Credit Notes and the Swing Note.

Notices shall have the meaning assigned to that term in Section 11.6.

Obligation shall mean any obligation or liability of any of the Loan Parties to the Agent or any of the Banks, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Notes, the Letters of Credit, the Agent’s Letter or any other Loan Document.

Official Body shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, board, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic.

Participation Advance shall mean, with respect to any Bank, such Bank’s payment in respect of its participation in a Letter of Credit Borrowing according to its Ratable Share pursuant to Section 2.9.3.4.

Partnership Interests shall have the meaning given to such term in Section 6.1.2.

PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

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Permitted Investments shall mean:

(i) investments made under usual and customary terms in the ordinary course of business in or relating to the establishment or maintenance of the Funds;

(ii) direct obligations of the United States of America or any agency or instrumentality thereof or obligations backed by the full faith and credit of the United States of America, maturing in sixty (60) months or less from the date of acquisition;

(iii) commercial paper maturing in one hundred eighty (180) days or less rated not lower than A-1 by Standard & Poor’s or P-1 by Moody’s Investors Service, Inc. on the date of acquisition;

(iv) demand deposits, time deposits or certificates of deposit maturing within five (5) years in commercial banks whose obligations are rated A-1, P-1 or the equivalent or better by Standard & Poor’s or Moody’s Investors Service, Inc. on the date of acquisition;

(v) corporate obligations rated A or better by Standard & Poor’s or Moody’s Investors Service, Inc. on the date of acquisition, maturing in sixty (60) months or less from the date of acquisition;

(vi) repurchase agreements and reverse repurchase agreements maturing within one (1) year and entered into with commercial banks or investment banking firms of recognized standing with respect to any investment permitted under clauses (i) through (v) above;

(vii) any interest rate protection instrument reasonably acceptable to the Agent; and

(viii) any mutual fund (A) for which any of the Loan Parties or any Subsidiary of a Loan Party serves as an investment advisor or (B) for which none of the Loan Parties or any Subsidiary of a Loan Party serves as an investment advisor, provided that the aggregate investment in mutual funds governed by clause (B) shall not exceed $20,000,000 at any one time.

Permitted Liens shall mean:

(i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable;

(ii) pledges or deposits made in the ordinary course of business to secure payment of workmen’s compensation, or to participate in any fund in connection with workmen’s compensation, unemployment insurance, old-age pensions or other social security programs;

(iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default;

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(iv) (A) good-faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; and (B) Liens granted to surety companies, or to financial institutions to secure standby letters of credit issued by such institutions to surety companies, as an inducement for such surety companies to issue or maintain existing surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business;

(v) encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use;

(vi) any Lien existing on the date of this Agreement and described on Schedule 1.1(P), provided, that the principal amount secured thereby as of the Closing Date is not hereafter increased and no additional assets become subject to such Lien;

(vii) operating leases;

(viii) capital leases made under usual and customary terms in the ordinary course of business and Purchase Money Security Interests, in each case as and to the extent permitted in Section 8.2.1(ii); and

(ix) the following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within thirty (30) days of entry, and in either case they do not result in a Material Adverse Change:

(1) claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty, provided that each of the Companies maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien;

(2) claims, Liens or encumbrances upon, and defects of title to, real or personal property, including any attachment of personal or real property or other legal process prior to adjudication of a dispute on the merits;

(3) claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens; or

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(4) Liens of governmental entities arising under federal or state environmental laws.

Person shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.

Plan shall mean at any time an employee pension benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group.

PNC Bank shall mean PNC Bank, National Association, its successors and assigns.

PNC Quoted Rate Option shall mean the Interest Rate Option set forth in Section 4.1.2(ii).

Potential Default shall mean any event or condition which with notice, passage of time or a determination by the Agent or the Required Banks, or any combination of the foregoing, would constitute an Event of Default.

Principal Office shall mean the main banking office of the Agent in Pittsburgh, Pennsylvania.

Prohibited Transaction shall mean any prohibited transaction as defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which neither an individual nor a class exemption has been issued by the United States Department of Labor.

Property shall mean all real property, both owned and leased, of any Loan Party or Subsidiary of a Loan Party.

Purchase and Sale Agreement shall mean the Purchase and Sale Agreement dated as of December 21, 2000 by and among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A., and Citicorp North America, Inc.

Purchase Money Security Interest shall mean Liens upon tangible personal property securing loans to any Loan Party or Subsidiary of a Loan Party or deferred payments by such Loan Party or Subsidiary for the purchase of such tangible personal property.

Purchasing Bank shall mean a Bank which becomes a party to this Agreement by executing an Assignment and Assumption Agreement.

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Ratable Share shall mean the proportion that a Bank’s Commitment bears to the Commitments of all of the Banks.

Regulated Subsidiary shall mean any Subsidiary of the Borrower that is (i) registered as a broker dealer pursuant to Section 15 of the Securities Exchange Act of 1934, or (ii) engaged in the business of banking and regulated by federal or state banking regulators.

Regulated Substances shall mean, without limitation, any substance, material or waste, regardless of its form or nature, defined under Environmental Laws as a “hazardous substance,” “pollutant,” “pollution,” “contaminant,” “hazardous or toxic substance,” “extremely hazardous substance,” “toxic chemical,” “toxic substance,” “toxic waste,” “hazardous waste,” “special handling waste,” “industrial waste,” “residual waste,” “solid waste,” “municipal waste,” “mixed waste,” “infectious waste,” “chemotherapeutic waste,” “medical waste,” or “regulated substance” or any other material, substance or waste, regardless of its form or nature, which otherwise is regulated by Environmental Laws.

Regulation U shall mean Regulation U, T or X as promulgated by the Board of Governors of the Federal Reserve System, as amended from time to time.

Reimbursement Obligation shall have the meaning assigned to such term in Section 2.9.3.2.

Reportable Event shall mean a reportable event described in Section 4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan.

Required Banks shall mean

(i) if there are no Loans, Reimbursement Obligations or Letter of Credit Borrowings outstanding, Banks whose Commitments aggregate more than 50% of the Commitments of all of the Banks, or

(ii) if there are Loans, Reimbursement Obligations, or Letter of Credit Borrowings outstanding, any Bank or group of Banks if the sum of the Loans (including each Bank’s Ratable Share of Swing Loans), Reimbursement Obligations and Letter of Credit Borrowings of such Banks then outstanding aggregates more than 50% of the total principal amount of all of the Loans, Reimbursement Obligations and Letter of Credit Borrowings then outstanding. Reimbursement Obligations and Letter of Credit Borrowings shall be deemed, for purposes of this definition, to be in favor of the Agent and not a participating Bank if such Bank has not made its Participation Advance in respect thereof and shall be deemed to be in favor of such Bank to the extent of its Participation Advance if it has made its Participation Advance in respect thereof.

Required Environmental Permits shall mean all permits, licenses, bonds, consents, programs, approvals or authorizations required under Environmental Laws to own, occupy or maintain the Property or which otherwise are required for the operations and business activities of the Loan Parties and their Subsidiaries.

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Revolving Credit Base Rate Option shall mean the option of the Borrower to have Revolving Credit Loans bear interest at the rate and under the terms and conditions set forth in Section 4.1.1(i).

Revolving Credit Commitment shall mean, as to any Bank at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled “Amount of Commitment for Revolving Credit Loans,” and thereafter on Schedule I to the most recent Assignment and Assumption Agreement, if any, to which such Bank is a party, and Revolving Credit Commitments shall mean the aggregate Revolving Credit Commitments of all of the Banks.

Revolving Credit Commitment Increase Date shall have the meaning assigned to such term in Section 2.10.

Revolving Credit Euro-Rate Option shall mean the option of the Borrower to have Revolving Credit Loans bear interest at the rate and under the terms and conditions set forth in Section 4.1.1(ii).

Revolving Credit Loans shall mean collectively and Revolving Credit Loan shall mean separately all Revolving Credit Loans or any Revolving Credit Loan made by the Banks or one of the Banks to the Borrower pursuant to Section 2.1 or 2.9.3.

Revolving Credit Notes shall mean collectively and Revolving Credit Note shall mean separately all the Revolving Credit Notes of the Borrower in the form of Exhibit 1.1(R) evidencing the Revolving Credit Loans together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part.

Revolving Facility Usage shall mean at any time the sum of the Revolving Credit Loans outstanding and the Letters of Credit Outstanding.

Section 20 Subsidiary shall mean the Subsidiary of the bank holding company controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities.

Settlement Date shall mean any Business Day on which the Agent elects to effect settlement pursuant to Section 5.5.

Special Purpose Subsidiary shall mean any corporation, business trust or other entity formed by the Borrower to engage in the limited activities permitted by Section 8.2.9(i) and shall be an indirect wholly owned subsidiary of the Borrower, provided, that if the Special Purpose Subsidiary is organized under the law of a foreign jurisdiction which requires that residents of such foreign jurisdiction maintain a certain level of ownership interest in such Special Purpose Subsidiary, then a wholly owned Subsidiary of the Borrower shall own a number of outstanding shares of such Special Purpose Subsidiary that is not less than the greater of (i) 51% of the outstanding shares of such Special Purpose Subsidiary, and (ii) the maximum number of outstanding shares of such Special Purpose Subsidiary permitted pursuant to the law of such foreign jurisdiction.

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Standard & Poor’s shall mean Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.

Subsidiary of any Person at any time shall mean (i) any corporation or trust of which fifty percent (50%) or more (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person’s Subsidiaries, or any partnership of which such Person is a general partner or of which fifty percent (50%) or more of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person’s Subsidiaries, and (ii) any corporation, trust, partnership or other entity which is controlled or capable of being controlled by such Person or one or more of such Person’s Subsidiaries. For the purposes of this Agreement, none of the Special Purpose Subsidiaries or the Funds shall be considered a “Subsidiary” of the Borrower or any Loan Party. For the purposes of this Agreement, the term “wholly owned Subsidiaries” shall include (x) all Subsidiaries of which all of the outstanding shares of capital stock or beneficial interest of such Subsidiary are owned by the Borrower or another wholly owned Subsidiary of the Borrower, or (v) Foreign Subsidiaries where the law of the applicable foreign jurisdiction requires that residents of such foreign jurisdiction maintain a certain level of ownership interest in such Subsidiary and the Borrower or another wholly owned Subsidiary of the Borrower owns not less than the greater of (a) 51% of the outstanding shares of capital stock or beneficial interests of such Subsidiary and (b) the maximum number of outstanding shares of capital stock or beneficial interests of such Subsidiary permitted pursuant to the law of such foreign jurisdiction are owned by the Borrower or another wholly owned Subsidiary of the Borrower.

Subsidiary Shares shall have the meaning assigned to that term in Section 6.1.2.

Swing Loan Base Rate Option shall mean the option of the Borrower to have Swing Loans bear interest at the rate and under the terms and conditions set forth in Section 4.1.2(i).

Swing Loan Commitment shall mean PNC’s commitment to make Swing Loans to the Borrower pursuant to Section 2.1.2 in an aggregate principal amount up to $25,000,000.

Swing Loan Request shall mean a request for Swing Loans made in accordance with Section 2.5.2.

Swing Loans shall mean collectively and Swing Loan shall mean separately all swing loans or any swing loan made by PNC to the Borrower pursuant to Section 2.1.2.

Swing Note shall mean the Swing Note of the Borrower in the form of Exhibit 1.1(S), evidencing the Swing Loans, together with all amendments, extensions, renewals, restatements, refinancings or refundings thereof in whole or in part.

Total Indebtedness shall mean, as of the end of any fiscal quarter, all Indebtedness of the Borrower and its Consolidated Subsidiaries on such date.

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Transferor Bank shall mean the selling Bank pursuant to an Assignment and Assumption Agreement.

Usage Fee shall have the meaning assigned to that term in Section 2.3.2.

USA Patriot Act shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

1.2 Construction.

Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents:

1.2.1 Number; Inclusion.

References to the plural include the singular, the plural, the part and the whole; “or” has the inclusive meaning represented by the phrase “and/or,” and “including” has the meaning represented by the phrase “including without limitation”.

1.2.2 Determination.

References to “determination” of or by the Agent or the Banks shall be deemed to include good-faith estimates by the Agent or the Banks (in the case of quantitative determinations) and good-faith beliefs by the Agent or the Banks (in the case of qualitative determinations) and such determination shall be conclusive absent manifest error.

1.2.3 Agent’s Discretion and Consent.

Whenever the Agent or the Banks are granted the right herein to act in its or their sole discretion or to grant or withhold consent such right shall be exercised in good faith.

1.2.4 Documents Taken as a Whole.

The words “hereof,” “herein,” “hereunder,” “hereto” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document.

1.2.5 Headings.

The section and other headings contained in this Agreement or such other Loan Document and the Table of Contents (if any), preceding this Agreement or such other Loan Document are for reference purposes only and shall not control or affect the construction of this Agreement or such other Loan Document or the interpretation thereof in any respect.

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1.2.6 Implied References to this Agreement.

Article, section, subsection, clause, schedule and exhibit references are to this Agreement or other Loan Document, as the case may be, unless otherwise specified.

1.2.7 Persons.

Reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement or such other Loan Document, as the case may be, and reference to a Person in a particular capacity excludes such Person in any other capacity.

1.2.8 Modifications to Documents.

Reference to any agreement (including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto), document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated.

1.2.9 From, To and Through.

Relative to the determination of any period of time, “from” means “from and including,” “to” means “to but excluding,” and “through” means “through and including”.

1.2.10 Shall; Will.

References to “shall” and “will” are intended to have the same meaning.

1.3 Accounting Principles.

Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP provided that for the purpose of determining compliance with Sections 8.2.1 and 8.2.2, the impact of the incurrence of indebtedness or creation of liens in connection with the sale or transfer of Designated Assets as described and permitted under Sections 8.2.7(i) shall be excluded. If one or more changes in GAAP after the date of this Agreement are required to be applied to then existing transactions, and either a violation of one or more provisions hereof shall have occurred which would not have occurred if no change in accounting principles had taken place or a violation of one or more of the provisions hereof shall not occur which would have occurred if no change in accounting principles had taken place:

(a) the parties agree that any such violation shall not be considered to constitute an Event of Default for a period of thirty (30) days;

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(b) the parties agree in such event to negotiate in good faith to attempt to draft an amendment of this Agreement satisfactory to the Required Banks which shall approximate to the extent possible the economic effect of the original provisions hereof after taking into account such change or changes in GAAP; and

(c) if the parties are unable to negotiate such an amendment satisfactory to the Required Banks within thirty (30) days, then as used in this Agreement “GAAP” shall mean generally accepted accounting principles as in effect prior to such change.

2. REVOLVING CREDIT FACILITY

2.1 Commitments.

2.1.1 Revolving Credit Commitments.

Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, each Bank severally agrees to make Revolving Credit Loans to the Borrower at any time or from time to time on or after the date hereof to the Expiration Date provided that after giving effect to such Loan the aggregate amount of Loans from such Bank and such Bank’s Ratable Share of any Swing Loans shall not exceed such Bank’s Revolving Credit Commitment minus such Bank’s Ratable Share of the Letters of Credit Outstanding. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.1.

2.1.2 Swing Loan Commitment.

Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, and in order to facilitate loans and repayments between Settlement Dates, PNC may make, at its option, cancelable at any time for any reason whatsoever, swing loans (the “Swing Loans”) to the Borrower at any time or from time to time after the date hereof to, but not including, the Expiration Date in an aggregate principal amount up to $25,000,000 (the “Swing Loan Commitment”), provided that the aggregate principal amount of PNC’s Swing Loans and the Revolving Credit Loans of all the Banks and the Letters of Credit Outstanding at any one time outstanding shall not exceed the Revolving Credit Commitments of all the Banks. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section 2.1.2.

2.2 Nature of Banks’ Obligations with Respect to Revolving Credit Loans.

Each Bank shall be obligated to participate in each request for Revolving Credit Loans pursuant to Section 2.5 [Revolving Credit Loan Requests] in accordance with its Ratable Share. The aggregate of each Bank’s Revolving Credit Loans outstanding hereunder to the Borrower at any time shall never exceed its Revolving Credit Commitment minus its Ratable Share of the sum of Swing Loans outstanding and the Letters of Credit Outstanding. The obligations of each Bank hereunder are several. The failure of any Bank to perform its obligations hereunder shall not affect the Obligations of the Borrower to any other party nor shall any other party be liable for the failure of such Bank to perform its obligations hereunder. The Banks shall have no obligation to make Revolving Credit Loans hereunder on or after the Expiration Date.

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2.3 Certain Fees.

2.3.1 Facility Fees.

Accruing from the date hereof until the Expiration Date, the Borrower agrees to pay to the Agent for the account of each Bank, as consideration for such Bank’s Revolving Credit Commitment hereunder, a nonrefundable facility fee (the “Facility Fee”) equal to the Applicable Facility Fee Rate (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days) of such Bank’s Revolving Credit Commitment as the same may be constituted from time to time. All Facility Fees shall be payable in arrears on the first Business Day of each January, April, July and October after the date hereof and on the Expiration Date or upon acceleration of the Notes.

2.3.2 Usage Fees.

Accruing from the Closing Date until the Expiration Date, the Borrower agrees to pay to the Agent for the account of each Bank, as consideration for such Bank’s Revolving Credit Commitment hereunder, a usage fee (the “Usage Fee”) equal to 0.075% per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) of the daily amount of the Revolving Facility Usage for each day that the Revolving Facility Usage exceeds fifty percent (50%) of the Revolving Credit Commitments (for purposes of this computation, PNC’s Swing Loans shall be deemed to be borrowed amounts under its Revolving Credit Commitment and Letter of Credit Outstandings shall be deemed to be borrowed amounts under each Bank’s Revolving Credit Commitments in accordance with its Ratable Share). All Usage Fees shall be payable in arrears on the first Business Day of each January, April, July and October after the date hereof and on the Credit Expiration Date or upon acceleration of the Notes.

2.4 Permanent Reductions of Commitments.

2.4.1 Voluntary Reductions. The Borrower shall be permitted, without premium or penalty, at any time upon five (5) Business Days’ notice to the Agent, to reduce permanently the Revolving Credit Commitments in an aggregate amount of not less than $5,000,000 and in integral multiples of $1,000,000 for amounts in excess of $5,000,000, and each Bank’s Revolving Credit Commitments shall be reduced in accordance with its Ratable Share; provided, however, the principal amount of all Swing Loans and Revolving Credit Loans outstanding at any time and Letters of Credit Outstanding shall not be permitted to exceed the Revolving Credit Commitments of all the Banks at such time.

2.4.2 Effect of Reductions. After each such reduction, the Facility Fee and the Usage Fee shall be calculated upon the Revolving Credit Commitments of the Banks as so reduced, and the amount of the reduction of the Revolving Credit Commitments may not be reinstated.

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2.5 Loan Requests.

2.5.1 Revolving Loan Requests.

Except as otherwise provided herein, the Borrower may from time to time prior to the Expiration Date request the Banks to make Revolving Credit Loans, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans pursuant to Section 4.2 [Interest Periods], by delivering to the Agent, not later than 1:00 p.m., Pittsburgh time, (i) three (3) Business Days prior to the proposed Borrowing Date with respect to the making of Revolving Credit Loans to which the Euro-Rate Option applies or the conversion to or the renewal of the Euro-Rate Option for any Loans; and (ii) one (1) Business Day prior to either the proposed Borrowing Date with respect to the making of a Revolving Credit Loan to which the Base Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Base Rate Option for any Loan, of a duly completed request therefor substantially in the form of Exhibit 2.5.1 or a request by telephone immediately confirmed in writing by letter, facsimile or telex in such form (each, a “Loan Request”), it being understood that the Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the aggregate amount of the proposed Loans comprising each Borrowing Tranche, which shall be in integral multiples of $50,000 and not less than $5,000,000 for each Borrowing Tranche to which the Euro-Rate Option applies and not less than the lesser of $1,000,000 or the maximum amount available for Borrowing Tranches to which the Base Rate Option applies; (iii) whether the Euro-Rate Option or Base Rate Option shall apply to the proposed Loans comprising the applicable Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to which the Euro-Rate Option applies, an appropriate Interest Period for the Loans comprising such Borrowing Tranche.

2.5.2 Swing Loan Requests.

Except as otherwise provided herein, the Borrower may from time to time prior to Expiration Date request PNC to make Swing Loans by delivery to PNC not later than 2:00 p.m. Pittsburgh time on the proposed Borrowing Date of a duly completed request therefor substantially in the form of Exhibit 2.5.2 or a request by telephone immediately confirmed in writing by letter, facsimile or telex (each, a “Swing Loan Request”), it being understood that the Agent may rely on the authority of any person making such a telephonic request without the necessity of receipt of such written confirmation. Each Swing Loan Request shall be irrevocable and shall specify (i) the proposed Borrowing Date (ii) whether the Base Rate Option or the PNC Quoted Rate Option shall apply and (iii) the principal amount of such Swing Loan, which shall not be less than $100,000. The Borrower may telephone PNC on any Business Day to request PNC to provide the Borrower with the PNC Quoted Rate Option available on such Business Day, and PNC shall promptly respond to such request. If the Borrower elects the PNC Quoted Rate Option to apply with respect to any Swing Loan, such PNC Quoted Rate Option will be in effect until the following Business Day.

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2.6 Making Loans.

2.6.1 Making Revolving Credit Loans; Borrowings to Repay Swing Loans.

The Agent shall, promptly after receipt by it of a Loan Request pursuant to Section 2.5 [Revolving Credit Loan Requests], notify the Banks of its receipt of such Loan Request specifying: (i) the proposed Borrowing Date and the time and method of disbursement of the Revolving Credit Loans requested thereby; (ii) the amount and type of each such Revolving Credit Loan and the applicable Interest Period (if any); and (iii) the apportionment among the Banks of such Revolving Credit Loans as determined by the Agent in accordance with Section 2.2 [Nature of Banks’ Obligations]. Each Bank shall remit the principal amount of each Revolving Credit Loan to the Agent such that the Agent is able to, and the Agent shall, to the extent the Banks have made funds available to it for such purpose and subject to Section 7.2 [Each Additional Loan], fund such Revolving Credit Loans to the Borrower in U.S. Dollars and immediately available funds at the Principal Office prior to 2:00 p.m., Pittsburgh time, on the applicable Borrowing Date, provided that if any Bank fails to remit such funds to the Agent in a timely manner, the Agent may elect in its sole discretion to fund with its own funds the Revolving Credit Loans of such Bank on such Borrowing Date, and such Bank shall be subject to the repayment obligation in Section 10.16 [Availability of Funds].

2.6.2 Making Swing Loans.

So long as PNC elects to make Swing Loans, PNC shall, after receipt by it of a Swing Loan Request pursuant to Section 2.5.2, fund such Swing Loan to the Borrower in U.S. Dollars and immediately available funds at the Principal Office prior to 5:00 p.m. Pittsburgh time on the Borrowing Date; provided that at any time after PNC receives notice of default as set forth in Section 10.9, PNC shall not make any Swing Loans.

2.6.3 Borrowings to Repay Swing Loans.

PNC may at its option, exercisable at any time for any reason whatsoever, demand repayment of the Swing Loans, and each Bank shall make a Revolving Credit Loan in an amount equal to such Bank’s Ratable Share of the aggregate principal amount of the outstanding Swing Loans plus, if PNC so requests, accrued interest thereon, provided that no Bank shall be obligated in any event to make Revolving Credit Loans in excess of its Revolving Credit Commitment minus its Ratable Share of the sum of any Swing Loans outstanding and the Letter of Credit Outstandings. Revolving Credit Loans made pursuant to the preceding sentence shall bear interest at the Base Rate Option and shall be deemed to have been properly requested in accordance with Section 2.5.1 without regard to any of the requirements of that provision. PNC shall provide notice to the Banks (which may be telephonic or written notice by letter, facsimile or telex) that such Revolving Credit Loans are to be made under this Section 2.6.3 and of the apportionment among the Banks, and the Banks shall be unconditionally obligated to fund such Revolving Credit Loans (whether or not the conditions specified in Section 7.2 are then satisfied) by the time PNC so requests, which shall not be earlier than 3:00 p.m. Pittsburgh time on the Business Day next succeeding the date the Banks receive such notice from PNC.

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2.7 Notes.

2.7.1 Revolving Credit Notes.

The obligation of the Borrower to repay the aggregate unpaid principal amount of the Revolving Credit Loans made to it by each Bank, together with interest thereon, shall be evidenced by a Revolving Credit Note dated the Closing Date payable to the order of such Bank in a face amount equal to the Revolving Credit Commitment of such Bank. The Borrower unconditionally promises to pay the outstanding principal balance of all Revolving Credit Loans made by the Banks to the Borrower pursuant to this Agreement and the Revolving Credit Notes in full on the Expiration Date or at such other times as set forth in this Agreement.

2.7.2 Swing Note.

The obligation of the Borrower to repay the unpaid principal amount of the Swing Loans made to it by PNC together with interest thereon shall be evidenced by a demand promissory note of the Borrower dated the Closing Date in the form of Exhibit 1.1(S) payable to the order of PNC in a face amount equal to the Swing Loan Commitment.

2.8 Use of Proceeds.

The Loan Parties will use the Letters of Credit and the proceeds of the Loans only for general corporate purposes and for working capital. The Loan Parties shall not use the Letters of Credit or the proceeds of the Loans for any purposes which contravenes any applicable Law or any provision hereof.

2.9 Letter of Credit Subfacility.

2.9.1 Issuance of Letters of Credit.

Borrower may request the issuance of a letter of credit (each a “Letter of Credit”) on behalf of itself or another Loan Party by delivering or having such other Loan Party deliver to the Agent a completed application and agreement for letters of credit in such form as the Agent may specify from time to time by no later than 10:00 a.m., Pittsburgh time, at least three (3) Business Days, or such shorter period as may be agreed to by the Agent, in advance of the proposed date of issuance. Subject to the terms and conditions hereof and in reliance on the agreements of the other Banks set forth in this Section 2.9, the Agent or any of the Agent’s Affiliates will issue a Letter of Credit provided that each Letter of Credit shall (A) have a maximum maturity of twelve (12) months from the date of issuance, and (B) in no event expire later than ten (10) Business Days prior to the Expiration Date and providing that in no event shall (i) the Letters of Credit Outstanding exceed, at any one time, $25,000,000 or (ii) the Revolving Facility Usage plus any Swing Loans outstanding exceed, at any one time, the Revolving Credit Commitments.

2.9.2 Letter of Credit Fees.

The Borrower shall pay (i) to the Agent for the ratable account of the Banks a fee (the “Letter of Credit Fee”) equal to the Applicable Letter of Credit Fee Rate

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(computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed), and (ii) to the Agent for its own account a fronting fee equal to 0.125% per annum (computed on the basis of a year of 365 or 366 days and actual days elapsed), which fees shall be computed on the daily average Letters of Credit Outstanding and shall be payable quarterly in arrears commencing with the first Business Day of each January, April, July and October following issuance of each Letter of Credit and on the Expiration Date. The Borrower shall also pay to the Agent for the Agent’s sole account the Agent’s then in effect customary fees and administrative expenses payable with respect to the Letters of Credit as the Agent may generally charge or incur from time to time in connection with the issuance, maintenance, modification (if any), assignment or transfer (if any), negotiation, and administration of Letters of Credit.

2.9.3 Disbursements, Reimbursement.

2.9.3.1 Immediately upon the Issuance of each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Agent a participation in such Letter of Credit and each drawing thereunder in an amount equal to such Bank’s Ratable Share of the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively.

2.9.3.2 In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Agent will promptly notify the Borrower. Provided that it shall have received such notice, the Borrower shall reimburse (such obligation to reimburse the Agent shall sometimes be referred to as a “Reimbursement Obligation”) the Agent prior to 2:00 p.m., Pittsburgh time on each date that an amount is paid by the Agent under any Letter of Credit (each such date, an “Drawing Date”) in an amount equal to the amount so paid by the Agent. In the event the Borrower fails to reimburse the Agent for the full amount of any drawing under any Letter of Credit by 2:00 p.m., Pittsburgh time, on the Drawing Date, the Agent will promptly notify each Bank thereof, and the Borrower shall be deemed to have requested that Revolving Credit Loans be made by the Banks under the Base Rate Option to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Credit Commitment and subject to the conditions set forth in Section 7.2 [Each Additional Loan] other than any notice requirements. Any notice given by the Agent pursuant to this Section 2.9.3.2 may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

2.9.3.3 Each Bank shall upon any notice pursuant to Section 2.9.3.2 make available to the Agent an amount in immediately available funds equal to its Ratable Share of the amount of the drawing, whereupon the participating Banks shall (subject to Section 2.9.3.4) each be deemed to have made a Revolving Credit Loan under the Base Rate Option to the Borrower in that amount. If any Bank so notified fails to make available to the Agent for the account of the Agent the amount of such Bank’s Ratable Share of such amount by no later than 2:00 p.m., Pittsburgh time on the Drawing Date, then interest shall accrue on such Bank’s obligation to make such payment, from the Drawing Date to the date on which such Bank makes such payment (i) at a rate per annum equal to the Federal Funds Effective Rate during the first three days following the Drawing Date and (ii) at a rate per annum equal to the rate applicable to Loans under the Revolving Credit Base Rate Option on and after the fourth day

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following the Drawing Date. The Agent will promptly give notice of the occurrence of the Drawing Date, but failure of the Agent to give any such notice on the Drawing Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligation under this Section 2.9.3.3.

2.9.3.4 With respect to any unreimbursed drawing that is not converted into Revolving Credit Loans under the Base Rate Option to the Borrower in whole or in part as contemplated by Section 2.9.3.2, because of the Borrower’s failure to satisfy the conditions set forth in Section 7.2 [Each Additional Loan] other than any notice requirements or for any other reason, the Borrower shall be deemed to have incurred from the Agent a borrowing (each a “Letter of Credit Borrowing”) in the amount of such drawing. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to the Revolving Credit Loans under the Base Rate Option. Each Bank’s payment to the Agent pursuant to Section 2.9.3.3 shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing and shall constitute a “Participation Advance” from such Bank in satisfaction of its participation obligation under this Section 2.9.3.

2.9.4 Repayment of Participation Advances.

2.9.4.1 Upon (and only upon) receipt by the Agent for its account of immediately available funds from the Borrower (i) in reimbursement of any payment made by the Agent under the Letter of Credit with respect to which any Bank has made a Participation Advance to the Agent, or (ii) in payment of interest on such a payment made by the Agent under such a Letter of Credit, the Agent will pay to each Bank, in the same funds as those received by the Agent, the amount of such Bank’s Ratable Share of such funds, except the Agent shall retain the amount of the Ratable Share of such funds of any Bank that did not make a Participation Advance in respect of such payment by Agent.

2.9.4.2 If the Agent is required at any time to return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by any Loan Party to the Agent pursuant to Section 2.9.4.1 in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent the amount of its Ratable Share of any amounts so returned by the Agent plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent, at a rate per annum equal to the Federal Funds Effective Rate in effect from time to time.

2.9.5 Documentation.

Each Loan Party agrees to be bound by the terms of the Agent’s application and agreement for letters of credit and the Agent’s written regulations and customary practices relating to letters of credit, though such interpretation may be different from such Loan Party’s own. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Agent shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following any Loan Party’s instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto.

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2.9.6 Determinations to Honor Drawing Requests.

In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Agent shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit.

2.9.7 Nature of Participation and Reimbursement Obligations.

Each Bank’s obligation in accordance with this Agreement to make the Revolving Credit Loans or Participation Advances, as contemplated by Section 2.9.3, as a result of a drawing under a Letter of Credit, and the Obligations of the Borrower to reimburse the Agent upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.9.7 under all circumstances, including the following circumstances:

(i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Agent or any of its Affiliates, the Borrower or any other Person for any reason whatsoever;

(ii) the failure of any Loan Party or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in Section 2.1 [Revolving Credit Commitments], 2.5 [Revolving Credit Loan Requests], 2.6 [Making Revolving Credit Loans] or 7.2 [Each Additional Loan] or as otherwise set forth in this Agreement for the making of a Revolving Credit Loan, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing and the obligation of the Banks to make Participation Advances under Section 2.9.3;

(iii) any lack of validity or enforceability of any Letter of Credit;

(iv) any claim of breach of warranty that might be made by any Loan Party or any Bank against any beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment, counterclaim, crossclaim, defense or other right which any Loan Party or any Bank may have at any time against a beneficiary, successor beneficiary, any transferee or assignee of any Letter of Credit or the proceeds thereof (or any Persons for whom any such transferee may be acting), the Agent or its Affiliates or any Bank or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Loan Party or Subsidiaries of a Loan Party and the beneficiary for which any Letter of Credit was procured);

(v) the lack of power or authority of any signer of (or any defect in or forgery of any signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy, enforceability or genuineness of any draft, demand, instrument, certificate or other document presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in connection with any Letter of Credit, or the transport of any property or provisions of services relating to a Letter of Credit, in each case even if the Agent or any of the Agent’s Affiliates has been notified thereof;

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(vi) payment by the Agent or any of its Affiliates under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit;

(vii) the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit, or any other Person having a role in any transaction or obligation relating to a Letter of Credit, or the existence, nature, quality, quantity, condition, value or other characteristic of any property or services relating to a Letter of Credit;

(viii) any failure by the Agent or any of Agent’s Affiliates to issue any Letter of Credit in the form requested by any Loan Party, unless the Agent has received written notice from such Loan Party of such failure within three Business Days after the Agent shall have furnished such Loan Party a copy of such Letter of Credit and such error is material and no drawing has been made thereon prior to receipt of such notice;

(ix) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Loan Party or Subsidiaries of a Loan Party;

(x) any breach of this Agreement or any other Loan Document by any party thereto;

(xi) the occurrence or continuance of an Insolvency Proceeding with respect to any Loan Party;

(xii) the fact that an Event of Default or a Potential Default shall have occurred and be continuing;

(xiii) the fact that the Expiration Date shall have passed or this Agreement or the Commitments hereunder shall have been terminated; and

(xiv) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

2.9.8 Indemnity.

In addition to amounts payable as provided in Section 10.5 [Reimbursement of Agent by Borrower, Etc.], the Borrower hereby agrees to protect, indemnify, pay and save harmless the Agent and any of Agent’s Affiliates that has issued a Letter of Credit from and against any and all claims, demands, liabilities, damages, taxes, penalties, interest, judgments, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Agent or any of Agent’s Affiliates may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of the Agent as determined by a final judgment of a court of competent jurisdiction or (B) the wrongful dishonor by the Agent or any of Agent’s Affiliates of a proper demand for payment

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made under any Letter of Credit, except if such dishonor resulted from any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called “Governmental Acts”).

2.9.9 Liability for Acts and Omissions.

As between any Loan Party and the Agent, or the Agent’s Affiliates, such Loan Party assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Agent shall not be responsible for any of the following including any losses or damages to any Loan Party or other Person or property relating therefrom: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Agent or the Agent’s Affiliates shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Loan Party against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Loan Party and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Agent or the Agent’s Affiliates, as applicable, including any Governmental Acts, and none of the above shall affect or impair, or prevent the vesting of, any of the Agent’s or the Agent’s Affiliates rights or powers hereunder. Nothing in the preceding sentence shall relieve the Agent from liability for the Agent’s gross negligence or willful misconduct in connection with actions or omissions described in such clauses (i) through (viii) of such sentence. In no event shall the Agent or the Agent’s Affiliates be liable to any Loan Party for any indirect, consequential, incidental, punitive, exemplary or special damages or expenses (including without limitation attorneys’ fees), or for any damages resulting from any change in the value of any property relating to a Letter of Credit.

Without limiting the generality of the foregoing, the Agent and each of its Affiliates (i) may rely on any oral or other communication believed in good faith by the Agent or such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit, (ii) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by the Agent or its Affiliate; (iv) may honor any

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drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming that it rightfully honored under the laws or practices of the place where such bank is located; and (vi) may settle or adjust any claim or demand made on the Agent or its Affiliate in any way related to any order issued at the applicant’s request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an “Order”) and honor any drawing in connection with any Letter of Credit that is the subject to such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.

In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Agent or the Agent’s Affiliates under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Agent or the Agent’s Affiliates under any resulting liability to the Borrower or any Bank.

2.10 Increase in Commitments.

(i) Increasing Lenders and New Lenders. The Borrower may, at any time, request that (1) the current Lenders increase their Revolving Credit Commitments (any current Lender which elects to increase its Revolving Credit Commitment shall be referred to as an “Increasing Lender”) or (2) one or more new lenders (each a “New Lender”) join this Agreement and provide a Revolving Credit Commitment hereunder, subject to the following terms and conditions:

(ii) No Obligation to Increase. No current Lender shall be obligated to increase its Revolving Credit Commitment and any increase in the Revolving Credit Commitment by any current Lender shall be in the sole discretion of such current Lender.

(iii) Defaults. There shall exist no Events of Default or Potential Default on the effective date of such increase (the “Revolving Credit Commitment Increase Date”) after giving effect to such increase.

(iv) Aggregate Revolving Credit Commitments. After giving effect to such increase, the total Revolving Credit Commitments shall not exceed $300,000,000.

(v) Minimum Revolving Credit Commitments. After giving effect to such increase, the amount of the Revolving Credit Commitments provided by each of the New Lenders and each of the Increasing Lenders shall be the lesser of $25,000,000 or the maximum amount available under Section 2.10(iv); and

(vi) Resolutions; Opinion. The Borrower shall deliver to the Agent on or before the Revolving Credit Commitment Increase Date the following documents in a form reasonably acceptable to the Agent: (1) certifications of its corporate secretary with attached resolutions certifying that the increase in the Revolving Credit Commitment has been approved

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by the Borrower, and (2) an opinion of counsel addressed to the Agent and the Lenders addressing the authorization and execution of the Loan Documents by, and enforceability of the Loan Documents against, the Borrower.

(vii) Notes. The Borrower shall execute and deliver (1) to each Increasing Lender a replacement Note reflecting the new amount of such Increasing Lender’s Revolving Credit Commitment after giving effect to the increase (and the prior Note issued to such Increasing Lender shall be deemed to be terminated) and (2) to each New Lender a Note reflecting the amount of such New Lenders’ Revolving Credit Commitment.

(viii) Approval of New Lenders. Any New Lender shall be subject to the approval of the Agent and the Borrower.

(ix) Increasing Lenders. The Increasing Lenders shall confirm their agreement to increase their Revolving Credit Commitment pursuant to an acknowledgement in a form acceptable to the Agent, signed by them and the Borrower and delivered to the Agent at least five (5) days before the Revolving Credit Commitment Increase Date.

(x) New Lenders—Joinder. Each New Lender shall execute a lender joinder in substantially the form of Exhibit 1.1(L)(2) pursuant to which such New Lender shall join and become a party to this Agreement and the other Loan Documents with a Revolving Credit Commitment in the amount set forth in such Lender Joinder (the “Lender Joinder”).

3. [INTENTIONALLY OMITTED]

4. INTEREST RATES

4.1 Interest Rate Options.

The Borrower shall pay interest in respect of the outstanding unpaid principal amount of the Loans as selected by it from the Base Rate Option, Euro-Rate Option or the PNC Quoted Rate Option set forth below applicable to the Loans, it being understood that, subject to the provisions of this Agreement, the Borrower may select different Interest Rate Options and different Interest Periods to apply simultaneously to the Loans comprising different Borrowing Tranches and may convert to or renew one or more Interest Rate Options with respect to all or any portion of the Loans comprising any Borrowing Tranche, provided that there shall not be at any one time outstanding more than eight (8) Borrowing Tranches in the aggregate among all of the Loans. If at any time the designated rate applicable to any Loan made by any Bank exceeds such Bank’s highest lawful rate, the rate of interest on such Bank’s Loan shall be limited to such Bank’s highest lawful rate.

4.1.1 Revolving Credit Interest Rate Options.

The Borrower shall have the right to select from the following Interest Rate Options applicable to the Revolving Credit Loans:

(i) Revolving Credit Base Rate Option: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or

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(ii) Revolving Credit Euro-Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Euro-Rate plus the Applicable Margin.

4.1.2 Swing Loan Interest Rate Options.

The Borrower shall have the right to select from the following Interest Rate Options applicable to the Swing Loans:

(i) Swing Loan Base Rate Option: A fluctuating rate per annum (computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate plus the Applicable Margin, such interest rate to change automatically from time to time effective as of the effective date of each change in the Base Rate; or

(ii) PNC Quoted Rate Option: A fixed rate per annum computed on the basis of a year of 365 or 366 days, as the case may be, equal to such interest rate as offered and determined by PNC, in its sole discretion, pursuant to Section 2.5.2 hereof, such interest rate to remain in effect from the time the PNC Quoted Rate Option is elected until the following Business Day.

4.1.3 Rate Quotations.

The Borrower may call the Agent on or before the date on which a Loan Request is to be delivered to receive an indication of the rates then in effect, but it is acknowledged that such projection shall not be binding on the Agent or the Banks nor affect the rate of interest which thereafter is actually in effect when the election is made.

4.1.4 Change in Fees or Interest Rates.

If the Applicable Margin, the Applicable Facility Fee Rate or the Applicable Letter of Credit Fee Rate is increased or reduced with respect to any period for which the Borrower has already paid interest, Facility Fees or Letter of Credit Fees, the Agent shall recalculate the interest, Facility Fees or Letter of Credit Fees due from or to the Borrower and shall, within fifteen (15) Business Days after the Borrower notifies the Agent of such increase or decrease, give the Borrower and the Banks notice of such recalculation.

4.1.4.1 Any additional interest or Facility Fee or Letter of Credit Fee due from the Borrower shall be paid to the Agent for the account of the Banks on the next date on which an interest or fee payment is due; provided, however, that if there are no Loans outstanding or if no Loans are due and payable, such additional interest, or Facility Fee or Letter of Credit Fee shall be paid promptly after receipt of written request for payment from the Agent.

4.1.4.2 Any interest, Facility Fee or Letter of Credit Fee refund due to the Borrower shall be credited against payments otherwise due from the Borrower on the next interest or fee payment due date or, if the Loans have been repaid and the Banks are no longer

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committed to lend under this Agreement, the Banks shall pay the Agent for the account of the Borrower such interest, Facility Fee or Letter of Credit Fee refund not later than five Business Days after written notice from the Agent to the Banks.

4.2 Interest Periods.

At any time when the Borrower shall select, convert to or renew a Euro-Rate Option, the Borrower shall notify the Agent thereof at least three (3) Business Days prior to the effective date of such Euro-Rate Option by delivering a Loan Request. The notice shall specify an Interest Period during which such Interest Rate Option shall apply. Notwithstanding the preceding sentence, the following provisions shall apply to any selection of, renewal of, or conversion to a Euro-Rate Option:

4.2.1 Amount of Borrowing Tranche.

Each Borrowing Tranche of Euro-Rate Loans shall be in integral multiples of $50,000 and not less than $5,000,000.

4.2.2 Renewals.

In the case of the renewal of a Euro-Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day.

4.3 Interest After Default.

To the extent permitted by Law, upon the occurrence of an Event of Default and until such time such Event of Default shall have been cured or waived:

4.3.1 Letter of Credit Fees, Interest Rate.

The Letter of Credit Fees and the rate of interest for each Loan otherwise applicable pursuant to Section 2.9.2 [Letter of Credit Fees] or Section 4.1 [Interest Rate Options], respectively, shall be increased by 2.0% per annum.

4.3.2 Other Obligations.

Each other Obligation hereunder if not paid when due shall bear interest at a rate per annum equal to the sum of the rate of interest applicable under the Revolving Credit Base Rate Option plus an additional 2% per annum from the time such Obligation becomes due and payable and until it is paid in full.

4.3.3 Acknowledgment.

The Borrower acknowledges that the increase in rates referred to in this Section 4.3 reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Banks are entitled to additional compensation for such risk; and all such interest shall be payable by Borrower upon demand by Agent.

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4.4 Euro-Rate Unascertainable; Illegality; Increased Costs; Deposits Not Available.

4.4.1 Unascertainable.

If on any date on which a Euro-Rate would otherwise be determined, the Agent shall have determined that:

(i) adequate and reasonable means do not exist for ascertaining such Euro-Rate, or

(ii) a contingency has occurred which materially and adversely affects the London interbank eurodollar market relating to the Euro-Rate, the Agent shall have the rights specified in Section 4.4.3.

4.4.2 Illegality; Increased Costs; Deposits Not Available.

If at any time any Bank shall have determined that:

(i) the making, maintenance or funding of any Loan to which a Euro-Rate Option applies has been made impracticable or unlawful by compliance by such Bank in good faith with any Law or any interpretation or application thereof by any Official Body or with any request or directive of any such Official Body (whether or not having the force of Law), or

(ii) such Euro-Rate Option will not adequately and fairly reflect the cost to such Bank of the establishment or maintenance of any such Loan, or

(iii) after making all reasonable efforts, deposits of the relevant amount in Dollars for the relevant Interest Period for a Loan, or to banks generally, to which a Euro-Rate Option applies, respectively, are not available to such Bank with respect to such Loan, or to banks generally, in the interbank eurodollar market,

then the Agent shall have the rights specified in Section 4.4.3.

4.4.3 Agent’s and Bank’s Rights.

In the case of any event specified in Section 4.4.1 above, the Agent shall promptly so notify the Banks and the Borrower thereof, and in the case of an event specified in Section 4.4.2 above, such Bank shall promptly so notify the Agent and endorse a certificate to such notice as to the specific circumstances of such notice, and the Agent shall promptly send copies of such notice and certificate to the other Banks and the Borrower. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given), the obligation of (A) the Banks, in the case of such notice given by the Agent, or (B) such Bank, in the case of such notice given by such Bank, to allow the Borrower to select, convert to or renew a Euro-Rate Option shall be suspended until the Agent shall have later notified the Borrower, or such Bank shall have later notified the Agent, of the Agent’s or such Bank’s, as the case may be,

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determination that the circumstances giving rise to such previous determination no longer exist. If at any time the Agent makes a determination under Section 4.4.1 and the Borrower has previously notified the Agent of its selection of, conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to such Loans. If any Bank notifies the Agent of a determination under Section 4.4.2, the Borrower shall, subject to the Borrower’s indemnification Obligations under Section 5.6.2 [Indemnity], as to any Loan of the Bank to which a Euro-Rate Option applies, on the date specified in such notice either convert such Loan to the Base Rate Option otherwise available with respect to such Loan or prepay such Loan in accordance with Section 5.4 [Voluntary Prepayments]. Absent due notice from the Borrower of conversion or prepayment, such Loan shall automatically be converted to the Base Rate Option otherwise available with respect to such Loan upon such specified date.

4.5 Selection of Interest Rate Options.

4.5.1 If the Borrower fails to select a new Interest Period to apply to any Borrowing Tranche of Loans under the Euro-Rate Option at the expiration of an existing Interest Period applicable to such Borrowing Tranche in accordance with the provisions of Section 4.2 [Interest Periods], the Borrower shall be deemed to have converted such Borrowing Tranche to the Revolving Credit Base Rate Option commencing upon the last day of the existing Interest Period. If an Event of Default shall occur and be continuing, the Agent shall limit the Borrower to the Base Rate Option hereunder; provided, however, that, unless the Loans have been accelerated hereunder, such limitation with respect to the Euro-Rate Portion shall not be effective until the expiration of any applicable Euro-Rate Interest Period.

4.5.2 If the Borrower fails to select an Interest Rate Option in accordance with the provisions of Section 4.1 for any Swing Loan to which the PNC Quoted Rate applies before the PNC Quoted Rate Option expires, the Borrower shall be deemed to have converted such loan to the Base Rate Option otherwise available with respect to such Swing Loan, commencing immediately upon the expiration of the PNC Quoted Rate Option.

5. PAYMENTS

5.1 Payments.

All payments and prepayments to be made in respect of principal, interest, Facility Fees, Letter of Credit Fees, Agent’s Fee or other fees or amounts due from the Borrower hereunder shall be payable prior to 11:00 a.m., Pittsburgh time or, with respect to payments to be in respect of principal of Swing Loans, 3:00 p.m., Pittsburgh time, in each case on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower, and without set-off, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Agent at the Principal Office for the ratable accounts of the Banks with respect to the Loans in U.S. Dollars and in immediately available funds, and the Agent shall promptly distribute such amounts to the Banks in immediately available funds, provided that in the event payments are received by 11:00 a.m., Pittsburgh time, by the Agent with respect to the Loans and such payments are not

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distributed to the Banks on the same day received by the Agent, the Agent shall pay the Banks the Federal Funds Effective Rate with respect to the amount of such payments for each day held by the Agent and not distributed to the Banks. The Agent’s and each Bank’s statement of account, ledger or other relevant record shall, in the absence of manifest error, be conclusive as the statement of the amount of principal of and interest on the Loans and other amounts owing under this Agreement and shall be deemed an “account stated.”

5.2 Pro Rata Treatment of Banks.

Each borrowing shall be allocated to each Bank according to its Ratable Share, and each selection of, conversion to or renewal of any Interest Rate Option and each payment or prepayment by the Borrower with respect to principal, interest, Facility Fees, Letter of Credit Fees, or other fees (except for the Agent’s Fee) or amounts due from the Borrower hereunder to the Banks with respect to the Loans, shall (except as provided in Section 4.4.3 [Agent’s and Bank’s Rights] in the case of an event specified in Section 4.4 [Euro-Rate Unascertainable; Etc.], 5.4.2 [Replacement of a Bank] or 5.6 [Additional Compensation in Certain Circumstances]) be made in proportion to the applicable Loans outstanding from each Bank and, if no such Loans are then outstanding, in proportion to the Ratable Share of each Bank.

5.3 Interest Payment Dates.

Interest on Loans to which the Base Rate Option or the PNC Quoted Rate Option applies shall be due and payable in arrears on the first Business Day of each January, April, July and October after the date hereof and on the Expiration Date or upon acceleration of the Notes. Interest on Loans to which the Euro-Rate Option applies shall be due and payable on the last Business Day of each Interest Period for those Loans and, if such Interest Period is longer than three (3) Months, also on the first Business Day after the end of each third month during such period and on the Expiration Date or upon acceleration of the Notes.

5.4 Voluntary Prepayments.

5.4.1 Right to Prepay.

The Borrower shall have the right at its option from time to time to prepay the Loans in whole or part without premium or penalty (except as provided in Section 5.4.2 below or in Section 5.6 [Additional Compensation in Certain Circumstances]):

(i) at any time with respect to any Loan to which the Base Rate Option applies,

(ii) on the last day of the applicable Interest Period with respect to Loans to which a Euro-Rate Option applies,

(iii) on the date specified in a notice by any Bank pursuant to Section 4.4 [Euro-Rate Unascertainable, Etc.] with respect to any Loan to which a Euro-Rate Option applies.

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Whenever the Borrower desires to prepay any part of the Loans, it shall provide a prepayment notice to the Agent by 1:00 p.m. at least one (1) Business Day prior to the date of prepayment of Loans setting forth the following information:

(x) the date, which shall be a Business Day, on which the proposed prepayment is to be made;

(y) a statement indicating the application of the prepayment between the Revolving Credit Loans and

(z) the total principal amount of such prepayment, which shall not be less than $100,000 for any Swing Loan or $1,000,000 for any Revolving Credit Loan.

All prepayment notices shall be irrevocable. The principal amount of the Loans for which a prepayment notice is given, together with interest on such principal amount except with respect to Loans to which the Base Rate Option applies, shall be due and payable on the date specified in such prepayment notice as the date on which the proposed prepayment is to be made. Except as provided in Section 4.4.3 [Agent’s and Bank’s rights], if the Borrower prepays a Loan but fails to specify the applicable Borrowing Tranche which the Borrower is prepaying, the prepayment shall be applied first to Loans to which the Base Rate Option applies, then to Loans to which the Euro-Rate Option applies. Any prepayment hereunder shall be subject to the Borrower’s Obligation to indemnify the Banks under Section 5.6.2 [Indemnity].

5.4.2 Replacement of a Bank.

In the event any Bank (i) gives notice under Section 4.4 [Euro-Rate Unascertainable, Etc.] or Section 5.6.1 [Increased Costs, Etc.], (ii) does not fund Revolving Credit Loans because the making of such Loans would contravene any Law applicable to such Bank, or (iii) becomes subject to the control of an Official Body (other than normal and customary supervision), then the Borrower shall have the right at its option, with the consent of the Agent, which shall not be unreasonably withheld, to prepay the Loans of such Bank in whole, together with all interest accrued thereon, and terminate such Bank’s Commitment within ninety (90) days after (x) receipt of such Bank’s notice under Section 4.4 [Euro-Rate Unascertainable, Etc.] or 5.6.1 [Increased Costs, Etc.], (y) the date such Bank has failed to fund Revolving Credit Loans because the making of such Loans would contravene Law applicable to such Bank, or (z) the date such Bank became subject to the control of an Official Body, as applicable; provided that the Borrower shall also pay to such Bank at the time of such prepayment any amounts required under Section 5.6 [Additional Compensation in Certain Circumstances] and any accrued interest due on such amount and any related fees; provided, however, that the Commitment of such Bank shall be provided by one or more of the remaining Banks or a replacement bank acceptable to the Agent and, so long as no Event of Default or Potential Default exists, the Borrower; provided, further, the remaining Banks shall have no obligation hereunder to increase their Commitments. Notwithstanding the foregoing, the Agent may only be replaced subject to the requirements of Section 10.14 [Successor Agent] and provided that all Letters of Credit have expired or been terminated or replaced.

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5.4.3 Change of Lending Office.

Each Bank agrees that upon the occurrence of any event giving rise to increased costs or other special payments under Section 4.4.2 [Illegality, Etc.] or 5.6.1 [Increased Costs, Etc.] with respect to such Bank, it will if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans or Letters of Credit affected by such event, provided that such designation is made on such terms that such Bank and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding the consequence of the event giving rise to the operation of such Section. Nothing in this Section 5.4.3 shall affect or postpone any of the Obligations of the Borrower or any other Loan Party or the rights of the Agent or any Bank provided in this Agreement.

5.5 Settlement Date Procedures.

In order to minimize the transfer of funds between the Banks and the Agent, the Borrower may borrow, repay and reborrow Swing Loans and PNC may make Swing Loans as provided in Section 2.1.2 during the period between Settlement Dates. Not later than 1:00 p.m. Pittsburgh time on each Settlement Date, the Agent shall notify each Bank of its Ratable Share of the Loans (including both the Swing Loans made by the Agent and the Revolving Credit Loans made by the Banks). Prior to 3:00 p.m. Pittsburgh time on such Settlement Date, each Bank shall pay to the Agent the amount equal to the positive difference, if any, between its Ratable Share of the Revolving Credit Loans and Swing Loans and its Revolving Credit Loans, and the Agent shall pay to each Bank its Ratable Share of all payments made by the Borrower to the Agent with respect to the Revolving Credit Loans. The Agent shall also effect settlement in accordance with the foregoing sentence on the proposed Borrowing Dates for Revolving Credit Loans. These settlement procedures are established solely as a matter of administrative convenience, and nothing contained in this Section 5.5 shall relieve the Banks of their obligations to fund Revolving Credit Loans on dates other than a Settlement Date pursuant to Section 2.6.3. The Agent may at any time at its option for any reason whatsoever require each Bank to pay immediately to the Agent such Bank’s Ratable Share of the outstanding Revolving Credit Loans and Swing Loan; provided the principal amount of such Bank’s Revolving Credit Loans shall not exceed its Revolving Credit Commitment minus its Ratable Share of the Letter of Credit Outstanding; provided, further, nothing in this Section 5.5 shall require the Banks to fund any Revolving Credit Loan bearing interest at the Euro-Rate on a date other than in accordance with Section 2.6.1.

5.6 Additional Compensation in Certain Circumstances.

5.6.1 Increased Costs or Reduced Return Resulting from Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc.

If any Law, guideline or interpretation or any change in any Law, guideline or interpretation or application thereof by any Official Body charged with the interpretation or administration thereof or compliance with any request or directive (whether or not having the force of Law) of any central bank or other Official Body:

(i) subjects any Bank to any tax or changes the basis of taxation with respect to this Agreement, the Notes, the Loans or payments by the Borrower of principal, interest, Facility Fees, or other amounts due from the Borrower hereunder or under the Notes (except for taxes on the overall net income of such Bank),

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(ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirement against credits or commitments to extend credit extended by, or assets (funded or contingent) of, deposits with or for the account of, or other acquisitions of funds by, any Bank, or

(iii) imposes, modifies or deems applicable any capital adequacy or similar requirement (A) against assets (funded or contingent) of, or letters of credit, other credits or commitments to extend credit extended by, any Bank, or (B) otherwise applicable to the obligations of any Bank under this Agreement,

and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, or impose any expense (including loss of margin) upon any Bank with respect to this Agreement, the Notes or the making, maintenance or funding of any part of the Loans (or, in the case of any capital adequacy or similar requirement, to have the effect of reducing the rate of return on any Bank’s capital, taking into consideration such Bank’s customary policies with respect to capital adequacy) by an amount which such Bank in its sole discretion deems to be material, such Bank shall from time to time notify the Borrower and the Agent of the amount determined in good faith (using any averaging and attribution methods employed in good faith) by such Bank to be necessary to compensate such Bank for such increase in cost, reduction of income, additional expense or reduced rate of return. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to such Bank ten (10) Business Days after such notice is given.

5.6.2 Indemnity.

In addition to the compensation required by Section 5.6.1 [Increased Costs, Etc.], the Borrower shall indemnify each Bank against all liabilities, losses or expenses (including loss of margin, any loss or expense incurred in liquidating or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by a Bank to fund or maintain Loans subject to a Euro-Rate Option) which such Bank sustains or incurs as a consequence of any

(i) payment, prepayment, conversion or renewal of any Loan to which a Euro-Rate Option applies on a day other than the last day of the corresponding Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due),

(ii) attempt by the Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any Loan Requests under Section 2.5 [Revolving Credit Loan Requests] or Section 4.2 [Interest Periods] or notice relating to prepayments under Section 5.4 [Voluntary Prepayments], or

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(iii) default by the Borrower in the performance or observance of any covenant or condition contained in this Agreement or any other Loan Document, including any failure of the Borrower to pay when due (by acceleration or otherwise) any principal, interest, Facility Fee or any other amount due hereunder.

If any Bank sustains or incurs any such loss or expense, it shall from time to time notify the Borrower of the amount determined in good faith by such Bank (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to such Bank ten (10) Business Days after such notice is given.

6. REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties.

The Loan Parties, jointly and severally, represent and warrant to the Agent and each of the Banks as follows:

6.1.1 Organization and Qualification.

Each Loan Party and each Subsidiary of each Loan Party is a corporation, partnership or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each Loan Party and each Subsidiary of each Loan Party has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct. Each Loan Party and each Subsidiary of each Loan Party is duly licensed or qualified and in good standing in its jurisdiction of organization and in all other jurisdictions where the property owned or leased by it or the nature of the business transacted by it or both makes such licensing or qualification necessary.

6.1.2 Subsidiaries.

Schedule 6.1.2 states the name of each of the Loan Parties and their Subsidiaries, its jurisdiction of incorporation, its authorized capital stock, the issued and outstanding shares (referred to herein as the “Subsidiary Shares”) and the owners thereof if it is a corporation, its outstanding partnership interests (the “Partnership Interests”) if it is a partnership and its outstanding limited liability company interests, interests assigned to managers thereof and the voting rights associated therewith (the “LLC Interests”) if it is a limited liability company. The Borrower and each Subsidiary of the Borrower has good and marketable title to all of the Subsidiary Shares, Partnership Interests and LLC Interests it purports to own, free and clear in each case of any Lien. All Subsidiary Shares, Partnership Interests and LLC Interests have been validly issued, and all Subsidiary Shares are fully paid and nonassessable. All capital contributions and other consideration required to be made or paid in connection with the issuance of the Partnership Interests and LLC Interests have been made or paid, as the case may be. There are no options, warrants or other rights outstanding to purchase any such Subsidiary Shares, Partnership Interests or LLC Interests except as indicated on Schedule 6.1.2. Other than Foreign

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Subsidiaries, Regulated Subsidiaries, less than wholly-owned Subsidiaries over which the Borrower does not maintain control as permitted by Section 8.2.4(iii)(B) or Passport Research, Ltd., all Subsidiaries of the Borrower on the Closing Date are Guarantors under the Guaranty Agreement.

6.1.3 Power and Authority.

Each Loan Party and each Subsidiary of a Loan Party has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its Obligations under the Loan Documents to which it is a party, and all such actions have been duly authorized by all necessary proceedings on its part.

6.1.4 Validity and Binding Effect.

This Agreement has been duly and validly executed and delivered by each Loan Party, and each other Loan Document which any Loan Party or any Subsidiary of any Loan Party is required to execute and deliver on or after the date hereof will have been duly executed and delivered by such Loan Party or Subsidiary on the required date of delivery of such Loan Document. This Agreement and each other Loan Document constitutes, or will constitute, legal, valid and binding obligations of each Loan Party or Subsidiary which is or will be a party thereto on and after its date of delivery thereof, enforceable against such Loan Party or Subsidiary in accordance with its terms, except to the extent that enforceability of any of such Loan Document may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors’ rights generally or limiting the right of specific performance.

6.1.5 No Conflict.

Neither the execution and delivery of this Agreement or the other Loan Documents by any Loan Party or any Subsidiary of any Loan Party nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by any of them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents of any Loan Party or Subsidiary or (ii) any Law or any material agreement or instrument or order, writ, judgment, injunction or decree to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan Party or any of its Subsidiaries.

6.1.6 Litigation.

There are no actions, suits, proceedings or investigations pending or, to the knowledge of any Loan Party, threatened against such Loan Party or any Subsidiary of such Loan Party at law or equity before any Official Body which individually or in the aggregate is reasonably likely to result in any Material Adverse Change. None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of any order, writ, injunction or any decree of any Official Body which may result in any Material Adverse Change.

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6.1.7 Title to Properties.

Each Loan Party and each Subsidiary of each Loan Party has good and marketable title to or valid leasehold interest in all properties, assets and other rights which it purports to own or lease or which are reflected as owned or leased on its books and records, free and clear of all Liens and encumbrances except Permitted Liens, and subject to the terms and conditions of the applicable leases. The tangible and intangible personal property relating to facilities and computers of the Loan Parties and their Subsidiaries (including the leases, computer software and aircraft) are held by one or more wholly owned Guarantors. All leases of property by the Loan Parties and their Subsidiaries are in full force and effect.

6.1.8 Financial Statements.

The Borrower has delivered to the Agent copies of the audited consolidated financial statements for the Borrower and its Consolidated Subsidiaries for fiscal year 2005 (the “Audited Statements”). In addition, the Borrower has delivered to the Agent copies of the unaudited interim financial statements for the Borrower and its Consolidated Subsidiaries for and as of the end of the fiscal quarter ended June 30, 2006 (the “Interim Statements”) (the Audited and Interim Statements being collectively referred to as the “Historical Statements”). The Historical Statements are correct and complete and fairly represent the consolidated financial condition of the Borrower and its Consolidated Subsidiaries as of their dates and the consolidated results of operations for the fiscal periods then ended and have been prepared in accordance with GAAP consistently applied, subject (in the case of the Interim Statements) to normal year-end audit adjustments. None of the Borrower or its Consolidated subsidiaries has any significant liabilities, contingent or otherwise, or material forward or long-term commitments that are not disclosed in the Historical Statements or in the notes thereto, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of any of the Borrower or its Consolidated subsidiaries which may cause a Material Adverse Change. Since December 31, 2005, there has been no Material Adverse Change.

6.1.9 Use of Proceeds; Margin Stock; Section 20 Subsidiaries.

6.1.9.1 General.

The Loan Parties intend to use the proceeds of the Loans in accordance with Section 2.8.

6.1.9.2 Margin Stock.

None of the Loan Parties or any Subsidiaries of any Loan Party engages or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U). No part of the proceeds of any Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any

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margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or to refund Indebtedness originally incurred for such purpose, or for any purpose which entails a violation of or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. None of the Loan Parties or any Subsidiary of any Loan Party holds or intends to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of any Loan Party or Subsidiary of any Loan Party are or will be represented by margin stock.

6.1.9.3 Section 20 Subsidiaries.

The Loan Parties do not intend to use and shall not use any portion of the proceeds of the Loans, directly or indirectly, to purchase during the underwriting period, or for thirty (30) days thereafter, Ineligible Securities being underwritten by a Section 20 Subsidiary.

6.1.10 Full Disclosure.

Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other documents furnished to the Agent or any Bank in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to any Loan Party which materially adversely affects the business, property, assets, financial condition, results of operations or prospects of any Loan Party or Subsidiary of any Loan Party which has not been set forth in this Agreement or in the certificates, statements, agreements or other documents furnished in writing to the Agent and the Banks prior to or at the date hereof in connection with the transactions contemplated hereby.

6.1.11 Taxes.

All federal, state, local and other tax returns required to have been filed with respect to each Loan Party and each Subsidiary of each Loan Party have been filed, and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received, except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made. There are no agreements or waivers extending the statutory period of limitations applicable to any federal income tax return of any Loan Party or Subsidiary of any Loan Party for any period.

6.1.12 Consents and Approvals.

No consent, approval, exemption, order or authorization of, or a registration or filing with, any Official Body or any other Person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents by any Loan Party or any Subsidiary of any Loan Party, except for consents which shall have been obtained on prior to the Closing Date.

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6.1.13 No Event of Default; Compliance with Instruments.

No event has occurred and is continuing and no condition exists or will exist after giving effect to the borrowings or other extensions of credit to be made on the Closing Date under or pursuant to the Loan Documents which constitutes an Event of Default or Potential Default. None of the Loan Parties or any Subsidiaries of any Loan Party is in violation of (i) any term of its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be subject or bound where such violation would constitute a Material Adverse Change.

6.1.14 Patents, Trademarks, Copyrights, Licenses, Etc.

Each Loan Party and each Subsidiary of each Loan Party owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by such Loan Party or Subsidiary, without known possible, alleged or actual conflict with the rights of others.

6.1.15 Insurance.

All insurance policies and other bonds to which any Loan Party or Subsidiary of any Loan Party is a party are valid and in full force and effect. No notice has been given or claim made and no grounds exist to cancel or avoid any of such policies or bonds or to reduce the coverage provided thereby. Such policies and bonds provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of each Loan Party and each Subsidiary of each Loan Party in accordance with prudent business practice in the industry of the Loan Parties and their Subsidiaries.

6.1.16 Compliance with Laws.

The Loan Parties and their Subsidiaries are in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in Section 6.1.21 [Environmental Matters]) in all jurisdictions in which any Loan Party or Subsidiary of any Loan Party is presently or will be doing business except where the failure to do so would not constitute a Material Adverse Change.

6.1.17 Material Contracts; Burdensome Restrictions.

All material contracts relating to the business operations of each Loan Party and each Subsidiary of each Loan Party are valid, binding and enforceable upon such Loan Party or Subsidiary and each of the other parties thereto in accordance with their respective terms, and there is no default thereunder, to the Loan Parties’ knowledge, with respect to parties other than such Loan Party or Subsidiary. None of the Loan Parties or their Subsidiaries is bound by any contractual obligation, or subject to any restriction in any organization document, or any requirement of Law which could result in a Material Adverse Change.

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6.1.18 Investment Companies; Regulated Entities.

None of the Loan Parties or any Subsidiaries of any Loan Party is an “investment company” registered or required to be registered under the Investment Company Act of 1940 or under the “control” of an “investment company” as such terms are defined in the Investment Company Act of 1940 and shall not become such an “investment company” or under such “control.” Each Fund that constitutes an “investment company” is in compliance in all material respects with all requirements applicable to an “investment company” under the Investment Company Act. None of the Loan Parties is subject to any other Federal or state statute or regulation limiting its ability to incur Indebtedness for borrowed money.

6.1.19 Plans and Benefit Arrangements.

(i) The Borrower and each other member of the ERISA Group are in compliance in all material respects with any applicable provisions of ERISA with respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has been no Prohibited Transaction with respect to any Benefit Arrangement or any Plan or, to the best knowledge of the Borrower, with respect to any Multiemployer Plan or Multiple Employer Plan, which could result in any material liability of the Borrower or any other member of the ERISA Group. The Borrower and all other members of the ERISA Group have made when due any and all payments required to be made under any agreement relating to a Multiemployer Plan or a Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan and Multiemployer Plan, the Borrower and each other member of the ERISA Group (i) have fulfilled in all material respects their obligations under the minimum funding standards of ERISA, (ii) have not incurred any liability to the PBGC, and (iii) have not had asserted against them any penalty for failure to fulfill the minimum funding requirements of ERISA. All Plans, Benefit Arrangements and Multiemployer Plans have been administered in accordance with their terms and applicable Law.

(ii) No event requiring notice to the PBGC under Section 302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with respect to any Plan, and no amendment with respect to which security is required under Section 307 of ERISA has been made or is reasonably expected to be made to any Plan.

(iii) Neither the Borrower nor any other member of the ERISA Group has incurred or reasonably expects to incur any material withdrawal liability under ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any other member of the ERISA Group has been notified by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer Plan has been terminated within the meaning of Title IV of ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or Multiple Employer Plan is reasonably expected to be reorganized or terminated, within the meaning of Title IV of ERISA.

6.1.20 Employment Matters.

Each of the Loan Parties and each of their Subsidiaries is in compliance with the Labor Contracts and all applicable federal, state and local labor and employment Laws including those related to equal employment opportunity and affirmative action, labor relations,

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minimum wage, overtime, child labor, medical insurance continuation, worker adjustment and relocation notices, immigration controls and worker and unemployment compensation, where the failure to comply would constitute a Material Adverse Change. There are no outstanding grievances, arbitration awards or appeals therefrom arising out of the Labor Contracts or current or threatened strikes, picketing, handbilling or other work stoppages or slowdowns at facilities of any of the Loan Parties or any of their Subsidiaries which in any case would constitute a Material Adverse Change.

6.1.21 Environmental Matters.

None of the Loan Parties or any Subsidiaries of any Loan Party has received any Environmental Complaint, including but not limited to those from any Official Body or private Person alleging that such Loan Party or Subsidiary or any prior owner, operator or occupant of any of the Property is a potentially responsible party under the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C. § 9601, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq. or any analogous state or local Law, and none of the Loan Parties has any reason to believe that such an Environmental Complaint might be received. There are no pending or, to any Loan Party’s knowledge, threatened Environmental Complaints relating to any Loan Party or Subsidiary of any Loan Party or, to any Loan Party’s knowledge, any prior owner, operator or occupant of any of the Properties pertaining to, or arising out of, any Contamination or violations of Environmental Laws or Required Environmental Permits.

6.1.22 Senior Debt Status.

The Obligations of each Loan Party under this Agreement, the Notes, the Guaranty Agreement and each of the other Loan Documents to which it is a party do rank and will rank at least pari passu in priority of payment with all other Indebtedness of such Loan Party except Indebtedness of such Loan Party to the extent secured by Permitted Liens. There is no Lien upon or with respect to any of the properties or income of any Loan Party or Subsidiary of any Loan Party which secures indebtedness or other obligations of any Person except for Permitted Liens.

6.1.23 Anti-Terrorism Laws.

6.1.23.1 General.

None of the Loan Parties nor or any Affiliate of any Loan Party, is in violation of any Anti-Terrorism Law or engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

6.1.23.2 Executive Order No. 13224.

None of the Loan Parties, nor or any Affiliate of any Loan Party, or their respective agents acting or benefiting in any capacity in connection with the Loans, Letters of Credit or other transactions hereunder, is any of the following (each a “Blocked Person”):

(i) a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

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(ii) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

(iii) a Person or entity with which any Bank is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

(iv) a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order No. 13224;

(v) a Person or entity that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list, or

(vi) a person or entity who is affiliated or associated with a person or entity listed above.

No Loan Party or to the knowledge of any Loan Party, any of its agents acting in any capacity in connection with the Loans, Letters of Credit or other transactions hereunder (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.

6.1.24 Existing Business.

The Loan Parties and their Subsidiaries are currently engaged in the business of providing investment advisory, administration, distribution and other services to Funds.

6.2 Updates to Schedules.

Should any of the information or disclosures provided on any of the Schedules attached hereto become outdated or incorrect in any material respect, the Borrower shall promptly provide the Agent in writing with such revisions or updates to such Schedule as may be necessary or appropriate to update or correct same; provided, unless any such Schedules have become outdated or incorrect in any material and adverse respect, the Borrower may provide such revisions or updates on a quarterly basis at the same time as the Borrower delivers its quarterly compliance certificate in accordance with Section 8.3.4; provided, further, that no Schedule that has become outdated or incorrect in any material and adverse respect shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule be deemed to have been cured thereby.

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7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT

The obligation of each Bank to make Loans and of the Agent to issue Letters of Credit hereunder is subject to the performance by each of the Loan Parties of its Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions:

7.1 First Loans and Letters of Credit.

On the Closing Date:

7.1.1 Officer’s Certificate.

The representations and warranties of each of the Loan Parties contained in Section 6 and in each of the other Loan Documents shall be true and accurate on and as of the Closing Date 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 each of the Loan Parties shall have performed and complied with all covenants and conditions hereof and thereof, no Event of Default or Potential Default shall have occurred and be continuing or shall exist; and there shall be delivered to the Agent for the benefit of each Bank a certificate of the Borrower, dated the Closing Date and signed by the Chief Executive Officer, President, Chief Financial Officer or other Authorized Officer of the Borrower, to each such effect.

7.1.2 Secretary’s Certificate.

There shall be delivered to the Agent for the benefit of each Bank a certificate dated the Closing Date and signed by the Secretary or an Assistant Secretary of each of the Loan Parties, certifying as appropriate as to:

(i) all action taken by each Loan Party and each Subsidiary of each Loan Party in connection with this Agreement and the other Loan Documents;

(ii) the names of the officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and specifying the Authorized Officers permitted to act on behalf of each Loan Party and each Subsidiary of each Loan Party for purposes of this Agreement and the true signatures of such officers, on which the Agent and each Bank may conclusively rely; and

(iii) copies of its organizational documents, including its certificate of incorporation, bylaws, certificate of limited partnership, partnership agreement, certificate of formation, and limited liability company agreement as in effect on the Closing Date certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of each Loan Party and each Subsidiary of each Loan Party in each state where organized; provided such certifications of state officials shall not be required for Foreign Subsidiaries.

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7.1.3 Delivery of Loan Documents.

The Guaranty Agreement, Notes, and Intercompany Subordination Agreement shall have been duly executed and delivered to the Agent for the benefit of the Banks.

7.1.4 Opinion of Counsel.

There shall be delivered to the Agent for the benefit of each Bank a written opinion of Kirkpatrick & Lockhart Nicholson Graham LLP, counsel for the Loan Parties (who may rely on the opinions of such other counsel as may be acceptable to the Agent), dated the Closing Date and in form and substance satisfactory to the Agent and its counsel:

(i) as to the matters set forth in Exhibit 7.1.4; and

(ii) as to such other matters incident to the transactions contemplated herein as the Agent may reasonably request.

7.1.5 Legal Details.

All legal details and proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be in form and substance satisfactory to the Agent and counsel for the Agent, and the Agent shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Agent and said counsel, as the Agent or said counsel may reasonably request.

7.1.6 Payment of Fees.

The Borrower shall have paid or caused to be paid to the Agent for itself and for the account of the Banks to the extent not previously paid the Facility Fees, all other commitment and other fees accrued through the Closing Date and the costs and expenses for which the Agent and the Banks are entitled to be reimbursed.

7.1.7 Consents.

All material consents required to effectuate the transactions contemplated hereby shall have been obtained.

7.1.8 Officer’s Certificate Regarding MACs.

Since December 31, 2005, no Material Adverse Change shall have occurred; and there shall have been delivered to the Agent for the benefit of each Bank a certificate dated the Closing Date and signed by the Chief Executive Officer, President, Chief Financial Officer or other Authorized Officer of the Borrower to each such effect.

7.1.9 No Violation of Laws.

The making of the Loans and the issuance of the Letters of Credit shall not contravene any Law applicable to any Loan Party or any of the Banks.

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7.1.10 No Actions or Proceedings.

No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, this Agreement, the other Loan Documents or the consummation of the transactions contemplated hereby or thereby or which, in the Agent’s sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents.

7.1.11 Termination of Existing Credit Agreement.

The Second Amended and Restated Credit Agreement dated as of January 22, 2002 by and among the Borrower, the Banks set forth therein and the Agent, as amended, shall be terminated and of no further force and effect.

7.2 Each Additional Loan or Letter of Credit.

At the time of making any Loans or issuing any Letters of Credit other than Loans made or Letters of Credit issued on the Closing Date and after giving effect to the proposed extensions of credit: the representations and warranties of the Loan Parties contained in Section 6 and in the other Loan Documents shall be true on and as of the date of such additional Loan or Letter of Credit with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which expressly 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 Loan Parties shall have performed and complied with all covenants and conditions hereof; no Event of Default or Potential Default shall have occurred and be continuing or shall exist; the making of the Loans or issuance of such Letter of Credit shall not contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party or any of the Banks; and the Borrower shall have delivered to the Agent a duly executed and completed Loan Request or application for a Letter of Credit as the case may be.

8. COVENANTS

8.1 Affirmative Covenants.

The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings, and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties’ other Obligations under the Loan Documents and termination of the Commitments, the Loan Parties shall comply at all times with the following affirmative covenants:

8.1.1 Preservation of Existence, Etc.

Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain its legal existence as a corporation, limited partnership or limited liability company and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary, except as otherwise expressly permitted in Section 8.2.6 [Liquidations, Mergers, Etc.] or Section 8.2.7 [Dispositions of Assets or Subsidiaries].

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8.1.2 Payment of Liabilities, Including Taxes, Etc.

Each Loan Party shall, and shall cause each of its Subsidiaries to, duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made, but only to the extent that failure to discharge any such liabilities would not result in a Material Adverse Change, provided that the Loan Parties and their Subsidiaries will pay all such liabilities forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor.

8.1.3 Maintenance of Insurance.

The Loan Parties shall maintain and shall cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, public liability and property damage insurance with respect to its business and properties and the business and properties of its Subsidiaries against loss or damage of the kinds customarily carried or maintained by Persons of established reputation engaged in similar businesses and in amounts acceptable to Agent and will deliver evidence thereof to Agent. The Loan Parties shall cause, pursuant to endorsements and assignments in form and substance reasonably satisfactory to Agent, Agent, for the benefit of Agent and Banks, to be named as additional insured in the case of all liability insurance.

8.1.4 Maintenance of Properties and Leases.

Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, all of those properties useful or necessary to its business, and from time to time, such Loan Party will make or cause to be made all appropriate repairs, renewals or replacements thereof.

8.1.5 Maintenance of Patents, Trademarks, Etc.

Each Loan Party shall, and shall cause each of its Subsidiaries to, maintain in full force and effect all patents, trademarks, service marks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of its properties and business if the failure so to maintain the same would constitute a Material Adverse Change.

8.1.6 Visitation Rights.

Each Loan Party shall, and shall cause each of its Subsidiaries to, permit any of the officers or authorized employees or representatives of the Agent or any of the Banks to

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visit and inspect any of its properties and to examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such reasonable detail and at such reasonable times and as often as any of the Banks may reasonably request, provided that each Bank shall provide the Borrower with reasonable notice prior to any visit or inspection. In the event any Bank desires to conduct an audit of any Loan Party, such Bank shall make a reasonable effort to conduct such audit contemporaneously with any audit to be performed by the Agent.

8.1.7 Keeping of Records and Books of Account.

The Borrower shall, and shall cause each Subsidiary of the Borrower to, maintain and keep proper books of record and account which enable the Borrower and its Subsidiaries to issue financial statements in accordance with GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrower or any Subsidiary of the Borrower, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs.

8.1.8 Plans and Benefit Arrangements.

The Borrower shall, and shall cause each other member of the ERISA Group to, comply with ERISA, the Internal Revenue Code and other applicable Laws applicable to Plans and Benefit Arrangements except where such failure, alone or in conjunction with any other failure, would not result in a Material Adverse Change. Without limiting the generality of the foregoing, the Borrower shall cause all of its Plans and all Plans maintained by any member of the ERISA Group to be funded in accordance with the minimum funding requirements of ERISA and shall make, and cause each member of the ERISA Group to make, in a timely manner, all contributions due to Plans, Benefit Arrangements and Multiemployer Plans.

8.1.9 Compliance with Laws.

Each Loan Party shall, and shall cause each of its Subsidiaries to, comply with all applicable Laws, including all Environmental Laws, in all respects, provided that it shall not be deemed to be a violation of this Section 8.1.9 if any failure to comply with any Law would not result in fines, penalties, remediation costs, other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change.

8.1.10 Ownership of Subsidiaries.

Except (i) with respect to Passport Research Ltd. and Federated MDTA LLC in each of which at least 50% ownership is maintained and (ii) as permitted pursuant to Section 8.2.7 or, with respect to Subsidiaries created or acquired in the future, Section 8.2.4(iii), the Borrower shall keep and maintain 100% ownership and control of each of its Subsidiaries.

8.1.11 New Subsidiaries.

The Loan Parties shall cause each Subsidiary created or acquired by any of the Loan Parties after the date hereof to enter into the Intercompany Subordination Agreement and, other than Foreign Subsidiaries, Regulated Subsidiaries or less than wholly-owned

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Subsidiaries over which the Borrower does not maintain control as permitted by Section 8.2.4(iii)(B), this Agreement and the Guaranty Agreement and shall cause to be delivered a legal opinion of such outside counsel reasonably acceptable to the Agent and its counsel in form and substance satisfactory to the Agent and its counsel as to the matters set forth on Exhibit 1.1(L)(2).

8.1.12 Subordination of Intercompany Loans.

Each Loan Party shall cause any intercompany Indebtedness, loans or advances owed by any Loan Party or any Subsidiary of any Loan Party to any other Loan Party or any Subsidiary of any Loan Party to be subordinated pursuant to the terms of the Intercompany Subordination Agreement.

8.1.13 Anti-Terrorism Laws.

The Loan Parties and their respective Affiliates and agents shall not (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224; or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order No. 13224, the USA Patriot Act or any other Anti-Terrorism Law. The Borrower shall deliver to Banks any certification or other evidence as reasonably requested from time to time by any Bank in its sole discretion, confirming Borrower’s compliance with this Section 8.1.13.

8.2 Negative Covenants.

The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties’ other Obligations hereunder and termination of the Commitments, the Loan Parties shall comply with the following negative covenants:

8.2.1 Indebtedness.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Indebtedness, except:

(i) Indebtedness under the Loan Documents;

(ii) Indebtedness pursuant to capitalized leases made under usual and customary terms in the ordinary course of business and Indebtedness secured solely by Purchase Money Security Interests not exceeding in the case of any Indebtedness under this clause (ii) at any one time in the aggregate $50,000,000;

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(iii) existing Indebtedness as set forth on Schedule 8.2.1 (including any extensions or renewals thereof, provided there is no increase in the principal amount thereof as of the Closing Date unless otherwise specified on Schedule 8.2.1);

(iv) any short-term Indebtedness under securities clearing arrangements secured by or for which marketable securities and related cash balances with customary loan-to-value ratios are available to repay such Indebtedness;

(v) Indebtedness of a Loan Party or any Subsidiary of any Loan Party to another Loan Party or any Subsidiary of any Loan Party which is subordinated in accordance with the provisions of Section 8.1.12 [Subordination of Intercompany Loans; or

(vi) unsecured Indebtedness so long as after giving effect to such Indebtedness the Loan Parties remain in pro forma compliance with the financial covenants contained in Sections 8.2.14 and 8.2.15.

8.2.2 Liens.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except Permitted Liens.

8.2.3 Guaranties.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person, except for (i) Guaranties of Indebtedness of the Loan Parties and the Subsidiaries of the Loan Parties permitted under Section 8.2.1, (ii) the guarantee by the Loan Parties of obligations of other Loan Parties (other than any Subsidiary which is not wholly owned) to third parties, which obligations are incurred in the ordinary course of such Loan Parties’ and the Subsidiaries’ business consistent with industry practice and not otherwise forbidden by this Agreement; provided that, except for Limited Investments, in no event shall the Loan Party or any Subsidiary of any Loan Party become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of the Special Purpose Subsidiaries, and (iii) the guarantee by the Loan Parties of Indebtedness of Subsidiaries which are not wholly owned by a Loan Party or Indebtedness of other Persons provided that the aggregate amount of Indebtedness that is guaranteed by all of the Loan Parties pursuant to this clause (iii) shall not exceed, at any one time, $25,000,000.

8.2.4 Loans and Investments.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest

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(whether general or limited) or limited liability company interest in, or any other investment or interest in, or make any capital contribution to, any other Person, or agree, become or remain liable to do any of the foregoing, except:

(i) loans and investments as set forth on Schedule 8.2.4 (including any extensions or renewals thereof, provided there is no increase in the principal amount thereof as of the Closing Date unless otherwise specified on Schedule 8.2.4);

(ii) investments in wholly owned Subsidiaries existing on the date hereof and wholly owned Subsidiaries hereafter created or acquired, provided the Borrower and each of its Subsidiaries shall comply with the requirements of Section 8.1.11;

(iii) investments in (A) Subsidiaries, which are less than wholly owned, but over which the Borrower maintains control, and (B) corporate entities in which the Borrower does not maintain control but for which none of the Loan Parties has any liability greater than its initial investment in such entity and where the activities in which such entity engages are consistent with the activities set forth in Section 6.1.24, provided, that the investments permitted by clause (B) of this Section 8.2.4(iii) shall not exceed $50,000,000 in the aggregate at any time;

(iv) intercompany loans which are subordinated to the Loans pursuant to the Intercompany Subordination Agreement,

(v) trade credit extended, and loans and advances extended to subcontractors or suppliers, under usual and customary terms in the ordinary course of business;

(vi) advances to employees to meet expenses incurred by such employees in the ordinary course of business;

(vii) Permitted Investments;

(viii) loans, advances and investments in Subsidiaries existing on the date hereof; and

(ix) Limited Investments in the Special Purpose Subsidiaries so long as the Limited Investments in all Special Purpose Subsidiaries do not exceed $500,000 in the aggregate at any time.

8.2.5 Dividends and Related Distributions.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, make or pay, or agree to become or remain liable to make or pay, any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its shares of capital stock, partnership interests or limited liability company interests on account of the purchase, redemption, retirement or acquisition of its shares of capital stock (or warrants, options or rights therefor), partnership interests or limited liability company interests, unless after giving effect to any such dividend or other distribution (i) the Loan Parties remain in pro forma compliance with the financial covenants contained in Sections 8.2.14 and 8.2.15 and (ii) the Loan Parties have an aggregate Liquidity of no less than $10,000,000.

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8.2.6 Liquidations, Mergers, Consolidations, Acquisitions.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person, provided that

(i) any Guarantor may liquidate into, merge or consolidate with a wholly owned Subsidiary that is a Guarantor (other than the Borrower) and any wholly owned Subsidiary which is not a Guarantor may liquidate into, merge or consolidate with a wholly owned Subsidiary (so long as if the entity into which any wholly-owned Subsidiary which is not a Guarantor is liquidating, merging or consolidating is a Guarantor, it continues to be a Guarantor after the liquidation, merger or consolidation); and

(ii) the Borrower or a Consolidated Subsidiary may effect an acquisition of the capital stock or assets (tangible or intangible) of another person or persons, so long as (A) such person is a company which engages in the mutual fund, investment advisory, retirement plan servicing or financial services business or a business related or ancillary to any of the foregoing, (B) if such person is a public company, the acquisition is not hostile and (C) after giving effect to such acquisition, no Event of Default or Potential Default shall exist or be continuing and, with respect to acquisitions in which the Consideration is greater than $25,000,000, five (5) days before the consummation of such acquisition, the Borrower shall have provided to the Agent and the Banks pro forma financial statements for the Borrower and the Consolidated Subsidiaries, after giving effect to such acquisition, demonstrating such compliance.

The parties expressly acknowledge that Section 8.2.6 does not restrict the acquisition of assets by a Fund in the ordinary course of business where no liabilities are assumed by the Fund and the acquisition price consists of trailer payments based on average net assets in the Fund from time to time but in no event more than the Fund Fees received by any of the Loan Parties and their Subsidiaries and such fees are paid out of the Fund itself or by any of the Loan Parties and their Subsidiaries in accordance with normal business practices.

8.2.7 Dispositions of Assets or Subsidiaries.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of its properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest, partnership interests or limited liability company interests of a Subsidiary of such Loan Party), except:

(i) any sale, transfer or lease of assets by the Borrower or any wholly owned Subsidiary to the Borrower or any other wholly owned Subsidiary that is a Guarantor and any sale or transfer of Designated Assets by a Subsidiary of the Borrower to another Subsidiary of the Borrower followed by an immediate transfer to a Special Purpose Subsidiary, in

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connection with a securitization or other receivables sale transaction so long as such transaction is non-recourse to any of the Loan Parties or any Special Purpose Subsidiary (except for customary recourse provisions, including recourse to the Designated Assets being sold or transferred);

(ii) any sale, transfer or lease of assets which are no longer necessary or required in the conduct of the Borrower’s or any Subsidiary’s business resulting in after-tax proceeds (net of reasonable and customary expenses in connection with such sale, transfer or lease);

(iii) any sale, transfer or lease of assets in the ordinary course of business which are replaced by substitute assets; and

(iv) any sale or transfer of all of the capital stock or substantially all of the assets of one or more Subsidiaries of the Borrower so long as, in any fiscal year, (A) the assets of such sold or transferred Subsidiaries do not exceed 5% of the total assets of the Borrower and the Consolidated Subsidiaries and (B) no more than 5% of Consolidated EBITDA is attributable to such sold or transferred Subsidiaries, in the case of clause (A), determined as of the most recent fiscal quarter ending prior to such disposition and, in the case of clause (B), determined as of the most recent four (4) fiscal quarters ending prior to such disposition.

The Agent is expressly authorized by the Banks to release any Guarantor from the Guaranty Agreement and any Subsidiary of the Borrower from the Intercompany Subordination Agreement if (A) its capital stock or substantially all of the assets are sold or transferred in accordance with Section 8.2.7(iv) above or (B) it is liquidated in accordance with Section 8.2.6(i).

8.2.8 Affiliate Transactions.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to, enter into or carry out any transaction (including purchasing property or services from or selling property or services to any Affiliate of any Loan Party or other Person) unless such transaction is not otherwise prohibited by this Agreement, is entered into in the ordinary course of business upon fair and reasonable arm’s-length terms and conditions which are fully disclosed to the Agent and is in accordance with all applicable Law.

8.2.9 Continuation of or Change in Business.

The enterprises represented by the Loan Parties and their Subsidiaries taken as a whole shall continue to engage in their respective businesses substantially as conducted and operated by the Loan Parties and their Subsidiaries during the present fiscal year, and the Borrower shall not permit any material change in such businesses (i.e., the mutual fund, investment advisory, retirement plan servicing and financial services business, and the business of Federated Bank, as such businesses exist on the date hereof or may exist in the future), either directly or indirectly (including by means of loans and investments), and any change must be in accordance with all applicable Law (including the Investment Company Act); provided, that (i) the only activities in which the Special Purpose Subsidiaries shall be permitted to engage are to finance broker commissions with respect to the sale of proprietary or private label mutual

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funds administered or distributed by the Loan Parties and to hold stock of other Special Purpose Subsidiaries, provided further (A) the Special Purpose Subsidiaries shall not enter into any agreements which permit any cross-defaults with any of the Loan Documents and (B) the Limited Investments in the Special Purpose Subsidiaries by the Loan Parties are not greater than $500,000 in the aggregate; and provided further (ii) the Borrower, FII Holdings, Inc. and Federated Services Company shall not become registered as investment advisers or broker-dealers. Notwithstanding the foregoing, nothing contained herein shall serve to limit the ability of any Loan Party or any Subsidiary of any Loan Party to change the principal location of its business.

8.2.10 Plans and Benefit Arrangements.

Each of the Loan Parties shall not, and shall not permit any of its Subsidiaries to engage in a Prohibited Transaction with any Plan, Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with any other circumstances or set of circumstances resulting in liability under ERISA or otherwise violate ERISA.

8.2.11 Fiscal Year; Accounting Methods.

The Borrower shall not, and shall not permit any Subsidiary of the Borrower to, (i) change its fiscal year from the twelve-month period beginning January 1 and ending December 31 or (ii) change from the accrual method of accounting.

8.2.12 Intercompany Transactions.

The Borrower shall not permit there to be any restriction on the dividends payable by its Subsidiaries except as otherwise required by Law or this Agreement. The Borrower shall not permit there to be any intercompany debt owing by any Loan Party or any Subsidiary of a Loan Party to another Loan Party or Subsidiary unless such debt is subordinated to the Loans pursuant to the Intercompany Subordination Agreement. Except as permitted in Section 8.2.4, no existing business or assets of the Loan Parties and their Subsidiaries shall be transferred or otherwise diverted to or used for the benefit of any Subsidiaries which are not wholly owned.

8.2.13 Change in Ownership.

The Borrower shall not permit any change in the ownership of the Class A Shares except transfers of the Class A Shares may be made among the officers, directors and employees of the Loan Parties and their respective families and affiliates.

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8.2.14 Maximum Leverage Ratio.

The Loan Parties shall not permit the Leverage Ratio as of the end of any fiscal quarter to exceed 2.0 to 1.0.

8.2.15 Minimum Interest Coverage Ratio.

The Loan Parties shall not permit the ratio of Consolidated EBITDA to consolidated interest expense for the four (4) fiscal quarters then ended of the Borrower and its Consolidated Subsidiaries, calculated as of the end of any fiscal quarter, to be less than 4.0 to 1.0.

8.3 Reporting Requirements.

The Loan Parties, jointly and severally, covenant and agree that until payment in full of the Loans, Reimbursement Obligations and Letter of Credit Borrowings and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Loan Parties’ other Obligations hereunder and under the other Loan Documents and termination of the Commitments, the Loan Parties will furnish or cause to be furnished to the Agent and each of the Banks:

8.3.1 Quarterly Financial Statements.

As soon as available and in any event within forty-five (45) calendar days after the end of each of the first three fiscal quarters in each fiscal year, financial statements of the Borrower, consisting of a consolidated balance sheet as of the end of such fiscal quarter and related consolidated statements of income and cash flows for the fiscal quarter then ended and the fiscal year through that date, all in reasonable detail and certified (subject to normal year-end audit adjustments) by the Chief Executive Officer, President or Chief Financial Officer of the Borrower as having been prepared in accordance with GAAP, consistently applied, and setting forth in comparative form the respective financial statements for the corresponding date and period in the previous fiscal year.

8.3.2 Annual Financial Statements.

As soon as available and in any event within ninety (90) days after the end of each fiscal year of the Borrower, financial statements of the Borrower consisting of a consolidated balance sheet as of the end of such fiscal year, and related consolidated statements of income, retained earnings and cash flows for the fiscal year then ended, all in reasonable detail and setting forth in comparative form the financial statements as of the end of and for the preceding fiscal year, and certified by independent certified public accountants of nationally recognized standing satisfactory to the Agent. The certificate or report of accountants shall be free of qualifications (other than any consistency qualification that may result from a change in the method used to prepare the financial statements as to which such accountants concur) and shall not indicate the occurrence or existence of any event, condition or contingency which would materially impair the prospect of payment or performance of any covenant, agreement or duty of any Loan Party under any of the Loan Documents.

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8.3.3 Certificate of the Borrower.

Concurrently with the financial statements of the Borrower furnished to the Agent and to the Banks pursuant to Sections 8.3.1 [Quarterly Financial Statements] and 8.3.2 [Annual Financial Statements], a certificate (each a “Compliance Certificate”) of the Borrower signed by the Chief Executive Officer, President, Chief Financial Officer or other Authorized Officer of the Borrower, in the form of Exhibit 8.3.3, to the effect that, except as described pursuant to Section 8.3.4 [Notice of Default], (i) the representations and warranties of the Borrower contained in Section 6 and in the other Loan Documents are true on and as of the date of such certificate with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time) and the Loan Parties have performed and complied with all covenants and conditions hereof, (ii) no Event of Default or Potential Default exists and is continuing on the date of such certificate and (iii) containing calculations in sufficient detail to demonstrate compliance as of the date of such financial statements with all financial covenants contained in Section 8.2 [Negative Covenants].

8.3.4 Notice of Default.

Promptly after any officer of any Loan Party has learned of the occurrence of an Event of Default or Potential Default, a certificate signed by the Chief Executive Officer, President, Chief Financial Officer or other Authorized Officer of such Loan Party setting forth the details of such Event of Default or Potential Default and the action which the such Loan Party proposes to take with respect thereto.

8.3.5 Notice of Litigation.

Promptly after the commencement thereof, notice of all actions, suits, proceedings or investigations before or by any Official Body or any other Person against any Loan Party or Subsidiary of any Loan Party or any of the Funds which involve a claim or series of claims in excess of $25,000,000 or which if adversely determined would constitute a Material Adverse Change.

8.3.6 Certain Events.

Written notice to the Agent of (i) any sale or other transfer of assets as permitted under subsections (i), (ii), (iii) or (iv) of Section 8.2.7, (ii) any merger, acquisition, consolidation or liquidation permitted under Section 8.2.6, (iii) the creation or acquisition of any new Subsidiaries or investment in any other corporate entity, such notice to be delivered to the Agent within five (5) Business Days after occurrence of such event or consummation of such transaction(s), and in the case of the creation or acquisition of a new Subsidiary or investment in any other corporate entity, accompanied by the items specified in Section 8.1 to be delivered within thirty (30) calendar days after the creation or acquisition of a new Subsidiary or investment in any other corporate entity. Written notice to the Agent of any sale or other transfer of assets as permitted under Section 8.2.7(i) shall be given on a quarterly basis at the same time that quarterly financial statements are required to be delivered under Section 8.3.1.

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8.3.7 Other Notices, Reports and Information.

Promptly upon their becoming available to the Borrower, (i) any material and adverse reports including management letters submitted to any of the Loan Parties by independent accountants in connection with any annual, interim or special audit, (ii) any reports or notices distributed by any of the Loan Parties to its shareholders and not filed with the Securities and Exchange Commission, on a date no later than the date supplied to the shareholders, (iii) upon request, periodic reports filed by any of the Loan Parties with the Securities and Exchange Commission, (iv) periodic reports of examination by the Securities and Exchange Commission or the National Association of Securities Dealers, Inc. of any of the Loan Parties which could reasonably be expected to result in a Material Adverse Change and any responses thereto, (v) any Revenue Agent’s Report and accompanying Statement of Income Tax Examination Changes and any notice of assessment or deficiency by the IRS which could reasonably be expected to result in a Material Adverse Change, and (vi) such other reports and information as the Banks may from time to time reasonably request. The Borrower shall also notify the Banks promptly of the enactment of any legislation or adoption of any Law which may result in a Material Adverse Change.

8.3.8 Notices Regarding Plans and Benefit Arrangements.

8.3.8.1 Certain Events.

Promptly upon becoming aware of the occurrence thereof, notice (including the nature of the event and, when known, any action taken or threatened by the Internal Revenue Service or the PBGC with respect thereto) of:

(i) any Reportable Event with respect to the Borrower or any other member of the ERISA Group (regardless of whether the obligation to report said Reportable Event to the PBGC has been waived),

(ii) any Prohibited Transaction which could subject the Borrower or any other member of the ERISA Group to a civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal Revenue Code in connection with any Plan, any Benefit Arrangement or any trust created thereunder,

(iii) any assertion of material withdrawal liability with respect to any Multiemployer Plan,

(iv) any partial or complete withdrawal from a Multiemployer Plan by the Borrower or any other member of the ERISA Group under Title IV of ERISA (or assertion thereof), where such withdrawal is likely to result in material withdrawal liability,

(v) any cessation of operations (by the Borrower or any other member of the ERISA Group) at a facility in the circumstances described in Section 4062(e) of ERISA,

(vi) withdrawal by the Borrower or any other member of the ERISA Group from a Multiple Employer Plan,

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(vii) a failure by the Borrower or any other member of the ERISA Group to make a payment to a Plan required to avoid imposition of a Lien under Section 302(f) of ERISA,

(viii) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA, or

(ix) any change in the actuarial assumptions or funding methods used for any Plan, where the effect of such change is to materially increase or materially reduce the unfunded benefit liability or obligation to make periodic contributions.

8.3.8.2 Notices of Involuntary Termination and Annual Reports.

Promptly after receipt thereof, copies of (a) all notices received by the Borrower or any other member of the ERISA Group of the PBGC’s intent to terminate any Plan administered or maintained by the Borrower or any member of the ERISA Group, or to have a trustee appointed to administer any such Plan; and (b) at the request of the Agent or any Bank each annual report (IRS Form 5500 series) and all accompanying schedules, the most recent actuarial reports, the most recent financial information concerning the financial status of each Plan administered or maintained by the Borrower or any other member of the ERISA Group, and schedules showing the amounts contributed to each such Plan by or on behalf of the Borrower or any other member of the ERISA Group in which any of their personnel participate or from which such personnel may derive a benefit, and each Schedule B (Actuarial Information) to the annual report filed by the Borrower or any other member of the ERISA Group with the Internal Revenue Service with respect to each such Plan.

8.3.8.3 Notice of Voluntary Termination.

Promptly upon the filing thereof, copies of any Form 5310, or any successor or equivalent form to Form 5310, filed with the PBGC in connection with the termination of any Plan.

8.3.9 Notices Regarding Special Purpose Subsidiaries.

Within five (5) Business Days after the creation of any new Special Purpose Subsidiary, the Borrower shall provide written notice to the Agent of the creation of any new Special Purpose Subsidiary, accompanied by the declaration of trust, certificate or articles of incorporation, bylaws or other organizational documents of the new Special Purpose Subsidiary.

8.3.10 Notice of Change in Debt Rating.

Within two (2) Business Days after Standard & Poor’s or Moody’s announces a change in the Borrower’s Debt Rating, notice of such change. Borrower will deliver together with such notice a copy of any written notification which Borrower received from the applicable rating agency regarding such change of Debt Rating.

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9. DEFAULT

9.1 Events of Default.

An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law):

9.1.1 Payments Under Loan Documents.

The Borrower shall (i) fail to pay any principal of any Loan, Reimbursement Obligation or Letter of Credit Borrowing when due or (ii) shall fail to pay any interest on any Loan, Reimbursement Obligation or Letter of Credit Borrowing or any other amount owing hereunder or under the other Loan Documents within five (5) Business Days after such interest or other amount becomes due in accordance with the terms hereof or thereof;

9.1.2 Breach of Warranty.

Any representation or warranty made at any time by any of the Loan Parties herein or by any of the Loan Parties in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished;

9.1.3 Breach of Certain Covenants.

Any of the Loan Parties shall default in the observance or performance of any covenant contained in Sections 8.2.5, 8.2.6, 8.2.7, 8.2.9, 8.2.13, 8.2.14 or 8.2.15.

9.1.4 Breach of Other Covenants.

Any of the Loan Parties shall default in the observance or performance of any covenant, condition or provision hereof or of any other Loan Document (other than as specifically set forth in any other subsection of this Section 9.1) and such default shall continue unremedied for a period of fifteen (15) Business Days after any of the Loan Parties becomes aware of the occurrence thereof (such grace period to be applicable only in the event such default can be remedied by corrective action of any of the Loan Parties as determined by the Agent in its sole discretion).

9.1.5 Defaults in Other Agreements or Indebtedness.

A default or event of default shall occur at any time under the terms of any other agreement involving borrowed money or the extension of credit or any other Indebtedness under which any Loan Party or Subsidiary of any Loan Party may be obligated as a borrower or guarantor in excess of $25,000,000 in the aggregate, and such breach, default or event of default consists of the failure to pay (beyond any period of grace permitted with respect thereto, whether waived or not) any indebtedness when due (whether at stated maturity, by acceleration or otherwise) or if such breach or default permits or causes the acceleration of any indebtedness (whether or not such right shall have been waived) or the termination of any commitment to lend;

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9.1.6 Final Judgments or Orders.

Any final judgments or orders for the payment of money in excess of $25,000,000 in the aggregate shall be entered against any Loan Party or any Subsidiary of any Loan Party by a court having jurisdiction in the premises, which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry;

9.1.7 Loan Document Unenforceable.

Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party’s successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby;

9.1.8 Proceedings Against Assets.

Any of the Loan Parties’ or any of their Subsidiaries’ assets are attached, seized, levied upon or subjected to a writ or distress warrant; or such come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter;

9.1.9 Notice of Lien or Assessment.

A notice of Lien or assessment in excess of $25,000,000 which is not a Permitted Lien is filed of record with respect to all or any part of any of the Loan Parties’ or any of their Subsidiaries’ assets by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including the PBGC, or any taxes or debts owing at any time or times hereafter to any one of these becomes payable and the same is not paid within thirty (30) days after the same becomes payable;

9.1.10 Insolvency.

Any Loan Party or any Subsidiary of a Loan Party ceases to be solvent or admits in writing its inability to pay its debts as they mature;

9.1.11 Events Relating to Plans and Benefit Arrangements.

Any of the following occurs: (i) any Reportable Event that the Agent determines in good faith constitutes grounds for the termination of any Plan by the PBGC or the appointment of a trustee to administer or liquidate any Plan, shall have occurred and be continuing; (ii) proceedings shall have been instituted or other action taken to terminate any Plan, or a termination notice shall have been filed with respect to any Plan; (iii) a trustee shall be appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice of its intent to institute proceedings to terminate any Plan or Plans or to appoint a trustee to administer or

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liquidate any Plan; and, in the case of the occurrence of (i), (ii), (iii) or (iv) above, the Agent determines in good faith that the amount of the Borrower’s liability is likely to exceed 10% of its Consolidated Tangible Net Worth; (v) the Borrower or any member of the ERISA Group shall fail to make any contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or any other member of the ERISA Group shall make any amendment to a Plan with respect to which security is required under Section 307 of ERISA; (vii) the Borrower or any other member of the ERISA Group shall withdraw completely or partially from a Multiemployer Plan; (viii) the Borrower or any other member of the ERISA Group shall withdraw (or shall be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by any Official Body with respect to or otherwise affecting one or more Plans, Multiemployer Plans or Benefit Arrangements and, with respect to any of the events specified in (v), (vi), (vii), (viii) or (ix), the Agent determines in good faith that any such occurrence would be reasonably likely to materially and adversely affect the total enterprise represented by the Borrower and the other members of the ERISA Group;

9.1.12 Cessation of Business.

Any Loan Party or Subsidiary of a Loan Party is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business and such injunction, restraint or other preventive order is not dismissed within thirty (30) days after the entry thereof;

9.1.13 Involuntary Proceedings.

A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of any Loan Party or Subsidiary of a Loan Party in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Loan Party or Subsidiary of a Loan Party for any substantial part of its property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; or

9.1.14 Voluntary Proceedings.

Any Loan Party or Subsidiary of a Loan Party shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or other similar official) of itself or for any substantial part of its property (other than voluntary liquidations permitted under Section 8.2.6) or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any of the foregoing.

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9.2 Consequences of Event of Default.

9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization Proceedings.

If an Event of Default specified under Sections 9.1.1 through 9.1.12 shall occur and be continuing, the Banks and the Agent shall be under no further obligation to make Loans or issue Letters of Credit, as the case may be, and the Agent may, and upon the request of the Required Banks, shall (i) by written notice to the Borrower, declare the unpaid principal amount of the Notes then outstanding and all interest accrued thereon, any unpaid fees and all other Obligations of the Borrower to the Banks hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Agent for the benefit of each Bank without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, and (ii) require the Borrower to, and the Borrower shall thereupon, deposit in a non-interest-bearing account with the Agent, as cash collateral for its Obligations under the Loan Documents, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to the Agent and the Banks, and grants to the Agent and the Banks a security interest in, all such cash as security for such Obligations (the requirement under clause (ii) is referred to herein as “Cash Collateralize all Letters of Credit”). Upon the curing of all existing Events of Default to the satisfaction of the Required Banks, the Agent shall return such cash collateral to the Borrower; and

9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.

If an Event of Default specified under Section 9.1.13 [Involuntary Proceedings] or 9.1.14 [Voluntary Proceedings] shall occur, the Banks shall (a) be under no further obligations to make Loans or issue Letters of Credit hereunder and the unpaid principal amount of the Loans then outstanding and all interest accrued thereon, any unpaid fees and all other Obligations of the Borrower to the Banks hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived and (b) shall Cash Collateralize all Letters of Credit; and

9.2.3 Set-off.

If an Event of Default shall occur and be continuing, any Bank to whom any Obligation is owed by any Loan Party hereunder or under any other Loan Document or any participant of such Bank which has agreed in writing to be bound by the provisions of Section 10.13 [Equalization of Banks] and any branch, Subsidiary or Affiliate of such Bank or participant anywhere in the world shall have the right, in addition to all other rights and remedies available to it, without notice to such Loan Party, to set-off against and apply to the then unpaid balance of all the Loans and all other Obligations of the Borrower and the other Loan Parties hereunder or under any other Loan Document any debt owing to, and any other funds held in any manner for the account of, the Borrower or such other Loan Party by such Bank or participant or by such branch, Subsidiary or Affiliate, including all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Borrower or such other Loan Party for its own account (but not

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including funds held in custodian or trust accounts) with such Bank or participant or such branch, Subsidiary or Affiliate. Such right shall exist whether or not any Bank or the Agent shall have made any demand under this Agreement or any other Loan Document, whether or not such debt owing to or funds held for the account of the Borrower or such other Loan Party is or are matured or unmatured and regardless of the existence or adequacy of any Guaranty or any other security, right or remedy available to any Bank or the Agent; and

9.2.4 Suits, Actions, Proceedings.

If an Event of Default shall occur and be continuing, and whether or not the Agent shall have accelerated the maturity of Loans pursuant to any of the foregoing provisions of this Section 9.2, the Agent or any Bank, if owed any amount with respect to the Loans, may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement or the other Loan Documents, including as permitted by applicable Law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Agent or such Bank; and

9.2.5 Application of Proceeds; Collateral Sharing.

9.2.5.1 Application of Proceeds.

From and after the date on which the Agent has taken any action pursuant to this Section 9.2 and until all Obligations of the Loan Parties have been paid in full, any and all proceeds received by the Agent from the exercise of any other remedy by the Agent, shall be applied as follows:

(i) first, to reimburse the Agent and the Banks for out-of-pocket costs, expenses and disbursements, including reasonable attorneys’ and paralegals’ fees and legal expenses, incurred by the Agent or the Banks in connection with the collection of any Obligations of any of the Loan Parties under any of the Loan Documents;

(ii) second, to the repayment of all Obligations then due and unpaid of the Loan Parties to the Banks incurred under this Agreement or any of the other Loan Documents, whether of principal, interest, fees, expenses or otherwise, in such manner as the Agent may determine in its discretion; and

(iii) the balance, if any, as required by Law.

9.2.6 Other Rights and Remedies.

In addition to all of the rights and remedies contained in this Agreement or in any of the other Loan Documents, the Agent shall have all of the rights and remedies under applicable Law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by Law. The Agent may, and upon the request of the Required Banks shall, exercise all post-default rights granted to the Agent and the Banks under the Loan Documents or applicable Law.

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10. THE AGENT

10.1 Appointment.

Each Bank hereby irrevocably designates, appoints and authorizes PNC Bank to act as Agent for such Bank under this Agreement and to execute and deliver or accept on behalf of each of the Banks the other Loan Documents. Each Bank hereby irrevocably authorizes, and each holder of any Note by the acceptance of a Note shall be deemed irrevocably to authorize, the Agent to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and any other instruments and agreements referred to herein, and to exercise such powers and to perform such duties hereunder as are specifically delegated to or required of the Agent by the terms hereof, together with such powers as are reasonably incidental thereto. PNC Bank agrees to act as the Agent on behalf of the Banks to the extent provided in this Agreement.

10.2 Delegation of Duties.

The Agent may perform any of its duties hereunder by or through agents or employees (provided such delegation is exercised with reasonable care and does not constitute a relinquishment of its duties as Agent) and, subject to Sections 10.5 [Reimbursement of Agent by Borrower, Etc.] and 10.6, shall be entitled to engage and pay for the advice or services of any attorneys, accountants or other experts concerning all matters pertaining to its duties hereunder and to rely upon any advice so obtained provided reasonable care is used in the selection of the foregoing experts.

10.3 Nature of Duties; Independent Credit Investigation.

The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and no implied covenants, functions, responsibilities, duties, obligations, or liabilities shall be read into this Agreement or otherwise exist. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of this Agreement a fiduciary or trust relationship in respect of any Bank; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of this Agreement except as expressly set forth herein. Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Each Bank expressly acknowledges (i) that the Agent has not made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of any of the Loan Parties, shall be deemed to constitute any representation or warranty by the Agent to any Bank; (ii) that it has made and will continue to make, without reliance upon the Agent, its own independent investigation of the financial condition and affairs and its own appraisal of the creditworthiness of each of the Loan Parties in connection with this Agreement and the making and continuance of the Loans hereunder; and (iii) except as expressly provided herein, that the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Bank with any credit or other information with respect thereto, whether coming into its possession before the making of any Loan or at any time or times thereafter.

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10.4 Actions in Discretion of Agent; Instructions From the Banks.

The Agent agrees, upon the written request of the Required Banks (or such greater number of Banks as may be required hereunder), to take or refrain from taking any action of the type specified as being within the Agent’s rights, powers or discretion herein, provided that the Agent shall not be required to take any action which exposes the Agent to personal liability or which is contrary to this Agreement or any other Loan Document or applicable Law. In the absence of a request by the Required Banks (or such greater number of Banks as may be required hereunder), the Agent shall have authority, in its sole discretion, to take or not to take any such action, unless this Agreement specifically requires the consent of the Required Banks or all of the Banks. Any action taken or failure to act pursuant to such instructions or discretion shall be binding on the Banks, subject to Section 10.6 [Exculpatory Provisions, Etc.]. Subject to the provisions of Section 10.6, no Bank shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Banks (or such greater number of Banks as may be required hereunder), or if the consent of the Required Banks or all of the Banks is not specifically required by this Agreement, in the absolute discretion of the Agent.

10.5 Reimbursement and Indemnification of Agent by the Borrower.

The Borrower unconditionally agrees to pay or reimburse the Agent and hold the Agent harmless against (a) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements, including fees and expenses of counsel, appraisers and environmental consultants, incurred by the Agent (i) in connection with the development, negotiation, preparation, printing, execution, administration, syndication, interpretation and performance of this Agreement and the other Loan Documents, (ii) relating to any requested amendments, waivers or consents pursuant to the provisions hereof, (iii) in connection with the enforcement of this Agreement or any other Loan Document or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (iv) in any workout or restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, and (b) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by the Agent hereunder or thereunder, provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements if the same results from the Agent’s gross negligence or willful misconduct, or if the Borrower was not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that the Borrower shall remain liable to the extent such failure to give notice does not result in a loss to the Borrower), or if the same results from a compromise or settlement agreement entered into without the consent of the Borrower, which

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shall not be unreasonably withheld. In addition, the Borrower agrees to reimburse and pay all reasonable out-of-pocket expenses of the Agent’s regular employees and agents engaged periodically to perform audits of the Loan Parties’ books, records and business properties.

10.6 Exculpatory Provisions; Limitation of Liability.

Neither the Agent nor any of its directors, officers, employees, agents, attorneys or Affiliates shall (a) be liable to any Bank for any action taken or omitted to be taken by it or them hereunder, or in connection herewith including pursuant to any Loan Document, unless caused by its or their own gross negligence or willful misconduct, (b) be responsible in any manner to any of the Banks for the effectiveness, enforceability, genuineness, validity or the due execution of this Agreement or any other Loan Documents or for any recital, representation, warranty, document, certificate, report or statement herein or made or furnished under or in connection with this Agreement or any other Loan Documents, or (c) be under any obligation to any of the Banks to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions hereof or thereof on the part of the Loan Parties, or the financial condition of the Loan Parties, or the existence or possible existence of any Event of Default or Potential Default. No claim may be made by any of the Loan Parties, any Bank, the Agent or any of their respective Subsidiaries against the Agent, any Bank or any of their respective directors, officers, employees, agents, attorneys or Affiliates, or any of them, for any special, indirect or consequential damages or, to the fullest extent permitted by Law, for any punitive damages in respect of any claim or cause of action (whether based on contract, tort, statutory liability, or any other ground) based on, arising out of or related to any Loan Document or the transactions contemplated hereby or any act, omission or event occurring in connection therewith, including the negotiation, documentation, administration or collection of the Loans, and each of the Loan Parties, (for itself and on behalf of each of its Subsidiaries), the Agent and each Bank hereby waive, release and agree never to sue upon any claim for any such damages, whether such claim now exists or hereafter arises and whether or not it is now known or suspected to exist in its favor. Each Bank agrees that, except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder or given to the Agent for the account of or with copies for the Banks, the Agent and each of its directors, officers, employees, agents, attorneys or Affiliates shall not have any duty or responsibility to provide any Bank with an credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Loan Parties which may come into the possession of the Agent or any of its directors, officers, employees, agents, attorneys or Affiliates.

10.7 Reimbursement and Indemnification of Agent by Banks.

Each Bank agrees to reimburse and indemnify the Agent (to the extent not reimbursed by the Borrower and without limiting the Obligation of the Borrower to do so) in proportion to its Ratable Share from and against all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements, including attorneys’ fees and disbursements (including the allocated costs of staff counsel), and costs of appraisers and environmental consultants, of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by the Agent

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hereunder or thereunder, provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (a) if the same results from the Agent’s gross negligence or willful misconduct, or (b) if such Bank was not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that such Bank shall remain liable to the extent such failure to give notice does not result in a loss to the Bank), or (c) if the same results from a compromise and settlement agreement entered into without the consent of such Bank, which shall not be unreasonably withheld. In addition, each Bank agrees promptly upon demand to reimburse the Agent (to the extent not reimbursed by the Borrower and without limiting the Obligation of the Borrower to do so) in proportion to its Ratable Share for all amounts due and payable by the Borrower to the Agent in connection with the Agent’s periodic audit of the Loan Parties’ books, records and business properties.

10.8 Reliance by Agent.

The Agent shall be entitled to rely upon any writing, telegram, telex or teletype message, resolution, notice, consent, certificate, letter, cablegram, statement, order or other document or conversation by telephone or otherwise believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon the advice and opinions of counsel and other professional advisers selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action hereunder unless it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action.

10.9 Notice of Default.

The Agent shall not be deemed to have knowledge or notice of the occurrence of any Potential Default or Event of Default unless the Agent has received written notice from a Bank or the Borrower referring to this Agreement, describing such Potential Default or Event of Default and stating that such notice is a “notice of default.”

10.10 Notices.

The Agent shall promptly send to each Bank a copy of all notices received from the Borrower pursuant to the provisions of this Agreement or the other Loan Documents promptly upon receipt thereof. The Agent shall promptly notify the Borrower and the other Banks of each change in the Base Rate and the effective date thereof.

10.11 Banks in Their Individual Capacities; Agent in its Individual Capacity.

With respect to its Revolving Credit Commitment and the Revolving Credit Loans made by it and any other rights and powers given to it as a Bank hereunder or under any of the other Loan Documents, the Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not the Agent, and the term “Bank” and “Banks” shall, unless the context otherwise indicates, include the Agent in its individual capacity. PNC Bank and its Affiliates and each of the Banks and their respective Affiliates may, without liability to account, except as prohibited herein, make loans to, issue letters of credit for the account of, acquire equity interests in, accept deposits from, discount drafts for, act as trustee

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under indentures of, and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with, the Loan Parties and their Affiliates, in the case of the Agent, as though it were not acting as Agent hereunder and in the case of each Bank, as though such Bank were not a Bank hereunder, in each case without notice to or consent of the other Banks. The Banks acknowledge that, pursuant to such activities, the Agent or its Affiliates may (i) receive information regarding the Loan Parties or any of their Subsidiaries or Affiliates (including information that may be subject to confidentiality obligations in favor of the Loan Parties or such Subsidiary or Affiliate) and acknowledge that the Agent shall be under no obligation to provide such information to them, and (ii) accept fees and other consideration from the Loan Parties for services in connection with this Agreement and otherwise without having to account for the same to the Banks.

10.12 Holders of Notes.

The Agent may deem and treat any payee of any Note as the owner thereof for all purposes hereof unless and until written notice of the assignment or transfer thereof shall have been filed with the Agent. Any request, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note or Notes issued in exchange therefor.

10.13 Equalization of Banks.

The Banks and the holders of any participations in any Notes agree among themselves that, with respect to all amounts received by any Bank or any such holder for application on any Obligation hereunder or under any Note or under any such participation, whether received by voluntary payment, by realization upon security, by the exercise of the right of set-off or banker’s lien, by counterclaim or by any other non-pro rata source, equitable adjustment will be made in the manner stated in the following sentence so that, in effect, all such excess amounts will be shared ratably among the Banks and such holders in proportion to their interests in payments under the Notes, except as otherwise provided in Section 4.4.3 [Agent’s and Bank’s Rights], 5.4.2 [Replacement of a Bank] or 5.6 [Additional Compensation in Certain Circumstances]. The Banks or any such holder receiving any such amount shall purchase for cash from each of the other Banks an interest in such Bank’s Loans in such amount as shall result in a ratable participation by the Banks and each such holder in the aggregate unpaid amount under the Notes, provided that if all or any portion of such excess amount is thereafter recovered from the Bank or the holder making such purchase, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, together with interest or other amounts, if any, required by law (including court order) to be paid by the Bank or the holder making such purchase.

10.14 Successor Agent.

The Agent (i) may resign as Agent or (ii) shall resign if such resignation is requested by the Required Banks (if the Agent is a Bank, the Agent’s Loans and its Commitment shall be considered in determining whether the Required Banks have requested such resignation) or required by Section 5.4.2 [Replacement of a Bank], in either case of (i) or (ii) by giving not

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less than thirty (30) days’ prior written notice to the Borrower and the Banks. If the Agent shall resign under this Agreement, then either (a) the Required Banks shall appoint from among the Banks a successor agent for the Banks, subject to the consent of the Borrower, such consent not to be unreasonably withheld, or (b) if a successor agent shall not be so appointed and approved within the thirty (30) day period following the Agent’s notice to the Banks of its resignation, then the Agent shall appoint, with the consent of the Borrower, such consent not to be unreasonably withheld, a successor agent who shall serve as Agent until such time as the Required Banks appoint and the Borrower consents to the appointment of a successor agent, provided, notwithstanding the foregoing, the Borrower’s consent shall not be required if an Event of Default is continuing. Upon its appointment pursuant to either clause (a) or (b) above, such successor agent shall succeed to the rights, powers and duties of the Agent, and the term “Agent” shall mean such successor agent, effective upon its appointment, and the former Agent’s rights, powers and duties as Agent shall be terminated without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After the resignation of any Agent hereunder, the provisions of this Section 10 shall inure to the benefit of such former Agent and such former Agent shall not by reason of such resignation be deemed to be released from liability for any actions taken or not taken by it while it was an Agent under this Agreement.

10.15 Agent’s Fee.

The Borrower shall pay to the Agent a nonrefundable fee (the “Agent’s Fee”) under the terms of a letter (the “Agent’s Letter”) between the Borrower and Agent, as amended from time to time.

10.16 Availability of Funds.

The Agent may assume that each Bank has made or will make the proceeds of a Loan available to the Agent unless the Agent shall have been notified by such Bank on or before the later of (1) the close of Business on the Business Day preceding the Borrowing Date with respect to such Loan or two (2) hours before the time on which the Agent actually funds the proceeds of such Loan to the Borrower (whether using its own funds pursuant to this Section 10.16 or using proceeds deposited with the Agent by the Banks and whether such funding occurs before or after the time on which Banks are required to deposit the proceeds of such Loan with the Agent). The Agent may, in reliance upon such assumption (but shall not be required to), make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Bank, the Agent shall be entitled to recover such amount on demand from such Bank (or, if such Bank fails to pay such amount forthwith upon such demand from the Borrower) together with interest thereon, in respect of each day during the period commencing on the date such amount was made available to the Borrower and ending on the date the Agent recovers such amount, at a rate per annum equal to (i) the Federal Funds Effective Rate during the first three (3) days after such interest shall begin to accrue and (ii) the applicable interest rate in respect of such Loan after the end of such three-day period.

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10.17 Calculations.

In the absence of gross negligence or willful misconduct, the Agent shall not be liable for any error in computing the amount payable to any Bank whether in respect of the Loans, fees or any other amounts due to the Banks under this Agreement. In the event an error in computing any amount payable to any Bank is made, the Agent, the Borrower and each affected Bank shall, forthwith upon discovery of such error, make such adjustments as shall be required to correct such error, and any compensation therefor will be calculated at the Federal Funds Effective Rate.

10.18 No Reliance on Agent’s Customer Identification Program.

Each Bank acknowledges and agrees that neither such Bank, nor any of its Affiliates, participants or assignees, may rely on the Agent to carry out such Bank’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the USA Patriot Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any of the Loan Parties, their Affiliates or their agents, the Loan Documents or the transactions hereunder or contemplated hereby: (1) any identity verification procedures, (2) any recordkeeping, (3) comparisons with government lists, (4) customer notices or (5) other procedures required under the CIP Regulations or such other Laws.

10.19 Beneficiaries.

Except as expressly provided herein, the provisions of this Section 10 are solely for the benefit of the Agent and the Banks, and the Loan Parties shall not have any rights to rely on or enforce any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Banks and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for any of the Loan Parties.

11. MISCELLANEOUS

11.1 Modifications, Amendments or Waivers.

With the written consent of the Required Banks, the Agent, acting on behalf of all the Banks, and the Borrower, on behalf of the Loan Parties, may from time to time enter into written agreements amending or changing any provision of this Agreement or any other Loan Document or the rights of the Banks or the Loan Parties hereunder or thereunder, or may grant written waivers or consents to a departure from the due performance of the Obligations of the Loan Parties hereunder or thereunder. Any such agreement, waiver or consent made with such written consent shall be effective to bind all the Banks and the Loan Parties; provided, that, without the written consent of all the Banks, no such agreement, waiver or consent may be made which will:

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11.1.1 Increase of Commitment; Extension of Expiration Date.

Increase the amount of the Revolving Credit Commitment of any Bank hereunder (except in accordance with Section 2.10) or extend the Expiration Date;

11.1.2 Extension of Payment; Reduction of Principal Interest or Fees; Modification of Terms of Payment.

Whether or not any Loans are outstanding, extend the time for payment of principal or interest of any Loan, the Facility Fee or any other fee payable to any Bank, or reduce the principal amount of or the rate of interest borne by any Loan or reduce the Facility Fee or any other fee payable to any Bank, or otherwise affect the terms of payment of the principal of or interest of any Loan, the Facility Fee or any other fee payable to any Bank;

11.1.3 Release of Guarantor.

Release any Guarantor from its Obligations under the Guaranty Agreement; or

11.1.4 Miscellaneous.

Amend Section 5.2 [Pro Rata Treatment of Banks], 10.6 [Exculpatory Provisions, Etc.] or 10.13 [Equalization of Banks] or this Section 11.1, alter any provision regarding the pro rata treatment of the Banks, change the definition of Required Banks, or change any requirement providing for the Banks or the Required Banks to authorize the taking of any action hereunder; provided, further, that no agreement, waiver or consent which would modify the interests, rights or obligations of the Agent in its capacity as Agent or as the issuer of Letters of Credit or Swing Loans shall be effective without the written consent of the Agent; provided, further that, if in connection with any proposed waiver, amendment or modification referred to in Sections 11.1.1 through 11.1.4 above of this Section, the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained (each a “Non-Consenting Bank”), then the Borrower shall have the right to replace any such Non-Consenting Bank with one or more replacement Banks pursuant to Section 5.4.2 [Replacement of a Bank].

11.2 No Implied Waivers; Cumulative Remedies; Writing Required.

No course of dealing and no delay or failure of the Agent or any Bank in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof, nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Agent and the Banks under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of any Bank of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing.

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11.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes.

The Borrower agrees unconditionally upon demand to pay or reimburse to each Bank (other than the Agent, as to which the Borrower’s Obligations are set forth in Section 10.5 [Reimbursement of Agent By Borrower, Etc.]) and to save such Bank harmless against (i) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements (including fees and expenses of counsel for each Bank except with respect to (a) and (b) below), incurred by such Bank (a) in connection with the administration and interpretation of this Agreement, and other instruments and documents to be delivered hereunder, (b) relating to any amendments, waivers or consents pursuant to the provisions hereof, (c) in connection with the enforcement of this Agreement or any other Loan Document, or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (d) in any workout or restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Bank, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by such Bank hereunder or thereunder, provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements (A) if the same results from such Bank’s gross negligence or willful misconduct, or (B) if the Borrower was not given notice of the subject claim and the opportunity to participate in the defense thereof, at its expense (except that the Borrower shall remain liable to the extent such failure to give notice does not result in a loss to the Borrower), or (C) if the same results from a compromise or settlement agreement entered into without the consent of the Borrower, which shall not be unreasonably withheld. The Banks will attempt to minimize the fees and expenses of legal counsel for the Banks which are subject to reimbursement by the Borrower hereunder by considering the usage of one law firm to represent the Banks and the Agent if appropriate under the circumstances. The Borrower agrees unconditionally to pay all stamp, document, transfer, recording or filing taxes or fees and similar impositions now or hereafter determined by the Agent or any Bank to be payable in connection with this Agreement or any other Loan Document, and the Borrower agrees unconditionally to save the Agent and the Banks harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions.

11.4 Holidays.

Whenever payment of a Loan to be made or taken hereunder shall be due on a day which is not a Business Day such payment shall be due on the next Business Day (except as provided in Section 4.2 [Interest Periods] with respect to Interest Periods under the Euro-Rate Option) and such extension of time shall be included in computing interest and fees, except that the Loans shall be due on the Business Day preceding the Expiration Date if the Expiration Date is not a Business Day. Whenever any payment or action to be made or taken hereunder (other than payment of the Loans) shall be stated to be due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day, and such extension of time shall not be included in computing interest or fees, if any, in connection with such payment or action.

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11.5 Funding by Branch, Subsidiary or Affiliate.

11.5.1 Notional Funding.

Each Bank shall have the right from time to time, without notice to the Borrower, to deem any branch, Subsidiary or Affiliate (which for the purposes of this Section 11.5 shall mean any corporation or association which is directly or indirectly controlled by or is under direct or indirect common control with any corporation or association which directly or indirectly controls such Bank) of such Bank to have made, maintained or funded any Loan to which the Euro-Rate Option applies at any time, provided that immediately following (on the assumption that a payment were then due from the Borrower to such other office), and as a result of such change, the Borrower would not be under any greater financial obligation pursuant to Section 5.6 [Additional Compensation in Certain Circumstances] than it would have been in the absence of such change. Notional funding offices may be selected by each Bank without regard to such Bank’s actual methods of making, maintaining or funding the Loans or any sources of funding actually used by or available to such Bank.

11.5.2 Actual Funding.

Each Bank shall have the right from time to time to make or maintain any Loan by arranging for a branch, Subsidiary or Affiliate of such Bank to make or maintain such Loan subject to the last sentence of this Section 11.5.2. If any Bank causes a branch, Subsidiary or Affiliate to make or maintain any part of the Loans hereunder, all terms and conditions of this Agreement shall, except where the context clearly requires otherwise, be applicable to such part of the Loans to the same extent as if such Loans were made or maintained by such Bank, but in no event shall any Bank’s use of such a branch, Subsidiary or Affiliate to make or maintain any part of the Loans hereunder cause such Bank or such branch, Subsidiary or Affiliate to incur any cost or expenses payable by the Borrower hereunder or require the Borrower to pay any other compensation to any Bank (including any expenses incurred or payable pursuant to Section 5.6 [Additional Compensation in Certain Circumstances]) which would otherwise not be incurred.

11.6 Notices.

Any notice, request, demand, direction or other communication (for purposes of this Section 11.6 only, a “Notice”) to be given to or made upon any party hereto under any provision of this Agreement shall be given or made by telephone or in writing (which includes means of electronic transmission (i.e., “e-mail”) or facsimile transmission or by setting forth such Notice on a site on the World Wide Web (a “Website Posting”) if Notice of such Website Posting (including the information necessary to access such site) has previously been delivered to the applicable parties hereto by another means set forth in this Section 11.6) in accordance with this Section 11.6. Any such Notice must be delivered to the applicable parties hereto at the addresses and numbers set forth under their respective names on Schedule 1.1(B) hereof or in accordance with any subsequent unrevoked Notice from any such party that is given in accordance with this Section 11.6. Any Notice shall be effective:

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(i) In the case of hand-delivery, when delivered;

(ii) If given by mail, four days after such Notice is deposited with the United States Postal Service, with first-class postage prepaid, return receipt requested;

(iii) In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of such telephonic Notice is confirmed no later than the next Business Day by hand delivery, a facsimile or electronic transmission, a Website Posting or overnight courier delivery of a confirmatory notice (received at or before noon on such next Business Day);

(iv) In the case of a facsimile transmission, when sent to the applicable party’s facsimile machine’s telephone number if the party sending such Notice receives confirmation of the delivery thereof from its own facsimile machine;

(v) In the case of electronic transmission, when actually received;

(vi) In the case of a Website Posting, upon delivery of a Notice of such posting (including the information necessary to access such web site) by another means set forth in this Section 11.6; and

(vii) If given by any other means (including by overnight courier), when actually received.

Any Bank giving a Notice to a Loan Party shall concurrently send a copy thereof to the Agent, and the Agent shall promptly notify the other Banks of its receipt of such Notice.

11.7 Severability.

The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction.

11.8 Governing Law.

Each Letter of Credit and Section 2.9 [Letter of Credit Subfacility] shall be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be revised or amended from time to time, and to the extent not inconsistent therewith, the internal laws of the Commonwealth of Pennsylvania without regard to its conflict of laws principles, and the balance of this Agreement 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.

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11.9 Prior Understanding.

This Agreement and the other Loan Documents supersede all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein, including any prior confidentiality agreements and commitments.

11.10 Duration; Survival.

All representations and warranties of the Loan Parties contained herein or made in connection herewith shall survive the making of Loans and issuance of Letters of Credit and shall not be waived by the execution and delivery of this Agreement, any investigation by the Agent or the Banks, the making of Loans, issuance of Letters of Credit, or payment in full of the Loans. All covenants and agreements of the Loan Parties contained in Sections 8.1 [Affirmative Covenants], 8.2 [Negative Covenants] and 8.3 [Reporting Requirements] herein shall continue in full force and effect from and after the date hereof so long as the Borrower may borrow or request Letters of Credit hereunder and until termination of the Commitments and payment in full of the Loans and expiration or termination of all Letters of Credit. All covenants and agreements of the Borrower contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Notes, Section 5 [Payments] and Sections 10.5 [Reimbursement of Agent by Borrower, Etc.], 10.7 [Reimbursement of Agent by Banks, Etc.] and 11.3 [Reimbursement of Banks by Borrower; Etc.], shall survive payment in full of the Loans, expiration or termination of the Letters of Credit and termination of the Commitments.

11.11 Successors and Assigns.

(i) This Agreement shall be binding upon and shall inure to the benefit of the Banks, the Agent, the Borrower and the Guarantors and their respective successors and assigns, except that neither the Borrower nor any Guarantor may assign or transfer any of its rights and Obligations hereunder or any interest herein. Each Bank may, at its own cost, make assignments of or sell participations in all or any part of its Commitments and the Loans made by it to one or more banks or other entities, subject to the consent of the Borrower and the Agent with respect to any assignee, such consent not to be unreasonably withheld, provided that (1) no consent of the Borrower shall be required (A) if an Event of Default exists and is continuing, or (B) in the case of an assignment by a Bank to an Affiliate of such Bank, and (2) any assignment by a Bank to a Person other than an Affiliate of such Bank may not be made in amounts less than the lesser of $5,000,000 or the amount of the assigning Bank’s Commitment. In the case of an assignment, upon receipt by the Agent of the Assignment and Assumption Agreement, the assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights, benefits and obligations as it would have if it had been a signatory Bank hereunder, the Commitments shall be adjusted accordingly, and upon surrender of any Note subject to such assignment, the Borrower shall execute and deliver a new Note to the assignee in an amount equal to the amount of the Revolving Credit Commitment assumed by it and a new Revolving Credit Note to the assigning Bank in an amount equal to the Revolving Credit Commitment retained by it hereunder. Any Bank which assigns any or all of its Commitment or Loans to a Person other than an Affiliate of such Bank shall pay to the Agent a service fee in the amount of

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$3,500 for each assignment. In the case of a participation, the participant shall only have the rights specified in Section 9.2.3 [Set-off] (the participant’s rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto and not to include any voting rights except with respect to changes of the type referenced in Sections 11.1.1 [Increase of Commitment, Etc.], 11.1.2 [Extension of Payment, Etc.], or 11.1.3 [Release of Collateral or Guarantor]), all of such Bank’s obligations under this Agreement or any other Loan Document shall remain unchanged, and all amounts payable by any Loan Party hereunder or thereunder shall be determined as if such Bank had not sold such participation.

(ii) Any assignee or participant which is not incorporated under the Laws of the United States of America or a state thereof shall deliver to the Borrower and the Agent the form of certificate described in Section 11.17 [Tax Withholding Clause] relating to federal income tax withholding. Each Bank may furnish any publicly available information concerning any Loan Party or its Subsidiaries and any other information concerning any Loan Party or its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees or participants), provided that such assignees and participants agree to be bound by the provisions of Section 11.12 [Confidentiality].

(iii) Notwithstanding any other provision in this Agreement, any Bank may at any time pledge or grant a security interest in all or any portion of its rights under this Agreement, its Note and the other Loan Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or consent of the Borrower or the Agent. No such pledge or grant of a security interest shall release the transferor Bank of its obligations hereunder or under any other Loan Document.

11.12 Confidentiality.

11.12.1 General.

The Agent and the Banks each agree to keep confidential all information obtained from any Loan Party or its Subsidiaries which is nonpublic and confidential or proprietary in nature (including any information the Borrower specifically designates as confidential), except as provided below, and to use such information only in connection with their respective capacities under this Agreement and for the purposes contemplated hereby. The Agent and the Banks shall be permitted to disclose such information (i) to outside legal counsel, accountants and other professional advisors who need to know such information in connection with the administration and enforcement of this Agreement, subject to agreement of such Persons to maintain the confidentiality, (ii) to assignees and participants as contemplated by Section 11.11, and prospective assignees and participants, (iii) to the extent requested by any bank regulatory authority or, with notice to the Borrower (if legally permitted), as otherwise required by applicable Law or by any subpoena or similar legal process, or in connection with any investigation or proceeding arising out of the transactions contemplated by this Agreement, (iv) if it becomes publicly available other than as a result of a breach of this Agreement or becomes available from a source not known to be subject to confidentiality restrictions, or (v) if the Borrower shall have consented to such disclosure.

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11.12.2 Sharing Information With Affiliates of the Banks.

Each Loan Party acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Borrower or one or more of its Affiliates (in connection with this Agreement or otherwise) by any Bank or by one or more Subsidiaries or Affiliates of such Bank and, notwithstanding the use restriction contained in the first sentence of Section 11.12.1, each of the Loan Parties hereby authorizes each Bank to share any information delivered to such Bank by such Loan Party and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Bank to enter into this Agreement, to any such Subsidiary or Affiliate of such Bank, it being understood that any such Subsidiary or affiliate of any Bank receiving such information shall be bound by the provisions of Section 11.12.1 as if it were a Bank hereunder. Such Authorization shall survive the repayment of the Loans and other Obligations and the termination of the Commitments.

11.13 Counterparts.

This Agreement may be executed by different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument.

11.14 Agent’s or Bank’s Consent.

Whenever the Agent’s or any Bank’s consent is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, the Agent and each Bank shall be authorized to give or withhold such consent in its sole and absolute discretion and to condition its consent upon the giving of additional collateral, the payment of money or any other matter.

11.15 Exceptions.

The representations, warranties and covenants contained herein shall be independent of each other, and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable Law.

11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL.

EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN SECTION 11.6 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS

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PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. EACH LOAN PARTY, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.

11.17 Certifications From Banks and Participants.

11.17.1 Tax Withholding.

Each Bank or assignee or participant of a Bank that is not incorporated under the Laws of the United States of America or a state thereof (and, upon the written request of the Agent, each other Bank or assignee or participant of a Bank) agrees that it will deliver to each of the Borrower and the Agent two (2) duly completed appropriate valid Withholding Certificates (as herein defined) certifying its status (i.e. U.S. or foreign person) and, if appropriate, making a claim of reduced, or exemption from, U.S. withholding tax on the basis of an income tax treaty or an exemption provided by the Internal Revenue Code. The term “Withholding Certificate” means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related statements and certifications as required under § 1.1441-1(e)(2) and/or (3) of the Income Tax Regulations (the “Regulations”); a statement described in § 1.871-14(c)(2)(v) of the Regulations; or any other certificates under the Internal Revenue Code or Regulations that certify or establish the status of a payee or beneficial owner as a U.S. or foreign person. Each Bank, assignee or participant required to deliver to the Borrower and the Agent a Withholding Certificate pursuant to the first sentence of this Section shall deliver such valid Withholding Certificate as follows: (A) each Bank which is a party hereto on the Closing Date shall deliver such valid Withholding Certificate at least five (5) Business Days prior to the first date on which any interest or fees are payable by the Borrower hereunder for the account of such Bank; (B) each assignee or participant shall deliver such valid Withholding Certificate at least five (5) Business Days before the effective date of such assignment or participation (unless the Agent in its sole discretion shall permit such assignee or participant to deliver such valid Withholding Certificate less than five (5) Business Days before such date in which case it shall be due on the date specified by the Agent). Each Bank, assignee or participant which so delivers a valid Withholding Certificate further undertakes to deliver to each of the Borrower and the Agent two (2) additional copies of such Withholding Certificate (or a successor form) on or before the date that such Withholding Certificate expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent Withholding Certificate so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent. Notwithstanding the submission of a Withholding Certificate claiming a reduced rate of or exemption from U.S. withholding tax, the Agent shall be entitled to withhold United States federal income taxes at the full 30% withholding rate if in its reasonable judgment it is required to do so under the due diligence requirements imposed upon a withholding agent under § 1.1441-7(b) of the Regulations. Further, the Agent is indemnified under § 1.1461-1(e) of the Regulations against any claims and demands of any Bank or assignee or participant of a Bank for the amount of any tax it deducts and withholds in accordance with regulations under § 1441 of the Internal Revenue Code.

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11.17.2 USA Patriot Act.

(a) Each Bank or assignee or participant of a Bank that is not incorporated under the Laws of the United States of America or a state thereof (and is not excepted from the certification requirement contained in Section 313 of the USA Patriot Act and the applicable regulations because it is both (i) an affiliate of a depository institution or foreign bank that maintains a physical presence in the United states or foreign county, and (ii) subject to supervision by a banking authority regulating such affiliated depository institution or foreign bank) shall deliver to the Agent the certification, or, if applicable, recertification, certifying that such Bank is not a “shell” and certifying to other matters as required by Section 313 of the USA Patriot Act and the applicable regulations: (1) within 10 days after the Closing Date, and (2) as such other times as are required under the USA Patriot Act.

(b) Each Bank that is subject to the USA Patriot Act and the Agent (for itself and not on behalf of any Bank) hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Bank or the Agent, as applicable, to identify the Borrower in accordance with the USA Patriot Act.

11.18 Joinder of Parties to Loan Documents.

Any Subsidiary of the Borrower which is required to join the Loan Documents as a party pursuant to Section 8.1.11 shall execute and deliver to the Agent (i) a Loan Document Joinder in substantially the form attached hereto as Exhibit 1.1(L)(2) pursuant to which it shall join as a party each of the documents to which it is required to join pursuant to Section 8.1.11 and (ii) documents in the forms described in Section 7.1 [First Loans] modified as appropriate to relate to such Subsidiary. The Loan Parties shall deliver such Loan Document Joinder and related documents to the Agent within five (5) Business Days after the date of acquisition or creation of a new Subsidiary; the date of creation of a new Subsidiary shall be the date of the filing of such Subsidiary’s articles of incorporation if the Subsidiary is a corporation, the date of the filing of its certificate of limited partnership if it is a limited partnership or the date of its organization if it is an entity other than a limited partnership or corporation.

[SIGNATURE PAGE FOLLOWS]

83

[SIGNATURE PAGE 1 OF 12 TO CREDIT AGREEMENT]

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written.

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

[SIGNATURE PAGE 2 OF 12 TO CREDIT AGREEMENT]

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

[SIGNATURE PAGE 3 OF 12 TO CREDIT AGREEMENT]

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

[SIGNATURE PAGE 4 OF 12 TO CREDIT AGREEMENT]

FEDERATED MDTA TRUST
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer
HBSS ACQUISITION CO.
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer
FEDERATED MDTA LLC
By:	/s/ Denis McAuley III
Name:	Denis McAuley III
Title:	Treasurer

[SIGNATURE PAGE 5 OF 12 TO CREDIT AGREEMENT]

AGENT:
PNC BANK, NATIONAL ASSOCIATION, individually and as Agent
By:	/s/ Edward J. Chidiac
Name:	Edward J. Chidiac
Title:	Managing Director

[SIGNATURE PAGE 6 OF 12 TO CREDIT AGREEMENT]

BANKS
BANK OF AMERICA, NATIONAL ASSOCIATION
By:	/s/ Jorge Gil
Name:	Jorge Gil
Title:	Vice President

[SIGNATURE PAGE 7 OF 12 TO CREDIT AGREEMENT]

CITIBANK, N.A.
By:	/s/ Matthew Nicholls
Name:	Matthew Nicholls
Title:	Managing Director

[SIGNATURE PAGE 8 OF 12 TO CREDIT AGREEMENT]

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

[SIGNATURE PAGE 9 OF 12 TO CREDIT AGREEMENT]

STATE STREET BANK AND TRUST COMPANY
By:	/s/ James H. Reichert
Name:	James H. Reichert
Title:	Vice President

[SIGNATURE PAGE 10 OF 12 TO CREDIT AGREEMENT]

THE BANK OF NEW YORK
By:	/s/ Michael Pensari
Name:	Michael Pensari
Title:	Vice President

[SIGNATURE PAGE 11 OF 12 TO CREDIT AGREEMENT]

WACHOVIA BANK, NATIONAL ASSOCIATION
By:	/s/ Joan Anderson
Name:	Joan Anderson
Title:	Director

[SIGNATURE PAGE 12 OF 12 TO CREDIT AGREEMENT]

WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Thomas Doddridge
Name:	Thomas Doddridge
Title:	Vice President

EX-10.60

Exhibit 10.60

AGREEMENT OF AMENDMENT

Dated as of December 29, 2006

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 Amendment Effective Date, the definition of the term “Termination Date” set forth in Appendix A to the Purchase Agreement is hereby amended by replacing the date “December 31, 2006” set forth therein with the date “February 28, 2007”.

As used herein, the term “Amendment Effective Date” means the later to occur of the day on which the Program Agent shall have executed and delivered one or more counterparts of this Agreement of Amendment and shall have received one or more counterparts of this Agreement of Amendment executed by each of the other parties hereto.

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.,		CITIBANK, N.A.,
as Program Agent		as Purchaser
By:	/s/ Jean M. Diaz	By:	/s/ Jean M. Diaz
Name:	Jean M. Diaz	Name:	Jean M. Diaz
Title:	Vice President	Title:	Vice President
FEDERATED INVESTORS MANAGEMENT, COMPANY		FEDERATED SECURITIES CORP.,
as Transferor		as Distributor, Principal Shareholder Servicer and Servicer
By:	/s/ Dennis McAuley III	By:	/s/ Denis McAuley III
Name:	Denis McAuley III	Name:	Denis McAuley III
Title:	Sr. Vice President	Title:	Treasurer
FEDERATED FUNDING 1997-1, INC.,		FEDERATED INVESTORS, INC.,
as Seller		as Parent
By:	/s/ Denis McAuley III	By:	/s/ Denis McAuley III
Name:	Denis McAuley III	Name:	Denis McAuley III
Title:	Vice President	Title:	Vice President

EX-13.01

Exhibit 13.01

Financial Contents

Selected Consolidated Financial Data	8
Management’s Discussion and Analysis	9
Management’s Assessment of Internal Control Over Financial Reporting	23
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Consolidated Financial Statements	24
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Effectiveness of Internal Control Over Financial Reporting	25
Consolidated Balance Sheets	26
Consolidated Statements of Income	27
Consolidated Statements of Changes in Shareholders’ Equity	28
Consolidated Statements of Cash Flows	29
Notes to the Consolidated Financial Statements	30

Certain statements in this Annual Report on Form 10-K and the 2006 Annual Report to Shareholders, including those related to Federated’s distribution strategy; its efforts to diversify its product mix; the ability to retain market share; expectations regarding market growth and the demand for money market assets; the pursuit of acquisitions; changes in the demand for mutual fund distribution and administration services; obligations to make additional contingent payments pursuant to acquisition agreements; the costs associated with the settlement with the Securities and Exchange Commission and the New York State Attorney General; legal proceedings; future cash needs; accounting for intangible assets; accounting for fair value measurements; accounting for income taxes; market risk of investments and revenue; the impact of Federated’s reclassification within the Edward Jones brokerage firm; the impact of increased regulation; and the various items set forth under Risk Factors constitute forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause the actual results, levels of activity, performance or achievements of Federated or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Among others, Federated’s risks and uncertainties include Federated’s ability to successfully execute its distribution strategy; to successfully diversify its product mix; to identify and complete suitable acquisitions; and to take actions necessary to retain experienced money managers. The number of clients for fund administration services is subject to the decisions of the clients to internalize or change service providers and the impact of mergers in the banking industry and the costs associated with the settlement may vary based in part on net assets of certain funds and costs associated with compliance with the terms of the settlement. Federated’s risks and uncertainties also include other regulatory inquiries, legal proceedings and future cash needs, which will be impacted by any additional information requests from or fines or penalties paid to governmental agencies; the cost associated with private litigation; and the costs to implement regulatory changes; the accounting for intangible assets and loss contingencies, which are based upon estimates and will be affected if actual results differ significantly; the accounting for fair value measurements; the accounting for income taxes; investments, which will be impacted by fluctuations in the securities markets; and revenue, which will be affected by changes in market values of assets under management; the impact of Federated’s reclassification within the Edward Jones brokerage firm; and the impact of interest changes on money market and fixed-income funds. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism and the increased scrutiny of 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. For more information on these items, see the section titled “Risk Factors” in Federated’s Annual Report on Form 10-K for the year ended December 31, 2006, and other reports on file with the Securities and Exchange Commission.

2006 Annual Report 7

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, 2006 have been derived from the audited Consolidated Financial Statements of Federated. See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes which follow.

Years Ended December 31,	2006		2005			2004		2003		2002
Statement of Income Data1
Total revenue2, 3	$	978,858	$	896,238		$	830,314	$	781,754	$	766,107
Operating income2, 3		308,472		294,894			312,427		303,951		321,606
Income from continuing operations before income taxes		304,767		275,870			284,748		290,931		305,651
Income from continuing operations		191,048		160,974			176,535		186,226		197,709
Income (loss) from discontinued operations		6,681		(691	)		4,644		5,259		6,051
Net income		197,729		160,283			181,179		191,485		203,760
Share Data
Basic earnings per share1
Income from continuing operations	$	1.83	$	1.52		$	1.64	$	1.73	$	1.76
Income (loss) from discontinued operations		0.06		(0.01	)		0.04		0.05		0.05
Net income4		1.90		1.51			1.68		1.78		1.81
Diluted earnings per share1
Income from continuing operations	$	1.80	$	1.49		$	1.60	$	1.66	$	1.69
Income (loss) from discontinued operations		0.06		(0.01	)		0.04		0.05		0.05
Net income		1.86		1.48			1.64		1.71		1.74
Book value per share at period end	$	5.10	$	5.05		$	4.28	$	3.64	$	3.03
Cash dividends per share	$	0.690	$	0.575		$	0.414	$	0.297	$	0.217
Weighted-average shares outstanding – basic		104,293		106,114			107,615		107,839		112,375
Weighted-average shares outstanding – assuming dilution		106,288		108,252			110,410		112,059		117,304
Balance Sheet Data at Period End
Total assets5	$	810,294	$	896,621		$	954,688	$	879,228	$	795,451
Long-term debt – nonrecourse5		112,987		159,784			284,915		327,142		319,328
Total liabilities and minority interest5		280,919		356,292			496,935		483,375		454,734
Shareholders’ equity		529,375		540,329			457,753		395,853		340,717
Managed and Administered Assets (in millions)
As of period end:
Managed assets2	$	237,440	$	213,423		$	179,268	$	197,917	$	195,353
Administered assets6		17,778		18,271			37,164		43,428		34,827
Average for the period:
Managed assets2		220,702		197,647			187,820		199,483		189,242
Administered assets6		18,272		18,239			41,208		39,513		38,032

¹ The Consolidated Financial Statements for the years ended December 31, 2006, 2005, 2004, and 2003 included charges related to Federated’s internal review, settlements with government regulators and legal proceedings related to past mutual fund trading practices. See Note (22)(c) to the Consolidated Financial Statements.

² During 2006, Federated acquired MDTA LLC and in 2005, Federated acquired the cash management business of Alliance Capital Management L.P. See Note (2) to the Consolidated Financial Statements.

³ Revenue and expenses for the years ended December 31, 2006, 2005 and 2004 included certain Class B share distribution- and financing-related income and expenses. In 2003 and 2002, Federated did not recognize such B-share distribution- and financing-related income or expenses. See Note (1)(m) to the Consolidated Financial Statements.

⁴ Totals may not sum due to rounding.

⁵ In 2006, 2005 and 2004, Federated wrote-down the carrying value of certain B-share-related deferred sales commission assets and corresponding nonrecourse debt. See Note (10) to the Consolidated Financial Statements.

⁶ Since 2003, Federated has experienced a reduction in the number of bank clients for fund administration and accounting services.

8 Federated Investors, Inc.

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 $237.4 billion in managed assets as of December 31, 2006. The majority of Federated’s revenue is derived from advising and administering Federated mutual funds, Separate Accounts (which include separately managed accounts, institutional accounts and sub-advised funds, both variable annuity and other) and other sponsored products, in both domestic and international markets. Federated also derives revenue from administering mutual funds sponsored by third parties and from providing various other mutual fund-related services, including distribution, shareholder servicing, and retirement plan recordkeeping services (collectively, Other Services).

Federated’s investment products are primarily distributed in three markets. These markets and the relative percentage of managed assets at December 31, 2006 attributable to such markets are as follows: wealth management and trust (45%), broker/dealer (43%) and global institutional (9%).

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

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

Federated’s most significant operating expenses include marketing and distribution costs and compensation and related costs, which represent fixed and variable compensation and related employee benefits. Certain of these expenses are dependent upon product performance, levels of assets and asset mix.

The discussion and analysis of Federated’s financial condition and results of operations are based on Federated’s Consolidated Financial Statements. Management evaluates the company’s performance at the consolidated level based on the view that Federated operates in a single operating segment, the investment management business. In this highly competitive business, Federated’s growth and overall profitability are largely dependent upon its ability to attract and retain assets under management. Management analyzes all expected revenue and expenses and considers market demands in determining an overall fee structure for services provided and in evaluating the addition of new business. Fees for fund-related services are ultimately subject to the approval of the independent directors or trustees of the mutual funds. Management believes the most meaningful indicators of Federated’s performance are assets under management, total revenue and income from continuing operations, both in total and per diluted share.

Business Developments

Acquisitions

Sentinel Asset Management, Inc. In the fourth quarter 2006, assets of three mutual funds previously advised by Sentinel Asset Management, Inc. totaling approximately $73 million were acquired by three sponsored mutual funds. As a result of this transaction, no assets were recorded.

MDTA LLC. In the third quarter 2006, Federated acquired MDTA LLC (MDTA) which, through its registered investment advisory division, MDT Advisers, managed approximately $6.7 billion in invested assets as of July 14, 2006 (MDT Acquisition). MDTA grew its business using quantitative investment techniques, having successfully developed a disciplined quantitative process to invest in equities. As a result of the acquisition, Federated has enhanced its product offerings by creating a quantitative line of equity mutual funds to complement Federated’s existing equity products. Federated acquired approximately 89 percent of the outstanding equity interests of MDTA in July 2006 and paid approximately $102.0 million in cash as upfront purchase price. As of December 31, 2006, Federated incurred $1.2 million in transaction costs directly attributable to the MDT Acquisition. The remaining 11 percent minority interest was held by various MDTA employees and was subject to a put/call option whereby the minority interest holders could put their interest to Federated in January 2007 or Federated could call the interests in June 2007. The minority interest holders exercised their put option in

2006 Annual Report 9

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

January 2007. Federated paid approximately $8.0 million in cash as additional purchase price to acquire the remaining 11 percent on January 9, 2007. For financial reporting purposes, beginning July 14, 2006, Federated consolidated 100 percent of MDTA’s operations into the Consolidated Statements of Income and accounted for the $8.0 million in minority interests as a short-term financing of upfront purchase price (included in “Other current liabilities – affiliates” at December 31, 2006).

The acquisition agreement provides for additional annual purchase price payments over the three-year period following the acquisition closing date based upon growth in revenues during that period. The contingent purchase price payments, which could aggregate as much as $130.0 million, will be recorded as additional goodwill at the time the contingency is resolved.

Federated has engaged external valuation experts to determine the fair value of the identifiable intangible assets. Although preliminary results of the external valuation are reflected in both the Consolidated Financial Statements as of and for the year ended December 31, 2006 and the related footnotes, the final purchase price allocation may result in adjustments to this preliminary valuation and such adjustments may be material. Preliminary valuation results indicate $46.7 million of the purchase price is assignable to identifiable intangible assets with a weighted-average useful life of 9.7 years. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition closing date.

in millions	As of July 14, 2006
Investments (primarily investments of consolidated private investment funds)1	$	15.2
Other current assets		1.9
Intangible assets
Customer relationships (10-year weighted-average useful life)		39.9
Noncompete (8-year weighted-average useful life)		6.8
Goodwill		68.8
Software (4-year weighted-average useful life)		3.0
Other long-term assets		1.3
Total assets acquired		136.9
Current liabilities2		(2.2	)
Long-term deferred tax liability		(7.3	)
Other long-term liabilities2		(1.3	)
Minority interests in private investment funds1		(15.2	)
Total assumed liabilities and minority interest		(26.0	)
Total purchase price	$	110.9

¹ Subsequent to the acquisition and as of December 31, 2006, all but $0.5 million of the assets of the private funds were distributed to liquidate all but one of the private investment funds.

² $0.6 million of the current liabilities balance and $1.1 million of the other long-term liabilities balance represent the present value of net future payments due under certain MDTA operating contracts which offer no future benefit to Federated. Payments made under these contracts will reduce these liabilities and will continue through July 2010.

Of the total customer relationship assets, approximately $14.9 million will be amortized on an accelerated basis over a ten-year useful life. The remaining $25.0 million in customer relationship assets, the noncompete asset and the software assets will be amortized on a straight-line basis over their respective useful lives. Of the total goodwill, approximately $48 million is expected to be deductible for tax purposes.

Wayne Hummer Asset Management Company. In the first quarter 2006, assets of an equity mutual fund previously advised by Wayne Hummer Asset Management Company, a direct subsidiary of Wintrust Financial Corporation, totaling approximately $158 million were acquired by a sponsored mutual fund. As a result of the transaction, Federated recorded a customer relationship intangible asset, which is being amortized on an accelerated basis over a seven-year useful life.

Mason Street Advisors, LLC. In the first quarter 2006, assets of an equity mutual fund previously advised by Mason Street Advisors, LLC, a wholly owned company of Northwestern Mutual, totaling approximately $218 million, were acquired by a sponsored mutual fund. As a result of this transaction, no assets were recorded.

Passport Research II, Ltd. In the first quarter 2006, Federated purchased the non-controlling interest in Passport Research II, Ltd. (Passport II), a registered investment advisor organized as a limited partnership between an indirect, wholly owned subsidiary of Federated and Edward D. Jones & Co. As a result of the transaction, the partnership was dissolved and the Passport II minority interest is no longer recorded. As part of the transaction, Federated recorded a customer relationship intangible asset, which is being amortized on an accelerated basis over a nine-year useful life, and goodwill.

10 Federated Investors, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Alliance Capital Management L.P. During the second quarter 2005, Federated completed the acquisition of the cash management business of Alliance Capital Management L.P. (Alliance Acquisition). As a result of the acquisition, approximately $19.3 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services were transitioned into Federated money market funds. The upfront cost of this acquisition was $27.1 million, which included $25.0 million in purchase price and $2.1 million in transaction costs. The purchase agreement also provides for contingent purchase price payments payable over five years. These payments are calculated as a percentage of revenues less certain operating expenses directly attributed to the assets acquired. The first contingent purchase price payment totaling $10.7 million was paid in the second quarter 2006. At current asset levels, these additional payments would approximate $69 million over the remaining four-year period, of which $10.3 million was accrued in “Other current liabilities – other” as of December 31, 2006 and will be paid in the second quarter of 2007. Federated began recognizing revenue and expenses related to the acquired assets in the Consolidated Statements of Income as of the acquisition date and allocated the cost of the acquisition to the acquired assets based on their estimated fair values as of the acquisition date. Federated recorded two investment advisory contract intangible assets totaling $23.4 million. These assets are being amortized on an accelerated basis over a weighted-average amortization period of nine years. Federated also recorded an intangible asset of $5.0 million representing the fair value of the noncompete agreement obtained from Alliance. This asset is being amortized on a straight-line basis over a seven-year useful life. Goodwill of $19.6 million, which represents the excess recorded costs of this acquisition over the fair value of the investment advisory contract and noncompete agreement intangible assets, has been recorded as of December 31, 2006 and is deductible for tax purposes.

Dispositions

In the third quarter 2006, an indirect, wholly owned subsidiary of Federated completed the sale of certain assets associated with its TrustConnect® mutual fund processing business (the Clearing Business) to Matrix Settlement and Clearance Services, LLC, one of the leading providers of mutual fund clearing and settlement processing for banks, trust companies and 401(k) providers. The sale was completed over a series of closings, which began in the first quarter 2006 and was completed in the third quarter 2006. The assets included in the sale of the Clearing Business consisted primarily of customer relationships, customer contracts and intellectual property, which had no recorded carrying values on Federated’s Consolidated Balance Sheets. In exchange for the assets of the Clearing Business, Federated received upfront cash consideration on a pro-rata basis as the closings occurred, totaling $7.7 million. In addition, Federated is entitled to receive contingent consideration due in the third quarter 2008 if certain revenue targets are met. The contingent consideration will be calculated as a percentage of net revenue above a specific threshold directly attributed to the Clearing Business. After taking selling costs into consideration, Federated recognized a gain on the sale of the Clearing Business of $3.7 million, net of tax expense of $2.7 million. The majority of this gain, or $3.2 million, was recorded in the second quarter 2006 and $0.6 million was recorded in the third quarter 2006. This gain on sale was included in “Discontinued operations, net of tax” on the Consolidated Statements of Income for the year ended December 31, 2006.

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

B-Shares

In 2006, 2005 and 2004, management performed recoverability analyses of the deferred sales commission assets and nonrecourse debt related to B-share financings closed through September 2000. The evaluations indicated that future cash flows would not be sufficient to fully amortize the related asset and debt balances. As such, in addition to the normal amortization occurring during the period based on B-share-related distribution fee, shareholder service fee and contingent deferred sales charge cash flows, the B-share-related deferred sales commission asset balance was written down by $2.2 million, $87.9 million and $7.5 million during 2006, 2005 and 2004, respectively, with a corresponding write-down of nonrecourse debt in each period. There was no material impact on the results of operations as a result of these write-downs. For purposes of evaluating trends in the company’s operating results, management generally excludes the impact of these income and expense items. See Note (10) to the Consolidated Financial Statements for more information regarding Federated’s accounting for B-share funding arrangements.

Accounting for Share-Based Payments

Effective January 1, 2006, Federated adopted the fair-value-recognition provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)) using the modified prospective method. Under SFAS 123(R), Federated recognizes compensation costs based on grant-date fair value for all share-based awards granted, modified or settled after January 1, 2006, as well as for any awards that were granted prior to adoption for which requisite service has not been provided as of January 1, 2006. For the year ended December 31, 2006, Federated recorded $4.4 million of share-based compensation expense in “Income from continuing operations before income taxes” related to Federated’s adoption of SFAS 123(R). For the year ended December 31, 2006, Federated recorded $2.8 million of share-based compensation expense in “Net income” related to Federated’s adoption of SFAS 123(R). This reduced both basic and diluted earnings per share for the year ended December 31, 2006 by $0.03.

2006 Annual Report 11

Prior to its adoption of SFAS 123(R), Federated used the fair-value-based method of accounting for share-based awards under the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS 123) for all awards granted, modified or settled in 2003 through 2005. For all employee-related stock-option awards granted prior to 2003 with no subsequent modifications, Federated applied 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 was 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. Under the modified prospective method, prior periods are not restated for the effect of SFAS 123(R).

As of December 31, 2006, total compensation expense related to unvested share-based awards not yet recognized in the Statements of Income was approximately $44.6 million, which will be recognized over a weighted-average period of 6.4 years.

Other Business Developments

In the fourth quarter 2006, Federated launched a $1.0 billion collateralized debt obligation investment product (CDO). The CDO, which is a variable interest entity (VIE) as defined in FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46), invests primarily in high-grade, asset-backed securities and offers investors opportunity for returns that vary with the risk level of their investment. The CDO has a term to maturity of 40 years and an expected life of 10 years. Federated acts as the collateral manager for the CDO and holds an equity ownership of approximately $1.5 million which represents Federated’s maximum potential exposure to loss. Federated has neither guaranteed nor is contractually liable for any of the CDO’s obligations. Federated is not the primary beneficiary of the CDO and has therefore recorded its investment in the CDO at fair value as a long-term asset on the Consolidated Balance Sheets.

Historically, Federated has been classified as one of eight ‘preferred’ fund family firms within the Edward D. Jones & Co. (Edward Jones) brokerage firm. Preferred firms have the highest level of access and participation in various sales-related meetings and training conducted by Edward Jones. During the third quarter, Federated was reclassified as one of five ‘focus firms’. As a focus firm, Federated will continue to be able to contact Edward Jones investment representatives, but will not participate in certain sales-related meetings as it had done in the past. Edward Jones is the leading seller of Federated-sponsored equity and fixed-income mutual fund products. Due to Federated’s reclassification, sales in these fund products decreased and redemptions in these fund products have increased. Sustained decreases in sales and increases in redemptions over an extended period of time could adversely affect Federated’s revenue and results of operations.

12 Federated Investors, Inc.

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,	2006		2005		Percent Change
Managed Assets
By Asset Type
Money market	$	173,644	$	160,621	8	%
Equity		40,894		29,785	37	%
Fixed-income		22,902		23,017	(0	)%
Total managed assets	$	237,440	$	213,423	11	%
By Product Type
Mutual Funds:
Money market	$	155,183	$	145,289	7	%
Equity		28,666		26,031	10	%
Fixed-income		18,113		19,037	(5	)%
Total mutual fund assets		201,962		190,357	6	%
Separate Accounts:
Money market		18,461		15,332	20	%
Equity		12,228		3,754	226	%
Fixed-income		4,789		3,980	20	%
Total separate account assets		35,478		23,066	54	%
Total managed assets	$	237,440	$	213,423	11	%
Administered Assets	$	17,778	$	18,271	(3	)%

Average Managed and Administered Assets

in millions for the years ended December 31,	2006		2005		2004		2006 vs. 2005		2005 vs. 2004
Average Managed Assets
By Asset Type
Money market	$	163,901	$	144,356	$	134,096	14	%	8	%
Equity		34,542		28,940		26,476	19	%	9	%
Fixed-income		22,259		24,351		27,248	(9	)%	(11	)%
Total average managed assets	$	220,702	$	197,647	$	187,820	12	%	5	%
By Product Type
Mutual Funds:
Money market	$	146,980	$	129,531	$	119,745	13	%	8	%
Equity		27,139		25,609		23,827	6	%	7	%
Fixed-income		18,323		20,170		22,301	(9	)%	(10	)%
Total average mutual fund assets		192,442		175,310		165,873	10	%	6	%
Separate Accounts:
Money market		16,921		14,825		14,351	14	%	3	%
Equity		7,403		3,331		2,649	122	%	26	%
Fixed-income		3,936		4,181		4,947	(6	)%	(15	)%
Total average separate account assets		28,260		22,337		21,947	27	%	2	%
Total average managed assets	$	220,702	$	197,647	$	187,820	12	%	5	%
Average Administered Assets	$	18,272	$	18,239	$	41,208	0	%	(56	)%

2006 Annual Report 13

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Changes in Federated’s average asset mix year-over-year across both asset and product types have a direct impact on Federated’s total revenue due to the difference in the fee rates per invested dollar earned on each asset and product type. Equity products generally have a higher management fee rate than fixed-income and money market products. Likewise, mutual fund products typically earn a higher management fee rate than Separate Accounts. 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:

	Percent of Total Average Managed Assets						Percent of Total Revenue
	2006		2005		2004		2006		2005		2004
Money market assets	74	%	73	%	71	%	47	%	44	%	40	%
Equity assets	16	%	15	%	14	%	39	%	38	%	38	%
Fixed-income assets	10	%	12	%	15	%	13	%	16	%	20	%
Other activities	—		—		—		1	%	2	%	2	%

December 31, 2006 period-end managed assets increased 11% over period-end managed assets at December 31, 2005 driven primarily by increases in money-market and equity assets. Average managed assets for 2006 increased 12% over average managed assets for 2005. Period-end money market assets increased 8% for 2006 compared to 2005 primarily due to organic growth. Average money market assets increased 14% for 2006 compared to 2005 primarily due to the Alliance Acquisition and organic growth. Period-end and average equity assets increased 37% and 19%, respectively, for 2006 compared to 2005 primarily due to the MDT Acquisition and market appreciation partially offset by net redemptions. Period-end fixed-income assets were flat for 2006 compared to 2005, while average fixed-income assets declined 9% for 2006 as compared to 2005 primarily from net redemptions partially offset by market appreciation.

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

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

in millions for the years ended December 31,	2006			2005			Percent Change
Equity Funds
Beginning assets	$	26,031		$	25,951		0	%
Sales		5,851			5,054		16	%
Redemptions		(7,062	)		(6,666	)	6	%
Net redemptions		(1,211	)		(1,612	)	(25	)%
Net exchanges		(5	)		25		(120	)%
Acquisition related		643			142		353	%
Other1		3,208			1,525		110	%
Ending assets	$	28,666		$	26,031		10	%
Fixed-Income Funds
Beginning assets	$	19,037		$	21,137		(10	)%
Sales		4,537			5,061		(10	)%
Redemptions		(6,205	)		(7,376	)	(16	)%
Net redemptions		(1,668	)		(2,315	)	(28	)%
Net exchanges		22			(100	)	122	%
Acquisition related		107			50		114	%
Other1		615			265		132	%
Ending assets	$	18,113		$	19,037		(5	)%

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

14 Federated Investors, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Components of Changes in Equity and Fixed-Income Separate Account Assets¹

in millions	For the six months ended December 31, 20062
Equity Separate Accounts
Beginning assets	$	4,035
Net customer flows3		355
Acquisition related		6,420
Other3		1,418
Ending assets	$	12,228
Fixed-Income Separate Accounts
Beginning assets	$	3,708
Net customer flows3		892
Acquisition related		0
Other3		189
Ending assets	$	4,789

1 Includes separately managed accounts (SMA), institutional accounts and sub-advised funds (variable annuity and other).

2 Data for periods prior to July 1, 2006 is not available for Changes in Equity and Fixed-Income Separate Account Assets.

3 For certain accounts, Net customer flows are calculated as the remaining difference between beginning and ending assets after the calculation of Other and the impact of Acquisition related. Other includes the approximate effect of changes in the market value of securities held in the portfolios, reinvested dividends and distributions and net investment income.

Results of Operations

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

in millions	2006		2005		2004		2006 vs. 2005		2005 vs. 2004
Revenue from managed assets	$	965.4	$	882.7	$	809.0	9	%	9	%
Revenue from sources other than managed assets		13.5		13.5		21.3	0	%	(37	)%
Total revenue	$	978.9	$	896.2	$	830.3	9	%	8	%

Revenue from managed assets increased $82.7 million in 2006 as compared to 2005 primarily due to 1) a $43.2 million and $15.2 million increase generated from assets acquired in connection with the Alliance and MDT Acquisitions, respectively, 2) a $27.6 million and $27.5 million increase resulting from an increase in average money market and equity assets under management, respectively (excluding assets acquired in the Alliance and MDT Acquisitions), partially offset by 1) an $18.0 million decrease resulting from a decrease in average fixed-income assets under management, 2) an increase in certain fees waived by Federated resulting from increases in certain fund expenses reducing revenue by $7.5 million and 3) a decrease of $3.9 million from certain advisory fee reductions implemented January 1, 2006 (see Note (22)(c) to the Consolidated Financial Statements).

Revenue from managed assets increased $73.7 million in 2005 as compared to 2004 primarily due to 1) a $67.1 million increase generated from money market assets acquired in connection with the Alliance Acquisition and 2) a $30.8 million increase resulting from an increase in average equity assets under management, partially offset by a $20.5 million and $4.4 million decrease resulting from a decrease in fixed-income and money market average managed assets, respectively (excluding the assets from the Alliance Acquisition).

Revenue from sources other than managed assets, which represents 1% of Federated’s 2006 revenue, remained flat in 2006 as compared to 2005.

Revenue from sources other than managed assets, which represents 2% of Federated’s 2005 revenue, decreased $7.8 million primarily as a result of a $7.2 million decrease in revenue from a reduction in the number of bank clients for fund administration and accounting services. These reductions were partially offset by revenue from managed assets earned on certain previously administered assets acquired by Federated in 2004 and a reduction in related marketing and distribution expenses.

2006 Annual Report 15

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

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

in millions	2006		2005		2004		2006 vs. 2005		2005 vs. 2004
Marketing and distribution	$	287.0	$	219.5	$	153.8	31	%	43	%
Compensation and related		192.1		172.4		167.0	11	%	3	%
Professional service fees		35.6		8.6		34.4	314	%	(75	)%
Amortization of deferred sales commissions		51.8		51.7		55.7	0	%	(7	)%
Settlement expense		0		55.6		17.4	(100	)%	220	%
All other		103.9		93.5		89.6	11	%	4	%
Total operating expenses	$	670.4	$	601.3	$	517.9	11	%	16	%

Total operating expenses for 2006 increased $69.1 million compared to 2005. Marketing and distribution expense increased $67.5 million in 2006 as compared to 2005 primarily due to a 1) $36.3 million increase related to the Alliance Acquisition resulting from having 12 months of expense in 2006 as compared to a partial year in 2005 as well as growth within the business acquired, 2) a $19.8 million increase from higher average money market assets under management (excluding increases associated with the Alliance Acquisition) and 3) a $4.2 million increase from higher average equity assets under management ($0.3 million of which relates to the MDT Acquisition). Compensation and related expense increased $19.7 million primarily due to 1) a $6.0 million increase resulting from the MDT Acquisition in the third quarter 2006, 2) a $4.4 million increase due to the adoption of SFAS 123(R), 3) a $2.6 million increase in severance expense and 4) a $2.2 million increase related to additional share-based awards granted in 2006. Professional service fees increased $27.0 million due primarily to the recognition of a $23.6 million insurance recovery in the third quarter 2005 related to costs incurred for various legal, regulatory and compliance matters. The insurance recovery was primarily recorded as a reduction to Professional service fees and Office and occupancy of $22.1 million and $1.3 million, respectively, in 2005. Settlement expense decreased $55.6 million as a result of the settlement with the Securities and Exchange Commission (SEC) and New York State Attorney General (NYAG) in the fourth quarter of 2005 (see Note (22)(c) to the Consolidated Financial Statements). “All other” increased primarily due to an increase of $4.8 million in Amortization of intangible assets due primarily to a $2.4 million increase related to the MDT Acquisition and a $1.2 million increase related to the Alliance Acquisition primarily as a result of having 12 months of amortization expense in 2006 as compared to a partial year in 2005.

Total operating expenses for 2005 increased $83.4 million compared to 2004. Marketing and distribution expense increased $65.7 million in 2005 as compared to 2004 primarily due to 1) $54.3 million of additional expenses associated with the increase in assets under management from the Alliance Acquisition 2) a $9.7 million increase as a result of a change in the asset mix within money market products and 3) a $6.3 million increase as a result of increased average equity assets. The $25.8 million decrease in Professional service fees in 2005 as compared to 2004 was primarily a result of recognizing the aforementioned $23.6 million insurance recovery. The $38.2 million increase in Settlement expense is related to the above-mentioned settlement with the SEC and NYAG. “All other” increased primarily due to a $3.5 million increase in Amortization of intangible assets in 2005 as compared to 2004 due primarily to $4.9 million of additional amortization expense associated with the Alliance Acquisition.

Nonoperating Income (Expenses). Nonoperating income, net, increased $10.7 million in 2006 as compared to 2005 due primarily to a $9.8 million decrease in “Debt expense – nonrecourse” attributable to lower amounts of average nonrecourse debt due mainly to the impairment write-down of B-share-related deferred sales commissions and related non-recourse debt taken in 2006 ($2.2 million) and 2005 ($88.0 million).

Nonoperating expense, net, decreased $8.9 million in 2005 as compared to 2004 due primarily to increases in “Dividend income” and “Interest income” of $4.5 million and $0.9 million, respectively, largely as a result of higher yields earned on investments due to rising interest rates and a $3.1 million decrease in “Debt expense – nonrecourse” attributable to a lower amount of average nonrecourse debt outstanding due to the above-mentioned write down in 2005 and a $7.6 million write-down in 2004.

Income Taxes on Continuing Operations. The income tax provision for continuing operations for 2006, 2005 and 2004 was $113.7 million, $114.9 million and $108.2 million, respectively. The $1.2 million decrease in the provision for 2006 as compared to 2005 was primarily due to the $12.3 million federal tax effect of the non-deductible portion of “Settlement expense” accrued during 2005 partially offset by $10.1 million federal tax effect of higher income from continuing operations before taxes and $0.9 million in increased state taxes. The $6.7 million increase in the provision for 2005 as compared to 2004 was primarily due to the $8.8 million federal tax effect of the increase in the non-deductible portion of “Settlement expense” and $1.7 million in increased state taxes partially offset by the $3.1 million federal tax effect of lower income from continuing operations before taxes. The effective tax rate was 37.3% for 2006, 41.6% for 2005 and 38.0% for 2004. The decrease in the effective tax rate for 2006 as compared to 2005 is primarily related to the non-deductible portion of “Settlement expense” recorded in 2005. The increase in the effective tax rate for 2005 as compared to 2004 is primarily related to the increase in the non-deductible portion of “Settlement expense” and increased state taxes (see Note (15) to the Consolidated Financial Statements).

16 Federated Investors, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

For 2006, Federated’s pretax book income was $38.7 million in excess of federal taxable income due primarily to $33.0 million in permanent tax differences associated with tax deductions on stock options exercised during the year, $13.7 million in temporary tax differences associated with amortization of certain intangible assets, partially offset by $7.5 million of insurance proceeds recognized as income in the year of receipt for tax purposes versus a future year for book purposes (see Note 8 to the Consolidated Financial Statements). For 2005, Federated’s pretax book income was $9.2 million less than federal taxable income due primarily to the $35.0 million non-deductible portion of “Settlement expense” (see Note 22(c) to the Consolidated Financial Statements), partially offset by $16.5 million in insurance proceeds recognized as income for book purposes in 2005 versus a prior year for tax purposes (see Note 22(c) to the Consolidated Financial Statements) and $13.0 million in temporary tax differences associated with amortization of certain intangible assets. For 2004, Federated’s pretax book income was $100.2 million in excess of federal taxable income due primarily to permanent tax differences associated with tax deductions on stock options exercised ($57.4 million) and restricted stock vestings ($55.6 million) during the year, partially offset by $16.5 million of insurance proceeds recognized as income in the year of receipt for tax purposes versus in 2005 for book purposes.

Income from Continuing Operations. Income from continuing operations increased $30.1 million in 2006 as compared to 2005 primarily as a result of the changes in revenues and expenses noted above. Earnings per diluted share from continuing operations increased $0.31 in 2006 as compared to 2005 due to an increase in income from continuing operations and lower weighted-average diluted shares outstanding.

Income from continuing operations decreased $15.6 million in 2005 as compared to 2004 primarily as a result of the changes in revenues and expenses noted above. Earnings per diluted share from continuing operations decreased $0.11 in 2005 as compared to 2004 due to a decrease in income from continuing operations partially offset by lower weighted-average diluted shares outstanding.

Discontinued Operations. Discontinued operations, net of tax for 2006 reflects the after-tax gain on the sale of Federated’s trade-clearing business ($3.7 million), the reversal of a related deferred tax asset valuation allowance ($2.1 million) and after-tax operating income ($0.9 million) of Federated’s trade-clearing operations. Discontinued operations for 2005 primarily reflects the after-tax loss on the sale ($1.7 million) and after-tax operating loss ($1.1 million) of InvestLink Technologies, Inc., partially offset by after-tax operating income of Federated’s trade-clearing operations ($2.3 million). Discontinued operations for 2004 primarily reflects the after-tax results of operations of the sold businesses (see Note (3) to the Consolidated Financial Statements).

Liquidity and Capital Resources

At December 31, 2006, liquid assets, consisting of cash and cash equivalents, short-term investments and receivables, totaled $158.2 million as compared to $330.0 million in 2005. The decrease in liquid assets for 2006 resulted from $149.2 million of net cash used by investing activities and $271.7 million of net cash used by financing activities partially offset by $293.7 million of net cash generated by operations. As of December 31, 2006, Federated had $200 million available for borrowings under its credit facility and separately, a B-share funding arrangement with an independent third party (see Note (9) and Note (10) to the Consolidated Financial Statements).

Operating Activities. Net cash provided by operating activities totaled $293.7 million for 2006 as compared to $186.0 million for 2005. The increase was primarily due to 1) an increase of $52.2 million in net sales of trading securities resulting primarily from Federated’s redemptions of investments in various sponsored investment products, which were initially consolidated in the Consolidated Financial Statements in 2005; 2) an increase in net income of $37.4 million for 2006 as compared to 2005; and 3) timing differences of $25.9 million in the cash settlement of assets and liabilities.

Investing Activities. In 2006, Federated used $149.2 million for investing activities, which primarily represented cash paid for business acquisitions, including cash paid for the MDT Acquisition ($102.9 million), the final contingent payment related to the acquisition of substantially all of the business of the former advisor of the Kaufmann Fund (Kaufmann Acquisition) ($33.1 million) and the first contingent payment on the Alliance Acquisition ($10.7 million). See Note (2) to the Consolidated Financial Statements for additional information.

Financing Activities. In 2006, Federated used $271.7 million for financing activities. Of this amount, Federated paid $169.7 million to repurchase 5.3 million shares of Class B common stock in the open market under the stock repurchase program and in private transactions. As of December 31, 2006, Federated can repurchase an additional 7.2 million shares through December 31, 2008 under its authorized program.

Federated paid $73.0 million or $0.69 per share in dividends to holders of its common stock in 2006. Federated’s board of directors declared a dividend of $0.18 per share, for shareholders of record on February 8, 2007, that was paid on February 15, 2007.

Financial Position

“Receivables – Affiliates” at December 31, 2006 decreased $18.8 million from December 31, 2005 and “Accounts payable and accrued expenses – other” decreased $19.8 million due primarily to contractual changes implemented in May 2006 whereby the funds contract directly with intermediaries for the provision of shareholder services. Due to this change, Federated is no longer entitled to receive shareholder service fees on shareholder accounts for which Federated is not the named dealer of record. Likewise, for these shareholder accounts, Federated no longer has the obligation to pay the intermediaries for providing the shareholder services. Rather, the funds pay the intermediaries directly for these services.

2006 Annual Report 17

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

“Other current liabilities – affiliates” at December 31, 2006 decreased $24.8 million from December 31, 2005 primarily due to the payment of the final contingent payment of $33.1 million in the second quarter of 2006 related to the Kaufmann Acquisition, partially offset by $8.2 million in purchase price plus interest due as of December 31, 2006, to the remaining 11 percent minority interests associated with the MDT Acquisition (see Note (2) to the Consolidated Financial Statements).

“Other current liabilities – other” at December 31, 2006 increased $7.7 million from December 31, 2005 primarily due to $7.5 million in insurance recoveries received for claims submitted to cover costs associated with the internal review, government investigations into past mutual fund trading practices and related civil litigation (see Note (22)(c) to the Consolidated Financial Statements). The retention of this advance payment is contingent upon the 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.

Additional significant changes in assets and liabilities are discussed elsewhere in Management’s Discussion and Analysis.

Off-Balance Sheet Arrangements

As of December 31, 2006 and 2005, Federated did not have any material off-balance sheet arrangements.

Contractual Obligations and Contingent Liabilities

Contractual. The following table presents as of December 31, 2006, 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.

			Payments due in
in millions	Note Reference		2007		2008-2009		2010-2011		After 2011		Total
Capital lease obligations	(14	)	$	0.1	$	0.2	$	0	$	0	$	0.3
Operating lease obligations	(14	)		13.2		21.6		16.3		21.7		72.8
Purchase obligations1				6.9		2.2		0		0		9.1
Employment-related commitments2				8.2		4.9		2.1		0.4		15.6
Total			$	28.4	$	28.9	$	18.4	$	22.1	$	97.8

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 2009. 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 2012.

As part of the MDT Acquisition, Federated may be required to make additional purchase price payments upon the occurrence of certain events. First, as previously mentioned, at December 31, 2006, certain MDTA employees held an aggregate 11 percent minority interest in MDTA. These minority interests were subject to a put/call option whereby the minority interests had the right to put their interest to Federated or Federated could call the interests in 2007. The minority interests exercised their option to put their interests to Federated in January 2007 and Federated paid approximately $8.0 million in cash as additional purchase price to acquire the remaining 11 percent on January 9, 2007. This payment reduced “Other current liabilities – affiliates” in January 2007. In addition, Federated may be required to make annual contingent purchase price payments based upon growth in MDTA net revenues over the next three years. These purchase price payments, which could aggregate as much as $130.0 million, will be recorded as additional goodwill at the time the contingency is resolved.

Also, as part of the MDT Acquisition, Federated entered into various long-term employment and compensation arrangements pursuant to which Federated will be obligated to make certain minimum and contingent compensation-related payments. These contracts expire on various dates through the year 2012. The remaining estimated minimum amount payable under these arrangements approximates $6.9 million, of which $2.2 million is payable in 2007. The remaining estimated maximum amount payable under these arrangements approximates $22.6 million, of which $4.7 million would be payable in 2007 if certain performance targets are achieved.

As part of the Alliance Acquisition, Federated is required to make contingent purchase price payments over a five-year period. These payments are calculated as a percentage of revenues less certain operating expenses directly attributed to the assets acquired. The first contingent purchase price payment totaling $10.7 million was paid in the second quarter 2006. At current asset levels, these additional payments would approximate $69 million over the remaining four-year period, of which $10.3 million was accrued in “Other current liabilities – other” as of December 31, 2006 and will be paid in the second quarter of 2007.

18 Federated Investors, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Pursuant to various acquisition agreements, Federated may be required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In these cases, the payments occur quarterly or annually and could continue through the fourth quarter 2008.

Past Mutual Fund Trading Issues and Related Legal Proceedings. In 2005, Federated entered into settlement agreements with the SEC and NYAG to resolve the past mutual fund trading issues. Under the terms of the settlements, Federated paid for the benefit of fund shareholders a total of $80.0 million. In addition, Federated agreed to reduce the investment advisory fees on certain Federated funds by $4.0 million per year for the five-year period beginning January 1, 2006, based upon effective fee rates and assets under management as of September 30, 2005. Depending upon the level of assets under management in these funds during the five-year period, the actual investment advisory fee reduction could be greater or less than $4.0 million per year. For the year ended December 31, 2006, these fee reductions were approximately $4 million. Costs related to certain other undertakings required by these agreements will be incurred in future periods and the significance of such costs is currently not determinable.

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

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

All of these lawsuits seek unquantified damages, attorneys’ fees and expenses. Federated is defending this litigation. The potential impact of these recent lawsuits and future potential similar suits, as well as the timing of settlements, judgements or other resolution of these matters, are uncertain. It is possible that an unfavorable determination will cause a material adverse impact to Federated’s reputation, financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

The Consolidated Financial Statements for the years ended December 31, 2006, 2005 and 2004 reflect $9.1 million, $9.6 million and $15.4 million, respectively, for costs associated with various legal, regulatory and compliance matters, including costs related to Federated’s internal review, costs incurred on behalf of the funds, costs incurred and estimated to complete the distribution of Federated’s regulatory settlement and costs incurred and estimated to resolve certain of the above-mentioned ongoing legal proceedings. Accruals for these estimates represent management’s best estimate of probable losses at this time. Actual losses may differ from the estimate, and such differences may have a material impact on Federated’s consolidated results of operations, financial position or cash flows. The Consolidated Financial Statements for the years ended December 31, 2005 and 2004 reflect settlement expenses of $55.6 million and $17.4 million, respectively, primarily representing civil penalties and restoration to fund shareholders associated with the aforementioned settlements. In addition, 2005 net income included a $23.6 million pretax insurance recovery of certain of these costs which was recorded as a reduction to the various income statement line items to which these costs were originally charged.

Other Legal Proceedings. Federated has other claims asserted and threatened against it in the ordinary course of business. These other claims are subject to inherent uncertainties. It is possible that an unfavorable determination will cause a material adverse impact on Federated’s financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

Future Cash Needs. In addition to the contractual obligations and contingent liabilities described above, management expects that principal uses of cash will include funding marketing and distribution expenditures, paying incentive and base compensation, funding business acquisitions, repurchasing company stock, paying shareholder dividends, advancing sales commissions, seeding new products, repaying any potential future debt obligations and funding property and equipment acquisitions, including computer-related software and hardware. As a result of recently adopted regulations and requests for information from regulatory authorities, management anticipates that expenditures for compliance personnel, compliance systems and related professional and consulting fees may continue to increase. Resolution of the matters described above regarding past mutual fund trading issues and legal proceedings could result in payments which may have a significant impact on Federated’s liquidity, capital resources and results of operations. After considering Federated’s future cash needs in light of the balance of liquid assets at December 31, 2006, management believes Federated may borrow under its credit facility within the next twelve months. Management believes Federated’s existing liquid assets, together with the expected continuing cash flow from operations, its borrowing capacity under the current credit facility, the current and new B-share funding arrangements and its ability to issue stock will be sufficient to meet its present and reasonably foreseeable cash needs.

On October 31, 2006, Federated entered into a five-year $200 million Revolving Credit Facility with an option to increase it to $300 million during the term of the facility upon commitment from the lenders (the Credit Facility). Borrowings under the Credit Facility would bear interest, at the option of Federated, at a defined prime rate or at a spread dependent upon its debt rating over the London Interbank Offering Rate or Federal Funds effective rate. Under the Credit Facility, Federated will pay a facility fee based on its debt credit rating, currently 7.5 basis points, and can make cash payments for stock repurchases or shareholder dividend payments as long as

2006 Annual Report 19

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

liquidity of no less than $10 million is maintained during the payment period. Certain subsidiaries entered into a Continuing Agreement of Guaranty and Suretyship whereby these subsidiaries guarantee payment of all obligations incurred through the Credit Facility. The Credit Facility also includes financial and non-financial covenants. The Credit Facility, which replaced the prior $150 million 364-day credit facility, expires October 31, 2011, and will be used for general corporate purposes.

On December 27, 2006, Federated amended its agreement with an independent financial institution for funding of the B-share sales commissions to extend the program through February 28, 2007. Federated expects to sign a definitive agreement with an independent financial institution, effective March 1, 2007, to continue funding B-share sales commissions through December 31, 2009.

Variable Interest Entities

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

Recent Accounting Pronouncements

SFAS 157 – In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007. Management is currently evaluating this standard and its impact, if any, on the financial statements.

FIN 48 – In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The two-step process prescribed by FIN 48 for evaluating a tax position involves first determining whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities. The second step then requires a company to measure the tax position benefit as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has substantially completed its analysis of the impact of adopting FIN 48 and, based on that analysis, has concluded that the adoption will not have a material impact on the financial statements.

Critical Accounting Policies

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

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

Variable Interest Entity Consolidation. From time to time, Federated enters into transactions with entities that may be VIEs, as defined in FIN 46. Federated makes judgments and estimates regarding the sufficiency of equity at risk, the rights of various holders of the entity to exercise control and the rights and obligations of holders to receive returns or absorb losses of the entity in order to determine whether these entities are VIEs. As necessary, Federated performs qualitative and quantitative analysis of a VIE to determine whether Federated is the primary beneficiary and therefore, must consolidate the VIE. In performing these analyses, Federated makes judgments and estimates regarding the future performance of the assets held by the VIE, taking into account estimates of credit risk, timing of cash flows and other significant factors, and the likelihood of various outcomes.

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.

20 Federated Investors, Inc.

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition 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 29% of the carrying value of Federated’s customer-related intangible assets as of December 31, 2006 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 80% 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. In addition, approximately 11% of the carrying value of Federated’s customer-relationship intangible assets as of December 31, 2006 relates to a single financial intermediary. Significant changes in Federated’s relationship with this intermediary customer could have a material adverse effect on Federated’s results of operations.

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, 2006, Federated had not recorded a valuation allowance on the $6.0 million deferred tax asset relating to Federated’s pre-2006 CDO other-than-temporary impairment losses (unrecognized for tax purposes). Federated considered the following facts in connection with its evaluation of the realizability of the $6.0 million deferred tax asset: (1) the actual amount of capital loss associated with Federated’s remaining investment in the CDOs will not be known until such time as those investments are either redeemed by the CDOs or sold by Federated; (2) the carry-forward period for capital losses is five years, and (3) Federated has historically generated capital gains in times of favorable market conditions. Based on these factors, management believes it is more likely than not that Federated will be able to utilize these losses in the future. In the event that Federated’s preliminary strategies do not materialize, Federated may be required to record a valuation allowance of as much as $6.0 million for these deferred tax assets.

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

Certifications

J. Christopher Donahue and Thomas R. Donahue have provided certifications to the Securities and Exchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002. These certifications are included as Exhibit 31.01 of Federated’s Form 10-K for the year ended December 31, 2006. As required by the New York Stock Exchange (NYSE), on May 9, 2006, J. Christopher Donahue submitted his annual certification to the NYSE as required by Section 303A.12 of the NYSE Corporate Governance Rules.

2006 Annual Report 21

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)

of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

In the normal course of its business, Federated is exposed to 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.

Market Risk - Investments. Federated’s short-term and long-term investments expose it to various market risks. A single investment can expose Federated to multiple risks. Interest-rate risk is the risk that unplanned fluctuations in earnings will result from interest-rate volatility while credit risk is the risk that an issuer of debt securities may default on its obligations. At December 31, 2006, Federated was exposed to interest-rate and, to a lesser extent, credit risk, as a result of holding investments in primarily investment-grade debt securities held by certain sponsored products ($8.4 million), a sponsored CDO ($1.5 million) and fixed-income sponsored funds ($6.1 million). Management considered a hypothetical 100 basis point fluctuation in interest rates and determined that the impact of such a fluctuation on these investments, individually and in the aggregate, would not have a material effect on Federated’s financial condition or results of operations.

Price risk is the risk that the market price of an investment will decline and ultimately result in the recognition of a loss for Federated. At December 31, 2006, Federated was exposed to price risk as a result of its $7.2 million investment in primarily sponsored fluctuating-value mutual funds. Management considered a hypothetical 10% fluctuation in market value and determined that the impact of such a fluctuation on these investments, individually and in the aggregate, would not have a material effect on Federated’s financial condition or results of operations.

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

Approximately 47% and 13% of Federated’s revenue in 2006 was from managed assets in money market and fixed-income products, respectively. After reaching record lows, short-term interest rates began to rise in 2004 and may continue to increase. In a rising rate environment, certain institutional investors using money market products and other short-term duration fixed-income products for cash management purposes may shift these investments to direct investments in comparable instruments in order to realize higher yields than those available in money market and other fund products holding lower-yielding instruments. In addition, rising interest rates will tend to reduce the market value of bonds held in various investment portfolios and other products. Thus, increases in interest rates could have an adverse effect on Federated’s revenue from money market portfolios and from other fixed-income products.

For further discussion of managed assets and factors that impact Federated’s revenue, see the sections entitled “General,” “Asset Highlights” and “Contractual Obligations and Contingent Liabilities” herein as well as the sections entitled “Regulatory Matters” and “Risk Factors” in Federated’s Annual Report on Form 10-K for the year ended December 31, 2006 on file with the SEC.

22 Federated Investors, Inc.

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, 2006, 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, 2006, 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 attestation report on management’s assessment of Federated’s internal control over financial reporting.

Federated Investors, Inc.
/s/ J. Christopher Donahue	/s/ Thomas R. Donahue
J. Christopher Donahue	Thomas R. Donahue
President and Chief Executive Officer	Chief Financial Officer
February 22, 2007

2006 Annual Report 23

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, 2006 and 2005, 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, 2006. 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, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, 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, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2007, expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 22, 2007

24 Federated Investors, Inc.

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 Report, that Federated Investors, Inc. maintained effective internal control over financial reporting as of December 31, 2006, 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, 2006, 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, 2006, 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, 2006 and 2005, 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, 2006, of Federated Investors, Inc., and our report dated February 22, 2007, expressed an unqualified opinion thereon.

	/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
February 22, 2007

2006 Annual Report 25

CONSOLIDATED BALANCE SHEETS

(dollars in thousands)

December 31,	2006			2005
Current Assets
Cash and cash equivalents	$	118,721		$	245,846
Restricted cash equivalents		29			587
Investments		16,193			38,372
Receivables—affiliates		21,808			40,631
Receivables—other, net of reserve of $494 and $117, respectively		1,489			5,173
Accrued revenue—affiliates		3,480			823
Accrued revenue—other		5,862			5,882
Current deferred tax asset, net		4,222			2,433
Prepaid and other current assets		10,247			6,676
Total current assets		182,051			346,423
Long-Term Assets
Goodwill		388,213			303,194
Customer-relationship intangible assets, net		89,748			60,102
Other intangible assets, net		10,689			6,730
Deferred sales commissions, net of accumulated amortization of $333,316 and $287,836, respectively		112,286			157,562
Property and equipment, net		24,168			22,006
Other long-term assets		3,139			604
Total long-term assets		628,243			550,198
Total assets	$	810,294		$	896,621
Current Liabilities
Accrued compensation and benefits		46,528			44,433
Accounts payable and accrued expenses—affiliates		2,241			1,399
Accounts payable and accrued expenses—other		50,982			70,746
Income taxes payable		620			1,098
Other current liabilities—affiliates		8,282			33,082
Other current liabilities—other		23,254			15,542
Total current liabilities		131,907			166,300
Long-Term Liabilities
Long-term debt—nonrecourse		112,987			159,784
Long-term deferred tax liability, net		27,699			21,433
Other long-term liabilities—affiliates		539			28
Other long-term liabilities—other		6,905			7,494
Total long-term liabilities		148,130			188,739
Total liabilities		280,037			355,039
Minority interest		882			1,253
Commitments and contingencies (Note (22))
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		158,016			134,922
Additional paid-in capital from treasury stock transactions		0			768
Retained earnings		1,065,505			954,710
Treasury stock, at cost, 25,650,722 and 22,471,600 shares Class B common stock, respectively		(694,786	)		(550,586	)
Accumulated other comprehensive income, net of tax		451			326
Total shareholders’ equity		529,375			540,329
Total liabilities, minority interest, and shareholders’ equity	$	810,294		$	896,621

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

26 Federated Investors, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

Years Ended December 31,	2006			2005			2004
Revenue
Investment advisory fees, net—affiliates	$	575,123		$	548,739		$	527,237
Investment advisory fees, net—other		39,313			21,956			18,930
Administrative service fees, net—affiliates		141,791			128,243			121,847
Administrative service fees, net—other		6,074			6,827			14,004
Other service fees, net—affiliates		203,235			177,256			134,428
Other service fees, net—other		6,847			5,959			6,386
Other, net		6,475			7,258			7,482
Total revenue		978,858			896,238			830,314
Operating Expenses
Marketing and distribution		287,030			219,480			153,819
Compensation and related		192,082			172,412			166,973
Professional service fees		35,566			8,569			34,368
Office and occupancy		21,785			20,774			20,290
Systems and communications		20,926			19,102			18,099
Advertising and promotional		15,141			15,210			15,040
Travel and related		12,362			11,944			12,065
Amortization of deferred sales commissions		51,822			51,732			55,716
Amortization of intangible assets		19,011			14,165			10,673
Settlement expense		0			55,592			17,410
Other		14,661			12,364			13,434
Total operating expenses		670,386			601,344			517,887
Operating income		308,472			294,894			312,427
Nonoperating Income (Expenses)
Dividend income		7,021			7,386			2,894
Interest income		2,507			1,346			491
Gain on securities, net		558			263			37
Debt expense—recourse		(482	)		(348	)		(352	)
Debt expense—nonrecourse		(7,704	)		(17,517	)		(20,655	)
Other, net		(6	)		51			(143	)
Total nonoperating income (expenses), net		1,894			(8,819	)		(17,728	)
Income from continuing operations before minority interest and income taxes		310,366			286,075			294,699
Minority interest		5,599			10,205			9,951
Income from continuing operations before income taxes		304,767			275,870			284,748
Income tax provision		113,719			114,896			108,213
Income from continuing operations		191,048			160,974			176,535
Discontinued operations, net of tax		6,681			(691	)		4,644
Net income	$	197,729		$	160,283		$	181,179
Earnings Per Share—basic
Income from continuing operations	$	1.83		$	1.52		$	1.64
Income (loss) from discontinued operations		0.06			(0.01	)		0.04
Net income1	$	1.90		$	1.51		$	1.68
Earnings Per Share—diluted
Income from continuing operations	$	1.80		$	1.49		$	1.60
Income (loss) from discontinued operations		0.06			(0.01	)		0.04
Net income	$	1.86		$	1.48		$	1.64
Cash dividends per share	$	0.690		$	0.575		$	0.414

¹ Totals may not sum due to rounding.

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

2006 Annual Report 27

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(dollars in thousands)

	Shares					Common Stock			Additional Paid-in Capital from Treasury Stock Transactions			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income, Net of Tax			Total Shareholders’ Equity
	Class A	Class B		Treasury
Balance at January 1, 2004	9,000	108,655,758		20,849,698		$	87,415		$	3,809		$	749,410		$	(445,153	)	$	372		$	395,853
Net income	0	0		0			0			0			181,179			0			0			181,179
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			35			35
Foreign currency translation	0	0		0			0			0			0			0			122			122
Comprehensive income																						181,336
Amortization of employee restricted stock and other compensation plans	0	0		0			1,618			0			0			0			0			1,618
Restricted stock issuance	0	362,000		(362,000	)		19,411			(320	)		(3,019	)		4,425			0			20,497
Dividends declared	0	0		0			0			0			(44,703	)		0			0			(44,703	)
Exercise of stock options	0	2,135,958		(2,135,958	)		20,085			(3,489	)		(17,519	)		25,679			0			24,756
Purchase of treasury stock	0	(4,153,901	)	4,153,901			0			0			0			(121,397	)		0			(121,397	)
Other	0	0		0			(207	)		0			0			0			0			(207	)
Balance at December 31, 2004	9,000	106,999,815		22,505,641			128,322			0			865,348			(536,446	)		529			457,753
Net income	0	0		0			0			0			160,283			0			0			160,283
Other comprehensive income, net of tax:
Unrealized gain on securities available for sale, net of reclassification adjustment	0	0		0			0			0			0			0			27			27
Foreign currency translation	0	0		0			0			0			0			0			(230	)		(230	)
Comprehensive income																						160,080
Amortization of employee restricted stock and other compensation plans	0	0		0			4,252			0			0			0			0			4,252
Restricted stock issuance	0	679,796		(679,796	)		198			46			(7,020	)		8,375			0			1,599
Dividends declared	0	0		0			0			0			(61,465	)		0			0			(61,465	)
Exercise of stock options	0	274,348		(274,348	)		2,339			722			(2,436	)		2,958			0			3,583
Purchase of treasury stock	0	(920,103	)	920,103			0			0			0			(25,473	)		0			(25,473	)
Balance at December 31, 2005	9,000	107,033,856		22,471,600			135,111			768			954,710			(550,586	)		326			540,329
Net income	0	0		0			0			0			197,729			0			0			197,729
Other comprehensive income, net of tax:
Unrealized loss on securities available for sale, net of reclassification adjustment	0	0		0			0			0			77			0			(142	)		(65	)
Foreign currency translation	0	0		0			0			0			0			0			267			267
Comprehensive income																						197,931
Amortization of employee restricted stock and other compensation plans	0	0		0			10,698			0			0			0			0			10,698
Restricted stock issuance	0	777,596		(777,596	)		806			(2,711	)		(5,077	)		9,606			0			2,624
Settlement of stock awards	0	(6,000	)	6,000			(237	)		0			0			(226	)		0			(463	)
Dividends declared	0	0		0			0			0			(72,800	)		0			0			(72,800	)
Exercise of stock options	0	1,279,626		(1,279,626	)		12,213			1,943			(9,134	)		15,119			0			20,141
Purchase of treasury stock	0	(5,230,344	)	5,230,344			0			0			0			(168,699	)		0			(168,699	)
Other	0	0		0			(386	)		0			0			0			0			(386	)
Balance at December 31, 2006	9,000	103,854,734		25,650,722		$	158,205		$	0		$	1,065,505		$	(694,786	)	$	451		$	529,375

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

28 Federated Investors, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,	2006			2005			2004
Operating Activities
Net income	$	197,729		$	160,283		$	181,179
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Amortization of deferred sales commissions		51,822			51,732			55,716
Depreciation and other amortization		24,109			19,754			17,298
Share-based compensation expense		10,557			4,252			1,618
Minority interest		5,599			10,205			9,951
(Gain) loss on disposal of assets		(6,796	)		908			(110	)
(Benefit) provision for deferred income taxes		(2,635	)		4,485			(1,592	)
Tax benefit from share-based compensation		13,019			2,537			39,497
Excess tax benefits from share-based compensation		(11,998	)		—			—
Net sales (purchases) of trading securities		16,358			(35,811	)		(483	)
Deferred sales commissions paid		(24,540	)		(30,836	)		(48,431	)
Contingent deferred sales charges received		16,073			20,012			25,081
Other changes in assets and liabilities:
Decrease (increase) in receivables, net		22,922			(9,122	)		4,072
(Increase) decrease in other assets		(6,083	)		8,409			(5,776	)
(Decrease) increase in accounts payable and accrued expenses		(17,617	)		1,717			(3,967	)
(Decrease) increase in income taxes payable		(478	)		(1,073	)		352
Increase (decrease) in other current liabilities		5,637			(17,522	)		16,428
Increase (decrease) in other long-term liabilities		40			(3,924	)		6,212
Net cash provided by operating activities		293,718			186,006			297,045
Investing Activities
Additions to property and equipment		(4,740	)		(2,341	)		(5,527	)
Net proceeds from disposal of business, property, equipment and other assets		6,664			2,002			1,271
Cash paid for business acquisitions, net of cash acquired		(156,149	)		(60,908	)		(67,589	)
Purchases of securities available for sale		(2,016	)		(215	)		(41	)
Proceeds from redemptions of securities available for sale		6,533			695			73
Decrease (increase) in restricted cash equivalents		558			(587	)		0
Net cash used by investing activities		(149,150	)		(61,354	)		(71,813	)
Financing Activities
Distributions to minority interest		(5,797	)		(30,212	)		(9,925	)
Contributions from minority interest		160			20,674			0
Dividends paid		(73,046	)		(61,465	)		(44,703	)
Proceeds from shareholders for share-based compensation and other		9,746			2,650			5,546
Excess tax benefits from share-based compensation		11,998			0			0
Purchases of treasury stock		(169,653	)		(25,732	)		(119,558	)
Proceeds from new borrowings—nonrecourse		18,128			26,021			42,720
Payments on debt—nonrecourse		(62,724	)		(66,147	)		(74,306	)
Other financing activities		(505	)		(808	)		(1,257	)
Net cash used by financing activities		(271,693	)		(135,019	)		(201,483	)
Net (decrease) increase in cash and cash equivalents		(127,125	)		(10,367	)		23,749
Cash and cash equivalents, beginning of year		245,846			256,213			232,464
Cash and cash equivalents, end of year	$	118,721		$	245,846		$	256,213
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest	$	46		$	51		$	89
Income taxes		107,051			103,542			77,879

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

2006 Annual Report 29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(December 31, 2006, 2005 and 2004)

(1) Summary of Significant Accounting Policies

(a) Nature of Operations

Federated Investors, Inc. and its subsidiaries (collectively, Federated) provide investment advisory, administrative, distribution and other services primarily to Federated mutual funds, Separate Accounts (which include separately managed accounts, institutional accounts and sub-advised funds, both variable annuity and other) and other sponsored products in both domestic and international markets.

The majority of Federated’s revenue is derived from investment advisory services provided to mutual funds and Separate 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 third-party investment products. Other fund-related services provided to third-party investment products include distribution 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 wealth management and trust, broker/dealer and global institutional markets.

(b) Basis of Presentation

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

(c) Reclassification of Prior Period Financial Statements

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

(d) Principles of Consolidation

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

The equity method of accounting is used to account for investments in entities in which Federated’s ownership is between 20 and 50 percent and for investments in certain limited partnerships in which Federated is a general partner but does not have control of the partnership as a result of either substantive kick-out or participating rights held by the limited partners. Equity investments are carried at Federated’s share of net assets and are included in either “Investments” or “Other long-term assets” on the Consolidated Balance Sheets dependent upon management’s ability and intent to sell the investment. The proportionate share of income or loss is included in “Revenue – Other, net” in the Consolidated Statements of Income.

(e) Business Combinations

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

(f) Cash and Cash Equivalents

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

(g) Restricted Cash Equivalents

Restricted cash equivalents represent an investment in a third-party sponsored money market account held in escrow as required by an agreement with certain sponsored mutual funds. The restricted cash equivalents represent a return of shareholder service fees to various sponsored mutual funds resulting from an administrative delay in the implementation of contractual terms. The restricted cash equivalents are being distributed to various mutual funds over a period not to exceed 18 months, which ended in January 2007 in accordance with a payment schedule established by the independent boards of directors/trustees of the mutual funds. The offsetting obligation to the mutual funds is recorded as a current liability in “Accounts payable and accrued expenses – affiliates” (see Note (20)). All interest earned on the escrow account is payable to the mutual funds.

30 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(h) Investments

Investments include trading and available-for-sale securities held by Federated. Federated’s trading securities primarily represent investments in investment-grade debt instruments held by certain sponsored equity and fixed-income products which are consolidated by Federated as a result of Federated’s relationship as the primary beneficiary of the product (see Note (4)). Trading securities are carried at fair value based on quoted market prices. Federated’s trading securities held at December 31, 2006 and 2005 are classified as current and are included in “Investments” on the Consolidated Balance Sheets. Changes in the fair values of trading securities are recognized in “Gain on securities, net” in the Consolidated Statements of Income.

Federated’s available-for-sale securities include investments in fluctuating-value mutual funds and asset-backed securities. These investments are carried at fair value based on quoted market prices or, in the absence of quoted market prices, discounted cash flows. These investments are classified as current or long-term assets and are included in “Investments” or “Other long-term assets,” respectively, on the Consolidated Balance Sheets based on management’s ability or intention to sell the investment. The unrealized gains or losses on securities available-for-sale are included net of tax in “Accumulated other comprehensive income, net of tax” on the Consolidated Balance Sheets. Realized gains and losses on these securities are computed on a specific-identification basis and recognized in “Gain on securities, net” in the Consolidated Statements of Income.

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

(i) Derivatives

From time to time, Federated may consolidate a sponsored investment product that holds freestanding derivative financial instruments for trading purposes. Federated recognizes derivative instruments at fair value and records the changes in fair value in Nonoperating Income (Expenses) on the Consolidated Statements of Income. Federated may also enter into derivative financial instruments to hedge price or interest-rate exposures with respect to seed investments in sponsored products or to hedge foreign-currency exchange risk. As of and for the years ending December 31, 2006 and 2005, Federated did not hold any derivatives designated in a formal hedge relationship under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

(j) Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over their estimated useful lives ranging from one to 25 years. Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful lives or their respective lease terms. As property and equipment are taken 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 to determine whether events and circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include a decrease in the market price of the asset, an accumulation of costs significantly in excess of the amount originally expected in the acquisition or development of the asset, historical and projected cash flows associated with the asset and an expectation that the asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Should there be an indication of a change in the useful life or an impairment in value, Federated compares the carrying value of the asset to the probability-weighted undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether an impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to fair value determined based on prices of similar assets if available or discounted cash flows. Impairment adjustments are recognized in “Operating Expenses – Other” in the Consolidated Statements of Income.

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

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

2006 Annual Report 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(l) Intangible Assets

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

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

Federated amortizes separately identifiable intangible assets using a method that reflects the pattern in which the economic benefits of the intangible asset are expected to be consumed or otherwise used. Federated uses either the straight-line or an accelerated method of amortization after considering specific characteristics of the underlying fund shareholder base to forecast the pattern in which the economic benefits will be consumed, including fund shareholder behavior, demographics and persistency levels. The assets are amortized over their estimated useful lives, which range from 5 to 14 years. Management periodically evaluates the remaining useful lives and carrying values of the intangible assets to determine whether events and circumstances indicate that a change in the useful life or impairment in value may have occurred. Indicators of impairment monitored by management include a decline in the level of managed assets, changes to contractual provisions underlying certain intangible assets and reductions in operating cash flows. Should there be an indication of a change in the useful life or impairment in value, Federated compares the carrying value of the asset and its related useful life to the projected undiscounted cash flows expected to be generated from the underlying asset over its remaining useful life to determine whether impairment has occurred. If the carrying value of the asset exceeds the undiscounted cash flows, the asset is written down to its fair value determined using discounted cash flows. Federated writes-off the cost and accumulated amortization balances for all fully amortized intangible assets.

(m) Deferred Sales Commissions and Nonrecourse Debt

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

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

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

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

Federated reviews the carrying value of B-share-related deferred sales commission assets on a periodic basis to determine whether a significant long-term decline in the equity or bond markets or other events or circumstances indicate that an impairment in value may have occurred. Should there be an indication of an impairment in value, Federated compares the carrying value of the asset to the probability-weighted undiscounted cash flows from the sold future revenue streams over the remaining life of the underlying B-share

32 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

fund asset to determine whether an impairment has occurred. Management writes down these asset and debt balances to fair value when reasonably estimable expected future cash flows indicate that cash flows will not be sufficient to fully amortize the remaining deferred sales commission asset and nonrecourse debt balance.

(n) Foreign Currency Translation

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

(o) Treasury Stock

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

(p) Revenue Recognition

Revenue from providing investment advisory, administrative and other services (including distribution, shareholder servicing and retirement plan 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 competitive reasons, to meet regulatory requirements (including settlement-related (see Note (22)(c))) or to meet contractual requirements. Federated waived fees of $338.5 million, $383.4 million and $354.5 million for the years ended December 31, 2006, 2005 and 2004, respectively, nearly all of which was for competitive reasons.

Federated has contractual arrangements with third parties to provide certain fund-related services. Management considers various factors to determine whether Federated’s revenue should be recorded based on the gross amount payable by the funds or net of payments to third-party service providers. Management’s analysis is based on whether Federated is acting as the principal service provider or is performing as an agent. The primary factors considered include: (1) whether the customer holds Federated or the service provider responsible for the fulfillment and acceptability of the services to be provided; (2) whether Federated has any practical latitude in negotiating the price to pay a third-party provider; (3) whether Federated or the customer selects the ultimate service provider; and (4) whether Federated has credit risk in the arrangement. Generally, the less the customer is directly involved with or participates in making decisions regarding the ultimate third-party service provider, the more supportive the facts are that Federated is acting as the principal in these transactions and should therefore report gross revenues. As a result of considering these factors, investment advisory fees, distribution fees and certain other service fees are recorded gross of payments made to third parties. In the case of shareholder services, the funds contract directly with financial intermediaries for the provision of shareholder services as a result of contractual changes implemented in May 2006. As such, Federated is not entitled to and therefore does not record shareholder service fee revenue from the funds on assets serviced by a third-party intermediary. Prior to May 2006, Federated acted as an agent and recorded shareholder service fees net of certain third-party payments. Third-party payments for shareholder services recorded as an offset to revenue for the years ended December 31, 2006, 2005 and 2004 were $75.8 million, $199.3 million and $165.8 million, respectively.

(q) Share-Based Compensation

Effective January 1, 2006, Federated adopted the fair-value-recognition provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004) “Share-Based Payment” (SFAS 123(R)) using the modified prospective method. Under this method, Federated recognizes compensation costs based on grant-date fair value for all share-based awards granted, modified or settled after January 1, 2006, as well as for any awards that were granted prior to adoption for which requisite service has not been provided as of January 1, 2006. Under the modified prospective method, prior periods are not restated for the effect of SFAS 123(R). For prior periods, Federated used the fair-value-based method of accounting for share-based awards under the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS 123) for all awards granted, modified or settled in 2003 through 2005. For all employee-related stock-option awards granted prior to 2003 with no subsequent modifications, Federated had applied 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 was 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.

Federated issues shares for share-based awards from treasury stock. Federated estimates the grant-date fair value of stock options using the Black-Scholes option-pricing model. For restricted stock awards, the fair value of the award is calculated as 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. Federated’s

2006 Annual Report 33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

awards are generally subject to graded vesting schedules. Compensation expense is adjusted for estimated forfeitures and is recognized on a straight-line or modified straight-line basis over the requisite service period of the award. Forfeiture assumptions are evaluated on a quarterly basis and updated as necessary.

For awards granted prior to the adoption of SFAS 123(R) with provisions that allow for accelerated vesting upon retirement, Federated recognizes expense over the vesting period of the awards, regardless of the employee’s attainment of retirement age. Subsequent to its adoption of SFAS 123(R), for all newly granted awards, Federated recognizes expense over the shorter of the vesting period or the period between grant date and the date on which the employee meets the minimum age requirement for retirement.

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(R), Federated would have experienced net income and earnings per share similar to the pro forma amounts indicated below for the years ended December 31,

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

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

(r) Leases

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

(s) Advertising Costs

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

(t) Income Taxes

Federated accounts for income taxes under the liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Federated recognizes a valuation allowance if, based on the weight of available evidence regarding future taxable income, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

(u) Earnings Per Share

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

34 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(v) Comprehensive Income

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

(w) Loss Contingencies

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

(x) Business Segments

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

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

(y) Recent Accounting Pronouncements

SFAS 157 – In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. The provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007. Management is currently evaluating this standard and its impact, if any, on the financial statements.

FIN 48 – In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The two-step process prescribed by FIN 48 for evaluating a tax position involves first determining whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities. The second step then requires a company to measure the tax position benefit as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Management has substantially completed its analysis of the impact of adopting FIN 48 and, based on that analysis, has concluded that the adoption will not have a material impact on the financial statements.

(2) Business Combinations and Acquisitions

MDTA LLC

In the third quarter 2006, Federated acquired MDTA LLC (MDTA) which, through its registered investment advisory division, MDT Advisers, managed approximately $6.7 billion in invested assets as of July 14, 2006 (MDT Acquisition). MDTA grew its business using quantitative investment techniques, having successfully developed a disciplined quantitative process to invest in equities. As a result of the acquisition, Federated has enhanced its product offerings by creating a quantitative line of equity mutual funds to complement Federated’s existing equity products. Federated acquired approximately 89 percent of the outstanding equity interests of MDTA in July 2006 and paid approximately $102.0 million in cash as upfront purchase price. As of December 31, 2006, Federated incurred $1.2 million in transaction costs directly attributable to the MDT Acquisition. The remaining 11 percent minority interest was held by various MDTA employees and was subject to a put/call option whereby the minority interest holders could put their interest to Federated in January 2007 or Federated could call the interests in June 2007. The minority interest holders exercised their put option in January 2007. Federated paid approximately $8.0 million in cash as additional purchase price to acquire the remaining 11 percent on January 9, 2007. For financial reporting purposes, beginning July 14, 2006, Federated consolidated 100 percent of MDTA’s operations into the Consolidated Statements of Income and accounted for the $8.0 million in minority interests as a short-term financing of upfront purchase price (included in “Other current liabilities – affiliates” at December 31, 2006).

2006 Annual Report 35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

The acquisition agreement provides for additional annual purchase price payments over the three-year period following the acquisition closing date based upon growth in revenues during that period. The contingent purchase price payments, which could aggregate as much as $130.0 million, will be recorded as additional goodwill at the time the contingency is resolved.

Federated has engaged external valuation experts to determine the fair value of the identifiable intangible assets. Although preliminary results of the external valuation are reflected in both the Consolidated Financial Statements as of and for the year ended December 31, 2006 and the related footnotes, the final purchase price allocation may result in adjustments to this preliminary valuation and such adjustments may be material. Preliminary valuation results indicate $46.7 million of the purchase price is assignable to identifiable intangible assets with a weighted-average useful life of 9.7 years. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition closing date.

in millions	As of July 14, 2006
Investments (primarily investments of consolidated private investment funds)1	$	15.2
Other current assets		1.9
Intangible assets
Customer relationships (10-year weighted-average useful life)		39.9
Noncompete (8-year weighted-average useful life)		6.8
Goodwill		68.8
Software (4-year weighted-average useful life)		3.0
Other long-term assets		1.3
Total assets acquired		136.9
Current liabilities2		(2.2	)
Long-term deferred tax liability		(7.3	)
Other long-term liabilities2		(1.3	)
Minority interests in private investment funds1		(15.2	)
Total assumed liabilities and minority interest		(26.0	)
Total purchase price	$	110.9

¹ Subsequent to the acquisition and as of December 31, 2006, all but $0.5 million of the assets of the private funds were distributed to liquidate all but one of the private investment funds.

² $0.6 million of the current liabilities balance and $1.1 million of the other long-term liabilities balance represent the present value of net future payments due under certain MDTA operating contracts which offer no future benefit to Federated. Payments made under these contracts will reduce these liabilities and will continue through July 2010.

Of the total customer relationship assets, approximately $14.9 million will be amortized on an accelerated basis over a ten-year useful life. The remaining $25.0 million in customer relationship assets, the noncompete asset and the software assets will be amortized on a straight-line basis over their respective useful lives. Of the total goodwill, approximately $48 million is expected to be deductible for tax purposes.

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

in thousands, except per share data	2006		2005
Revenue	$	993,149	$	910,093
Income from continuing operations	$	189,262	$	148,239
Net income	$	195,943	$	147,548
Income from continuing operations per basic share	$	1.81	$	1.40
Income from continuing operations per diluted share	$	1.78	$	1.37
Net income per basic share	$	1.88	$	1.39
Net income per diluted share	$	1.84	$	1.36

36 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

The pro forma results include adjustments for the following: (1) to adjust for the effect of acquisition-related expenses including compensation and related, depreciation and amortization, interest and income tax expense; (2) to conform the accounting for share-based payments across all periods presented by assuming the adoption of SFAS 123(R) occurred at the beginning of the periods presented; and (3) to eliminate certain revenue and expense attributable to certain historical operations of MDTA which were not acquired by Federated.

Alliance Capital Management L.P.

During the second quarter 2005, Federated completed the acquisition of the cash management business of Alliance Capital Management L.P. (Alliance Acquisition). As a result of the acquisition, approximately $19.3 billion in assets from 22 third-party-distributed money market funds of AllianceBernstein Cash Management Services were transitioned into Federated money market funds. The upfront cost of this acquisition was $27.1 million, which included $25.0 million in purchase price and $2.1 million in transaction costs. The purchase agreement also provides for contingent purchase price payments payable over five years. These payments are calculated as a percentage of revenues less certain operating expenses directly attributed to the assets acquired. The first contingent purchase price payment totaling $10.7 million was paid in the second quarter 2006. At current asset levels, these additional payments would approximate $69 million over the remaining four-year period, of which $10.3 million was accrued in “Other current liabilities – other” as of December 31, 2006 and will be paid in the second quarter of 2007. Federated began recognizing revenue and expenses related to the acquired assets in the Consolidated Statements of Income as of the acquisition date and allocated the cost of the acquisition to the acquired assets based on their estimated fair values as of the acquisition date. Federated recorded two investment advisory contract intangible assets totaling $23.4 million. These assets are being amortized on an accelerated basis over a weighted-average amortization period of nine years. Federated also recorded an intangible asset of $5.0 million representing the fair value of the noncompete agreement obtained from Alliance. This asset is being amortized on a straight-line basis over a seven-year useful life. Goodwill of $19.6 million, which represents the excess recorded costs of this acquisition over the fair value of the investment advisory contract and noncompete agreement intangible assets, has been recorded as of December 31, 2006 and is deductible for tax purposes.

Other Acquisitions

In the first quarter 2006, assets of an equity mutual fund previously advised by Wayne Hummer Asset Management Company, a direct subsidiary of Wintrust Financial Corporation, totaling approximately $158 million were acquired by a sponsored mutual fund. As a result of the transaction, Federated recorded a customer relationship intangible asset, which is being amortized on an accelerated basis over a seven-year useful life.

In the first quarter 2006, Federated purchased the non-controlling interest in Passport Research II, Ltd. (Passport II), a registered investment advisor organized as a limited partnership between an indirect, wholly owned subsidiary of Federated and Edward D. Jones & Co. As a result of the transaction, the partnership was dissolved and the Passport II minority interest is no longer recorded. As part of the transaction, Federated recorded a customer relationship intangible asset, which is being amortized on an accelerated basis over a nine-year useful life, and goodwill.

On December 30, 2005, Federated acquired all outstanding interests in Federated Asset Management GmbH (FAM), the German joint-venture company in which Federated held a 50% interest since 1998. In so doing, Federated obtained financial control of FAM, which serves as an administrator of separate accounts and distributor of Federated offshore fund products in Germany and other German-speaking countries in Europe. This transaction was accounted for using the purchase method of accounting and as a result, Federated consolidated the assets and liabilities of FAM in its Consolidated Balance Sheet as of December 31, 2005 based on their fair values and beginning January 1, 2006, Federated consolidated 100 percent of FAM’s operations into the Consolidated Statements of Income.

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

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

(3) Discontinued Operations

(a) Sale of Federated’s Clearing Business

In the third quarter 2006, an indirect, wholly owned subsidiary of Federated completed the sale of certain assets associated with its TrustConnect^® mutual fund processing business (the Clearing Business) to Matrix Settlement and Clearance Services, LLC, one of the leading providers of mutual fund clearing and settlement processing for banks, trust companies and 401(k) providers. The sale was completed over a series of closings, which began in the first quarter 2006 and was completed in the third quarter 2006. The assets

2006 Annual Report 37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

included in the sale of the Clearing Business consisted primarily of customer relationships, customer contracts and intellectual property, which had no recorded carrying values on Federated’s Consolidated Balance Sheets. In exchange for the assets of the Clearing Business, Federated received upfront cash consideration on a pro-rata basis as the closings occurred, totaling $7.7 million. In addition, Federated is entitled to receive contingent consideration due in the third quarter 2008 if certain revenue targets are met. The contingent consideration will be calculated as a percentage of net revenue above a specific threshold directly attributed to the Clearing Business. After taking selling costs into consideration, Federated recognized a gain on the sale of the Clearing Business of $3.7 million, net of tax expense of $2.7 million. The majority of this gain, or $3.2 million, was recorded in the second quarter 2006 and $0.6 million was recorded in the third quarter 2006. This gain on sale was included in “Discontinued operations, net of tax” on the Consolidated Statements of Income for the year ended December 31, 2006.

Federated incurred $0.6 million in severance expense related to this sale; $0.3 million of which was recorded in “Discontinued operations, net of tax” during 2006. As of December 31, 2006, all severance payments have been made.

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

in thousands	2006		2005		2004
Net revenue from discontinued operations	$	6,035	$	13,367	$	13,337
Pre-tax income from discontinued operations		1,548		4,142		5,531
Income tax expense		673		1,824		2,347
Income from discontinued operations, net of tax	$	875	$	2,318	$	3,184

Also included in “Discontinued operations, net of tax” in 2006 is a $2.1 million reversal of a deferred tax asset valuation allowance for the portion of Federated’s capital loss carryforwards that will be utilized as a result of the capital gain on the sale of the Clearing Business.

(b) Sale of InvestLink Technologies, Inc.

During the third quarter 2005, Federated sold its interest in InvestLink Technologies, Inc., an indirect, wholly owned subsidiary (InvestLink), to an independent third party. InvestLink’s primary business was to provide software-related solutions for third-party administrators of defined contribution plans. The sale resulted in the disposal of $1.8 million in total InvestLink net assets, which consisted primarily of $0.8 million of goodwill, $0.7 million of fixed assets and $0.3 million of receivables/accrued revenues. After taking selling costs into consideration, Federated recognized a loss on the sale of InvestLink of $1.7 million, which included tax expense of $0.3 million. This loss on sale was included in “Discontinued operations, net of tax” on the Consolidated Statements of Income for the year ended December 31, 2005.

The results of operations of InvestLink, also included in “Discontinued operations, net of tax,” were as follows for the years ended December 31, 2005 and 2004. There was no activity related to InvestLink during the year ended December 31, 2006.

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

(c) Sale of Federated’s Transfer Agency Business

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

38 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

The results of operations of the transfer agency business included in “Discontinued operations, net of tax” were as follows for the years ended December 31, 2005 and 2004. There was no activity related to the transfer agency business during the year ended December 31, 2006.

in thousands	2005			2004
Net revenue from discontinued operations	$	0		$	14,738
Pre-tax (loss) income from discontinued operations		(290	)		3,018
Income tax (benefit) expense		(101	)		1,056
(Loss) income from discontinued operations, net of tax	$	(189	)	$	1,962

(4) Variable Interest Entities

Federated is involved with various entities in the normal course of business that may be deemed to be variable interest entities (VIEs). In 2006 and 2005, Federated determined that it was the primary beneficiary of certain VIEs and, as a result, consolidated the assets, liabilities and operations of these VIEs in its Consolidated Financial Statements.

(a) Consolidated VIEs

Under FIN 46, most of Federated’s sponsored mutual funds meet the definition of a VIE. In 2006 and 2005, Federated invested in certain newly launched products sponsored by Federated in order to provide investable cash to the product thereby allowing the product to establish a performance history. As the sole or majority investor in these various new products, Federated was deemed to be the primary beneficiary. At December 31, 2006, the aggregate assets and debt of the products that Federated consolidated were $9.9 million and $0.7 million, respectively, and Federated recorded $0.5 million to “Minority interest” on Federated’s Consolidated Balance Sheets. At December 31, 2005, the aggregate assets and debt of the products that Federated consolidated were $36.0 million and $0.1 million, respectively, and Federated recorded $0.7 million to “Minority interest” on Federated’s Consolidated Balance Sheets. The assets of the products are primarily classified as “Investments” on Federated’s Consolidated Balance Sheets. Neither creditors nor equity investors in the products have any recourse to Federated’s general credit.

(b) Non-Consolidated VIEs

Federated acts as the investment manager for certain investment products which are deemed to be VIEs. In addition to Federated’s involvement as the investment manager, Federated may also hold investments in these products. The products generally include domestic and offshore money market and fluctuating-value fund products, closed-end fixed-income funds and a group trust. Federated is not the primary beneficiary of these VIEs and therefore Federated has not consolidated these entities. As of December 31, 2006, total assets under management in these investment products approximated $175.5 billion. Federated’s investments in these products represent its maximum exposure to loss. As of December 31, 2006, Federated’s investment in these investment products was $18.0 million, $16.8 million of which was invested in money market products.

At December 31, 2006, Federated also acted as the investment manager for three collateralized debt obligations (CDOs) which meet the definition of a VIE. The CDOs are alternative investment vehicles created for the sole purpose of issuing collateralized debt instruments that offer investors the opportunity for returns that vary with the risk level of their investment. The notes issued by the CDOs are backed by diversified portfolios consisting primarily of structured debt and had original expected maturities of twelve years. As of December 31, 2006, aggregate total assets and aggregate total obligations of the CDOs approximated $1.2 billion and $1.3 billion, respectively. Federated holds a $1.5 million investment in one of these CDOs, which represents Federated’s maximum risk of loss.

(5) Investments

Investments as of December 31, 2006 and 2005 included trading and available-for-sale securities. At December 31, 2006, Federated held investments totaling $6.5 million in fluctuating-value mutual funds which were classified as current and included in “Investments” on the Consolidated Balance Sheets. A $1.5 million investment outstanding at December 31, 2006 was classified as long-term and was included in “Other long-term assets” on the Consolidated Balance Sheets. All investments held as of December 31, 2005 were classified as current and were included in “Investments” on the Consolidated Balance Sheets.

Federated’s trading securities totaled $9.6 million and $36.4 million at December 31, 2006 and 2005, respectively. Federated consolidated certain sponsored products into its Consolidated Financial Statements in 2006 and 2005 as a result of Federated’s controlling financial interest in the products (see Note (4)). As a result, all investments held by these sponsored products were included in Federated’s Consolidated Balance Sheet as of December 31, 2006 and 2005 as trading securities. These investments primarily represented investment-grade debt securities.

2006 Annual Report 39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

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

			Gross Unrealized					Estimated Market Value
in thousands	Cost		Gains		(Losses)
At December 31, 2006
Fluctuating-value mutual funds	$	6,558	$	101	$	(112	)	$	6,547
Asset-backed Securities1		1,499		0		0			1,499
Total available-for-sale securities	$	8,057	$	101	$	(112	)	$	8,046
At December 31, 2005
Fluctuating-value mutual funds	$	1,801	$	206	$	0		$	2,007

1 In the fourth quarter 2006, Federated launched a $1.0 billion CDO. The CDO, which meets the definition of a VIE, invests primarily in high-grade, asset-backed securities and offers investors opportunity for returns that vary with the risk level of their investment. The CDO has a term to maturity of 40 years and an expected life of 10 years.

At December 31, 2005, Federated consolidated three derivative financial instruments included in the investment portfolio of a wholly owned sponsored mutual fund. One such instrument was a total-return swap with a notional amount of $4.5 million and fair value of $0.1 million. The other two instruments were futures contracts with an aggregate notional value of $0.5 million. The futures contracts settled daily and as such, had no carrying value at December 31, 2005. Federated held no such instruments at December 31, 2006.

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

in thousands	2006			2005			2004
Unrealized gain on trading securities	$	169		$	34		$	28
Realized gains1		586			256			12
Realized losses2		(197	)		(27	)		(3	)
Gain on securities, net	$	558		$	263		$	37

1 Of the realized gains, $237, $71 and $11 related to the disposal of available-for-sale securities in 2006, 2005 and 2004, respectively.

2 Of the realized losses recognized in 2006, $190 related to the disposal of trading securities. The realized losses recognized in 2005 and 2004 related entirely to the disposal of trading securities.

(6) Intangible Assets and Goodwill

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

	2006							2005
in thousands	Cost		Accumulated Amortization			Carrying Value		Cost		Accumulated Amortization			Carrying Value
Customer relationships1	$	143,723	$	(53,975	)	$	89,748	$	97,923	$	(37,821	)	$	60,102
Noncompete agreements2		27,263		(16,580	)		10,683		20,448		(13,725	)		6,723
Other		12		(6	)		6		12		(5	)		7
Total identifiable intangible assets3	$	170,998	$	(70,561	)	$	100,437	$	118,383	$	(51,551	)	$	66,832

1 Weighted average amortization period of 10.0 years

2 Weighted average amortization period of 6.7 years

3 Weighted average amortization period of 9.5 years

During 2006, Federated recorded $45.8 million of customer relationship intangible assets primarily in connection with the MDT Acquisition. These assets are being amortized over a weighted-average useful life of 9.8 years on an accelerated or straight-line basis consistent with the expected pattern in which the economic benefits of the asset will be consumed. Federated also recorded an intangible asset of $6.8 million representing the fair value of the noncompete agreement obtained from MDTA. This asset is being amortized on a straight-line basis over an eight-year useful life. See Note (2) for a complete discussion on recent acquisitions.

40 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

Amortization expense for identifiable intangible assets was $19.0 million, $14.2 million and $10.7 million in 2006, 2005 and 2004, respectively. Following is a schedule of expected aggregate annual amortization expense for intangible assets in each of the five years following December 31, 2006 assuming no new acquisitions or impairments:

in thousands
2007	$	19,256
2008		17,196
2009		15,927
2010		14,840
2011		9,879

Goodwill at December 31, 2006 and 2005 was $388.2 million and $303.2 million, respectively. During 2006, Federated recorded $85.0 million of goodwill primarily in connection with the MDT Acquisition ($69.0 million) and the Alliance Acquisition ($12.6 million). See Note (2) for additional information.

(7) Property and Equipment

Property and equipment consisted of the following at December 31:

in thousands	Estimated Useful Life	2006			2005
Computer software and hardware1	1 to 5 years	$	28,579		$	24,065
Transportation equipment	3 or 25 years		11,876			11,876
Leasehold improvements	Up to term of lease		9,081			8,726
Office furniture and equipment	4 to 10 years		6,895			7,556
Total cost/fair value			56,431			52,223
Accumulated depreciation and amortization2			(32,263	)		(30,217	)
Property and equipment, net		$	24,168		$	22,006

1 Amounts include $341 and $1,128 recorded under capital lease arrangements for 2006 and 2005, respectively.

2 Amounts include $99 and $786 related to capital lease arrangements for 2006 and 2005, respectively.

Depreciation and amortization expense from continuing operations was $6.0 million, $6.0 million and $7.2 million for the years ended December 31, 2006, 2005 and 2004, respectively, and included the depreciation of assets recorded under capital lease arrangements.

(8) Other Current Liabilities – Other

Federated’s “Other current liabilities – other” as of December 31, 2006 included $10.3 million related to the contingent purchase price of the Alliance Acquisition. See Note (2) for additional information on this acquisition. Also included at December 31, 2006 was $7.5 million related to an insurance recovery for a claim submitted to cover costs associated with the internal review, government investigations into past mutual fund trading practices and related civil litigation (see Note (22)(c)). The retention of this advance payment is contingent upon the 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.

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

(9) Recourse Debt

On October 31, 2006, Federated entered into a five-year $200 million Revolving Credit Facility with an option to increase it to $300 million during the term of the facility upon commitment from the lenders (the Credit Facility). Borrowings under the Credit Facility would bear interest, at the option of Federated, at a defined prime rate or at a spread dependent upon its debt rating over the London Interbank Offering Rate or Federal Funds effective rate. Under the Credit Facility, Federated will pay a facility fee based on its debt credit rating, currently 7.5 basis points, and can make cash payments for stock repurchases or shareholder dividend payments as long as liquidity of no less than $10 million is maintained during the payment period. Certain subsidiaries entered into a Continuing Agreement of Guaranty and Suretyship whereby these subsidiaries guarantee payment of all obligations incurred through the Credit Facility. The Credit Facility also includes financial and non-financial covenants. The Credit Facility, which replaced the prior $150 million 364-day credit facility, expires October 31, 2011, and will be used for general corporate purposes.

See Note (14) for information on capital leases.

2006 Annual Report 41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(10) Deferred Sales Commissions and Nonrecourse Debt

Deferred sales commissions consisted of the following at December 31:

in thousands	2006		2005
Deferred sales commissions on B-shares, net	$	108,539	$	154,544
Other deferred sales commissions, net		3,747		3,018
Deferred sales commissions, net	$	112,286	$	157,562

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

	Weighted-Average Interest Rates at December 31,				Remaining Amortization Period at December 31, 2006
dollars in thousands	2006		2005			2006		2005
Financings between April 1997 and September 2000	8.60	%	8.30	%	1.8	$	8,738	$	23,843
Financings between October 2000 and December 2003	4.79	%	5.14	%	5.0		53,632		86,445
Financings between January 2004 and December 2006	5.78	%	5.16	%	8.0		50,617		49,496
Total nonrecourse debt						$	112,987	$	159,784

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 performs recoverability analyses of the deferred sales commission assets and nonrecourse debt related to B-share financings. The evaluations performed in 2006 and 2005 indicated that future cash flows related to financings closed through September 2000 will not be sufficient to fully amortize the related asset and debt balances. As such, in addition to the normal amortization occurring during the year based on B-share-related distribution, shareholder service and CDSC fee cash flows, the B-share-related deferred sales commission asset balance was written down by $2.2 million and $87.9 million during 2006 and 2005, respectively, while the nonrecourse debt was written down by $2.2 million and $88.0 million during 2006 and 2005, respectively. There was no material impact on the results of operations as a result of this write-down.

On December 27, 2006, Federated amended its agreement with an independent financial institution for funding of the B-share sales commissions to extend the program through February 28, 2007. Federated expects to sign a definitive agreement with an independent financial institution, effective March 1, 2007, to continue funding B-share sales commissions through December 31, 2009.

(11) 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 50% 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 $3.2 million, $3.0 million and $2.9 million for 2006, 2005 and 2004, 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 2006, 2005 or 2004. At December 31, 2006, the Profit Sharing Plan held 1.2 million shares of Federated Class B common stock.

42 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(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, 2006, 82,667 shares were purchased by the plan on the open market since the plan’s inception in 1998.

(12) Share-Based Compensation Plans

Federated’s long-term stock-incentive compensation has been provided for under the Stock Incentive Plan (the Plan), as amended and subsequently approved by shareholders in April 2002 and April 2006. Share-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. Since the Plan’s inception, a total of 23.6 million shares of Class B common stock have been authorized for granting share-based awards in the form of restricted stock, stock options or other share-based awards. As of December 31, 2006, 4.9 million shares are available under the Plan.

Federated’s net income for the year ended December 31, 2006 included $10.6 million of compensation costs and $4.0 million of income tax benefits related to share-based awards. Federated’s net income for the year ended December 31, 2005 included $4.3 million of compensation costs and $1.5 million of income tax benefits related to share-based awards. Federated’s net income for the year ended December 31, 2004 included $1.6 million of compensation costs and $0.6 million of income tax benefits related to share-based awards. At December 31, 2006, there was approximately $44.6 million of total unrecognized compensation cost related to share-based awards, which is expected to be recognized over a weighted-average period of 6.4 years.

For the year ended December 31, 2006, Federated recorded $4.4 million of share-based compensation expense in “Income from continuing operations before income taxes” and $2.8 million of share-based compensation expense in “Net income” related to Federated’s adoption of SFAS 123(R). This expense had the effect of reducing both basic and diluted earnings per share for the year ended December 31, 2006 by $0.03.

(a) Restricted Stock

Federated’s restricted stock awards represent shares of Federated Class B common stock that may be sold by the awardee only once the restrictions lapse, as dictated by the terms of the award. The awards are generally subject to graded vesting schedules that vary in length from three to ten years with a portion of the award vesting each year, as dictated by the terms of the award. For an award with a ten-year vesting period, the restrictions typically lapse on approximately the fifth- and tenth-year anniversaries of the grant date for the vested portion of the award. Certain restricted stock awards granted pursuant to a key employee bonus program have a three-year graded vesting schedule with restrictions lapsing at each vesting date. During the period of restriction, the recipient receives dividends on all shares awarded, regardless of their vesting status.

The following table summarizes activity of non-vested restricted stock awards for the year ended December 31, 2006:

	Restricted Shares		Weighted- Average Grant- Date Fair Value
Non-vested at January 1, 2006	1,009,343		$	26.71
Granted1	777,596		$	32.05
Vested	(118,167	)	$	28.10
Forfeited	(133,544	)	$	26.78
Non-vested at December 31, 2006	1,535,228		$	29.30

¹ During the first quarter of 2006, Federated awarded 171,596 shares of restricted Federated Class B common stock in connection with a bonus program in which certain key employees received a portion of their bonus in the form of restricted stock under the Plan. This restricted stock, which was granted on the bonus payment date, was issued out of treasury and will vest over a three-year period. During the second quarter of 2006, Federated awarded 606,000 shares of restricted Federated Class B common stock to certain key employees.

Federated awarded 777,596 shares of restricted Federated Class B common stock with a weighted-average grant-date fair value of $32.05 to employees during 2006; awarded 679,796 shares of restricted Class B common stock with a weighted-average grant-date fair value of $27.52 during 2005; and awarded 362,000 shares of restricted Class B common stock with a weighted-average grant-date fair value of $25.53 during 2004.

The total fair value of restricted stock vested during 2006, 2005 and 2004 was $4.1 million, $0.7 million and $29.4 million, respectively.

(b) Stock Options

The outstanding stock options were granted with exercise prices that equaled or exceeded the market price of Federated’s Class B common stock on the grant date. The options generally have graded vesting schedules that vary in length from three to ten years and in certain cases, may contain accelerated vesting provisions based upon the attainment of specific performance criteria. The stated exercise period is typically a one-year period following the date on which the entire award becomes fully vested. Each vested option may be

2006 Annual Report 43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

exercised for the purchase of one share of Class B common stock at the exercise price. In some cases, Federated awarded stock options with no requisite service requirement. These options, which were fully vested on the date of grant, were immediately exercisable and expire no later than ten years after the grant date.

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		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2006	7,748,111		$	20.36
Granted	12,000		$	37.73
Exercised	(1,279,626	)	$	6.20
Forfeited	(561,075	)	$	27.38
Outstanding at December 31, 2006	5,919,410		$	22.79	3.9	$	65.6
Vested at December 31, 2006	3,042,610		$	20.19	3.7	$	41.4
Exercisable at December 31, 2006	1,341,610		$	18.96	3.5	$	19.9

Total options exercised during 2006, 2005 and 2004 were 1,279,626, 274,348 and 2,135,958, respectively. The total intrinsic value of stock options exercised during 2006, 2005 and 2004 was $33.3 million, $6.9 million and $58.6 million, respectively.

Federated granted 12,000 stock options to independent directors with a weighted-average grant-date fair value of $7.93 and $5.45 during both of the second quarters of 2006 and 2005, respectively. Federated granted 16,500 stock option to independent directors with a weighted-average grant-date fair value of $7.97 during the second quarter of 2004. Federated estimated the grant-date fair value using the Black-Scholes option-pricing model with the following weighted-average assumptions for options granted in 2006, 2005, and 2004 respectively: dividend yields based on latest annualized dividend of 1.91%, 2.19% and 1.34%; expected volatility factors based on historical volatility of 18.8%, 21.6% and 24.9%; risk-free interest rates based on the U.S. Treasury strip rate for the expected life of the option of 4.93%, 3.77% and 3.69%; and an expected life of 5.0 years, 5.0 years and 5.6 years. Because Federated does not have historical stock option exercise data on similar stock options, the expected life is based on the assumption that these options will be exercised evenly over the life of the option.

No awards were granted with an exercise price that was less than or greater than the market price on the date of grant in 2006, 2005 or 2004.

(13) 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. With respect to dividends, distributions and liquidation rights, the Class A common stock and Class B common stock have equal preferences and rights.

Cash dividends of $73.0 million, $61.5 million and $44.7 million were paid in 2006, 2005 and 2004, respectively, to holders of common stock.

In 2004, and again in 2006, the board of directors approved a share repurchase program authorizing executive management to purchase Federated Class B common stock. Under the program, shares can be repurchased in the open market and private transactions through the life of the program. The program authorizes executive management to determine the timing and the amount of shares for each purchase. The repurchased stock will be held in treasury for employee benefit plans, potential acquisitions and other corporate activities. During the year ended December 31, 2006, Federated repurchased 5.2 million shares of its Class B common stock, 5.1 million shares of which were part of its current share-buyback program. As of December 31, 2006, Federated could repurchase up to 7.2 million additional shares under the current board-approved program. The remaining 0.1 million shares were repurchased in connection with employee separations during the year ended December 31, 2006, and were not counted against the board-approved share-buyback program.

As restricted under the Credit Facility, Federated is able to make cash payments for stock repurchases or shareholder dividends as long as liquidity of no less than $10 million is maintained during the payment period.

44 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(14) Leases

The following is a schedule by year of future minimum payments required under the capital leases and future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2006:

in thousands	Capital Leases			Operating Leases
2007	$	104		$	13,142
2008		104			12,064
2009		86			9,522
2010		0			8,771
2011		0			7,542
2012 and thereafter		0			21,736
Total minimum lease payments	$	294		$	72,777
Less executory costs and imputed interest costs		(44	)
Present value of minimum lease payments	$	250

Federated’s total capital lease obligation was $0.2 million and $0.3 million at December 31, 2006 and 2005, respectively, and was included in “Other current liabilities – other” and “Other long-term liabilities – other.” Federated entered into a new capital lease for computer hardware in 2005. This was the only capital lease outstanding at December 31, 2006; it carried an interest rate of 6.93% and expires in the fourth quarter 2009. The weighted-average interest rate for capital leases outstanding at December 31, 2005 was 6.83%.

Federated held a material operating lease at December 31, 2006 for its corporate headquarters building in Pittsburgh, Pennsylvania. This lease expires in 2014 and has renewal options for two successive terms of five years each. This lease includes provisions for leasehold improvement incentives, rent escalation and certain penalties for early termination. In addition, at December 31, 2006, Federated had various other operating lease agreements primarily involving facilities, office and computer equipment and vehicles. These leases are noncancelable and expire on various dates through the year 2014. Most leases include renewal or purchase options and, in certain leases, escalation clauses.

Federated began subleasing certain leased property in 2002. As of December 31, 2006, aggregate future minimum rentals to be received under noncancelable subleases that expire in 2007 and 2010 totaled $2.2 million.

Rental expenses related to continuing operations were $11.9 million, $11.9 million and $10.6 million for the years ended December 31, 2006, 2005 and 2004, respectively. Sublease income for the years ended December 31, 2006, 2005 and 2004 was $0.5 million, $0.5 million and $0.6 million, respectively.

(15) Income Taxes

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

Income tax expense (benefit), net from continuing operations consisted of the following components for the years ended December 31:

in thousands	2006			2005		2004
Current:
Federal	$	107,040		$	102,834	$	104,373
State		8,624			7,021		4,794
Foreign		690			556		638
		116,354			110,411		109,805
Deferred:
Federal		(2,984	)		3,444		(3,157	)
State		349			1,041		1,565
Total	$	113,719		$	114,896	$	108,213

In 2005, the federal net tax effects of deferred sales commissions of $8.2 million and insurance proceeds of ($5.8 million) are timing differences exceeding 5% of pretax income at the statutory federal income tax rate included in “Income tax provision” on the Consolidated Statements of Income. In 2004, the net tax effect of insurance proceeds timing differences of $5.8 million included in “Income tax provision” on the Consolidated Statements of Income exceeded 5% of pretax income at the statutory federal income tax rate. In 2006, there were no federal timing differences exceeding 5% of pretax income at the statutory federal income tax rate.

2006 Annual Report 45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

Discontinued operations, net of tax for the years ended December 31, 2006, 2005 and 2004 included income tax expense of $1.3 million, $1.4 million and $3.0 million, respectively.

For the years ended December 31, 2006, 2005 and 2004, the foreign subsidiaries had income from continuing operations before income taxes of $3.3 million, $3.7 million and $4.6 million, respectively, for which income tax expense of $1.2 million, $1.4 million and $1.6 million, respectively, has been recorded.

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:

	2006		2005		2004
Expected statutory rate	35.0	%	35.0	%	35.0	%
Increase:
State income taxes, net of Federal benefit	1.9		1.9		1.4
Non-deductible portion of Settlement expense	0		4.4		1.2
Other	0.4		0.3		0.4
Total	37.3	%	41.6	%	38.0	%

During 2006, Federated reversed a valuation allowance equal to $2.3 million for the portion of the federal capital loss carry forwards that will be utilized as a result of the capital gain on the sale of the Clearing Business and the gain on the sale of certain investments. The reversal was included in “Discontinued operations, net of tax” ($2.1 million) and “Income from continuing operations” ($0.2 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	2006			2005
Deferred Tax Assets
State tax net operating losses1	$	14,904		$	10,920
Impairment losses on CDOs2		5,972			5,972
Share-based compensation		3,842			1,413
Deferred income		2,625			0
State taxes		1,328			658
Capital losses		312			3,273
Contingent payments		0			1,658
Other		2,253			490
Total gross deferred tax asset		31,236			24,384
Valuation allowance1		(14,480	)		(13,480	)
Total deferred tax asset, net of valuation allowance	$	16,756		$	10,904
Deferred Tax Liabilities
Intangible assets	$	20,059		$	9,275
Deferred sales commissions		9,048			11,611
State taxes		5,334			3,051
Property and equipment		2,772			3,091
Costs of internal-use software		1,094			1,056
Other		1,926			1,820
Total gross deferred tax liability	$	40,233		$	29,904
Net deferred tax liability	$	23,477		$	19,000

¹ A valuation allowance has been recognized for $0.2 million of the deferred tax asset for state tax capital losses and for all but $0.7 million of the deferred tax asset for state tax net operating losses. The $0.7 million of the deferred state tax asset for state net operating losses will expire in 2018 ($0.3 million) and over 2007-2025 ($0.4 million). The valuation allowance was recorded due to management’s belief that it is more likely than not that Federated will not realize the benefit of these loss carry-forwards.

² This amount represents deferred tax assets generated by the impairment charges recorded to write down the value of Federated’s investment in the pre-2006 CDOs. The amount of actual capital loss associated with these investments will not be known until they are either redeemed or sold. The five-year carry-forward period will begin in the first tax year after Federated’s CDO investments are either redeemed or sold. Management believes it is more likely than not that Federated will fully realize these deferred tax assets in the future.

46 Federated Investors, Inc

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(16) 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	2006		2005			2004
Numerator
Income from continuing operations	$	191,048	$	160,974		$	176,535
Income (loss) from discontinued operations		6,681		(691	)		4,644
Net income	$	197,729	$	160,283		$	181,179
Denominator
Denominator for basic earnings per share – weighted-average shares less nonvested restricted stock		104,293		106,114			107,615
Effect of dilutive securities:
Dilutive potential shares from share-based compensation		1,995		2,138			2,795
Denominator for diluted earnings per share – adjusted weighted-average shares and assumed conversions		106,288		108,252			110,410
Basic earnings per share
Income from continuing operations	$	1.83	$	1.52		$	1.64
Income (loss) from discontinued operations		0.06		(0.01	)		0.04
Net income1	$	1.90	$	1.51		$	1.68
Diluted earnings per share
Income from continuing operations	$	1.80	$	1.49		$	1.60
Income (loss) from discontinued operations		0.06		(0.01	)		0.04
Net income	$	1.86	$	1.48		$	1.64

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, 2006, 2005 and 2004, 1.1 million, 1.3 million and 1.7 million share-based awards, respectively, were outstanding but not included in the computation of diluted earnings per share for each year either because the shares assumed repurchased exceeded the shares assumed issued upon exercise as a result of including the average unrecognized compensation cost of the awards in the assumed proceeds or because, in the case of options, the exercise price was greater than the average market price of Federated Class B common stock for each respective year. Under the treasury stock method, in the event the awards 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.

2006 Annual Report 47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(17) Accumulated Other Comprehensive Income

The components of accumulated other comprehensive income, 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, 2004	$	72		$	300		$	372
Total change in market value1		41			0			41
Reclassification adjustment – net realized gain2		(6	)		0			(6	)
Gain on currency conversion3		0			122			122
Balance at December 31, 2004		107			422			529
Total change in market value1		73			0			73
Reclassification adjustment – net realized gain2		(46	)		0			(46	)
Loss on currency conversion3		0			(230	)		(230	)
Balance at December 31, 2005		134			192			326
Total change in market value1		6			0			6
Reclassification adjustment – net realized gain2		(148	)		0			(148	)
Gain on currency conversion3		0			267			267
Balance at December 31, 2006	$	(8	)	$	459		$	451

¹ The tax expense on the change in market value of securities available for sale was $3, $39 and $23 for 2006, 2005 and 2004, respectively.

² The tax expense on the reclassification adjustment for securities available for sale was $79, $25 and $3 for 2006, 2005 and 2004, respectively.

³ The tax (expense) benefit on the foreign currency translation gain (loss) was $(144), $124 and $(66) for 2006, 2005 and 2004, respectively.

(18) Disclosures of Fair Value

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

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

• Cash and cash equivalents

• Restricted cash equivalents

• Receivables

• Accrued revenue

• Accrued compensation and benefits

• Accounts payable and accrued expenses

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

The fair value of Federated’s nonrecourse debt is estimated based on estimated annual redemption and market appreciation rates of the underlying B-share fund assets (see Note (1)(m) and Note (10)). Based on this estimate, the carrying value of nonrecourse debt appearing on the Consolidated Balance Sheets approximates fair value.

(19) Minority Interest in Subsidiaries and Equity Investments

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

In the first quarter 2006, Federated purchased the non-controlling interest in Passport II. See Note (2) for additional information.

48 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

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

In 2006 and 2005, Federated consolidated certain sponsored products, which were deemed to be VIEs. While Federated is the primary beneficiary and consolidator of the products, equity investments in certain of these products held by third parties are presented as minority interests in Federated’s Consolidated Financial Statements.

(20) Related Party Transactions

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

At December 31, 2006 and 2005, “Receivables – affiliates” totaled $21.8 million and $40.6 million, respectively, and “Accrued revenue – affiliates” totaled $3.5 million and $0.8 million, respectively, relating to services provided to various Federated products.

At December 31, 2006 and 2005, “Accounts payable and accrued expenses – affiliates” totaled $2.2 million and $1.4 million, respectively. For 2006, the balance primarily represents fund-related expenses assumed by Federated in certain cases in order to make the fund more competitive or to meet regulatory requirements. With regard to 2005, $0.6 million related to shareholder service fees payable to various Federated funds resulting from an administrative delay in the implementation of contractual terms. The remaining amounts in 2005 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, 2006 and 2005, “Other current liabilities – affiliates” totaled $8.3 million and $33.1 million, respectively. For 2006, the balance primarily represents the accrual of the remaining purchase price to acquire the remaining 11 percent minority interest in MDT from various employees (see Note (2)). For 2005, $33.1 million represents the accrual for the final contingent purchase price payment earned as of that year-end related to Federated’s acquisition of substantially all of the business of the former advisor of the Kaufmann Fund.

(21) Concentration Risk

In terms of revenue concentration by product, approximately 17% of Federated’s total revenue for 2006 was derived from services provided to one sponsored fund. In addition, in terms of revenue concentration by customer, two intermediary customers accounted for a total of approximately 26% of Federated’s total revenue for 2006. Although in both cases the majority of this revenue is dependent upon the level of assets under management in numerous individual fund shareholder accounts in multiple sponsored products, significant changes in Federated’s relationship with these intermediary customers could have a significant adverse effect on Federated’s future revenues and, to a lesser extent, net income.

(22) Commitments and Contingencies

(a) Contractual

Federated is obligated to make certain future payments under various agreements to which it is a party, including capital and operating leases (see Note (14)). The following table summarizes minimum payments contractually due under Federated’s significant service contracts and employment arrangements:

	Payments due in
in millions	2007		2008		2009		2010		2011		2012		Total
Purchase obligations1	$	6.9	$	2.1	$	0.1	$	0	$	0	$	0	$	9.1
Employment-related commitments2		8.2		3.0		1.9		1.3		0.8		0.4		15.6
Total	$	15.1	$	5.1	$	2.0	$	1.3	$	0.8	$	0.4	$	24.7

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 2009. 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 2012.

As part of the MDT Acquisition, Federated may be required to make additional purchase price payments upon the occurrence of certain events. First, as previously mentioned, at December 31, 2006, certain MDTA employees held an aggregate 11 percent minority interest in MDTA. These minority interests were subject to a put/call option whereby the minority interests had the right to put their interest to Federated or Federated could call the interests in 2007. The minority interests exercised their option to put their interests to Federated in January 2007 and Federated paid approximately $8.0 million in cash as additional purchase price to acquire the remaining 11 percent on January 9, 2007. This payment will be recorded as a reduction to “Other current liabilities – affiliates.” In addition,

2006 Annual Report 49

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

Federated may be required to make annual contingent purchase price payments based upon growth in MDTA net revenues over the next three years. These purchase price payments, which could aggregate as much as $130.0 million, will be recorded as additional goodwill at the time the contingency is resolved.

Also, as part of the MDT Acquisition, Federated entered into various long-term employment and compensation arrangements pursuant to which Federated will be obligated to make certain minimum and contingent compensation-related payments. These contracts expire on various dates through the year 2012. The remaining estimated minimum amount payable under these arrangements approximates $6.9 million, of which $2.2 million is payable in 2007. The remaining estimated maximum amount payable under these arrangements approximates $22.6 million, of which $4.7 million would be payable in 2007 if certain performance targets are achieved.

As part of the Alliance Acquisition, Federated is required to make contingent purchase price payments over a five-year period. These payments are calculated as a percentage of revenues less certain operating expenses directly attributed to the assets acquired. The first contingent purchase price payment totaling $10.7 million was paid in the second quarter 2006. At current asset levels, these additional payments would approximate $69 million over the remaining four-year period, of which $10.3 million was accrued in “Other current liabilities – other” as of December 31, 2006 and will be paid in the second quarter of 2007.

Pursuant to various acquisition agreements, Federated may be required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In these cases, the payments occur quarterly or annually and could continue through the fourth quarter 2008.

(b) Guarantees and Indemnifications

In connection with the sale of InvestLink (see Note (3)(b)), the real estate lease for office space was assigned to the purchaser of InvestLink. As of December 31, 2006, Federated was the named guarantor for this lease agreement. Pursuant to the guarantee agreement, the term of which expires December 31, 2008, Federated would be required to make the scheduled lease-related payments to the landlord in the event the lessee defaults on the payment. As of December 31, 2006, the maximum potential amount of future lease-related payments is $0.6 million. Management believes that the likelihood of making any payment under this guarantee is remote. Management estimated the fair value of the guarantee at inception by performing a probability-weighted future cash flow analysis which gave due regard to the remote likelihood that the lessee will default on the lease-related payments. Based on this analysis, management did not recognize a liability for the guarantee either at the inception of the guarantee or at December 31, 2006.

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) Past Mutual Fund Trading Issues and Related Legal Proceedings

In 2005, Federated entered into settlement agreements with the Securities and Exchange Commission (SEC) and New York State Attorney General (NYAG) to resolve the past mutual fund trading issues. Under the terms of the settlements, Federated paid for the benefit of fund shareholders a total of $80.0 million. In addition, Federated agreed to reduce the investment advisory fees on certain Federated funds by $4.0 million per year for the five-year period beginning January 1, 2006, based upon effective fee rates and assets under management as of September 30, 2005. Depending upon the level of assets under management in these funds during the five-year period, the actual investment advisory fee reduction could be greater or less than $4.0 million per year. For the year ended December 31, 2006, these fee reductions were approximately $4 million. Costs related to certain other undertakings required by these agreements will be incurred in future periods and the significance of such costs is currently not determinable.

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

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

50 Federated Investors, Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

All of these lawsuits seek unquantified damages, attorneys’ fees and expenses. Federated is defending this litigation. The potential impact of these recent lawsuits and future potential similar suits, as well as the timing of settlements, judgement or other resolution of these matters, are uncertain. It is possible that an unfavorable determination will cause a material adverse impact to Federated’s reputation, financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

The Consolidated Financial Statements for the years ended December 31, 2006, 2005 and 2004 reflect $9.1 million, $9.6 million and $15.4 million, respectively, for costs associated with various legal, regulatory and compliance matters, including costs related to Federated’s internal review, costs incurred on behalf of the funds, costs incurred and estimated to complete the distribution of Federated’s regulatory settlement and costs incurred and estimated to resolve certain of the above-mentioned ongoing legal proceedings. Accruals for these estimates represent management’s best estimate of probable losses at this time. Actual losses may differ from the estimate, and such differences may have a material impact on Federated’s consolidated results of operations, financial position or cash flows. The Consolidated Financial Statements for the years ended December 31, 2005 and 2004 reflect settlement expenses of $55.6 million and $17.4 million, respectively, primarily representing civil penalties and restoration to fund shareholders associated with the aforementioned settlements. In addition, 2005 net income included a $23.6 million pretax insurance recovery of certain of these costs which was recorded as a reduction to the various income statement line items to which these costs were originally charged.

(d) Other Legal Proceedings

Federated has other claims asserted and threatened against it in the ordinary course of business. These other claims are subject to inherent uncertainties. It is possible that an unfavorable determination will cause a material adverse impact on Federated’s financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

(23) Subsequent Events

On January 9, 2007, Federated acquired the remaining 11 percent of outstanding equity interests in MDTA, the first 89 percent of which were acquired by Federated on July 14, 2006 (see Note (2)).

On January 25, 2007, Federated’s board of directors declared a $0.18 per share dividend to shareholders of record as of February 8, 2007, which was paid on February 15, 2007.

2006 Annual Report 51

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

(December 31, 2006, 2005 and 2004)

(24) Supplementary Quarterly Financial Data (Unaudited)

in thousands, except per share data, for the quarters ended	March 31,		June 30,			September 30,			December 31,
2006
Revenue1	$	238,781	$	236,406		$	243,935		$	259,736
Operating income2		74,171		75,570			73,951			84,779
Income from continuing operations2		46,085		46,656			45,164			53,143
Income from discontinued operations		2,836		3,265			445			135
Net income2		48,921		49,921			45,609			53,278
Basic earnings per share
Income from continuing operations2		0.44		0.44			0.44			0.52
Income from discontinued operations		0.03		0.03			0.00			0.00
Net income2, 3		0.46		0.48			0.44			0.52
Diluted earnings per share
Income from continuing operations2		0.43		0.44			0.43			0.51
Income from discontinued operations		0.03		0.03			0.00			0.00
Net income2, 3		0.45		0.47			0.43			0.51
Cash dividends per share		0.150		0.180			0.180			0.180
Stock price per share4
High		40.17		39.31			34.75			35.43
Low		36.36		29.71			29.56			32.44
2005
Revenue1	$	201,945	$	217,732		$	237,969		$	238,591
Operating income2		28,664		73,726			107,087			85,416
Income from continuing operations2		6,792		38,000			64,833			51,350
Income (loss) from discontinued operations2		236		(239	)		(1,166	)		477
Net income2		7,028		37,761			63,667			51,827
Basic earnings per share
Income from continuing operations2		0.06		0.36			0.61			0.48
Income (loss) from discontinued operations2		0.00		(0.00	)		(0.01	)		0.00
Net income2, 3		0.07		0.36			0.60			0.49
Diluted earnings per share
Income from continuing operations2		0.06		0.35			0.60			0.47
Income (loss) from discontinued operations2		0.00		(0.00	)		(0.01	)		0.00
Net income2, 3		0.06		0.35			0.59			0.48
Cash dividends per share		0.125		0.150			0.150			0.150
Stock price per share4
High		30.49		30.25			33.79			38.11
Low		27.79		26.99			29.26			32.60

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

² The Consolidated Financial Statements for the quarters ended December 31, 2006, September 30, 2006, June 30, 2006 and March 31, 2006 included a $3.6 million, $4.2 million, $2.8 million and $2.3 million pretax charge, respectively, related to various legal, regulatory and compliance matters, including costs related to Federated’s internal review, costs incurred on behalf of the funds, costs incurred and estimated to complete the distribution of Federated’s regulatory settlement, costs incurred and estimated to resolve certain of the related ongoing legal proceedings and fee reductions agreed to as part of settlements with the SEC and NYAG. The Consolidated Financial Statements for the quarters ended December 31, 2005, September 30, 2005, June 30, 2005 and March 31, 2005 included a $3.2 million, ($21.9) million, $6.9 million and $53.4 million pretax charge, net of insurance-related proceeds, respectively, related to various legal, regulatory and compliance matters, including costs related to Federated’s internal review, costs incurred on behalf of the funds, costs incurred and estimated to complete the distribution of Federated’s regulatory settlement and costs incurred and estimated to resolve certain of the related ongoing legal proceedings (see Note (22)(c)).

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 20, 2007, was one and 31,255, respectively.

52 Federated Investors, Inc.

EX-21.01

EXHIBIT 21.01

SIGNIFICANT SUBSIDIARIES OF FEDERATED INVESTORS, INC.*:

Edgewood Services, Inc., a New York corporation

Federated Administrative Services, a Delaware statutory trust

Federated Administrative Services, Inc., a Pennsylvania corporation

Federated Advisory Services Company, a Delaware statutory trust

Federated Asset Management GmbH, a German company

Federated Equity Management Company of Pennsylvania, Delaware statutory trust

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

Federated Global Investment Management Corp., a Delaware corporation

Federated International – Europe GmbH, a German company

Federated International Holdings B.V., a Netherlands company

Federated International Management Limited, an Ireland company

Federated Investment Counseling, a Delaware statutory trust

Federated Investment Management Company, a Delaware statutory trust

Federated Investors Management Company, a Pennsylvania corporation

Federated Investors Trust Company, a New Jersey bank

Federated Investors (UK) Ltd., an English Company

Federated MDTA LLC, a Delaware Limited Liability Company

Federated MDTA Trust, a Massachusetts business trust

Federated Private Asset Management, Inc., a Delaware corporation

Federated Securities Corp., a Pennsylvania corporation

Federated Services Company, a Pennsylvania corporation

Federated Shareholder Services Company, a Delaware statutory trust

FII Holdings, Inc., a Delaware corporation

HBSS Acquisition Company, a Delaware corporation

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

Passport Research Ltd., a Pennsylvania limited partnership

Southpointe Distribution Services Inc., a Pennsylvania corporation

EX-23.1

Exhibit 23.1

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. 333-136081) pertaining to the Federated Investors, Inc. 1998 Stock Incentive Plan of our reports dated February 22, 2007, 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, 2006.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

February 22, 2007

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	February 28, 2007	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	February 28, 2007	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, 2006 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	February 28, 2007	By:	/s/ J. Christopher Donahue
			J. Christopher Donahue
			President and Chief Executive Officer
Date	February 28, 2007	By:	/s/ Thomas R. Donahue
			Thomas R. Donahue
			Chief Financial Officer