UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2007March 31, 2008

OR

For the transition period from            to            

Commission File Number 001-14818

Federated Investors, Inc.

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code) 412-288-1900

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨ filer    Non-accelerated filer  ¨    Smaller reporting company  ¨.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):Act).    Yes  ¨    No  x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: As of October 26, 2007,April 25, 2008, the Registrant had outstanding 9,000 shares of Class A Common Stock and 101,721,402101,936,772 shares of Class B Common Stock.

Table of Contents

Special Note Regarding Forward-Looking Information

Certain statements in this report on Form 10-Q including those related to business mix obligations to make additional contingent payments pursuant to acquisition agreements; obligations to make additional payments pursuant to employment 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 and the likelihood of borrowing under Federated’s credit facility; future principal uses of cash; performance indicators; impact of accounting policies and new accounting pronouncements; management’s estimates regarding certain tax matters; concentration risk; indemnification obligations; the impact of increased regulation; the prospect of increased marketing and distribution-related expenses; final purchase price allocations relating to the Rochdale transaction; insurance recoveries; changes in the demand for mutual fund distribution and administration, money market fund holdings in a structured investment vehicle and the various items set forth under the section entitled “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 other risks and uncertainties, themarket conditions may change significantly resulting in changes to Federated’s business mix, which may cause a decline in revenues and net income. The obligation to make contingent payments is based on certain growth and fund performance targets and will be affected by the achievement of such targets.targets, and the obligation to make additional payments pursuant to employment agreements is based on satisfaction of certain conditions set forth in those agreements. Future cash needs and future uses of cash will be impacted by a variety of factors, including the levelnumber and size of activity in the acquisition area,any acquisitions, Federated’s success in distributing its products, the resolution of pending litigation, as well as potential increased costs associated with compliance related activities. Marketing and distribution expenses are impacted by increaseschanges in assets under management and/or changes in the terms of distribution and shareholder services contracts with intermediaries who offer Federated’s products to customers. Federated’s risks and uncertainties also include liquidity and credit risks in Federated’s money market funds associated with holding securities of a structured investment vehicle and revenue risk, which will be affected by changes in market values of assets under management and may be affected by risingchanging interest rates. 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 entitled “Risk Factors” herein under Item 2 of Part I, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Part I, Item 1. Financial Statements

Consolidated Balance Sheets

(dollars in thousands)

(unaudited)

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

Consolidated Statements of Income

(dollars in thousands, except per share data)

(unaudited)

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

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

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

Notes to the Consolidated Financial Statements

(Unaudited)

(1) Basis of Presentation

The interim consolidated financial statements of Federated Investors, Inc. and its subsidiaries (collectively, Federated) included herein have been prepared in accordance with U.S. generally accepted accounting principles. In the opinion of management, the financial statements reflect all adjustments that are of a normal recurring nature and necessary for a fair presentation of the results for the interim periods presented.

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 such estimates, and such differences may be material to the Consolidated Financial Statements.

These financial statements should be read in conjunction with Federated’s Annual Report on Form 10-K for the year ended December 31, 2006.2007. Certain items previously reported have been reclassified to conform to the current period presentation.

(2) Summary of Significant Accounting Policies

For a complete listing of Federated’s significant accounting policies, please refer to Federated’s Annual Report on Form 10-K for the year ended December 31, 2006.2007.

(a) Revenue Recognition

Revenue from providing investment advisory, administrative and other services (primarily(including distribution, services)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 total net asset valueassets 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)settlement-related (see Note 15(c))) or to meet contractual requirements. Federated waived fees of $90.0$103.4 million and $248.6$76.2 million for the three-first quarters of 2008 and nine-month periods ended September 30, 2007, respectively, and $75.1 million and $263.2 million, respectively, for the same periods of 2006, nearly all of which was for competitive reasons. The decreaseincrease in the first nine monthsquarter of 20072008 as compared to the same periodfirst quarter of 20062007 was primarily due to shareholder service fee waivers that are no longer recorded as a result of contractual changes implementedan increase in May 2006.money market assets.

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.

(b) Investments

Investments are generally carried at fair value based on quoted market prices in active markets for identical instruments. If quoted market prices are not available, fair value is generally based upon quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. In the caseabsence of shareholder services,observable inputs and/or value drivers, internally generated valuation techniques may be utilized in which one or more significant inputs or significant value drivers are unobservable.

(3) Recent Accounting Pronouncements

SFAS 141(R) – In December 2007, 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 nine months ended September 30, 2006 were $75.2 million.

(b) Uncertain Tax Positions

Federated adopted the provisions of Financial Accounting Standards Board (FASB) Interpretationissued Statement of Financial Accounting Standard (SFAS) No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109,” (FIN 48) on January 1, 2007. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected141(R), “Business Combinations” (SFAS 141(R)). SFAS 141(R) is intended 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. Federated classifies any interest and penalties on tax liabilities on the Consolidated Statements of Income as components of Nonoperating Income (Expenses) – Other, net and Operating Expenses – Other, respectively.improve

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(c) Deferred Sales Commissionsreporting by creating greater consistency in the accounting and Nonrecourse Debt

In March 2007, pursuantfinancial reporting of business combinations, resulting in more complete, comparable and relevant information for investors and other users of financial statements. To achieve this goal, the new standard requires the acquiring entity in a business combination to recognize all (and only) the terms of a new sales program with an independent third party, Federated began accountingassets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all new sales of its rights toassets acquired and liabilities assumed; and expands the disclosure requirements for material business combinations. For calendar-year companies, SFAS 141(R) is effective for business combination transactions for which the acquisition date is on or after January 1, 2009. Management will adopt FAS 141(R) prospectively, as required by the standard, and is currently evaluating the impact SFAS 141(R) will have on Federated’s future distribution fees and contingent deferred sales charges related to Class B shares of sponsored funds as sales. The sales of Federated’s rights to future shareholder service fees continued to be accounted for as financings due to Federated’s ongoing involvement in performing shareholder-servicing activities. Accordingly, nonrecourse debt has been recorded.

(d) Recent Accounting Pronouncementsbusiness combinations.

EITF 06-11SFAS 160 – In JuneDecember 2007, the Emerging Issues Task Force (EITF)FASB issued EITF IssueSFAS No. 06-11, “Accounting for Income Tax Benefits160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS 160). SFAS 160 is intended to improve the relevance, comparability, and transparency of Dividends on Share-Based Payment Awards,” (EITF 06-11). Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that are chargedfinancial information provided to retained earnings and are paidinvestors by requiring all entities to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognizedreport noncontrolling (minority) interests in additional paid-in capital for the realized income tax benefit from dividends on those awards should be includedsubsidiaries in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 shouldsame way – as equity in the consolidated financial statements. Moreover, SFAS 160 eliminates the diversity that currently exists in accounting for transactions between an entity and noncontrolling interests by requiring that they be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared intreated as equity transactions. SFAS 160 is effective for fiscal years beginning after December 15, 2007,2008, and interim periods within those fiscal years. Management does not believe the adoption of EITF 06-11 will have a material impact on the Consolidated Financial Statements.

SOP 07-1 – In June 2007, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies,” (SOP 07-1). SOP 07-1 provides (1) guidance on the application of the definition of an investment company and (2) conditions that mustis required to be evaluated to determine whether the specialized industry accounting principles of the above-referenced guide applied by a subsidiary or equity method investee should be retained in the consolidated financial statements of a parent company that consolidates an investment company subsidiary or an investor that applies the equity method of accounting to its investments in investment companies. The provisions of SOP 07-1 are effective for fiscal years beginning on or after December 15, 2007.adopted prospectively. Management is currently evaluating this standardthe impact SFAS 160 will have on Federated’s financial position and its impact on the financial statements, if any.

SFAS 159 – In February 2007, the FASB issued Statementresults of Financial Accounting Standard (SFAS) No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 allows entities to voluntarily choose to measure many financial assets and liabilities at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. Once the election is made for an instrument, all subsequent changes in fair value for that instrument must be reported in earnings. SFAS 159 is effective on January 1, 2008 for calendar-year companies. Management is currently evaluating this standard and its impact on the financial statements, if any.operations.

SFAS 157 and FSP SFAS 157-2 – 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 because the FASB had 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. TheIn February 2008, the FASB issued a FASB Staff Position (FSP) to defer the effective date of SFAS 157 for one year for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. Management adopted the provisions of SFAS 157 are effective for fiscal years beginning after November 15, 2007.related to all financial assets and liabilities and non-financial assets and liabilities recognized or disclosed at fair value on a recurring basis on January 1, 2008. Management is currently evaluatingcontinues to evaluate the impact this standard and its impactstatement will have on the financial statements, if any.

Notes to the Consolidated Financial Statements (continued)once its provisions are adopted for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis.

(Unaudited)

(3)(4) Business Combinations, Acquisitions and Minority Interest Investments

Rochdale Acquisition

– In Augustthe third quarter 2007, Federated completed a transaction with Rochdale Investment Management LLC (Rochdale) to acquire certain assets relating to its business of providing investment advisory and investment management services to the Rochdale Atlas Portfolio (Rochdale Acquisition). In connection with the acquisition, on August 24, 2007, the $366 million of assets ofin the Rochdale Atlas Portfolio ($366 million as of August 24, 2007) were transitioned into the Federated InterContinental Fund, a new portfolio created for the purpose of continuing the investment operations of the Rochdale Atlas Portfolio as part of the Federated fund complex. This new fund is a solid addition to Federated’s international equity product group and is positioned to be a core international equity holding, investing in both developed and emerging markets. Federated paid $5.75 million of upfront purchase price in August 2007, and as of September 30, 2007,March 31, 2008, incurred approximately $0.7$1 million in transaction costs. As a result of the transaction, Federated recorded a customer relationship intangible asset and goodwill based upon preliminary valuation estimates. Although the preliminary valuation estimates are reflected in the Consolidated Financial Statements as of and for the periodperiods ended September 30,March 31, 2008 and December 31, 2007, the final purchase price allocation may result in adjustments to these preliminary estimates and such adjustments may be material.

The Rochdale Acquisition agreement provides See Note (15)(a) for two forms of contingent purchase price payments over the five-year period following the acquisition closing date. The first form of additional contingent payment could total as much as $20 million and is payable in years three and five dependent upon asset growth and fund performance. The second form of contingent payment is payableinformation on a semi-annual basis over the next five years based on certain revenue earned by Federated from the Federated InterContinental Fund. Asset growth and fund performance will also impact the level of these contingent payments made by Federated. Both forms of contingent payments, if made, will be recorded as additional goodwill at the time the related contingency is resolved.to this acquisition.

Dix Hills Investment

– In the second quarter 2007, Federated acquired a non-voting, minority interest in both Dix Hills Partners, LLC, a registered investment adviser and commodity trading advisor,adviser, and its affiliate, Dix Hills Associates, LLC (collectively, Dix Hills). Dix Hills is based in Westbury, New York and manages over $500 million in both absolute return and enhanced fixed-income mandates, including a hedge fund strategy and an enhanced cash strategy. The total purchase price included an upfront cash payment as well as contingent payments whichthat could be paid annually based on growth in Dix Hills’ cash earnings for each of the first three anniversary years following the acquisition date. Federated accounted for its minority interest using the equity method of accounting. The investment in Dix Hills is included in Other long-term assets on Federated’s Consolidated Balance SheetSheets at September 30,March 31, 2008 and December 31, 2007.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

MDT Acquisition

– In the third quarter 2006, Federated acquired MDTA LLC (MDT Acquisition). InUpon the second quarter 2007, Federated completedcompletion of its valuation and allocation of the upfront purchase price, which resulted in the following revised allocations:Federated recorded: $36.8 million of customer relationship intangible assets (ten-year weighted-average useful life),; a $6.3 million noncompete intangible asset (eight-year useful life); and goodwill of $72.3 million, of which approximately $66.0$66 million is expected to be deductible for tax purposes. In addition, $43.3 million of additional purchase price, which was recorded as goodwill in the second quarter of 2007, was paid in the form of a contingent payment in the third quarter 2007. Of this additional goodwill, approximately $27.0 million is expected to be deductible for tax purposes. See Note (17)(15)(a) for information on future contingent payments related to this acquisition.

For detail on other recent business acquisitions, please refer to Federated’s Annual Report on Form 10-K for the year ended December 31, 2006.

(4) Discontinued Operations

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 (MSCS), 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 at the beginning of 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

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

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 respective periods.

The Clearing Business’ results of operations have been reflected as discontinued operations in the Consolidated Statements of Income and are summarized as follows:

Also included in Discontinued operations, net of tax in the first nine months of 2006 is a $1.8 million reversal of a deferred tax asset valuation allowance for the portion of Federated’s capital loss carryforwards that were utilized as a result of the capital gain on the sale of the Clearing Business.2007.

(5) 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). For the periods ended September 30, 2007March 31, 2008 and December 31, 2006,2007, 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. At September 30, 2007,March 31, 2008, the aggregate assets and liabilitiesdebt of the VIEsproducts that Federated consolidated were $15.0$6.1 million and $1.4$0.8 million, respectively, and Federated recorded $2.2$1.0 million to Minority interest on Federated’s Consolidated Balance Sheets. The assets and liabilities of the VIEsproducts are primarily classified as Investments and Other current liabilities – other, respectively, on Federated’s Consolidated Balance Sheets. Neither creditors nor equity investors in the products have any recourse to Federated’s general credit.

(6) Fair Value Measurements

On January 1, 2008, Federated adopted the provisions of SFAS 157 for all financial assets and liabilities and non-financial assets and liabilities recognized or disclosed at fair value on a recurring basis. SFAS 157 establishes a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Federated’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1–Quoted prices for identical instruments in active markets.

Level 2–Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3–Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires Federated to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Federated’s available-for-sale securities include investments in fluctuating-value mutual funds. Federated’s trading securities primarily represent investments in equities and investment-grade debt instruments as a result of consolidation of certain products when Federated is deemed to be the primary beneficiary. These financial assets are classified as current on the balance sheet.

The following table presents fair value measurements for major categories of Federated’s financial assets measured at fair value on a recurring basis, which is comprised of its investments at March 31, 2008:

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

Federated did not hold material investments in securities that were measured at fair value using significant unobservable inputs (Level 3) during the quarter ended March 31, 2008. At March 31, 2008, Federated held financial liabilities of $0.5 million measured at fair value on a recurring basis. These liabilities were classified as short-term and the fair value was determined using quoted prices (Level 1).

(7) Intangible Assets and Goodwill

Federated’s identifiable intangible assets consisted of the following:

Amortization expense for identifiable intangible assets for the three- and nine-monththree-month periods ended September 30,March 31, 2008 and 2007 was $4.8$4.7 million and $14.9$5.5 million, respectively, and $5.4 million and $13.8 million, respectively, for the same periods of 2006.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

respectively.

Following is a schedule of expected aggregate annual amortization expense for intangible assets in each of the five succeeding years.

Goodwill at September 30, 2007March 31, 2008 and December 31, 20062007 was $450.0$464.0 million and $388.2$454.6 million, respectively. During the first ninethree months of 2007,ended March 31, 2008, Federated recorded goodwill primarily in connection with the MDT Acquisition ($46.6 million) and the acquisition of the cash management business of Alliance Capital Management L.P. (Alliance Acquisition) ($11.54.7 million) and the MDT Acquisition ($4.3 million). See Note (3)(4) and Note (17)(15)(a) for additional information.

(7)(8) Other Current Liabilities – Other

Federated’s Other current liabilities – affiliates at December 31, 2006 included approximately $8 million as additional purchase price accrued for the MDT Acquisition payable to various MDTA employees who held the remaining 11 percent minority interest. The payment 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’s Other current liabilities – other at September 30, 2007March 31, 2008 included $10.0$17.4 million related to the contingent purchase price payment for the Alliance Acquisition, $16.2 million of which was paid in the second quarter of 2008 (see Note (15)(a) for additional information on contingent payments related to this acquisition) and $14.0 million related to an insurance recovery for a claimclaims submitted to cover costs associated with the internal review and government investigations into past mutual fund trading practices and related civil litigation (see Note (17)(15)(c)). The retention of these advance insurance payments is contingent upon thefinal approval of the claim.claim by the insurance carrier. In the event that all or a portion of the claim is denied, Federated will be required to repay all or a portion of these advance payments. Because the outcome of this claim is uncertain at this time, Federated recorded the advance paymentpayments as a liability and will continue to evaluate the contingency until it is resolved. Also included at September 30, 2007, was $8.5 million related to the contingent purchase price payment of the Alliance Acquisition. Federated’s Other current liabilities – other at December 31, 20062007 included $10.3$12.7 million related to contingent purchase price payments for the Alliance Acquisition, which was paid in the second quarter of 2007. Also included at December 31, 2006 was $7.52008, and $10.7 million related to the aforementioned insurance recovery.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(8)(9) Recourse Debt

Federated’s total capital lease obligation was $0.2 million at both September 30, 2007 and December 31, 2006, and was included in Other current liabilities – other and Other long-term liabilities – other. The capital lease outstanding at September 30, 2007 and December 31, 2006 carried an interest rate of 6.93% and expires in the fourth quarter 2009.

As of September 30, 2007,and for the quarter ended March 31, 2008, Federated had no borrowings against its $200 million revolving credit facility.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(9)(10) Deferred Sales Commissions and Nonrecourse Debt

Deferred sales commissions consisted of the following:

Nonrecourse debt consisted of the following:

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.

Federated signedIn March 2007, pursuant to the terms of a definitive agreementnew sales program with an independent financial institution, effective March 1, 2007,third party, Federated began accounting for all new sales of its rights to continue funding B-sharefuture distribution fees and contingent deferred sales commissions throughcharges related to Class B shares of sponsored funds as sales. The sales of Federated’s rights to future shareholder service fees continued to be accounted for as financings due to Federated’s ongoing involvement in performing shareholder-servicing activities. Accordingly, nonrecourse debt has been recorded. This agreement expires December 31, 2009.

(10) Common Stock

Cash dividends of $0.18, $0.21 and $0.21 per share or approximately $18.7 million, $21.6 million and $21.5 million were paid in the first, second and third quarters of 2007, respectively, to holders of common shares.

During the first nine months of 2007, Federated repurchased 3.4 million shares of its Class B common stock for $113.8 million, nearly all of which were part of its current share-buyback program. As of September 30, 2007, Federated could repurchase an additional 4.0 million shares under the current board-approved program.

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 purchased under the plan have been purchased in the open market. As of September 30, 2007, a total of 86,531 shares had been purchased by employees in this plan since the plan’s inception.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(11) Share-Based Compensation Plans

(a) Restricted Stock

During the third quarter of 2007, Federated awarded 500,500 shares of restricted Federated Class B common stock under the Stock Incentive Plan to certain key employees. This restricted stock generally vests over a ten-year period. In the first quarter of 2007,2008, Federated also awarded 188,834221,051 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 Stock Incentive Plan. This restricted stock, which was granted on the bonus payment date and issued out of treasury, will generally vest over a three-year period.

(b) Stock Options

During In addition, during the secondfirst quarter of 2007, Federated awarded 12,000 fully vested stock options to independent directors. During the first nine months of 2007, 532,8442008, 27,125 employee stock options were exercised and thesethe resulting shares were issued out of treasury.

(12) Income Taxes

Effective January 1, 2007, Federated adopted the provisions of FIN 48, which did not have a material impact on its financial statements. Federated had unrecognized tax benefits of approximately $1.4 million as of January 1, 2007. During the three- and nine-month periods ended September 30, 2007, there were no material increases or decreases in unrecognized tax benefits. As of September 30, 2007, management estimates that there will be no material increases or decreases in the total amounts of unrecognized tax benefits within the next twelve months.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was approximately $0.4 million at January 1, 2007. During the three- and nine-month periods ended September 30, 2007, there were no material changes in this amount.

At both January 1, 2007 and September 30, 2007, Federated had approximately $0.2 million of interest accrued on tax liabilities in the Consolidated Balance Sheets. No amounts were recorded for interest in the Consolidated Statements of Income for the nine months ended September 30, 2007. At both January 1, 2007 and September 30, 2007, Federated had no amounts accrued for penalties in the Consolidated Balance Sheets. No amounts were recorded for penalties in the Consolidated Statements of Income for the nine months ended September 30, 2007

As of January 1, 2007, tax years 2003 through 2006 remained subject to examination by Federated’s major tax jurisdictions. As of September 30, 2007, tax year 2004 is effectively settled for federal tax purposes, but the tax years 2004 through 2006 remain subject to examination by Federated’s major state and local tax jurisdictions, which include the states of California, New York and Pennsylvania and the city of New York.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(13)(12) Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

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 three-quarters ended March 31, 2008 and nine-month periods ended September 30, 2007, 0.4 millionno share-based awards and 0.5 million share-based awards, respectively, were outstanding but not included in the computation of diluted earnings per share for each period 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 period. For the three- and nine-month periods ended September 30, 2006, 1.5 million and 1.20.9 million share-based awards, respectively, were outstanding but not included in the computation of diluted earnings per share for each period 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 period. 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.

(14)(13) Comprehensive Income

Comprehensive income was $57.9$55.9 million and $165.0$51.8 million for the three-quarters ended March 31, 2008 and nine-month periods ended September 30, 2007, respectively, and $45.7 million and $144.5 million, respectively, for the same periods of 2006.respectively.

(15)(14) Concentration Risk

In terms of revenue concentration by product, approximately 17%15% of Federated’s total revenue for the three and nine monthsquarter ended September 30, 2007, respectively,March 31, 2008 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., L.P. and the Bank of New York Mellon Corporation, including Pershing (a subsidiary of the Bank of New York Mellon Corporation) and other assets from the Bank of New York Mellon Corporation] accounted for a total of approximately 29%13% and 17%, respectively of Federated’s total

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

revenue for both the thirdfirst quarter and first nine months of 2007.2008. With respect to both intermediary customers, most of this revenue is derived from broker/dealer cash sweep money market products. Significant changes in Federated’s relationship with these intermediary customers, including changes which may result from the recently completed Bank of New York Company, Inc. merger with Mellon Financial Corp.,Corporation’s post-merger integration, could have a significant adverse effect on Federated’s future revenues and, to a lesser extent, net income, due to corresponding significant reductions to Marketing and distribution expenses associated with such intermediaries.

(16) Related Party Transaction

In the third quarter 2007, Federated realized a $4.9 million loss on a $5 million investment in a Federated-sponsored private investment partnership. The partnership is a short-term investment vehicle whose limited partners were accredited investors. The limited partners have redeemed their limited partnership interests and have not experienced a loss. Federated contributed $4.0 million of additional capital to the partnership in September 2007. As of September 30, 2007, Federated and its subsidiaries were the only investors in, and thus Federated was the consolidator of, the partnership with a total investment of $4.1 million. As of September 30, 2007, the partnership’s portfolio primarily consisted of one security which had a maturity of less than 90 days.

(17)(15) Commitments and Contingencies

(a) Contractual

As part of the MDT Acquisition, Federated is required to make annual contingent purchase price payments based upon growth in Federated MDTA LLC net revenues over a three-year period. The first contingent purchase price payment of $43.3 million, which was recorded as goodwill in the second quarter of 2007, was paid in the third quarter of 2007. The remainingAs of March 31, 2008, a total of $4.3 million related to the second year’s contingent purchase price payments,payment, which could aggregatetotal as much as $86.7$43.3 million, was accrued in Other current liabilities. This payment will be paid in the third quarter of 2008 and recorded as goodwill at the time the related contingency is resolved. The final contingent payment of up to $43.3 million is payable in the third quarter 2009 and will be recorded as additional goodwill at the time the contingency is resolved.

Also, as part of

Notes to 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. As of September 30, 2007, the remaining estimated minimum amount payable under these arrangements approximates $4.7 million, of which $0.4 million is payable in 2007. As of September 30, 2007, the remaining estimated maximum amount payable under these arrangements approximates $17.7 million, of which $0.4 million is payable in 2007.Consolidated Financial Statements (continued)

(Unaudited)

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 twothree contingent purchase price payments of $10.7 million, $13.3 million and $13.3$16.2 million were paid in the second quarters of 2006, 2007 and 2007,2008, respectively. At current asset levels, these payments would approximate $60.4$49 million over the remaining three-yeartwo-year period, which includes a $10 million lump-sum payment in year five.2010. As of September 30, 2007, $8.5March 31, 2008, $17.4 million was accrued in Other current liabilities – other.other, $16.2 million of which was paid in the second quarter of 2008, as mentioned above.

The Rochdale Acquisition agreement provides for two forms of contingent purchase price payments that are dependent upon asset growth and fund performance through 2012. The first form of additional contingent payment is payable in 2010 and 2012 and could totalaggregate to as much as $20 million and is payable in years three and five dependent upon asset growth and fund performance.million. The second form of contingent payment is payable on a semi-annual basis over the next five yearsfive-year period following the acquisition closing date based on certain revenue earned by Federated from the Federated InterContinental Fund. Asset growthAs of March 31, 2008, $0.6 million related to the semi-annual contingent purchase price payments was accrued in Other current liabilities – other and fund$0.4 million was paid in the second quarter of 2008. Contingent payments are recorded as additional goodwill at the time the related contingency is resolved.

Pursuant to various significant employment arrangements, Federated may be required to make certain incentive compensation-related payments. The employment contracts expire on various dates through the year 2014 with payments possible through 2018. As of March 31, 2008, excluding the impact of the incentive compensation opportunities related to the newly created Federated Kaufmann Large Cap Fund (the New Fund Bonus), the maximum bonus payable over the remaining terms of the contracts approximates $57 million, of which $2.0 million is payable in 2008 if the necessary performance will also impacttargets are met and the employees continue to be employed as of the relevant payment dates. At this time, management is unable to reasonably estimate a range of possible bonus payments for the New Fund Bonus due to the negligible level of these contingent payments made by Federated.assets in that fund at March 31, 2008 and the wide range of possible growth-rate scenarios.

Pursuant to other acquisition agreements or long-term employment arrangements, Federated may be required to make additional payments upon the occurrence of certain events. Under these other agreements, payments could occur on a regularan annual basis and continue through 2010.

(b) Guarantees and Indemnifications

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

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

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 wouldshould not have a material effect on its business, financial position or results of operations.

(c) Past Mutual Fund Trading Issues and Related Legal Proceedings

During the fourth quarter 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 each of the nine-month periodquarters ended September 30,March 31, 2008 and 2007, these fee reductions were approximately $3$1 million. Costs related

Notes to certain other undertakings required by these agreements will be incurred in future periods and the significance of such costs is currently not determinable.Consolidated Financial Statements (continued)

(Unaudited)

Since October 2003, Federated Investors, Inc. and related entities havehas been named as defendantsa 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 intends to defend this litigation. The potential impact of these recent lawsuits and future potential similar suits, as well as the timing of settlements, judgments or other resolution of these matters, 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.

The Consolidated Financial Statements for the nine-month periodquarters ended September 30,March 31, 2008 and 2007 and 2006 reflect $3.4$1.8 million and $6.4$1.2 million, pretax expense, 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, costs related to certain other undertakings of these settlement agreements, and costs incurred and estimated to resolve certain of the above-mentioned ongoing legal proceedings. In addition, in the first nine months of 2007, Federated incurred a $1.1 million pretax expense related to costs associated with resolving related 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.

(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 reputation, financial position, results of operations and/or liquidity in the period in which the effect becomes reasonably estimable.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(18)(16) Subsequent Events

On October 25, 2007,April 24, 2008, the board of directors declared a dividend of $0.21$0.24 per share to be paid on NovemberMay 15, 2007,2008, to shareholders of record as of NovemberMay 8, 2007.2008.

Part I, Item 2. Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Unaudited)

The discussion and analysis below should be read in conjunction with the consolidated financial statements appearing elsewhere in this report. We have presumed that the readers of this interim financial information have read or have access to management’s discussionManagement’s Discussion and analysisAnalysis of financial conditionFinancial Condition and resultsResults of operationsOperations appearing in Federated’s Annual Report on Form 10-K for the year ended December 31, 2006.2007.

General

Federated Investors, Inc. (together with its subsidiaries, Federated) is one of the largest investment managers in the United States with $276.2$338.5 billion in managed assets as of September 30, 2007.March 31, 2008. The majority of Federated’s revenue is derived from advising and administering Federated mutual funds, Separate Accounts (which includes separately managed accounts, institutional accounts, and sub-advised funds both(both variable annuity and other) and other sponsored products,managed 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 September 30, 2007March 31, 2008 attributable to such markets are as follows: wealth management and trust (46%(48%), broker/dealer (42%(37%) and global institutional (8%(11%).

Investment advisory fees, administrative fees and certain fees for Other Services, such as distribution and shareholder service fees, are contract-based fees that are generally calculated as a percentage of the net assets of the investment portfolios that are managed or administered by Federated. As such, Federated’s revenue is primarily dependent upon factors that affect the value of managed and administered assets including market conditions and the ability to attract and retain assets. Fee rates for Federated’s services generally vary by asset type and investment objective and, in certain instances, decline as the average net assets of the individual portfolios exceed certain thresholds. Generally, rates charged for advisory services provided to equity products are higher than rates charged on money market and fixed-income products. Likewise, mutual funds typically have a higher fee rate than Separate Accounts. Accordingly, revenue is also dependent upon the relative composition of average assets under management.management across both asset and product types. Federated may waive certain fees for competitive reasons, to meet regulatory requirements (including settlement-related (see Note (15)(c) to the Consolidated Financial Statements)) or to meet contractual requirements. 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 that are impacted bywhich generally react to sales and marketing efforts, competitive fund performance, introduction and market reception of new product features 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 sales, 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.Consolidated Financial Statements. Management evaluates Federated’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 net income, from continuing operations, both in total and per diluted share.

Management’s Discussion and Analysis (continued)

of Financial Condition and Results of Operations (Unaudited)

Business Developments

Recent Disruption in Financial Markets

In 2007, the financial markets began to experience elevated volatility due to uncertainty and disruption in large segments of the credit markets. As a result of investors’ increased concerns about risk and uncertainty in the financial markets and the Federal Reserve Bank interest rate cuts beginning in September 2007, Federated experienced significant asset inflows in its money market funds during the last five months of 2007 and early 2008. As always, fluctuations in financial markets and in the amount and composition of assets under management impact Federated’s revenue and results of operations. There can be no assurance that asset inflows related to uncertain credit markets will remain invested in Federated’s money market fund products or that continued volatility in the financial markets will necessarily result in similar or sustained inflows into Federated’s money market products.

Sigma Finance – Sigma Finance is an unaffiliated U.K.-based limited purpose finance company commonly referred to as a structured investment vehicle (SIV). The elevated volatility and disruptions in the credit markets have generally caused liquidity issues for SIVs. On April 4, 2008, Moody’s downgraded the short-term rating of Sigma Finance from P-1 to P-2 and the long-term rating from Aaa to A2, with each rating on review for further downgrade. On April 7, 2008, S&P reaffirmed Sigma’s short-term rating at A1+ and downgraded the long-term rating from AAA to AA, each on watch negative. As of April 23, 2008, Federated’s money market products held $1.2 billion in the senior debt of Sigma that matures in various installments through August 18, 2008. Based on Federated’s analysis of Sigma including an assessment of the quality of the underlying assets that are collateral for the debt issued by Sigma, Federated has determined that these securities continue to meet the Rule 2a-7 rules governing eligibility for money market funds, including the rule that money market fund holdings present ‘minimal credit risk’. Federated regularly monitors the ongoing performance and liquidity of Sigma, and currently does not anticipate that its money market funds will face any significant liquidity or credit issues as a result of their exposure to Sigma.

Business Combinations, Acquisitions and Minority Interest Investments

Rochdale Investment Management LLC. In August 2007, Federated completed a transaction with Rochdale Investment Management LLC (Rochdale) to acquire certain assets relating to its business of providing investment advisory and investment management services to the Rochdale Atlas Portfolio (Rochdale Acquisition). In connection with the acquisition, on August 24, 2007, the $366 million of assets ofin the Rochdale Atlas Portfolio ($366 million as of August 24, 2007) were transitioned into the Federated InterContinental Fund, a new portfolio created for the purpose of continuing the investment operations of the Rochdale Atlas Portfolio as part of the Federated fund complex. This new fund is a solid addition to Federated’s international equity product group and is positioned to be a core international equity holding, investing in both developed and emerging markets. Federated paid $5.75 million of upfront purchase price in August 2007, and as of September 30, 2007,March 31, 2008, incurred approximately $0.7$1 million in transaction costs. As a result of the transaction, Federated recorded a customer relationship intangible asset and goodwill based upon preliminary valuation estimates. Although the preliminary valuation estimates are reflected in the Consolidated Financial Statements as of and for the periodperiods ended September 30,March 31, 2008 and December 31, 2007, the final purchase price allocation may result in adjustments to these preliminary estimates and such adjustments may be material.

The Rochdale Acquisition agreement provides See Note (15)(a) to the Consolidated Financial Statements for two forms of contingent purchase price payments over the five-year period following the acquisition closing date. The first form of additional contingent payment could total as much as $20 million and is payable in years three and five dependent upon asset growth and fund performance. The second form of contingent payment is payableinformation on a semi-annual basis over the next five years based on certain revenue earned by Federated from the Federated InterContinental Fund. Asset growth and fund performance will also impact the level of these contingent payments made by Federated. Both forms of contingent payments, if made, will be recorded as additional goodwill at the time the related contingency is resolved.to this acquisition.

Dix Hills. On April 2, 2007, Federated acquired a non-voting, minority interest in both Dix Hills Partners, LLC, a registered investment adviser and commodity trading advisor, and its affiliate, Dix Hills Associates, LLC (collectively, Dix Hills). Dix Hills is based in Westbury, New York and manages over $500 million in both absolute return and enhanced fixed-income mandates, including a hedge fund strategy and an enhanced cash strategy. The total purchase price included an upfront cash payment as well as contingent payments which could be paid annually based on growth in Dix Hills’ cash earnings for each of the first three anniversary years following the acquisition date. Federated accounted for its minority interest using the equity method of accounting. The investment in Dix Hills is included in Other long-term assets on Federated’s Consolidated Balance Sheet at September 30,March 31, 2008 and December 31, 2007.

Sentinel Asset Management, Inc. In the fourth quarter 2006, assets of three mutual funds previously advised by Sentinel Asset Management, Inc. of Montpelier, Vermont, 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

Management’s Discussion and Analysis (continued)

of Financial Condition and Results of Operations (Unaudited)

approximately 89 percent89% of the outstanding equity interests of MDTA in July 2006 and paid approximately $102 million in cash as upfront purchase price. The remaining 11 percent11% 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 million in cash as additional purchase price to acquire the remaining 11 percent11% on January 9, 2007 (See Note (7)).2007.

InUpon the second quarter 2007, Federated completedcompletion of its valuation and allocation of the upfront purchase price, which resulted in the following revised allocations:Federated recorded: $36.8 million of customer relationship intangible assets (ten-year weighted-average useful life),; a $6.3 million noncompete intangible asset (eight-year useful life); and goodwill of $72.3 million, of which approximately $66.0$66 million is expected to be deductible for tax purposes. In addition, $43.3 million of additional purchase price, which was recorded as goodwill in the second quarter 2007, was paid in the form of a contingent payment in the third quarter 2007. Of this additional goodwill, approximately $27.0 million is expected to be deductible for tax purposes. See Note (17)(15)(a) to the Consolidated Financial Statements for information on future contingent payments related to this acquisition.

Management’s Discussion and Analysis (continued)

of Financial Condition and Results of Operations (Unaudited)

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., L.P. 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.

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 quarterduring 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 respective periods.

Other Business Developments

In the third quarter 2007, Federated realized a $4.9 million loss on a $5 million investment in a Federated-sponsored private investment partnership. The partnership is a short-term investment vehicle whose limited partners were accredited investors. The limited partners have redeemed their limited partnership interests and have not experienced a loss. Federated contributed $4.0 million of additional capital to the partnership in September 2007. As of September 30, 2007, Federated and its subsidiaries were the only investors in, and thus Federated was the consolidator of, the partnership with a total investment of $4.1 million. As of September 30, 2007, the partnership’s portfolio primarily consisted of one security which had a maturity of less than 90 days.

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 primarily a long-term asset on the Consolidated Balance Sheets.

Management’s Discussion and Analysis (continued)

of Financial Condition and Results of Operations (Unaudited)

Asset Highlights

Managed Assets at Period End