Federated
World-Class Investment Manager
Federated MDT All Cap
Core Fund
Established 2002
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class C Shares
Class K Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31 | | 2009 | | | 2008 | | 2007 | 1 | | 2006 | 2 | | 2005 | ||
Net Asset Value, Beginning of Period: | $14.05 | $16.74 | $15.08 | $15.26 | $13.52 | ||||||||||
Income From Investment Operations: | |||||||||||||||
Net investment income (loss) | 0.06 | 3 | 0.06 | 0.02 | 3 | 0.00 | 3,4 | (0.00 | ) 3,4 | ||||||
Net realized and unrealized gain (loss) on investments | (4.15 | ) | (1.56 | ) | 2.18 | 0.70 | 2.85 | ||||||||
TOTAL FROM INVESTMENT OPERATIONS | (4.09 | ) | (1.50 | ) | 2.20 | 0.70 | 2.85 | ||||||||
Less Distributions: | |||||||||||||||
Distributions from net investment income | (0.05 | ) | - -- | - -- | (0.00 | ) 4 | (0.03 | ) | |||||||
Distributions from net realized gain on investments | - -- | (1.19 | ) | (0.54 | ) | (0.88 | ) | (1.08 | ) | ||||||
TOTAL DISTRIBUTIONS | (0.05 | ) | (1.19 | ) | (0.54 | ) | (0.88 | ) | (1.11 | ) | |||||
Net Asset Value, End of Period | $ 9.91 | $14.05 | $16.74 | $15.08 | $15.26 | ||||||||||
Total Return 5 | (29.07 | )% | (9.98 | )% | 14.67 | % | 4.59 | % | 21.79 | % | |||||
Ratios to Average Net Assets: | |||||||||||||||
Net expenses | 1.34 | % | 1.29 | % | 1.36 | % | 1.50 | % | 1.50 | % | |||||
Net investment income (loss) | 0.64 | % | 0.43 | % | 0.13 | % | 0.03 | % | (0.02 | )% | |||||
Expense waiver/reimbursement 6 | 0.14 | % | 0.00 | % 7 | 0.00 | % 7 | 0.05 | % | 0.04 | % | |||||
Supplemental Data: | |||||||||||||||
Net assets, end of period (000 omitted) | $81,898 | $194,867 | $201,888 | $101,723 | $30,336 | ||||||||||
Portfolio turnover | 290 | % | 199 | % | 225 | % | 212 | % | 204 | % |
1 MDT All Cap Core Fund (the "Predecessor Fund") was reorganized into Federated MDT All Cap Core Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Beginning with the year ended July 31, 2006, the Fund was audited by Ernst & Young LLP. The previous year was audited by another independent registered public accounting firm.
3 Per share numbers have been calculated using the average shares method.
4 Represents less than $0.01.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
7 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $13.73 | $16.51 | $14.99 | $15.25 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.02 | ) 3 | (0.04 | ) | (0.11 | ) 3 | (0.10 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (4.05 | ) | (1.55 | ) | 2.17 | 0.72 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (4.07 | ) | (1.59 | ) | 2.06 | 0.62 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (1.19 | ) | (0.54 | ) | (0.88 | ) | |||||
Net Asset Value, End of Period | $ 9.66 | $13.73 | $16.51 | $14.99 | ||||||||
Total Return 4 | (29.64 | )% | (10.69 | )% | 13.81 | % | 4.01 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 2.14 | % | 2.08 | % | 2.13 | % | 2.25 | % 5 | ||||
Net investment income (loss) | (0.17 | )% | (0.36 | )% | (0.64 | )% | (0.72 | )% 5 | ||||
Expense waiver/reimbursement 6 | 0.17 | % | 0.00 | % 7 | 0.00 | % 7 | 0.05 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $52,546 | $96,601 | $104,957 | $48,189 | ||||||||
Portfolio turnover | 290 | % | 199 | % | 225 | % | 212 | % 8 |
1 The Predecessor Fund was reorganized into the Fund as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
7 Represents less than 0.01%.
8 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2006.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class K Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | ||||||||
| 2009 | | 2008 | | 7/31/2007 | 1 | |||
Net Asset Value, Beginning of Period | $14.10 | $16.86 | $16.82 | ||||||
Income From Investment Operations: | |||||||||
Net investment income (loss) | 0.01 | 2 | (0.00 | ) 3 | (0.03) | 2 | |||
Net realized and unrealized gain (loss) on investments | (4.16 | ) | (1.57 | ) | 0.61 | ||||
TOTAL FROM INVESTMENT OPERATIONS | (4.15 | ) | (1.57 | ) | 0.58 | ||||
Less Distributions: | |||||||||
Distributions from net investment income | (0.04 | ) | - -- | - -- | |||||
Distributions from net realized gain on investments | - -- | (1.19 | ) | (0.54 | ) | ||||
TOTAL DISTRIBUTIONS | (0.04 | ) | (1.19 | ) | (0.54 | ) | |||
Net Asset Value, End of Period | $ 9.91 | $14.10 | $16.86 | ||||||
Total Return 4 | (29.42 | )% | (10.34 | )% | 3.52 | % | |||
Ratios to Average Net Assets: | |||||||||
Net expenses | 1.80 | % | 1.75 | % | 1.80 | % 5 | |||
Net investment income (loss) | 0.15 | % | (0.00 | )% 6 | 0.30 | % 5 | |||
Expense waiver/reimbursement 7 | 0.11 | % | 0.00 | % 6 | 0.02 | % 5 | |||
Supplemental Data: | |||||||||
Net assets, end of period (000 omitted) | $1,937 | $1,393 | $135 | ||||||
Portfolio turnover | 290 | % | 199 | % | 225 | % 8 |
1 Reflects operations for the period from December 12, 2006 (date of initial public investment) to July 31, 2007.
2 Per share numbers have been calculated using the average shares method.
3 Represents less than $0.01.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 Represents less than 0.01%.
7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
8 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2007.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual: | ||||||
Class A Shares | $1,000 | $1,164.50 | $ 7.19 | |||
Class C Shares | $1,000 | $1,159.70 | $11.46 | |||
Class K Shares | $1,000 | $1,161.80 | $ 9.65 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $1,018.15 | $ 6.71 | |||
Class C Shares | $1,000 | $1,014.18 | $10.69 | |||
Class K Shares | $1,000 | $1,015.87 | $ 9.00 |
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
Class A Shares | | 1.34% |
Class C Shares | 2.14% | |
Class K Shares | 1.80% |
Management's Discussion of Fund Performance (unaudited)
The fund's total return based on net asset value for the fiscal year ended July 31, 2009 was -29.07% for Class A Shares, -29.64% for Class C Shares and -29.42% for Class K Shares. The total returns of the Russell 3000® Index (Russell 3000®) 1 and the Lipper Multi-Cap Core Funds Index, 2 respectively, were -20.21% and -19.00% for the same period. The fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell Index.
1 The Russell 3000® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged and investments can not be made directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
The following discussion will focus on the performance of the fund's Class A Shares.
MARKET OVERVIEW
Over the 12-month reporting period ending July 31, 2009 domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000® Index, which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200® Index, 3 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000® and the Russell Midcap® Indexes, 4,5 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000® Growth Index 6 returning -17.81% as compared to -22.74% for the Russell 3000 Value® Index. 7
3 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000 Index, which represents approximately 69% of the total market capitalization of the Russell 1000 Index. The index is unmanaged and investments cannot be made directly in an index.
4 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The index is unmanaged and investments cannot be made directly in an index.
5 The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 Index. The index is unmanaged and investments cannot be made directly in an index.
6 The Russell 3000® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indexes. The index is unmanaged and investments cannot be made directly in an index.
7 The Russell 3000® Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 Value or the Russell 2000 Value indexes. The index is unmanaged and investments cannot be made directly in an index.
The best performing sectors in the Russell 3000® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 3000® Index was stock selection in the Materials and Financials sectors. Additionally, the fund's timely shifts in the Financials sector weighting provided a significant contribution to relative performance. Individual stocks contributing to the fund's performance relative to the Russell 3000® Index included: General Electric Company, BB&T Corporation, Bank of America Corporation and International Business Machines.
The most significant negative factor in the fund's performance relative to the Russell 3000® Index was stock selection in the Consumer Discretionary, Industrials and Health Care sectors. Additionally, an underweight in the Consumer Staples sector and an overweight in the Energy sector detracted significantly from relative performance. Individual stocks detracting from the fund's performance relative to the Russell 3000® Index included: Cummins Engine Incorporated, Monsanto Company, ConocoPhillips and Allstate Corporation.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT All Cap Core Fund 2 (Class A Shares) (the "Fund") from October 1, 2002 (start of performance) to July 31, 2009, compared to the Russell 3000 ® Index (Russell 3000 ® ) 3 and the Lipper Multi-Cap Core Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -32.98% | |
5 Years | - -2.50% | |
Start of Performance (10/1/2002) 5 | 2.93% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmaccarack37309edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50% ..
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 3000 ® and the Lipper Multi-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT All Cap Core Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT All Cap Core Fund.
3 The Russell 3000 ® is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
5 The start of performance date was October 1, 2002. Class A Shares of the Fund were offered beginning February 12, 2003. Performance results shown before that date are for the Fund's Institutional Shares and have been adjusted for the maximum sales charge and total annual operating expenses applicable to the Fund's Class A Shares. The Fund's Institutional Shares commenced operations on October 1, 2002. The Fund's Class A Shares annual returns would have been substantially similar to those of the Fund's Institutional Shares because Shares of each class are invested in the same portfolio of securities.
GROWTH OF A $10,000 INVESTMENT - CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT All Cap Core Fund 2 (Class C Shares) (the "Fund") from October 1, 2002 (start of performance) to July 31, 2009, compared to the Russell 3000 ® Index (Russell 3000 ® ) 3 and the Lipper Multi-Cap Core Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -30.35% | |
5 Years | - -2.14% | |
Start of Performance (10/1/2002) 5 | 2.99% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmaccarack37309edg2.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 3000 ® and the Lipper Multi-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT All Cap Core Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT All Cap Core Fund.
3 The Russell 3000 ® is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
5 The start of performance date was October 1, 2002. Class C Shares of the Fund were offered beginning September 15, 2005. Performance results shown before that date are for the Fund's Institutional Shares and have been adjusted for the maximum CDSC and total annual operating expenses applicable to the Fund's Class C Shares. The Fund's Institutional Shares commenced operations on October 1, 2002. The Fund's Class C Shares annual returns would have been substantially similar to those of the Fund's Institutional Shares because Shares of each class are invested in the same portfolio of securities.
GROWTH OF A $10,000 INVESTMENT - CLASS K SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT All Cap Core Fund (Class K Shares) (the "Fund") from October 1, 2002 (start of performance) to July 31, 2009, compared to the Russell 3000 ® Index (Russell 3000 ® ) 2 and the Lipper Multi-Cap Core Funds Index. 3
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -29.42% | |
5 Years | - -1.78% | |
Start of Performance (10/1/2002) 4 | 3.33% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmaccarack37309edg3.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 3000 ® and the Lipper Multi-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Russell 3000 ® is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
3 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
4 The start of performance date was October 1, 2002. Class K Shares of the Fund were offered beginning December 12, 2006. Performance results shown before that date are for the Fund's Institutional Shares and have been adjusted for the total annual operating expenses applicable to the Fund's Class K Shares. The Fund's Institutional Shares commenced operations on October 1, 2002. The Fund's Class K Shares annual returns would have been substantially similar to those of the Fund's Institutional Shares because Shares of each class are invested in the same portfolio of securities.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets |
Integrated International Oil | 9.8% | |
Biotechnology | 7.1% | |
Property Liability Insurance | 6.8% | |
Crude Oil & Gas Production | 5.1% | |
Electric Utility | 5.1% | |
Computers - High End | 4.9% | |
Securities Brokerage | 4.7% | |
Undesignated Consumer Cyclicals | 4.7% | |
Services to Medical Professionals | 3.9% | |
Integrated Domestic Oil | 3.7% | |
AT&T Divestiture | 3.1% | |
Software Packaged/Custom | 2.9% | |
Multi-Line Insurance | 2.8% | |
Defense Aerospace | 2.5% | |
Railroad | 2.3% | |
Multi-Industry Capital Goods | 2.2% | |
Diversified Tobacco | 1.8% | |
Internet Services | 1.8% |
Industry Composition | | Percentage of Total Net Assets |
Life Insurance | 1.7% | |
Cable TV | 1.6% | |
Ethical Drugs | 1.6% | |
Home Building | 1.6% | |
Defense Electronics | 1.1% | |
Gas Distributor | 1.1% | |
Regional Bank | 1.1% | |
Grocery Chain | 1.0% | |
Tobacco | 1.0% | |
Other 2 | 11.4% | |
Cash Equivalents 3 | 1.3% | |
Other Assets and Liabilities - Net 4 | 0.3% | |
TOTAL | 100.0% |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--98.4% | ||||||
Advertising--0.0% | ||||||
1,600 | Omnicom Group, Inc. | $ | 54,400 | |||
Agricultural Chemicals--0.2% | ||||||
7,200 | FMC Corp. | 350,208 | ||||
AT&T Divestiture--3.1% | ||||||
217,300 | AT&T, Inc. | 5,699,779 | ||||
Auto Original Equipment Manufacturers--0.2% | ||||||
2,000 | 1 | AutoZone, Inc. | 307,140 | |||
Biotechnology--7.1% | ||||||
96,700 | 1 | Amgen, Inc. | 6,025,377 | |||
14,600 | 1 | Biogen Idec, Inc. | 694,230 | |||
7,200 | 1 | Cephalon, Inc. | 422,280 | |||
3,400 | 1 | Charles River Laboratories International, Inc. | 112,438 | |||
123,400 | 1 | Gilead Sciences, Inc. | 6,037,962 | |||
TOTAL | 13,292,287 | |||||
Cable TV--1.6% | ||||||
7,300 | Comcast Corp., Class A | 108,478 | ||||
2,800 | 1 | Discovery Communications, Inc. | 68,600 | |||
13,100 | Time Warner Cable, Inc. | 433,086 | ||||
57,200 | Time Warner, Inc. | 1,524,952 | ||||
38,400 | 1 | Viacom, Inc., Class B | 889,344 | |||
TOTAL | 3,024,460 | |||||
Cellular Communications--0.0% | ||||||
2,100 | 1 | NII Holdings, Inc. | 48,342 | |||
Clothing Stores--0.5% | ||||||
13,600 | 1 | Children's Place Retail Stores, Inc. | 445,672 | |||
13,600 | 1 | Jos A. Bank Clothiers, Inc. | 497,624 | |||
4,600 | Limited Brands, Inc. | 59,524 | ||||
TOTAL | 1,002,820 | |||||
Cogeneration--0.6% | ||||||
60,000 | 1 | Mirant Corp. | 1,083,600 | |||
Computer Networking--0.0% | ||||||
1,400 | Black Box Corp. | 38,458 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Computer Peripherals--0.6% | ||||||
33,300 | 1 | Lexmark International Group, Class A | $ | 482,184 | ||
4,200 | 1 | Sandisk Corp. | 74,844 | |||
19,100 | 1 | Synaptics, Inc. | 457,827 | |||
2,800 | Western Union Co. | 48,944 | ||||
TOTAL | 1,063,799 | |||||
Computer Services--0.2% | ||||||
4,300 | 1 | Affiliated Computer Services, Inc., Class A | 203,863 | |||
7,500 | 1 | Synnex Corp. | 213,150 | |||
TOTAL | 417,013 | |||||
Computer Stores--0.2% | ||||||
20,000 | 1 | GameStop Corp. | 437,800 | |||
Computers - High End--4.9% | ||||||
77,300 | IBM Corp. | 9,115,989 | ||||
Computers - Low End--0.7% | ||||||
101,400 | 1 | Dell, Inc. | 1,356,732 | |||
Contracting--0.1% | ||||||
5,100 | 1 | IHS, Inc., Class A | 254,694 | |||
Crude Oil & Gas Production--5.1% | ||||||
63,400 | Apache Corp. | 5,322,430 | ||||
5,100 | Chesapeake Energy Corp. | 109,344 | ||||
19,500 | Cimarex Energy Co. | 697,710 | ||||
40,800 | 1 | Newfield Exploration Co. | 1,604,664 | |||
56,500 | Pioneer Natural Resources, Inc. | 1,613,075 | ||||
7,200 | 1 | Stone Energy Corp. | 78,192 | |||
8,600 | 1 | Tetra Technologies, Inc. | 66,306 | |||
TOTAL | 9,491,721 | |||||
Defense Aerospace--2.5% | ||||||
1,400 | 1 | Alliant Techsystems, Inc. | 110,208 | |||
60,100 | Boeing Co. | 2,578,891 | ||||
13,200 | Goodrich (B.F.) Co. | 677,952 | ||||
9,700 | Lockheed Martin Corp. | 725,172 | ||||
14,100 | 1 | TransDigm Group, Inc. | 539,889 | |||
TOTAL | 4,632,112 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Defense Electronics--1.1% | ||||||
1,200 | Grainger (W.W.), Inc. | $ | 107,892 | |||
12,100 | L-3 Communications Holdings, Inc. | 913,550 | ||||
12,500 | Northrop Grumman Corp. | 557,250 | ||||
8,600 | Raytheon Co. | 403,770 | ||||
TOTAL | 1,982,462 | |||||
Diversified Leisure--0.0% | ||||||
100 | 1 | Gaylord Entertainment Co. | 1,427 | |||
Diversified Tobacco--1.8% | ||||||
126,200 | Altria Group, Inc. | 2,212,286 | ||||
1,500 | 1 | Lorillard, Inc. | 110,580 | |||
24,100 | Reynolds American, Inc. | 1,048,591 | ||||
TOTAL | 3,371,457 | |||||
Electric Utility--5.1% | ||||||
38,100 | Ameren Corp. | 968,883 | ||||
48,500 | CMS Energy Corp. | 627,590 | ||||
6,100 | CenterPoint Energy, Inc. | 73,505 | ||||
4,000 | DPL, Inc. | 95,800 | ||||
20,000 | DTE Energy Co. | 689,200 | ||||
16,300 | Dominion Resources, Inc. | 550,940 | ||||
17,300 | Duke Energy Corp. | 267,804 | ||||
22,300 | Edison International | 720,736 | ||||
5,800 | Entergy Corp. | 465,914 | ||||
2,400 | ITC Holdings Corp. | 114,480 | ||||
10,100 | Idacorp, Inc. | 279,972 | ||||
6,700 | NiSource, Inc. | 86,363 | ||||
8,600 | OGE Energy Corp. | 258,860 | ||||
5,900 | PPL Corp. | 199,361 | ||||
6,200 | Pinnacle West Capital Corp. | 198,152 | ||||
36,900 | Public Service Enterprises Group, Inc. | 1,197,405 | ||||
48,000 | Sempra Energy | 2,516,640 | ||||
7,400 | UniSource Energy Corp. | 204,240 | ||||
TOTAL | 9,515,845 | |||||
Electronic & Electrical Original Equipment Manufacturers--0.3% | ||||||
26,000 | Molex, Inc. | 461,760 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Electronic Instruments--0.0% | ||||||
2,600 | Garmin Ltd. | $ | 71,916 | |||
Ethical Drugs--1.6% | ||||||
128,200 | Bristol-Myers Squibb Co. | 2,787,068 | ||||
7,400 | 1 | Valeant Pharmaceuticals International | 190,920 | |||
TOTAL | 2,977,988 | |||||
Financial Services--0.3% | ||||||
1,200 | Blackrock, Inc. | 228,648 | ||||
3,500 | Equifax, Inc. | 91,175 | ||||
4,900 | 1 | MSCI, Inc., Class A | 136,955 | |||
1,800 | Moody's Corp. | 42,732 | ||||
TOTAL | 499,510 | |||||
Furniture--0.1% | ||||||
9,700 | Leggett and Platt, Inc. | 168,295 | ||||
Gas Distributor--1.1% | ||||||
4,900 | AGL Resources, Inc. | 164,738 | ||||
23,100 | Energen Corp. | 954,492 | ||||
4,100 | ONEOK, Inc. | 135,710 | ||||
43,800 | 1 | Southern Union Co. | 848,844 | |||
TOTAL | 2,103,784 | |||||
Generic Drugs--0.9% | ||||||
123,700 | 1 | Mylan Laboratories, Inc. | 1,631,603 | |||
Grocery Chain--1.0% | ||||||
43,800 | Kroger Co. | 936,444 | ||||
53,200 | Safeway, Inc. | 1,007,076 | ||||
TOTAL | 1,943,520 | |||||
Home Building--1.6% | ||||||
69,000 | Lennar Corp., Class A | 816,960 | ||||
111,400 | 1 | Toll Brothers, Inc. | 2,178,984 | |||
TOTAL | 2,995,944 | |||||
Home Health Care--0.5% | ||||||
14,800 | 1 | Amerigroup Corp. | 365,264 | |||
4,000 | 1 | Gentiva Health Services, Inc. | 85,120 | |||
11,200 | 1 | LHC Group, Inc. | 328,720 | |||
3,200 | 1 | Lincare Holdings, Inc. | 83,776 | |||
TOTAL | 862,880 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Home Products--0.0% | ||||||
800 | Church and Dwight, Inc. | $ | 47,184 | |||
Hotels--0.0% | ||||||
4,400 | Wyndham Worldwide Corp. | 61,380 | ||||
Household Appliances--0.1% | ||||||
1,700 | Whirlpool Corp. | 97,053 | ||||
Industrial Machinery--0.2% | ||||||
19,000 | 1 | Terex Corp. | 288,420 | |||
Insurance Brokerage--0.2% | ||||||
4,000 | Aspen Insurance Holdings Ltd. | 99,480 | ||||
8,100 | Axis Capital Holdings Ltd. | 230,526 | ||||
1,400 | Endurance Specialty Holdings Ltd. | 46,718 | ||||
TOTAL | 376,724 | |||||
Integrated Domestic Oil--3.7% | ||||||
157,800 | ConocoPhillips | 6,897,438 | ||||
Integrated International Oil--9.8% | ||||||
134,400 | Chevron Corp. | 9,336,768 | ||||
126,100 | Exxon Mobil Corp. | 8,876,179 | ||||
TOTAL | 18,212,947 | |||||
Internet Services--1.8% | ||||||
11,300 | 1 | Amazon.com, Inc. | 969,088 | |||
49,200 | 1 | NetFlix, Inc. | 2,161,848 | |||
2,000 | 1 | Priceline.com, Inc. | 259,240 | |||
TOTAL | 3,390,176 | |||||
Life Insurance--1.7% | ||||||
1,800 | StanCorp Financial Group, Inc. | 61,956 | ||||
77,400 | Torchmark Corp. | 3,023,244 | ||||
TOTAL | 3,085,200 | |||||
Long-Term Care Centers--0.1% | ||||||
9,600 | 1 | Kindred Healthcare, Inc. | 134,784 | |||
Maritime--0.2% | ||||||
9,300 | Overseas Shipholding Group, Inc. | 319,455 | ||||
Medical Supplies--0.9% | ||||||
14,500 | 1 | American Medical Systems Holdings, Inc. | 221,705 | |||
28,600 | McKesson HBOC, Inc. | 1,462,890 | ||||
TOTAL | 1,684,595 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Medical Technology--0.4% | ||||||
2,800 | 1 | Gen-Probe, Inc. | $ | 103,936 | ||
12,100 | 1 | Zimmer Holdings, Inc. | 563,860 | |||
TOTAL | 667,796 | |||||
Metal Containers--0.1% | ||||||
4,400 | Ball Corp. | 212,784 | ||||
Metal Fabrication--0.0% | ||||||
1,300 | 1 | RTI International Metals | 23,088 | |||
Miscellaneous Communications--0.2% | ||||||
13,500 | 1 | Leap Wireless International, Inc. | 323,325 | |||
Miscellaneous Components--0.2% | ||||||
5,500 | 1 | International Rectifier Corp. | 91,080 | |||
17,100 | 1 | Qlogic Corp. | 223,155 | |||
TOTAL | 314,235 | |||||
Miscellaneous Machinery--0.1% | ||||||
4,700 | SPX Corp. | 248,254 | ||||
Mortgage and Title--0.0% | ||||||
18,600 | Radian Group, Inc. | 61,938 | ||||
Multi-Industry Capital Goods--2.2% | ||||||
49,800 | KBR, Inc. | 1,055,262 | ||||
56,700 | United Technologies Corp. | 3,088,449 | ||||
TOTAL | 4,143,711 | |||||
Multi-Line Insurance--2.8% | ||||||
31,300 | AON Corp. | 1,234,785 | ||||
22,700 | CIGNA Corp. | 644,680 | ||||
4,200 | 1 | CNA Financial Corp. | 71,610 | |||
3,500 | Harleysville Group, Inc. | 108,570 | ||||
2,800 | Infinity Property & Casualty | 116,312 | ||||
12,000 | Montpelier Re Holdings Ltd. | 188,160 | ||||
600 | 1 | Navigators Group, Inc. | 29,586 | |||
133,400 | UNUM Group | 2,503,918 | ||||
13,000 | Zenith National Insurance Corp. | 310,310 | ||||
TOTAL | 5,207,931 | |||||
Mutual Fund Adviser--0.1% | ||||||
2,900 | 1 | Affiliated Managers Group | 191,458 | |||
Office Equipment--0.1% | ||||||
12,200 | Pitney Bowes, Inc. | 251,930 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Oil Service, Explore & Drill--0.2% | ||||||
10,500 | 1 | Global Industries Ltd. | $ | 71,715 | ||
4,300 | 1 | Seacor Holdings, Inc. | 341,764 | |||
TOTAL | 413,479 | |||||
Oil Well Supply--0.1% | ||||||
4,000 | 1 | Dresser-Rand Group, Inc. | 116,440 | |||
Optical Reading Equipment--0.1% | ||||||
5,700 | 1 | Zebra Technologies Corp., Class A | 139,308 | |||
Outpatient Clinics--0.0% | ||||||
1,400 | 1 | DaVita, Inc. | 69,580 | |||
Packaged Foods--0.5% | ||||||
11,100 | Campbell Soup Co. | 344,433 | ||||
20,100 | Kraft Foods, Inc., Class A | 569,634 | ||||
TOTAL | 914,067 | |||||
Paint & Related Materials--0.0% | ||||||
3,200 | Fuller (H.B.) Co. | 64,512 | ||||
Paper Products--0.1% | ||||||
2,700 | Clearwater Paper Corp. | 108,189 | ||||
5,400 | Glatfelter (P.H.) Co. | 55,890 | ||||
TOTAL | 164,079 | |||||
Personal Loans--0.1% | ||||||
6,800 | 1 | World Acceptance Corp. | 161,296 | |||
Personnel Agency--0.2% | ||||||
6,000 | 1 | Hewitt Associates, Inc. | 179,580 | |||
2,500 | Maximus, Inc. | 106,550 | ||||
TOTAL | 286,130 | |||||
Plastic Containers--0.3% | ||||||
15,200 | 1 | Owens-Illinois, Inc. | 515,888 | |||
Pollution Control--0.0% | ||||||
1,400 | 1 | Stericycle, Inc. | 71,680 | |||
Property Liability Insurance--6.8% | ||||||
22,700 | Allied World Assurance Holdings Ltd. | 986,542 | ||||
43,300 | American Financial Group, Inc. | 1,056,087 | ||||
5,600 | 1 | Arch Capital Group Ltd. | 348,264 | |||
36,400 | Chubb Corp. | 1,680,952 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Property Liability Insurance--continued | ||||||
2,000 | Everest Re Group Ltd. | $ | 160,440 | |||
6,600 | HCC Insurance Holdings, Inc. | 165,660 | ||||
4,300 | Platinum Underwriters Holdings Ltd. | 145,125 | ||||
1,300 | 1 | ProAssurance Corp. | 66,014 | |||
6,000 | RenaissanceRe Holdings Ltd. | 301,500 | ||||
176,100 | The Travelers Cos., Inc. | 7,584,627 | ||||
4,800 | Transatlantic Holdings, Inc. | 227,088 | ||||
TOTAL | 12,722,299 | |||||
Psychiatric Centers--0.1% | ||||||
2,600 | 1 | Magellan Health Services, Inc. | 84,136 | |||
1,200 | 1 | Psychiatric Solutions, Inc. | 32,424 | |||
TOTAL | 116,560 | |||||
Railroad--2.3% | ||||||
47,500 | CSX Corp. | 1,905,700 | ||||
41,100 | Union Pacific Corp. | 2,364,072 | ||||
TOTAL | 4,269,772 | |||||
Regional Bank--1.1% | ||||||
7,400 | Central Pacific Financial Corp. | 16,058 | ||||
78,000 | Comerica, Inc. | 1,859,520 | ||||
6,500 | Oriental Financial Group | 91,715 | ||||
9,400 | Synovus Financial Corp. | 32,994 | ||||
8,400 | 1 | TFS Financial Corp. | 93,240 | |||
TOTAL | 2,093,527 | |||||
Restaurant--0.3% | ||||||
6,900 | 1 | Green Mountain Coffee, Inc. | 486,036 | |||
Roofing & Wallboard--0.0% | ||||||
800 | 1 | Beacon Roofing Supply, Inc. | 13,416 | |||
Securities Brokerage--4.7% | ||||||
52,900 | Goldman Sachs Group, Inc. | 8,638,570 | ||||
3,300 | 1 | TD Ameritrade Holding Corp. | 61,182 | |||
TOTAL | 8,699,752 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Semiconductor Distribution--0.0% | ||||||
3,800 | 1 | Tyler Technologies, Inc. | $ | 58,520 | ||
Services to Medical Professionals--3.9% | ||||||
56,500 | 1 | Health Net, Inc. | 764,445 | |||
15,500 | 1 | Humana, Inc. | 509,175 | |||
46,900 | Omnicare, Inc. | 1,119,503 | ||||
1,600 | 1 | PharMerica Corp. | 33,536 | |||
4,700 | Quest Diagnostics, Inc. | 256,714 | ||||
79,100 | UnitedHealth Group, Inc. | 2,219,546 | ||||
44,600 | 1 | Wellpoint, Inc. | 2,347,744 | |||
TOTAL | 7,250,663 | |||||
Shoes--0.1% | ||||||
7,300 | 1 | Genesco, Inc. | 158,556 | |||
Software Packaged/Custom--2.9% | ||||||
32,800 | CA, Inc. | 693,392 | ||||
13,800 | 1 | Computer Sciences Corp. | 664,746 | |||
18,700 | 1 | DST Systems, Inc. | 828,971 | |||
17,200 | 1 | Oracle Corp. | 380,636 | |||
8,100 | 1 | Quest Software, Inc. | 119,394 | |||
98,300 | 1 | Red Hat, Inc. | 2,244,189 | |||
10,200 | Rovi Corp. | 266,832 | ||||
14,600 | 1 | Symantec Corp. | 217,978 | |||
2,200 | 1 | Synopsys, Inc. | 43,956 | |||
TOTAL | 5,460,094 | |||||
Specialty Retailing--0.7% | ||||||
44,700 | 1 | Big Lots, Inc. | 1,029,888 | |||
8,600 | 1 | Cabela's, Inc., Class A | 139,406 | |||
5,300 | 1 | Conn's, Inc. | 66,833 | |||
9,800 | 1 | Zale Corp. | 58,016 | |||
TOTAL | 1,294,143 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Stainless Steel Producer--0.1% | ||||||
6,800 | Carpenter Technology Corp. | $ | 127,092 | |||
Technology Services--0.0% | ||||||
1,800 | Lender Processing Services | 61,524 | ||||
Telecommunication Equipment & Services--0.1% | ||||||
10,100 | 1 | Amdocs Ltd. | 241,592 | |||
Telecommunications--0.1% | ||||||
18,800 | 1 | MetroPCS Communications, Inc. | 222,780 | |||
Tobacco--1.0% | ||||||
40,200 | Philip Morris International, Inc. | 1,873,320 | ||||
Undesignated Consumer Cyclicals--4.7% | ||||||
2,500 | 1 | Alliance Data Systems Corp. | 127,500 | |||
22,900 | 1 | Apollo Group, Inc., Class A | 1,581,016 | |||
700 | 1 | Capella Education Co. | 45,052 | |||
36,800 | 1 | Corinthian Colleges, Inc. | 568,192 | |||
8,100 | DeVRY, Inc. | 402,894 | ||||
8,600 | 1 | FTI Consulting, Inc. | 468,098 | |||
2,400 | Herbalife Ltd. | 82,584 | ||||
43,500 | 1 | ITT Educational Services, Inc. | 4,234,725 | |||
32,600 | 1 | Iron Mountain, Inc. | 952,246 | |||
600 | Strayer Education, Inc. | 127,428 | ||||
4,500 | 1 | TeleTech Holdings, Inc. | 75,240 | |||
1,800 | 1 | Weight Watchers International, Inc. | 50,184 | |||
TOTAL | 8,715,159 | |||||
Undesignated Consumer Staples--0.0% | ||||||
4,800 | Block (H&R), Inc. | 80,112 | ||||
Undesignated Health--0.0% | ||||||
2,900 | 1 | HealthSouth Corp. | 41,760 | |||
TOTAL COMMON STOCKS (IDENTIFIED COST $172,566,699) | 183,404,687 | |||||
Shares | | | Value | |||
MUTUAL FUND--1.3% | ||||||
2,526,822 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | $ | 2,526,822 | ||
TOTAL INVESTMENTS--99.7% (IDENTIFIED COST $175,093,521) 4 | 185,931,509 | |||||
OTHER ASSETS AND LIABILITIES - NET--0.3% 5 | 480,950 | |||||
TOTAL NET ASSETS--100% | $ | 186,412,459 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $177,609,817.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | | | | | ||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | | Level 3-- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $180,651,717 | $-- | $-- | $180,651,717 | ||||
International | 2,752,970 | - -- | - -- | 2,752,970 | ||||
Mutual Fund | 2,526,822 | - -- | - -- | 2,526,822 | ||||
TOTAL SECURITIES | $185,931,509 | $-- | $-- | $185,931,509 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $2,526,822 of investments in an affiliated issuer (Note 5) (identified cost $175,093,521) | $ | 185,931,509 | |||||
Income receivable | 199,570 | ||||||
Receivable for investments sold | 3,230,290 | ||||||
Receivable for shares sold | 258,474 | ||||||
TOTAL ASSETS | 189,619,843 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 2,173,607 | |||||
Payable for shares redeemed | 740,977 | ||||||
Payable for transfer and dividend disbursing agent fees and expenses | 123,085 | ||||||
Payable for Directors'/Trustees' fees | 1,280 | ||||||
Payable for distribution services fee (Note 5) | 33,027 | ||||||
Payable for shareholder services fee (Note 5) | 62,950 | ||||||
Accrued expenses | 72,458 | ||||||
TOTAL LIABILITIES | 3,207,384 | ||||||
Net assets for 18,898,597 shares outstanding | $ | 186,412,459 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 343,247,936 | |||||
Net unrealized appreciation of investments | 10,837,988 | ||||||
Accumulated net realized loss on investments | (168,807,914 | ) | |||||
Undistributed net investment income | 1,134,449 | ||||||
TOTAL NET ASSETS | $ | 186,412,459 |
Statement of Assets and Liabilities - continued
Net Asset Value, Offering Price and Redemption Proceeds Per Share | ||||||||
Institutional Shares: | ||||||||
Net asset value per share ($50,031,068 ÷ 4,993,790 shares outstanding), no par value, unlimited shares authorized | $10.02 | |||||||
Offering price per share | $10.02 | |||||||
Redemption proceeds per share | $10.02 | |||||||
Class A Shares: | ||||||||
Net asset value per share ($81,898,381 ÷ 8,268,384 shares outstanding), no par value, unlimited shares authorized | $9.91 | |||||||
Offering price per share (100/94.50 of $9.91) | $10.49 | |||||||
Redemption proceeds per share | $9.91 | |||||||
Class C Shares: | ||||||||
Net asset value per share ($52,545,540 ÷ 5,440,890 shares outstanding), no par value, unlimited shares authorized | $9.66 | |||||||
Offering price per share | $9.66 | |||||||
Redemption proceeds per share (99.00/100 of $9.66) | $9.56 | |||||||
Class K Shares: | ||||||||
Net asset value per share ($1,937,470 ÷ 195,533 shares outstanding), no par value, unlimited shares authorized | $9.91 | |||||||
Offering price per share | $9.91 | |||||||
Redemption proceeds per share | $9.91 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $47,296 received from an affilaited issuer (Note 5) and net of foreign taxes withheld of $1,097) | $ | 4,557,902 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 1,731,691 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 60,782 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Institutional Shares | 95,460 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class A Shares | 245,696 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class C Shares | 177,128 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class K Shares | 5,804 | |||||||||||
Directors'/Trustees' fees | 5,068 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 4,425 | |||||||||||
Portfolio accounting fees | 109,644 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 451,006 | |||||||||||
Distribution services fee--Class K Shares (Note 5) | 7,592 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 280,104 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 150,152 | |||||||||||
Account administration fee--Class A Shares | 454 | |||||||||||
Account administration fee--Class C Shares | 183 | |||||||||||
Share registration costs | 66,147 | |||||||||||
Printing and postage | 61,084 | |||||||||||
Insurance premiums | 5,171 | |||||||||||
Interest expense | 416 | |||||||||||
Miscellaneous | 6,734 | |||||||||||
TOTAL EXPENSES | 3,757,241 |
Statement of Operations - continued
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (171,862 | ) | |||||||||
Waiver of administrative personnel and services fee | (52,689 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Institutional Shares | (13,546 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class A Shares | (53,854 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class C Shares | (42,911 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | $ | (334,862 | ) | |||||||||
Net expenses | $ | 3,422,379 | ||||||||||
Net investment income | 1,135,523 | |||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (143,221,360 | ) | ||||||||||
Net change in unrealized depreciation of investments | 24,032,186 | |||||||||||
Net realized and unrealized loss on investments | (119,189,174 | ) | ||||||||||
Change in net assets resulting from operations | $ | (118,053,651 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income | $ | 1,135,523 | $ | 1,186,226 | ||||
Net realized loss on investments | (143,221,360 | ) | (25,156,859 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 24,032,186 | (20,313,246 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (118,053,651 | ) | (44,283,879 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net investment income | ||||||||
Institutional Shares | (512,513 | ) | - -- | |||||
Class A Shares | (664,841 | ) | - -- | |||||
Class C Shares | - -- | - -- | ||||||
Class K Shares | (5,889 | ) | - -- | |||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (6,297,925 | ) | |||||
Class A Shares | - -- | (14,822,479 | ) | |||||
Class C Shares | - -- | (7,853,780 | ) | |||||
Class K Shares | - -- | (32,808 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (1,183,243 | ) | (29,006,992 | ) | ||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 69,074,805 | 148,687,842 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | 1,060,033 | 25,603,826 | ||||||
Cost of shares redeemed | (144,027,671 | ) | (113,566,093 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (73,892,833 | ) | 60,725,575 | |||||
Change in net assets | (193,129,727 | ) | (12,565,296 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 379,542,186 | 392,107,482 | ||||||
End of period (including undistributed net investment income of $1,134,449 and $1,186,226, respectively) | $ | 186,412,459 | $ | 379,542,186 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT All Cap Core Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class C Shares and Class K Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Institutional Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear distribution services fees, shareholder services fees, account administration fees and certain transfer and dividend disbursing agent fees unique to those classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 2,232,749 | $ | 20,668,288 | 2,316,132 | $ | 37,878,322 | ||||||||
Shares issued to shareholders in payment of distributions declared | 45,422 | 417,427 | 306,108 | 5,075,279 | ||||||||||
Shares redeemed | (3,379,111 | ) | (32,553,562 | ) | (1,569,357 | ) | (25,328,179 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | (1,100,940 | ) | $ | (11,467,847 | ) | 1,052,883 | $ | 17,625,422 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 3,576,090 | $ | 35,336,951 | 4,864,131 | $ | 77,675,376 | ||||||||
Shares issued to shareholders in payment of distributions declared | 69,892 | 636,717 | 864,495 | 14,186,366 | ||||||||||
Shares redeemed | (9,247,124 | ) | (84,976,792 | ) | (3,920,927 | ) | (61,812,706 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (5,601,142 | ) | $ | (49,003,124 | ) | 1,807,699 | $ | 30,049,036 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 1,152,913 | $ | 10,952,306 | 1,978,773 | $ | 31,441,573 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 391,649 | 6,309,458 | ||||||||||
Shares redeemed | (2,748,508 | ) | (25,404,032 | ) | (1,692,463 | ) | (26,152,035 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (1,595,595 | ) | $ | (14,451,726 | ) | 677,959 | $ | 11,598,996 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class K Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 219,186 | $ | 2,117,260 | 106,180 | $ | 1,692,571 | ||||||||
Shares issued to shareholders in payment of distributions declared | 644 | 5,889 | 1,982 | 32,723 | ||||||||||
Shares redeemed | (123,095 | ) | (1,093,285 | ) | (17,383 | ) | (273,173 | ) | ||||||
NET CHANGE RESULTING FROM CLASS K SHARE TRANSACTIONS | 96,735 | $ | 1,029,864 | 90,779 | $ | 1,452,121 | ||||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (8,200,942 | ) | $ | (73,892,833 | ) | 3,629,320 | $ | 60,725,575 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for a litigation payment and distributions.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital | Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) | ||
$(1,456) | $(4,057) | $5,513 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $1,183,243 | $21,537,947 | ||
Long-term capital gains | $ -- | $ 7,469,045 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | | $ | 1,134,449 | |
Net unrealized appreciation | $ | 8,321,692 | ||
Capital loss carryforwards and deferrals | $ | (166,291,618 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $177,609,817. The net unrealized appreciation of investments for federal tax purposes was $8,321,692. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $13,167,671 and net unrealized depreciation from investments for those securities having an excess of cost over value of $4,845,979.
At July 31, 2009, the Fund had a capital loss carryforward of $79,106,604 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2016 | $ 3,647,165 | |
2017 | $75,459,439 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $87,185,014 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for certain classes of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.25% | |
Class A Shares | 1.50% | |
Class C Shares | 2.25% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $169,537 of its fee. In addition, for the year ended July 31, 2009, an affiliate of the Adviser reimbursed $110,311 of transfer and dividend disbursing agent fees and expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | Average Aggregate Daily Net Assets of the Federated Funds | |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the net fee paid to FAS was 0.094% of average daily net assets of the Fund. FAS waived $52,689 of its fee.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class C Shares and Class K Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | Percentage of Average Daily Net Assets of Class | |
Class A Shares | 0.05% | |
Class C Shares | 0.75% | |
Class K Shares | 0.50% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $77,563 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $14,892 in sales charges from the sale of Class A Shares. FSC also retained $8,490 of CDSC relating to redemptions of class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses paid by the Fund's Institutional Shares, Class A Shares, Class C Shares and Class K Shares (after the voluntary waivers and reimbursements) will not exceed 1.02%, 1.30%, 2.09% and 1.76%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $2,325. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 1,891,293 | 64,988,742 | 64,353,213 | 2,526,822 | $2,526,822 | $47,296 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 679,541,445 |
Sales | $ | 752,899,505 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds, and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
11. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended July 31, 2009, 100% of total income (including short-term capital gain) distributions made by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information is reported in conjunction with the reporting of your distributions on Form 1099-DIV.
Of the ordinary income (including short-term capital gain) distributions made by the Fund during the year ended July 31, 2009, 100% qualify for the dividend received deduction available to corporate shareholders.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND
SHAREHOLDERS OF FEDERATED MDT ALL CAP CORE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT All Cap Core Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year in the period ended July 31, 2005 were audited by another independent registered public accounting firm whose report, dated September 19, 2005 expressed an unqualified opinion on those financial highlights.
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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT All Cap Core Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein for the years ended July 31, 2009, 2008, 2007 and 2006, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory Contract - May 2009
FEDERATED MDT ALL CAP CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the report. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period, underperformed its benchmark index for the three-year period and underperformed its benchmark index for the five-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee, after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. In this regard, the Board had been previously advised that, while comparisons to fund peer groups are highly important in judging the reasonableness of advisory fees, the Fund's quantitative focus makes fee and expense comparisons particularly difficult. Although the Fund's advisory fee was above the median of the peer range, the peer group of funds varied widely in their complexity, and the management of the Fund is among the more complex relative to its peers. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT All CapCore Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R106
Cusip 31421R205
Cusip 31421R304
37309 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT All Cap
Core fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended July 31 | | 2009 | | | 2008 | | 2007 | 1 | | 2006 | 2 | | 2005 | ||
Net Asset Value, Beginning of Period | $14.22 | $16.88 | $15.17 | $15.32 | $13.55 | ||||||||||
Income From Investment Operations: | |||||||||||||||
Net investment income | 0.09 | 3 | 0.10 | 0.07 | 3 | 0.05 | 3 | 0.03 | 3 | ||||||
Net realized and unrealized gain (loss) on investments | (4.20 | ) | (1.57 | ) | 2.18 | 0.70 | 2.87 | ||||||||
TOTAL FROM INVESTMENT OPERATIONS | (4.11 | ) | (1.47 | ) | 2.25 | 0.75 | 2.90 | ||||||||
Less Distributions: | |||||||||||||||
Distributions from net investment income | (0.09 | ) | - -- | - -- | (0.02 | ) | (0.05 | ) | |||||||
Distributions from net realized gain on investments | - -- | (1.19 | ) | (0.54 | ) | (0.88 | ) | (1.08 | ) | ||||||
TOTAL DISTRIBUTIONS | (0.09 | ) | (1.19 | ) | (0.54 | ) | (0.90 | ) | (1.13 | ) | |||||
Net Asset Value, End of Period | $10.02 | $14.22 | $16.88 | $15.17 | $15.32 | ||||||||||
Total Return 4 | (28.84 | )% | (9.71 | )% | 14.92 | % | 4.85 | % | 22.14 | % | |||||
Ratios to Average Net Assets: | |||||||||||||||
Net expenses | 1.06 | % | 1.01 | % | 1.07 | % | 1.25 | % | 1.25 | % | |||||
Net investment income | 0.90 | % | 0.72 | % | 0.40 | % | 0.28 | % | 0.23 | % | |||||
Expense waiver/reimbursement 5 | 0.12 | % | 0.00 | % 6 | 0.01 | % | 0.05 | % | 0.04 | % | |||||
Supplemental Data: | |||||||||||||||
Net assets, end of period (000 omitted) | $50,031 | $86,681 | $85,128 | $42,656 | $43,782 | ||||||||||
Portfolio turnover | 290 | % | 199 | % | 225 | % | 212 | % | 204 | % |
1 MDT All Cap Core Fund (the "Predecessor Fund") was reorganized into Federated MDT All Cap Core Fund (the "Fund"), as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Beginning with the year ended July 31, 2006, the Fund was audited by Ernst & Young LLP. The previous year was audited by another independent registered public accounting firm.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
6 Represents less than 0.01%.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual | $1,000 | $1,166.50 | $5.69 | |||
Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,019.54 | $5.31 |
1 Expenses are equal to the Fund's annualized net expense ratio of 1.06%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period).
Management's Discussion of Fund Performance (unaudited)
The fund's total return for the fiscal year ended July 31, 2009 was -28.84%. The total returns of the Russell 3000® Index (Russell 3000®) 1 and the Lipper Multi-Cap Core Funds Index, 2 respectively, were -20.21% and -19.00% for the same period. The Fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell Index.
1 The Russell 3000® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged and investments can not be made directly in an index.
2 Lipper Indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12-month reporting period ending July 31, 2009 domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000® Index, which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200® Index, 3 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000® and the Russell Midcap® Indexes, 4,5 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000® Growth Index 6 returning -17.81% as compared to -22.74% for the Russell 3000 Value® Index. 7
The best performing sectors in the Russell 3000® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 Russell Top 2000® Index measures the performance of the 200 largest companies in the Russell 1000 Index, which represents approximately 69% of the total market capitalization of the Russell 1000 Index. The index is unmanaged and investments cannot be made directly in an index.
4 The Russell 2000® Index measures the performance of the 22,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The index is unmanaged and investments cannot be made directly in an index.
5 The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 Index. The index is unmanaged and investments cannot be made directly in an index.
6 The Russell 3000® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indexes. The index is unmanaged and investments cannot be made directly in an index.
7 The Russell 3000® Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 Value or the Russell 2000 Value indexes. The index is unmanaged and investments cannot be made directly in an index.
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 3000® Index was stock selection in the Materials and Financials sectors. Additionally, the fund's timely shifts in the Financials sector weighting provided a significant contribution to relative performance. Individual stocks contributing to the fund's performance relative to the Russell 3000® Index included: General Electric Company, BB&T Corporation, Bank of America Corporation and International Business Machines.
The most significant negative factor in the fund's performance relative to the Russell 3000® Index was stock selection in the Consumer Discretionary, Industrials and Health Care sectors. Additionally, an underweight in the Consumer Staples sector and an overweight in the Energy sector detracted significantly from relative performance. Individual stocks detracting from the fund's performance relative to the Russell 3000® Index included: Cummins Engine Incorporated, Monsanto Company, ConocoPhillips and Allstate Corporation.
GROWTH OF A $10,000 INVESTMENT - INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT All Cap Core Fund 2 (Institutional Shares) (the "Fund") from October 1, 2002 (start of performance) to July 31, 2009, compared to the Russell 3000 ® Index (Russell 3000 ® ) 3 and the Lipper Multi-Cap Core Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -28.84% | |
5 Years | - -1.11% | |
Start of Performance (10/1/2002) | 4.05% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmaccaris37312edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 3000 ® and the Lipper Multi-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT All Cap Core Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT All Cap Core Fund.
3 The Russell 3000 ® is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets |
Integrated International Oil | 9.8% | |
Biotechnology | 7.1% | |
Property Liability Insurance | 6.8% | |
Crude Oil & Gas Production | 5.1% | |
Electric Utility | 5.1% | |
Computers - High End | 4.9% | |
Securities Brokerage | 4.7% | |
Undesignated Consumer Cyclicals | 4.7% | |
Services to Medical Professionals | 3.9% | |
Integrated Domestic Oil | 3.7% | |
AT&T Divestiture | 3.1% | |
Software Packaged/Custom | 2.9% | |
Multi-Line Insurance | 2.8% | |
Defense Aerospace | 2.5% | |
Railroad | 2.3% | |
Multi-Industry Capital Goods | 2.2% | |
Diversified Tobacco | 1.8% | |
Internet Services | 1.8% |
Industry Composition | | Percentage of Total Net Assets |
Life Insurance | 1.7% | |
Cable TV | 1.6% | |
Ethical Drugs | 1.6% | |
Home Building | 1.6% | |
Defense Electronics | 1.1% | |
Gas Distributor | 1.1% | |
Regional Bank | 1.1% | |
Grocery Chain | 1.0% | |
Tobacco | 1.0% | |
Other 2 | 11.4% | |
Cash Equivalents 3 | 1.3% | |
Other Assets and Liabilities - Net 4 | 0.3% | |
TOTAL | 100.0% |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--98.4% | ||||||
Advertising--0.0% | ||||||
1,600 | Omnicom Group, Inc. | $ | 54,400 | |||
Agricultural Chemicals--0.2% | ||||||
7,200 | FMC Corp. | 350,208 | ||||
AT&T Divestiture--3.1% | ||||||
217,300 | AT&T, Inc. | 5,699,779 | ||||
Auto Original Equipment Manufacturers--0.2% | ||||||
2,000 | 1 | AutoZone, Inc. | 307,140 | |||
Biotechnology--7.1% | ||||||
96,700 | 1 | Amgen, Inc. | 6,025,377 | |||
14,600 | 1 | Biogen Idec, Inc. | 694,230 | |||
7,200 | 1 | Cephalon, Inc. | 422,280 | |||
3,400 | 1 | Charles River Laboratories International, Inc. | 112,438 | |||
123,400 | 1 | Gilead Sciences, Inc. | 6,037,962 | |||
TOTAL | 13,292,287 | |||||
Cable TV--1.6% | ||||||
7,300 | Comcast Corp., Class A | 108,478 | ||||
2,800 | 1 | Discovery Communications, Inc. | 68,600 | |||
13,100 | Time Warner Cable, Inc. | 433,086 | ||||
57,200 | Time Warner, Inc. | 1,524,952 | ||||
38,400 | 1 | Viacom, Inc., Class B | 889,344 | |||
TOTAL | 3,024,460 | |||||
Cellular Communications--0.0% | ||||||
2,100 | 1 | NII Holdings, Inc. | 48,342 | |||
Clothing Stores--0.5% | ||||||
13,600 | 1 | Children's Place Retail Stores, Inc. | 445,672 | |||
13,600 | 1 | Jos A. Bank Clothiers, Inc. | 497,624 | |||
4,600 | Limited Brands, Inc. | 59,524 | ||||
TOTAL | 1,002,820 | |||||
Cogeneration--0.6% | ||||||
60,000 | 1 | Mirant Corp. | 1,083,600 | |||
Computer Networking--0.0% | ||||||
1,400 | Black Box Corp. | 38,458 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Computer Peripherals--0.6% | ||||||
33,300 | 1 | Lexmark International Group, Class A | $ | 482,184 | ||
4,200 | 1 | Sandisk Corp. | 74,844 | |||
19,100 | 1 | Synaptics, Inc. | 457,827 | |||
2,800 | Western Union Co. | 48,944 | ||||
TOTAL | 1,063,799 | |||||
Computer Services--0.2% | ||||||
4,300 | 1 | Affiliated Computer Services, Inc., Class A | 203,863 | |||
7,500 | 1 | Synnex Corp. | 213,150 | |||
TOTAL | 417,013 | |||||
Computer Stores--0.2% | ||||||
20,000 | 1 | GameStop Corp. | 437,800 | |||
Computers - High End--4.9% | ||||||
77,300 | IBM Corp. | 9,115,989 | ||||
Computers - Low End--0.7% | ||||||
101,400 | 1 | Dell, Inc. | 1,356,732 | |||
Contracting--0.1% | ||||||
5,100 | 1 | IHS, Inc., Class A | 254,694 | |||
Crude Oil & Gas Production--5.1% | ||||||
63,400 | Apache Corp. | 5,322,430 | ||||
5,100 | Chesapeake Energy Corp. | 109,344 | ||||
19,500 | Cimarex Energy Co. | 697,710 | ||||
40,800 | 1 | Newfield Exploration Co. | 1,604,664 | |||
56,500 | Pioneer Natural Resources, Inc. | 1,613,075 | ||||
7,200 | 1 | Stone Energy Corp. | 78,192 | |||
8,600 | 1 | Tetra Technologies, Inc. | 66,306 | |||
TOTAL | 9,491,721 | |||||
Defense Aerospace--2.5% | ||||||
1,400 | 1 | Alliant Techsystems, Inc. | 110,208 | |||
60,100 | Boeing Co. | 2,578,891 | ||||
13,200 | Goodrich (B.F.) Co. | 677,952 | ||||
9,700 | Lockheed Martin Corp. | 725,172 | ||||
14,100 | 1 | TransDigm Group, Inc. | 539,889 | |||
TOTAL | 4,632,112 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Defense Electronics--1.1% | ||||||
1,200 | Grainger (W.W.), Inc. | $ | 107,892 | |||
12,100 | L-3 Communications Holdings, Inc. | 913,550 | ||||
12,500 | Northrop Grumman Corp. | 557,250 | ||||
8,600 | Raytheon Co. | 403,770 | ||||
TOTAL | 1,982,462 | |||||
Diversified Leisure--0.0% | ||||||
100 | 1 | Gaylord Entertainment Co. | 1,427 | |||
Diversified Tobacco--1.8% | ||||||
126,200 | Altria Group, Inc. | 2,212,286 | ||||
1,500 | 1 | Lorillard, Inc. | 110,580 | |||
24,100 | Reynolds American, Inc. | 1,048,591 | ||||
TOTAL | 3,371,457 | |||||
Electric Utility--5.1% | ||||||
38,100 | Ameren Corp. | 968,883 | ||||
48,500 | CMS Energy Corp. | 627,590 | ||||
6,100 | CenterPoint Energy, Inc. | 73,505 | ||||
4,000 | DPL, Inc. | 95,800 | ||||
20,000 | DTE Energy Co. | 689,200 | ||||
16,300 | Dominion Resources, Inc. | 550,940 | ||||
17,300 | Duke Energy Corp. | 267,804 | ||||
22,300 | Edison International | 720,736 | ||||
5,800 | Entergy Corp. | 465,914 | ||||
2,400 | ITC Holdings Corp. | 114,480 | ||||
10,100 | Idacorp, Inc. | 279,972 | ||||
6,700 | NiSource, Inc. | 86,363 | ||||
8,600 | OGE Energy Corp. | 258,860 | ||||
5,900 | PPL Corp. | 199,361 | ||||
6,200 | Pinnacle West Capital Corp. | 198,152 | ||||
36,900 | Public Service Enterprises Group, Inc. | 1,197,405 | ||||
48,000 | Sempra Energy | 2,516,640 | ||||
7,400 | UniSource Energy Corp. | 204,240 | ||||
TOTAL | 9,515,845 | |||||
Electronic & Electrical Original Equipment Manufacturers--0.3% | ||||||
26,000 | Molex, Inc. | 461,760 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Electronic Instruments--0.0% | ||||||
2,600 | Garmin Ltd. | $ | 71,916 | |||
Ethical Drugs--1.6% | ||||||
128,200 | Bristol-Myers Squibb Co. | 2,787,068 | ||||
7,400 | 1 | Valeant Pharmaceuticals International | 190,920 | |||
TOTAL | 2,977,988 | |||||
Financial Services--0.3% | ||||||
1,200 | Blackrock, Inc. | 228,648 | ||||
3,500 | Equifax, Inc. | 91,175 | ||||
4,900 | 1 | MSCI, Inc., Class A | 136,955 | |||
1,800 | Moody's Corp. | 42,732 | ||||
TOTAL | 499,510 | |||||
Furniture--0.1% | ||||||
9,700 | Leggett and Platt, Inc. | 168,295 | ||||
Gas Distributor--1.1% | ||||||
4,900 | AGL Resources, Inc. | 164,738 | ||||
23,100 | Energen Corp. | 954,492 | ||||
4,100 | ONEOK, Inc. | 135,710 | ||||
43,800 | 1 | Southern Union Co. | 848,844 | |||
TOTAL | 2,103,784 | |||||
Generic Drugs--0.9% | ||||||
123,700 | 1 | Mylan Laboratories, Inc. | 1,631,603 | |||
Grocery Chain--1.0% | ||||||
43,800 | Kroger Co. | 936,444 | ||||
53,200 | Safeway, Inc. | 1,007,076 | ||||
TOTAL | 1,943,520 | |||||
Home Building--1.6% | ||||||
69,000 | Lennar Corp., Class A | 816,960 | ||||
111,400 | 1 | Toll Brothers, Inc. | 2,178,984 | |||
TOTAL | 2,995,944 | |||||
Home Health Care--0.5% | ||||||
14,800 | 1 | Amerigroup Corp. | 365,264 | |||
4,000 | 1 | Gentiva Health Services, Inc. | 85,120 | |||
11,200 | 1 | LHC Group, Inc. | 328,720 | |||
3,200 | 1 | Lincare Holdings, Inc. | 83,776 | |||
TOTAL | 862,880 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Home Products--0.0% | ||||||
800 | Church and Dwight, Inc. | $ | 47,184 | |||
Hotels--0.0% | ||||||
4,400 | Wyndham Worldwide Corp. | 61,380 | ||||
Household Appliances--0.1% | ||||||
1,700 | Whirlpool Corp. | 97,053 | ||||
Industrial Machinery--0.2% | ||||||
19,000 | 1 | Terex Corp. | 288,420 | |||
Insurance Brokerage--0.2% | ||||||
4,000 | Aspen Insurance Holdings Ltd. | 99,480 | ||||
8,100 | Axis Capital Holdings Ltd. | 230,526 | ||||
1,400 | Endurance Specialty Holdings Ltd. | 46,718 | ||||
TOTAL | 376,724 | |||||
Integrated Domestic Oil--3.7% | ||||||
157,800 | ConocoPhillips | 6,897,438 | ||||
Integrated International Oil--9.8% | ||||||
134,400 | Chevron Corp. | 9,336,768 | ||||
126,100 | Exxon Mobil Corp. | 8,876,179 | ||||
TOTAL | 18,212,947 | |||||
Internet Services--1.8% | ||||||
11,300 | 1 | Amazon.com, Inc. | 969,088 | |||
49,200 | 1 | NetFlix, Inc. | 2,161,848 | |||
2,000 | 1 | Priceline.com, Inc. | 259,240 | |||
TOTAL | 3,390,176 | |||||
Life Insurance--1.7% | ||||||
1,800 | StanCorp Financial Group, Inc. | 61,956 | ||||
77,400 | Torchmark Corp. | 3,023,244 | ||||
TOTAL | 3,085,200 | |||||
Long-Term Care Centers--0.1% | ||||||
9,600 | 1 | Kindred Healthcare, Inc. | 134,784 | |||
Maritime--0.2% | ||||||
9,300 | Overseas Shipholding Group, Inc. | 319,455 | ||||
Medical Supplies--0.9% | ||||||
14,500 | 1 | American Medical Systems Holdings, Inc. | 221,705 | |||
28,600 | McKesson HBOC, Inc. | 1,462,890 | ||||
TOTAL | 1,684,595 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Medical Technology--0.4% | ||||||
2,800 | 1 | Gen-Probe, Inc. | $ | 103,936 | ||
12,100 | 1 | Zimmer Holdings, Inc. | 563,860 | |||
TOTAL | 667,796 | |||||
Metal Containers--0.1% | ||||||
4,400 | Ball Corp. | 212,784 | ||||
Metal Fabrication--0.0% | ||||||
1,300 | 1 | RTI International Metals | 23,088 | |||
Miscellaneous Communications--0.2% | ||||||
13,500 | 1 | Leap Wireless International, Inc. | 323,325 | |||
Miscellaneous Components--0.2% | ||||||
5,500 | 1 | International Rectifier Corp. | 91,080 | |||
17,100 | 1 | Qlogic Corp. | 223,155 | |||
TOTAL | 314,235 | |||||
Miscellaneous Machinery--0.1% | ||||||
4,700 | SPX Corp. | 248,254 | ||||
Mortgage and Title--0.0% | ||||||
18,600 | Radian Group, Inc. | 61,938 | ||||
Multi-Industry Capital Goods--2.2% | ||||||
49,800 | KBR, Inc. | 1,055,262 | ||||
56,700 | United Technologies Corp. | 3,088,449 | ||||
TOTAL | 4,143,711 | |||||
Multi-Line Insurance--2.8% | ||||||
31,300 | AON Corp. | 1,234,785 | ||||
22,700 | CIGNA Corp. | 644,680 | ||||
4,200 | 1 | CNA Financial Corp. | 71,610 | |||
3,500 | Harleysville Group, Inc. | 108,570 | ||||
2,800 | Infinity Property & Casualty | 116,312 | ||||
12,000 | Montpelier Re Holdings Ltd. | 188,160 | ||||
600 | 1 | Navigators Group, Inc. | 29,586 | |||
133,400 | UNUM Group | 2,503,918 | ||||
13,000 | Zenith National Insurance Corp. | 310,310 | ||||
TOTAL | 5,207,931 | |||||
Mutual Fund Adviser--0.1% | ||||||
2,900 | 1 | Affiliated Managers Group | 191,458 | |||
Office Equipment--0.1% | ||||||
12,200 | Pitney Bowes, Inc. | 251,930 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Oil Service, Explore & Drill--0.2% | ||||||
10,500 | 1 | Global Industries Ltd. | $ | 71,715 | ||
4,300 | 1 | Seacor Holdings, Inc. | 341,764 | |||
TOTAL | 413,479 | |||||
Oil Well Supply--0.1% | ||||||
4,000 | 1 | Dresser-Rand Group, Inc. | 116,440 | |||
Optical Reading Equipment--0.1% | ||||||
5,700 | 1 | Zebra Technologies Corp., Class A | 139,308 | |||
Outpatient Clinics--0.0% | ||||||
1,400 | 1 | DaVita, Inc. | 69,580 | |||
Packaged Foods--0.5% | ||||||
11,100 | Campbell Soup Co. | 344,433 | ||||
20,100 | Kraft Foods, Inc., Class A | 569,634 | ||||
TOTAL | 914,067 | |||||
Paint & Related Materials--0.0% | ||||||
3,200 | Fuller (H.B.) Co. | 64,512 | ||||
Paper Products--0.1% | ||||||
2,700 | Clearwater Paper Corp. | 108,189 | ||||
5,400 | Glatfelter (P.H.) Co. | 55,890 | ||||
TOTAL | 164,079 | |||||
Personal Loans--0.1% | ||||||
6,800 | 1 | World Acceptance Corp. | 161,296 | |||
Personnel Agency--0.2% | ||||||
6,000 | 1 | Hewitt Associates, Inc. | 179,580 | |||
2,500 | Maximus, Inc. | 106,550 | ||||
TOTAL | 286,130 | |||||
Plastic Containers--0.3% | ||||||
15,200 | 1 | Owens-Illinois, Inc. | 515,888 | |||
Pollution Control--0.0% | ||||||
1,400 | 1 | Stericycle, Inc. | 71,680 | |||
Property Liability Insurance--6.8% | ||||||
22,700 | Allied World Assurance Holdings Ltd. | 986,542 | ||||
43,300 | American Financial Group, Inc. | 1,056,087 | ||||
5,600 | 1 | Arch Capital Group Ltd. | 348,264 | |||
36,400 | Chubb Corp. | 1,680,952 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Property Liability Insurance--continued | ||||||
2,000 | Everest Re Group Ltd. | $ | 160,440 | |||
6,600 | HCC Insurance Holdings, Inc. | 165,660 | ||||
4,300 | Platinum Underwriters Holdings Ltd. | 145,125 | ||||
1,300 | 1 | ProAssurance Corp. | 66,014 | |||
6,000 | RenaissanceRe Holdings Ltd. | 301,500 | ||||
176,100 | The Travelers Cos., Inc. | 7,584,627 | ||||
4,800 | Transatlantic Holdings, Inc. | 227,088 | ||||
TOTAL | 12,722,299 | |||||
Psychiatric Centers--0.1% | ||||||
2,600 | 1 | Magellan Health Services, Inc. | 84,136 | |||
1,200 | 1 | Psychiatric Solutions, Inc. | 32,424 | |||
TOTAL | 116,560 | |||||
Railroad--2.3% | ||||||
47,500 | CSX Corp. | 1,905,700 | ||||
41,100 | Union Pacific Corp. | 2,364,072 | ||||
TOTAL | 4,269,772 | |||||
Regional Bank--1.1% | ||||||
7,400 | Central Pacific Financial Corp. | 16,058 | ||||
78,000 | Comerica, Inc. | 1,859,520 | ||||
6,500 | Oriental Financial Group | 91,715 | ||||
9,400 | Synovus Financial Corp. | 32,994 | ||||
8,400 | 1 | TFS Financial Corp. | 93,240 | |||
TOTAL | 2,093,527 | |||||
Restaurant--0.3% | ||||||
6,900 | 1 | Green Mountain Coffee, Inc. | 486,036 | |||
Roofing & Wallboard--0.0% | ||||||
800 | 1 | Beacon Roofing Supply, Inc. | 13,416 | |||
Securities Brokerage--4.7% | ||||||
52,900 | Goldman Sachs Group, Inc. | 8,638,570 | ||||
3,300 | 1 | TD Ameritrade Holding Corp. | 61,182 | |||
TOTAL | 8,699,752 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Semiconductor Distribution--0.0% | ||||||
3,800 | 1 | Tyler Technologies, Inc. | $ | 58,520 | ||
Services to Medical Professionals--3.9% | ||||||
56,500 | 1 | Health Net, Inc. | 764,445 | |||
15,500 | 1 | Humana, Inc. | 509,175 | |||
46,900 | Omnicare, Inc. | 1,119,503 | ||||
1,600 | 1 | PharMerica Corp. | 33,536 | |||
4,700 | Quest Diagnostics, Inc. | 256,714 | ||||
79,100 | UnitedHealth Group, Inc. | 2,219,546 | ||||
44,600 | 1 | Wellpoint, Inc. | 2,347,744 | |||
TOTAL | 7,250,663 | |||||
Shoes--0.1% | ||||||
7,300 | 1 | Genesco, Inc. | 158,556 | |||
Software Packaged/Custom--2.9% | ||||||
32,800 | CA, Inc. | 693,392 | ||||
13,800 | 1 | Computer Sciences Corp. | 664,746 | |||
18,700 | 1 | DST Systems, Inc. | 828,971 | |||
17,200 | 1 | Oracle Corp. | 380,636 | |||
8,100 | 1 | Quest Software, Inc. | 119,394 | |||
98,300 | 1 | Red Hat, Inc. | 2,244,189 | |||
10,200 | Rovi Corp. | 266,832 | ||||
14,600 | 1 | Symantec Corp. | 217,978 | |||
2,200 | 1 | Synopsys, Inc. | 43,956 | |||
TOTAL | 5,460,094 | |||||
Specialty Retailing--0.7% | ||||||
44,700 | 1 | Big Lots, Inc. | 1,029,888 | |||
8,600 | 1 | Cabela's, Inc., Class A | 139,406 | |||
5,300 | 1 | Conn's, Inc. | 66,833 | |||
9,800 | 1 | Zale Corp. | 58,016 | |||
TOTAL | 1,294,143 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Stainless Steel Producer--0.1% | ||||||
6,800 | Carpenter Technology Corp. | $ | 127,092 | |||
Technology Services--0.0% | ||||||
1,800 | Lender Processing Services | 61,524 | ||||
Telecommunication Equipment & Services--0.1% | ||||||
10,100 | 1 | Amdocs Ltd. | 241,592 | |||
Telecommunications--0.1% | ||||||
18,800 | 1 | MetroPCS Communications, Inc. | 222,780 | |||
Tobacco--1.0% | ||||||
40,200 | Philip Morris International, Inc. | 1,873,320 | ||||
Undesignated Consumer Cyclicals--4.7% | ||||||
2,500 | 1 | Alliance Data Systems Corp. | 127,500 | |||
22,900 | 1 | Apollo Group, Inc., Class A | 1,581,016 | |||
700 | 1 | Capella Education Co. | 45,052 | |||
36,800 | 1 | Corinthian Colleges, Inc. | 568,192 | |||
8,100 | DeVRY, Inc. | 402,894 | ||||
8,600 | 1 | FTI Consulting, Inc. | 468,098 | |||
2,400 | Herbalife Ltd. | 82,584 | ||||
43,500 | 1 | ITT Educational Services, Inc. | 4,234,725 | |||
32,600 | 1 | Iron Mountain, Inc. | 952,246 | |||
600 | Strayer Education, Inc. | 127,428 | ||||
4,500 | 1 | TeleTech Holdings, Inc. | 75,240 | |||
1,800 | 1 | Weight Watchers International, Inc. | 50,184 | |||
TOTAL | 8,715,159 | |||||
Undesignated Consumer Staples--0.0% | ||||||
4,800 | Block (H&R), Inc. | 80,112 | ||||
Undesignated Health--0.0% | ||||||
2,900 | 1 | HealthSouth Corp. | 41,760 | |||
TOTAL COMMON STOCKS (IDENTIFIED COST $172,566,699) | 183,404,687 | |||||
Shares | | | Value | |||
MUTUAL FUND--1.3% | ||||||
2,526,822 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | $ | 2,526,822 | ||
TOTAL INVESTMENTS--99.7% (IDENTIFIED COST $175,093,521) 4 | 185,931,509 | |||||
OTHER ASSETS AND LIABILITIES - NET--0.3% 5 | 480,950 | |||||
TOTAL NET ASSETS--100% | $ | 186,412,459 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $177,609,817.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | | | | | ||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | | Level 3-- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $180,651,717 | $-- | $-- | $180,651,717 | ||||
International | 2,752,970 | - -- | - -- | 2,752,970 | ||||
Mutual Fund | 2,526,822 | - -- | - -- | 2,526,822 | ||||
TOTAL SECURITIES | $185,931,509 | $-- | $-- | $185,931,509 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $2,526,822 of investments in an affiliated issuer (Note 5) (identified cost $175,093,521) | $ | 185,931,509 | |||||
Income receivable | 199,570 | ||||||
Receivable for investments sold | 3,230,290 | ||||||
Receivable for shares sold | 258,474 | ||||||
TOTAL ASSETS | 189,619,843 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 2,173,607 | |||||
Payable for shares redeemed | 740,977 | ||||||
Payable for transfer and dividend disbursing agent fees and expenses | 123,085 | ||||||
Payable for Directors'/Trustees' fees | 1,280 | ||||||
Payable for distribution services fee (Note 5) | 33,027 | ||||||
Payable for shareholder services fee (Note 5) | 62,950 | ||||||
Accrued expenses | 72,458 | ||||||
TOTAL LIABILITIES | 3,207,384 | ||||||
Net assets for 18,898,597 shares outstanding | $ | 186,412,459 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 343,247,936 | |||||
Net unrealized appreciation of investments | 10,837,988 | ||||||
Accumulated net realized loss on investments | (168,807,914 | ) | |||||
Undistributed net investment income | 1,134,449 | ||||||
TOTAL NET ASSETS | $ | 186,412,459 |
Statement of Assets and Liabilities - continued
Net Asset Value, Offering Price and Redemption Proceeds Per Share | ||||||||
Institutional Shares: | ||||||||
Net asset value per share ($50,031,068 ÷ 4,993,790 shares outstanding), no par value, unlimited shares authorized | $10.02 | |||||||
Offering price per share | $10.02 | |||||||
Redemption proceeds per share | $10.02 | |||||||
Class A Shares: | ||||||||
Net asset value per share ($81,898,381 ÷ 8,268,384 shares outstanding), no par value, unlimited shares authorized | $9.91 | |||||||
Offering price per share (100/94.50 of $9.91) | $10.49 | |||||||
Redemption proceeds per share | $9.91 | |||||||
Class C Shares: | ||||||||
Net asset value per share ($52,545,540 ÷ 5,440,890 shares outstanding), no par value, unlimited shares authorized | $9.66 | |||||||
Offering price per share | $9.66 | |||||||
Redemption proceeds per share (99.00/100 of $9.66) | $9.56 | |||||||
Class K Shares: | ||||||||
Net asset value per share ($1,937,470 ÷ 195,533 shares outstanding), no par value, unlimited shares authorized | $9.91 | |||||||
Offering price per share | $9.91 | |||||||
Redemption proceeds per share | $9.91 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $47,296 received from an affilaited issuer (Note 5) and net of foreign taxes withheld of $1,097) | $ | 4,557,902 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 1,731,691 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 60,782 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Institutional Shares | 95,460 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class A Shares | 245,696 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class C Shares | 177,128 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class K Shares | 5,804 | |||||||||||
Directors'/Trustees' fees | 5,068 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 4,425 | |||||||||||
Portfolio accounting fees | 109,644 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 451,006 | |||||||||||
Distribution services fee--Class K Shares (Note 5) | 7,592 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 280,104 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 150,152 | |||||||||||
Account administration fee--Class A Shares | 454 | |||||||||||
Account administration fee--Class C Shares | 183 | |||||||||||
Share registration costs | 66,147 | |||||||||||
Printing and postage | 61,084 | |||||||||||
Insurance premiums | 5,171 | |||||||||||
Interest expense | 416 | |||||||||||
Miscellaneous | 6,734 | |||||||||||
TOTAL EXPENSES | 3,757,241 |
Statement of Operations - continued
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (171,862 | ) | |||||||||
Waiver of administrative personnel and services fee | (52,689 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Institutional Shares | (13,546 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class A Shares | (53,854 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class C Shares | (42,911 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | $ | (334,862 | ) | |||||||||
Net expenses | $ | 3,422,379 | ||||||||||
Net investment income | 1,135,523 | |||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (143,221,360 | ) | ||||||||||
Net change in unrealized depreciation of investments | 24,032,186 | |||||||||||
Net realized and unrealized loss on investments | (119,189,174 | ) | ||||||||||
Change in net assets resulting from operations | $ | (118,053,651 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income | $ | 1,135,523 | $ | 1,186,226 | ||||
Net realized loss on investments | (143,221,360 | ) | (25,156,859 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 24,032,186 | (20,313,246 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (118,053,651 | ) | (44,283,879 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net investment income | ||||||||
Institutional Shares | (512,513 | ) | - -- | |||||
Class A Shares | (664,841 | ) | - -- | |||||
Class C Shares | - -- | - -- | ||||||
Class K Shares | (5,889 | ) | - -- | |||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (6,297,925 | ) | |||||
Class A Shares | - -- | (14,822,479 | ) | |||||
Class C Shares | - -- | (7,853,780 | ) | |||||
Class K Shares | - -- | (32,808 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (1,183,243 | ) | (29,006,992 | ) | ||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 69,074,805 | 148,687,842 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | 1,060,033 | 25,603,826 | ||||||
Cost of shares redeemed | (144,027,671 | ) | (113,566,093 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (73,892,833 | ) | 60,725,575 | |||||
Change in net assets | (193,129,727 | ) | (12,565,296 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 379,542,186 | 392,107,482 | ||||||
End of period (including undistributed net investment income of $1,134,449 and $1,186,226, respectively) | $ | 186,412,459 | $ | 379,542,186 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT All Cap Core Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class C Shares and Class K Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Class A Shares, Class C Shares and Class K Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear distribution services fees, shareholder services fees, account administration fees and certain transfer and dividend disbursing agent fees unique to those classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 2,232,749 | $ | 20,668,288 | 2,316,132 | $ | 37,878,322 | ||||||||
Shares issued to shareholders in payment of distributions declared | 45,422 | 417,427 | 306,108 | 5,075,279 | ||||||||||
Shares redeemed | (3,379,111 | ) | (32,553,562 | ) | (1,569,357 | ) | (25,328,179 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | (1,100,940 | ) | $ | (11,467,847 | ) | 1,052,883 | $ | 17,625,422 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 3,576,090 | $ | 35,336,951 | 4,864,131 | $ | 77,675,376 | ||||||||
Shares issued to shareholders in payment of distributions declared | 69,892 | 636,717 | 864,495 | 14,186,366 | ||||||||||
Shares redeemed | (9,247,124 | ) | (84,976,792 | ) | (3,920,927 | ) | (61,812,706 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (5,601,142 | ) | $ | (49,003,124 | ) | 1,807,699 | $ | 30,049,036 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 1,152,913 | $ | 10,952,306 | 1,978,773 | $ | 31,441,573 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 391,649 | 6,309,458 | ||||||||||
Shares redeemed | (2,748,508 | ) | (25,404,032 | ) | (1,692,463 | ) | (26,152,035 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (1,595,595 | ) | $ | (14,451,726 | ) | 677,959 | $ | 11,598,996 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class K Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 219,186 | $ | 2,117,260 | 106,180 | $ | 1,692,571 | ||||||||
Shares issued to shareholders in payment of distributions declared | 644 | 5,889 | 1,982 | 32,723 | ||||||||||
Shares redeemed | (123,095 | ) | (1,093,285 | ) | (17,383 | ) | (273,173 | ) | ||||||
NET CHANGE RESULTING FROM CLASS K SHARE TRANSACTIONS | 96,735 | $ | 1,029,864 | 90,779 | $ | 1,452,121 | ||||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (8,200,942 | ) | $ | (73,892,833 | ) | 3,629,320 | $ | 60,725,575 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for a litigation payment and distributions.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital | Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) | ||
$(1,456) | $(4,057) | $5,513 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $1,183,243 | $21,537,947 | ||
Long-term capital gains | $ -- | $ 7,469,045 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | | $ | 1,134,449 | |
Net unrealized appreciation | $ | 8,321,692 | ||
Capital loss carryforwards and deferrals | $ | (166,291,618 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $177,609,817. The net unrealized appreciation of investments for federal tax purposes was $8,321,692. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $13,167,671 and net unrealized depreciation from investments for those securities having an excess of cost over value of $4,845,979.
At July 31, 2009, the Fund had a capital loss carryforward of $79,106,604 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2016 | $ 3,647,165 | |
2017 | $75,459,439 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $87,185,014 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for certain classes of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.25% | |
Class A Shares | 1.50% | |
Class C Shares | 2.25% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $169,537 of its fee. In addition, for the year ended July 31, 2009, an affiliate of the Adviser reimbursed $110,311 of transfer and dividend disbursing agent fees and expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | Average Aggregate Daily Net Assets of the Federated Funds | |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the net fee paid to FAS was 0.094% of average daily net assets of the Fund. FAS waived $52,689 of its fee.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class C Shares and Class K Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | Percentage of Average Daily Net Assets of Class | |
Class A Shares | 0.05% | |
Class C Shares | 0.75% | |
Class K Shares | 0.50% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $77,563 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $14,892 in sales charges from the sale of Class A Shares. FSC also retained $8,490 of CDSC relating to redemptions of class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses paid by the Fund's Institutional Shares, Class A Shares, Class C Shares and Class K Shares (after the voluntary waivers and reimbursements) will not exceed 1.02%, 1.30%, 2.09% and 1.76%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $2,325. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 1,891,293 | 64,988,742 | 64,353,213 | 2,526,822 | $2,526,822 | $47,296 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 679,541,445 |
Sales | $ | 752,899,505 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds, and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
11. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended July 31, 2009, 100% of total income (including short-term capital gain) distributions made by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information is reported in conjunction with the reporting of your distributions on Form 1099-DIV.
Of the ordinary income (including short-term capital gain) distributions made by the Fund during the year ended July 31, 2009, 100% qualify for the dividend received deduction available to corporate shareholders.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND
SHAREHOLDERS OF FEDERATED MDT ALL CAP CORE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT All Cap Core Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year in the period ended July 31, 2005 were audited by another independent registered public accounting firm whose report, dated September 19, 2005 expressed an unqualified opinion on those financial highlights.
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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT All Cap Core Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein for the years ended July 31, 2009, 2008, 2007 and 2006, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory Contract - May 2009
FEDERATED MDT ALL CAP CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
The Fund's performance fell below the median of the relevant peer group for the one-year, three-year and five-year periods covered by the report. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period, underperformed its benchmark index for the three-year period and underperformed its benchmark index for the five-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee, after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. In this regard, the Board had been previously advised that, while comparisons to fund peer groups are highly important in judging the reasonableness of advisory fees, the Fund's quantitative focus makes fee and expense comparisons particularly difficult. Although the Fund's advisory fee was above the median of the peer range, the peer group of funds varied widely in their complexity, and the management of the Fund is among the more complex relative to its peers. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT All CapCore fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R304
37312 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Large Cap
Growth Fund
Established 2005
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class B Shares
Class C Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.23 | $12.12 | $10.17 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | 0.00 | 3,4 | (0.06 | ) 4 | (0.14 | ) 4 | (0.10 | ) 4 | ||||
Net realized and unrealized gain (loss) on investments | (2.63 | ) | (0.48 | ) | 2.20 | 0.27 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (2.63 | ) | (0.54 | ) | 2.06 | 0.17 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (1.35 | ) | (0.11 | ) | - -- | ||||||
Net Asset Value, End of Period | $7.60 | $10.23 | $12.12 | $10.17 | ||||||||
Total Return 5 | (25.71 | )% | (5.76 | )% | 20.38 | % | 1.70 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.50 | % | 1.50 | % | 1.50 | % | 2.01 | % 6 | ||||
Net investment income (loss) | 0.04 | % | (0.49 | )% | (1.14 | )% | (0.93 | )% 6 | ||||
Expense waiver/reimbursement 7 | 0.52 | % | 0.14 | % | 2.30 | % | 20.55 | % 6 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $68,963 | $102,600 | $88,826 | $183 | ||||||||
Portfolio turnover | 380 | % | 320 | % | 630 | % | 237 | % |
1 MDT Large Cap Growth Fund (the "Predecessor Fund") was reorganized into Federated MDT Large Cap Growth Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Represents less than $0.01.
4 Per share numbers have been calculated using the average shares method.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
6 Computed on an annualized basis.
7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class B Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | ||||||||
| 2009 | | 2008 | | 7/31/2007 | 1 | |||
Net Asset Value, Beginning of Period | $10.21 | $12.18 | $11.48 | ||||||
Income From Investment Operations: | |||||||||
Net investment income (loss) | (0.05 | ) 2 | (0.14 | ) 2 | (0.08 | ) 2 | |||
Net realized and unrealized gain (loss) on investments | (2.63 | ) | (0.48 | ) | 0.78 | ||||
TOTAL FROM INVESTMENT OPERATIONS | (2.68 | ) | (0.62 | ) | 0.70 | ||||
Less Distributions: | |||||||||
Distributions from net realized gain on investments | - -- | (1.35 | ) | - -- | |||||
Net Asset Value, End of Period | $7.53 | $10.21 | $12.18 | ||||||
Total Return 3 | (26.25 | )% | (6.43 | )% | 6.10 | % | |||
Ratios to Average Net Assets: | |||||||||
Net expenses | 2.25 | % | 2.25 | % | 2.24 | % 4 | |||
Net investment income (loss) | (0.72 | )% | (1.22 | )% | (1.95 | )% 4 | |||
Expense waiver/reimbursement 5 | 0.52 | % | 0.14 | % | 0.54 | % 4 | |||
Supplemental Data: | |||||||||
Net assets, end of period (000 omitted) | $8,532 | $22,138 | $46,933 | ||||||
Portfolio turnover | 380 | % | 320 | % | 630 | % 6 |
1 Reflects operations for the period from March 29, 2007 (date of initial public investment) to July 31, 2007.
2 Per share numbers have been calculated using the average shares method.
3 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
4 Computed on an annualized basis.
5 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
6 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2007.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $9.99 | $11.94 | $10.10 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.05 | ) 3 | (0.13 | ) 3 | (0.22 | ) 3 | (0.19 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (2.57 | ) | (0.47 | ) | 2.17 | 0.29 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (2.62 | ) | (0.60 | ) | 1.95 | 0.10 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (1.35 | ) | (0.11 | ) | - -- | ||||||
Net Asset Value, End of Period | $7.37 | $9.99 | $11.94 | $10.10 | ||||||||
Total Return 4 | (26.23 | )% | (6.39 | )% | 19.42 | % | 1.00 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 2.25 | % | 2.22 | % | 2.25 | % | 2.76 | % 5 | ||||
Net investment income (loss) | (0.71 | )% | (1.21 | )% | (1.83 | )% | (1.68 | )% 5 | ||||
Expense waiver/reimbursement 6 | 0.52 | % | 0.14 | % | 5.64 | % | 20.55 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $7,333 | $14,895 | $14,388 | $147 | ||||||||
Portfolio turnover | 380 | % | 320 | % | 630 | % | 237 | % |
1 The Predecessor Fund was reorganized into the Fund as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual: | ||||||
Class A Shares | $1,000 | $1,163.90 | $ 7.99 | |||
Class B Shares | $1,000 | $1,160.20 | $12.00 | |||
Class C Shares | $1,000 | $1,160.60 | $12.00 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $1,017.41 | $ 7.45 | |||
Class B Shares | $1,000 | $1,013.69 | $11.18 | |||
Class C Shares | $1,000 | $1,013.69 | $11.18 |
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
Class A Shares | | 1.49% |
Class B Shares | 2.24% | |
Class C Shares | 2.24% |
Management's Discussion Of Fund Performance (unaudited)
The fund's total return, based on net asset value, for the fiscal year ended July 31, 2009 was -25.71% for Class A Shares, -26.25% for Class B Shares and -26.23% for Class C Shares. The total returns of the Russell 1000 ® Growth Index 1 and the Lipper Large-Cap Growth Funds Index, 2 respectively, were -17.57% and -19.48% for the same period. The fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell 1000 ® Growth Index.
The following discussion is based upon the performance of the Fund's Class A Shares.
1 The Russell 1000 ® Growth Index measures the performance of those Russell 1000 ® companies with higher price-to-book ratios and higher forecasted growth values. The Index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12-month reporting period ending July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, 3 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 4 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000 5® and the Russell Midcap 6® Indexes, respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 8
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples -7.53%, Information Technology -9.65% and Consumer Discretionary -10.68%. Underperforming sectors included Financials -34.08%, Energy -31.64% and Industrials -30.11%.
3 The Russell 3000 ® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged, and unlike the Fund is not affected by cash flows. It is not possible to invest directly in an index.
4 The Russell Top 200 ® Index measures the performance of the 200 largest companies in the Russell 1000 Index, which represents approximately 69% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and unlike the Fund is not affected by cash flows. It is not possible to invest directly in an index.
5 The Russell 2000 ® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The index is unmanaged, and unlike the Fund is not affected by cash flows. It is not possible to invest directly in an index.
6 The Russell Midcap ® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
7 The Russell 3000 ® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indexes. The index is unmanaged, and unlike the Fund is not affected by cash flows. It is not possible to invest directly in an index.
8 The Russell 3000 Value ® Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 Value or the Russell 2000 Value indexes. The index is unmanaged, and unlike the Fund is not affected by cash flows. It is not possible to invest directly in an index.
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 1000 ® Growth Index was an overweight in the Health Care sector. Additionally, the fund's stock selection in the Materials sector provided a moderate contribution to relative performance. Individual stocks contributing to the fund's performance relative to the Russell 1000 ® Growth Index included: Apple Computer Incorporated, McKesson Corporation, Zimmer Holdings Incorporated and Hewlett-Packard Company.
The most significant negative factor in the fund's performance relative to the Russell 1000 ® Growth Index was stock selection in the Consumer Discretionary, Industrials and Energy sectors. An underweight in the Consumer Staples and the timing of changes in the Energy sector allocation detracted significantly, as well. Individual stocks detracting from the Fund's performance relative to the Russell 1000 ® Growth Index included: Honeywell International Incorporated, Darden Restaurants Incorporated, Rockwell Collins Incorporated and First Solar Incorporated.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Growth Fund 2 (Class A Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Growth Index (Russell 1000 ® Growth) 2 and the Lipper Large-Cap Growth Funds Index. 3
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -29.82% | |
Start of Performance (9/15/2005) | - -5.29% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcgarabc37329edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's Shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund Shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50%.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Growth and the Lipper Large-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Large Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for the periods prior to that date is that of the MDT Large Cap Growth Fund.
3 The Russell 1000 ® Growth is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
GROWTH OF A $10,000 INVESTMENT - CLASS B SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Growth Fund 2 (Class B Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Growth Index (Russell 1000 ® Growth) 2 and the Lipper Large-Cap Growth Funds Index. 3
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -30.31% | |
Start of Performance (9/15/2005) 4 | - -5.20% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcgarabc37329edg2.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's Shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund Shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 5.50%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 5.50% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Growth and the Lipper Large-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Large Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for the periods prior to that date is that of the MDT Large Cap Growth Fund.
3 The Russell 1000 ® Growth is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
5 The start of performance date was September 15, 2005. Class B Shares of the Fund were offered beginning March 29, 2007. Performance results shown before that date are for the Fund's Institutional Shares and have been adjusted for the maximum CDSC and total annual operating expenses applicable to the Fund's Class B Shares. The Fund's Institutional Shares commenced operations September 15, 2005. The Fund's Class B Shares annual returns would have been substantially similar to those of the Fund's Institutional Shares because Shares of each class are invested in the same portfolio of securities. Lipper figures do not reflect sales charges.
GROWTH OF A $10,000 INVESTMENT - CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Growth Fund 2 (Class C Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Growth Index (Russell 1000 ® Growth) 2 and the Lipper Large-Cap Growth Funds Index. 3
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcgarabc37329edg3.gif)
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -26.96% | |
Start of Performance (9/15/2005) | - -4.60% |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's Shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund Shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Growth and the Lipper Large-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Large Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for the periods prior to that date is that of the MDT Large Cap Growth Fund.
3 The Russell 1000 ® Growth is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | Percentage of Total Net Assets | |
Ethical Drugs | 8.9% | |
Biotechnology | 7.0% | |
Internet Services | 7.0% | |
Medical Technology | 6.3% | |
Financial Services | 5.6% | |
Software Packaged/Custom | 5.2% | |
Medical Supplies | 5.1% | |
Electric Utility | 4.8% | |
Defense Aerospace | 4.7% | |
Undesignated Consumer Cyclicals | 4.7% | |
Grocery Chain | 4.0% | |
Computers - Low End | 3.9% | |
Computers - Midrange | 3.9% | |
Multi-Industry Capital Goods | 3.9% | |
Defense Electronics | 3.4% | |
Cable TV | 3.2% | |
Computer Services | 3.1% | |
Office Equipment | 3.0% | |
Restaurant | 2.7% | |
Metal Containers | 2.1% | |
Specialty Retailing | 1.2% | |
Department Stores | 1.0% | |
Other 2 | 3.1% | |
Cash Equivalents 3 | 2.1% | |
Other Assets and Liabilities - Net 4 | 0.1% | |
TOTAL | 100.0% |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--97.8% | ||||||
Advertising--0.2% | ||||||
5,521 | Omnicom Group, Inc. | $ | 187,714 | |||
Biotechnology--7.0% | ||||||
19,316 | 1 | Amgen, Inc. | 1,203,580 | |||
66,605 | 1 | Biogen Idec, Inc. | 3,167,068 | |||
39,657 | 1 | Gilead Sciences, Inc. | 1,940,417 | |||
TOTAL | 6,311,065 | |||||
Cable TV--3.2% | ||||||
123,077 | 1 | Viacom, Inc., Class B | 2,850,463 | |||
Clothing Stores--0.3% | ||||||
5,190 | Ross Stores, Inc. | 228,827 | ||||
Computer Services--3.1% | ||||||
48,314 | 1 | Affiliated Computer Services, Inc., Class A | 2,290,567 | |||
10,701 | 1 | Fiserv, Inc. | 507,334 | |||
TOTAL | 2,797,901 | |||||
Computers - High End--0.3% | ||||||
2,154 | IBM Corp. | 254,021 | ||||
Computers - Low End--3.9% | ||||||
21,457 | 1 | Apple, Inc. | 3,505,859 | |||
Computers - Midrange--3.9% | ||||||
81,325 | Hewlett-Packard Co. | 3,521,372 | ||||
Crude Oil & Gas Production--0.5% | ||||||
9,626 | 1 | Southwestern Energy Co. | 398,805 | |||
Defense Aerospace--4.7% | ||||||
52,660 | General Dynamics Corp. | 2,916,837 | ||||
16,903 | Lockheed Martin Corp. | 1,263,668 | ||||
TOTAL | 4,180,505 | |||||
Defense Electronics--3.4% | ||||||
40,186 | L-3 Communications Holdings, Inc. | 3,034,043 | ||||
Department Stores--1.0% | ||||||
10,407 | 1 | Kohl's Corp. | 505,260 | |||
8,773 | Target Corp. | 382,678 | ||||
TOTAL | 887,938 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Diversified Tobacco--0.2% | ||||||
1,396 | Altria Group, Inc. | $ | 24,472 | |||
1,800 | 1 | Lorillard, Inc. | 132,696 | |||
TOTAL | 157,168 | |||||
Electric Utility--4.8% | ||||||
53,779 | 1 | AES Corp. | 687,833 | |||
19,140 | Entergy Corp. | 1,537,516 | ||||
65,157 | Public Service Enterprises Group, Inc. | 2,114,345 | ||||
TOTAL | 4,339,694 | |||||
Ethical Drugs--8.9% | ||||||
75,723 | Abbott Laboratories | 3,406,778 | ||||
159,832 | Bristol-Myers Squibb Co. | 3,474,748 | ||||
43,381 | 1 | Forest Laboratories, Inc., Class A | 1,120,531 | |||
TOTAL | 8,002,057 | |||||
Financial Services--5.6% | ||||||
41,057 | Equifax, Inc. | 1,069,535 | ||||
47,385 | Total System Services, Inc. | 695,612 | ||||
49,764 | Visa, Inc., Class A | 3,257,551 | ||||
TOTAL | 5,022,698 | |||||
Grocery Chain--4.0% | ||||||
165,766 | Kroger Co. | 3,544,077 | ||||
Home Products--0.5% | ||||||
6,207 | Kimberly-Clark Corp. | 362,799 | ||||
3,680 | Tupperware Brands Corp. | 125,378 | ||||
TOTAL | 488,177 | |||||
Internet Services--7.0% | ||||||
38,557 | 1 | Amazon.com, Inc. | 3,306,648 | |||
4,218 | 1 | Google Inc. | 1,868,785 | |||
8,766 | 1 | Priceline.com, Inc. | 1,136,249 | |||
TOTAL | 6,311,682 | |||||
Medical Supplies--5.1% | ||||||
64,665 | 1 | Hologic, Inc. | 949,929 | |||
71,014 | McKesson HBOC, Inc. | 3,632,366 | ||||
TOTAL | 4,582,295 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Medical Technology--6.3% | ||||||
65,523 | Medtronic, Inc. | $ | 2,320,825 | |||
70,609 | 1 | Zimmer Holdings, Inc. | 3,290,379 | |||
TOTAL | 5,611,204 | |||||
Metal Containers--2.1% | ||||||
38,935 | Ball Corp. | 1,882,897 | ||||
Multi-Industry Capital Goods--3.9% | ||||||
63,576 | United Technologies Corp. | 3,462,985 | ||||
Office Equipment--3.0% | ||||||
128,399 | Pitney Bowes, Inc. | 2,651,439 | ||||
Restaurant--2.7% | ||||||
62,271 | Darden Restaurants, Inc. | 2,016,958 | ||||
6,179 | 1 | Green Mountain Coffee, Inc. | 435,249 | |||
TOTAL | 2,452,207 | |||||
Services to Medical Professionals--0.2% | ||||||
8,471 | Omnicare, Inc. | 202,203 | ||||
Software Packaged/Custom--5.2% | ||||||
160,433 | CA, Inc. | 3,391,554 | ||||
20,408 | 1 | DST Systems, Inc. | 904,687 | |||
9,030 | 1 | McAfee, Inc. | 402,557 | |||
TOTAL | 4,698,798 | |||||
Specialty Retailing--1.2% | ||||||
31,117 | CVS Caremark Corp. | 1,041,797 | ||||
Telecommunication Equipment & Services--0.8% | ||||||
15,023 | Qualcomm, Inc. | 694,213 | ||||
Truck Manufacturing--0.1% | ||||||
3,606 | PACCAR, Inc. | 124,948 | ||||
Undesignated Consumer Cyclicals--4.7% | ||||||
21,329 | 1 | Apollo Group, Inc., Class A | 1,472,554 | |||
3,491 | DeVRY, Inc. | 173,642 | ||||
12,973 | 1 | ITT Educational Services, Inc. | 1,262,922 | |||
17,979 | 1 | Iron Mountain, Inc. | 525,167 | |||
3,452 | Strayer Education, Inc. | 733,136 | ||||
TOTAL | 4,167,421 | |||||
TOTAL COMMON STOCKS (IDENTIFIED COST $78,017,531) | 87,596,473 | |||||
Shares | | | Value | |||
MUTUAL FUND--2.1% | ||||||
1,918,964 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | $ | 1,918,964 | ||
TOTAL INVESTMENTS--99.9% (IDENTIFIED COST $79,936,495) 4 | 89,515,437 | |||||
OTHER ASSETS AND LIABILITIES - NET--0.1% 5 | 82,275 | |||||
TOTAL NET ASSETS--100% | $ | 89,597,712 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amount to $80,265,443.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | | | | | ||||
| Level 1 - Quoted Prices and Investments in Mutual Funds | | Level 2 - Other Significant Observable Inputs | | Level 3 - Significant Unobservable Inputs | | Total | |
Equity Securities | ||||||||
Domestic | $87,596,473 | $-- | $-- | $ 87,596,473 | ||||
Mutual Fund | 1,918,964 | - -- | - -- | 1,918,964 | ||||
TOTAL SECURITIES | $89,515,437 | $-- | $-- | $89,515,437 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $1,918,964 of investments in an affiliated issuer (Note 5) (identified cost $79,936,495) | $ | 89,515,437 | |||||
Cash | 71 | ||||||
Income receivable | 66,061 | ||||||
Receivable for investments sold | 2,457,829 | ||||||
Receivable for shares sold | 351,946 | ||||||
TOTAL ASSETS | 92,391,344 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 2,454,272 | |||||
Payable for shares redeemed | 159,681 | ||||||
Payable for Directors'/Trustees' fees | 746 | ||||||
Payable for distribution services fee (Note 5) | 9,814 | ||||||
Payable for shareholder services fee (Note 5) | 37,610 | ||||||
Accrued expenses | 131,509 | ||||||
TOTAL LIABILITIES | 2,793,632 | ||||||
Net assets for 11,817,540 shares outstanding | $ | 89,597,712 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 155,301,371 | |||||
Net unrealized appreciation of investments | 9,578,942 | ||||||
Accumulated net realized loss on investments | (75,282,601 | ) | |||||
TOTAL NET ASSETS | $ | 89,597,712 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($4,769,495 ÷ 619,590 shares outstanding), no par value, unlimited shares authorized | $7.70 | ||||||
Offering price per share | $7.70 | ||||||
Redemption proceeds per share | $7.70 | ||||||
Class A Shares: | |||||||
Net asset value per share ($68,962,528 ÷ 9,069,317 shares outstanding), no par value, unlimited shares authorized | $7.60 | ||||||
Offering price per share (100/94.50 of $7.60) | $8.04 | ||||||
Redemption proceeds per share | $7.60 | ||||||
Class B Shares: | |||||||
Net asset value per share ($8,532,390 ÷ 1,133,326 shares outstanding), no par value, unlimited shares authorized | $7.53 | ||||||
Offering price per share | $7.53 | ||||||
Redemption proceeds per share (94.50/100 of $7.53) | $7.12 | ||||||
Class C Shares: | |||||||
Net asset value per share ($7,333,299 ÷ 995,307 shares outstanding), no par value, unlimited shares authorized | $7.37 | ||||||
Offering price per share | $7.37 | ||||||
Redemption proceeds per share (99.00/100 of $7.37) | $7.30 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $19,768 received from an affiliated issuer) (Note 5) | $ | 1,436,776 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 704,043 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 17,117 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 433,150 | |||||||||||
Directors'/Trustees' fees | 2,566 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 4,579 | |||||||||||
Portfolio accounting fees | 83,177 | |||||||||||
Distribution services fee--Class B Shares (Note 5) | 85,031 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 65,398 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 162,363 | |||||||||||
Shareholder services fee--Class B Shares (Note 5) | 28,343 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 21,675 | |||||||||||
Account administration fee--Class A Shares | 7,911 | |||||||||||
Account administration fee--Class C Shares | 125 | |||||||||||
Share registration costs | 53,163 | |||||||||||
Printing and postage | 60,964 | |||||||||||
Insurance premiums | 4,643 | |||||||||||
Miscellaneous | 2,853 | |||||||||||
TOTAL EXPENSES | 2,029,601 | |||||||||||
Waivers and Reimbursement (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (433,256 | ) | |||||||||
Waiver of administrative personnel and services fee | (54,059 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENT | (487,315 | ) | ||||||||||
Net expenses | 1,542,286 | |||||||||||
Net investment income (loss) | (105,510 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (42,781,838 | ) | ||||||||||
Net change in unrealized appreciation of investments | 3,649,160 | |||||||||||
Net realized and unrealized loss on investments | (39,132,678 | ) | ||||||||||
Change in net assets resulting from operations | $ | (39,238,188 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (105,510 | ) | $ | (1,147,470 | ) | ||
Net realized loss on investments | (42,781,838 | ) | (10,506,699 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 3,649,160 | 1,380,057 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (39,238,188 | ) | (10,274,112 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (257,727 | ) | |||||
Class A Shares | - -- | (11,660,461 | ) | |||||
Class B Shares | - -- | (4,329,484 | ) | |||||
Class C Shares | - -- | (2,139,318 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (18,386,990 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 27,010,203 | 70,026,996 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 15,708,083 | ||||||
Cost of shares redeemed | (44,087,682 | ) | (63,105,962 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (17,077,479 | ) | 22,629,117 | |||||
Change in net assets | (56,315,667 | ) | (6,031,985 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 145,913,379 | 151,945,364 | ||||||
End of period | $ | 89,597,712 | $ | 145,913,379 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine diversified portfolios. The financial statements included herein are only those of Federated MDT Large Cap Growth Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class B Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of Institutional Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Trustees.
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as account administration, distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 483,659 | $ | 3,711,106 | 481,360 | $ | 5,340,579 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 16,469 | 193,018 | ||||||||||
Shares redeemed | (471,901 | ) | (3,239,715 | ) | (37,394 | ) | (447,625 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 11,758 | $ | 471,391 | 460,435 | $ | 5,085,972 | ||||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 3,026,777 | $ | 21,351,688 | 4,265,442 | $ | 49,806,979 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 882,581 | 10,255,594 | ||||||||||
Shares redeemed | (3,985,294 | ) | (27,833,107 | ) | (2,448,438 | ) | (27,452,372 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (958,517 | ) | $ | (6,481,419 | ) | 2,699,585 | $ | 32,610,201 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class B Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 129,934 | $ | 919,642 | 376,994 | $ | 4,378,454 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 344,460 | 4,012,963 | ||||||||||
Shares redeemed | (1,165,518 | ) | (8,608,170 | ) | (2,405,450 | ) | (27,366,232 | ) | ||||||
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (1,035,584 | ) | $ | (7,688,528 | ) | (1,683,996 | ) | $ | (18,974,815 | ) | ||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 148,843 | $ | 1,027,767 | 912,018 | $ | 10,500,984 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 109,439 | 1,246,508 | ||||||||||
Shares redeemed | (644,873 | ) | (4,406,690 | ) | (734,780 | ) | (7,839,733 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (496,030 | ) | $ | (3,378,923 | ) | 286,677 | $ | 3,907,759 | ||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (2,478,373 | ) | $ | (17,077,479 | ) | 1,762,701 | $ | 22,629,117 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments for net operating loss and expiration of capital loss carryforwards.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital | | Undistributed Net Investment Income (Loss) | | Accumulated Net Realized Gain (Loss) |
$(76,752,196) | $105,510 | $76,646,686 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $-- | $ 6,355,795 | ||
Long-term capital gains | $-- | $12,031,195 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | | $ | 9,249,994 | |
Capital loss carryforwards and deferrals | $ | (74,953,653 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $80,265,443. The net unrealized appreciation of investments for federal tax purposes was $9,249,994. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $10,722,724 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,472,730.
At July 31, 2009, the Fund had a capital loss carryforward of $57,272,769 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2010 | $21,688,057 | |
2016 | $ 183,375 | |
2017 | $35,401,337 |
As a result of the tax-free transfer of assets from Federated Large Cap Growth Fund, the use of certain capital loss carryforwards listed above may be limited.
Capital loss carryforwards of $76,646,626 expired during the year ended July 31, 2009.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post-October losses of $17,680,884 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages of certain classes of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $432,093 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $54,059 of its fee. The net fee paid to FAS was 0.230% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class B Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class B Shares | 0.75% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $8,268 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $4,127 in sales charges from the sale of Class A Shares. FSC also retained $825 of CDSC relating to redemptions of Class A Shares and $545 relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares, Class B Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Financial intermediaries may include a company affiliated with management of Federated Investors, Inc. A financial intermediary affiliated with management of Federated Investors, Inc. received $20,172 of Service Fees for the year ended July 31, 2009. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $707 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares, Class B Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.25%, 1.50%, 2.25% and 2.25%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $1,163. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 507,081 | 25,616,687 | 24,204,804 | 1,918,964 | $1,918,964 | $19,768 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 361,637,425 |
Sales | $ | 379,250,512 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND
SHAREHOLDERS OF FEDERATED MDT LARGE CAP GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Large Cap Growth Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Large Cap Growth Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct professor of law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Positions: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman, Audit Committee; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory Contract - May 2009
FEDERATED MDT LARGE CAP GROWTH FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
For the periods covered by the report, the Fund's performance for the three-year period was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee, after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. In this regard, the Board had been previously advised that, while comparisons to fund peer groups are highly important in judging the reasonableness of advisory fees, the Fund's quantitative focus makes fee and expense comparisons particularly difficult. Although the Fund's advisory fee was above the median of the peer range, the peer group of funds varied widely in their complexity, and the management of the Fund is among the more complex relative to its peers. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Large CapGrowth Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R700
Cusip 31421R684
Cusip 31421R809
37329 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Large Cap Growth Fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.33 | $12.20 | $10.20 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | 0.02 | 3 | (0.03 | ) 3 | (0.03 | ) 3 | (0.07 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (2.65 | ) | (0.49 | ) | 2.14 | 0.27 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (2.63 | ) | (0.52 | ) | 2.11 | 0.20 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (1.35 | ) | (0.11 | ) | - -- | ||||||
Net Asset Value, End of Period | $ 7.70 | $10.33 | $12.20 | $10.20 | ||||||||
Total Return 4 | (25.46 | )% | (5.55 | )% | 20.81 | % | 2.00 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.25 | % | 1.25 | % | 1.25 | % | 1.76 | % 5 | ||||
Net investment income (loss) | 0.28 | % | (0.28 | )% | (0.29 | )% | (0.68 | )% 5 | ||||
Expense waiver/reimbursement 6 | 0.52 | % | 0.14 | % | 19.41 | % | 20.55 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $4,769 | $6,280 | $1,798 | $305 | ||||||||
Portfolio turnover | 380 | % | 320 | % | 630 | % | 237 | % |
1 MDT Large Cap Growth Fund (the "Predecessor Fund") was reorganized into Federated MDT Large Cap Growth Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual | $1,000 | $1,166.70 | $6.72 | |||
Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,018.60 | $6.26 |
1 Expenses are equal to the Fund's annualized net expense ratio of 1.25%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period).
Management's Discussion of Fund Performance (unaudited)
The fund's total return for the fiscal year ended July 31, 2009 was -25.46%. The total returns of the Russell 1000 ® Growth Index 1 and the Lipper Large-Cap Growth Funds Index, 2 respectively, were -17.57% and -19.48% for the same period. The fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell 1000 ® Growth Index.
1 The Russell 1000 ® Growth Index measures the performance of those Russell 1000 ® companies with higher price-to-book ratios and higher forecasted growth values. The Index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12-month reporting period ending July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, 3 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 4 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000 ®5 and the Russell Midcap ®6 Indexes, respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 8
The best performing sectors in the Russell 3000 ® Index during the reporting period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 The Russell 3000 ® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 The Russell Top 200 ® Index measures the performance of the 200 largest companies in the Russell 1000 Index, which represents approximately 69% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
5 The Russell 2000 ® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
6 The Russell Midcap ® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
7 The Russell 3000 ® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indexes. The index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
8 The Russell 3000 Value ® Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 Value or the Russell 2000 Value indexes. The index is unmanaged, and unlike the fund, is not affected by cash flows. It is not possible to invest directly in an index.
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 1000 ® Growth Index was an overweight in the Health Care sector. Additionally, the fund's stock selection in the Materials sector provided a moderate contribution to relative performance. Individual stocks contributing to the fund's performance relative to the Russell 1000 ® Growth Index included: Apple Computer Incorporated, McKesson Corporation, Zimmer Holdings Incorporated and Hewlett-Packard Company.
The most significant negative factor in the fund's performance relative to the Russell 1000 ® Growth Index was stock selection in the Consumer Discretionary, Industrials and Energy sectors. An underweight in the Consumer Staples and the timing of changes in the Energy sector allocation detracted significantly, as well. Individual stocks detracting from the Fund's performance relative to the Russell 1000 ® Growth Index included: Honeywell International Incorporated, Darden Restaurants Incorporated, Rockwell Collins Incorporated and First Solar Incorporated.
GROWTH OF A $10,000 INVESTMENT - INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Growth Fund 2 (Institutional Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Growth Index (Russell 1000 ® Growth) 2 and the Lipper Large-Cap Growth Funds Index. 3
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -25.46% | |
Start of Performance (9/15/2005) | - -3.60% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcgaris37314edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Growth and Lipper Large-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Large Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the fund had no investment operations. Accordingly, the performance information shown for the periods prior to that date is that of the MDT Large Cap Growth Fund.
3 The Russell 1000 ® Growth is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets |
Ethical Drugs | 8.9% | |
Biotechnology | 7.0% | |
Internet Services | 7.0% | |
Medical Technology | 6.3% | |
Financial Services | 5.6% | |
Software Packaged/Custom | 5.2% | |
Medical Supplies | 5.1% | |
Electric Utility | 4.8% | |
Defense Aerospace | 4.7% | |
Undesignated Consumer Cyclicals | 4.7% | |
Grocery Chain | 4.0% | |
Computers - Low End | 3.9% | |
Computers - Midrange | 3.9% | |
Multi-Industry Capital Goods | 3.9% | |
Defense Electronics | 3.4% | |
Cable TV | 3.2% | |
Computer Services | 3.1% | |
Office Equipment | 3.0% | |
Restaurant | 2.7% | |
Metal Containers | 2.1% | |
Specialty Retailing | 1.2% | |
Department Stores | 1.0% | |
Other 2 | 3.1% | |
Cash Equivalents 3 | 2.1% | |
Other Assets and Liabilities - Net 4 | 0.1% | |
TOTAL | 100.0% |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | ||
COMMON STOCKS--97.8% | |||||
Advertising--0.2% | |||||
5,521 | Omnicom Group, Inc. | $ | 187,714 | ||
Biotechnology--7.0% | |||||
19,316 | 1 | Amgen, Inc. | 1,203,580 | ||
66,605 | 1 | Biogen Idec, Inc. | 3,167,068 | ||
39,657 | 1 | Gilead Sciences, Inc. | 1,940,417 | ||
TOTAL | 6,311,065 | ||||
Cable TV--3.2% | |||||
123,077 | 1 | Viacom, Inc., Class B | 2,850,463 | ||
Clothing Stores--0.3% | |||||
5,190 | Ross Stores, Inc. | 228,827 | |||
Computer Services--3.1% | |||||
48,314 | 1 | Affiliated Computer Services, Inc., Class A | 2,290,567 | ||
10,701 | 1 | Fiserv, Inc. | 507,334 | ||
TOTAL | 2,797,901 | ||||
Computers - High End--0.3% | |||||
2,154 | IBM Corp. | 254,021 | |||
Computers - Low End--3.9% | |||||
21,457 | 1 | Apple, Inc. | 3,505,859 | ||
Computers - Midrange--3.9% | |||||
81,325 | Hewlett-Packard Co. | 3,521,372 | |||
Crude Oil & Gas Production--0.5% | |||||
9,626 | 1 | Southwestern Energy Co. | 398,805 | ||
Defense Aerospace--4.7% | |||||
52,660 | General Dynamics Corp. | 2,916,837 | |||
16,903 | Lockheed Martin Corp. | 1,263,668 | |||
TOTAL | 4,180,505 | ||||
Defense Electronics--3.4% | |||||
40,186 | L-3 Communications Holdings, Inc. | 3,034,043 | |||
Department Stores--1.0% | |||||
10,407 | 1 | Kohl's Corp. | 505,260 | ||
8,773 | Target Corp. | 382,678 | |||
TOTAL | 887,938 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Diversified Tobacco--0.2% | |||||
1,396 | Altria Group, Inc. | $ | 24,472 | ||
1,800 | 1 | Lorillard, Inc. | 132,696 | ||
TOTAL | 157,168 | ||||
Electric Utility--4.8% | |||||
53,779 | 1 | AES Corp. | 687,833 | ||
19,140 | Entergy Corp. | 1,537,516 | |||
65,157 | Public Service Enterprises Group, Inc. | 2,114,345 | |||
TOTAL | 4,339,694 | ||||
Ethical Drugs--8.9% | |||||
75,723 | Abbott Laboratories | 3,406,778 | |||
159,832 | Bristol-Myers Squibb Co. | 3,474,748 | |||
43,381 | 1 | Forest Laboratories, Inc., Class A | 1,120,531 | ||
TOTAL | 8,002,057 | ||||
Financial Services--5.6% | |||||
41,057 | Equifax, Inc. | 1,069,535 | |||
47,385 | Total System Services, Inc. | 695,612 | |||
49,764 | Visa, Inc., Class A | 3,257,551 | |||
TOTAL | 5,022,698 | ||||
Grocery Chain--4.0% | |||||
165,766 | Kroger Co. | 3,544,077 | |||
Home Products--0.5% | |||||
6,207 | Kimberly-Clark Corp. | 362,799 | |||
3,680 | Tupperware Brands Corp. | 125,378 | |||
TOTAL | 488,177 | ||||
Internet Services--7.0% | |||||
38,557 | 1 | Amazon.com, Inc. | 3,306,648 | ||
4,218 | 1 | Google Inc. | 1,868,785 | ||
8,766 | 1 | Priceline.com, Inc. | 1,136,249 | ||
TOTAL | 6,311,682 | ||||
Medical Supplies--5.1% | |||||
64,665 | 1 | Hologic, Inc. | 949,929 | ||
71,014 | McKesson HBOC, Inc. | 3,632,366 | |||
TOTAL | 4,582,295 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Medical Technology--6.3% | |||||
65,523 | Medtronic, Inc. | $ | 2,320,825 | ||
70,609 | 1 | Zimmer Holdings, Inc. | 3,290,379 | ||
TOTAL | 5,611,204 | ||||
Metal Containers--2.1% | |||||
38,935 | Ball Corp. | 1,882,897 | |||
Multi-Industry Capital Goods--3.9% | |||||
63,576 | United Technologies Corp. | 3,462,985 | |||
Office Equipment--3.0% | |||||
128,399 | Pitney Bowes, Inc. | 2,651,439 | |||
Restaurant--2.7% | |||||
62,271 | Darden Restaurants, Inc. | 2,016,958 | |||
6,179 | 1 | Green Mountain Coffee, Inc. | 435,249 | ||
TOTAL | 2,452,207 | ||||
Services to Medical Professionals--0.2% | |||||
8,471 | Omnicare, Inc. | 202,203 | |||
Software Packaged/Custom--5.2% | |||||
160,433 | CA, Inc. | 3,391,554 | |||
20,408 | 1 | DST Systems, Inc. | 904,687 | ||
9,030 | 1 | McAfee, Inc. | 402,557 | ||
TOTAL | 4,698,798 | ||||
Specialty Retailing--1.2% | |||||
31,117 | CVS Caremark Corp. | 1,041,797 | |||
Telecommunication Equipment & Services--0.8% | |||||
15,023 | Qualcomm, Inc. | 694,213 | |||
Truck Manufacturing--0.1% | |||||
3,606 | PACCAR, Inc. | 124,948 | |||
Undesignated Consumer Cyclicals--4.7% | |||||
21,329 | 1 | Apollo Group, Inc., Class A | 1,472,554 | ||
3,491 | DeVRY, Inc. | 173,642 | |||
12,973 | 1 | ITT Educational Services, Inc. | 1,262,922 | ||
17,979 | 1 | Iron Mountain, Inc. | 525,167 | ||
3,452 | Strayer Education, Inc. | 733,136 | |||
TOTAL | 4,167,421 | ||||
TOTAL COMMON STOCKS (IDENTIFIED COST $78,017,531) | 87,596,473 | ||||
Shares | | | Value | ||
MUTUAL FUND--2.1% | |||||
1,918,964 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | $ | 1,918,964 | |
TOTAL INVESTMENTS--99.9% (IDENTIFIED COST $79,936,495) 4 | 89,515,437 | ||||
OTHER ASSETS AND LIABILITIES - NET--0.1% 5 | 82,275 | ||||
TOTAL NET ASSETS--100% | $ | 89,597,712 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amount to $80,265,443.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1- Quoted Prices and Investments in Mutual Funds | | Level 2- Other Significant Observable Inputs | | Level 3- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $ 87,596,473 | $-- | $-- | $ 87,596,473 | ||||
Mutual Fund | 1,918,964 | - -- | - -- | 1,918,964 | ||||
TOTAL SECURITIES | $89,515,437 | $-- | $-- | $89,515,437 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $1,918,964 of investments in an affiliated issuer (Note 5) (identified cost $79,936,495) | $ | 89,515,437 | |||||
Cash | 71 | ||||||
Income receivable | 66,061 | ||||||
Receivable for investments sold | 2,457,829 | ||||||
Receivable for shares sold | 351,946 | ||||||
TOTAL ASSETS | 92,391,344 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 2,454,272 | |||||
Payable for shares redeemed | 159,681 | ||||||
Payable for Directors'/Trustees' fees | 746 | ||||||
Payable for distribution services fee (Note 5) | 9,814 | ||||||
Payable for shareholder services fee (Note 5) | 37,610 | ||||||
Accrued expenses | 131,509 | ||||||
TOTAL LIABILITIES | 2,793,632 | ||||||
Net assets for 11,817,540 shares outstanding | $ | 89,597,712 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 155,301,371 | |||||
Net unrealized appreciation of investments | 9,578,942 | ||||||
Accumulated net realized loss on investments | (75,282,601 | ) | |||||
TOTAL NET ASSETS | $ | 89,597,712 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($4,769,495 ÷ 619,590 shares outstanding), no par value, unlimited shares authorized | $7.70 | ||||||
Offering price per share | $7.70 | ||||||
Redemption proceeds per share | $7.70 | ||||||
Class A Shares: | |||||||
Net asset value per share ($68,962,528 ÷ 9,069,317 shares outstanding), no par value, unlimited shares authorized | $7.60 | ||||||
Offering price per share (100/94.50 of $7.60) | $8.04 | ||||||
Redemption proceeds per share | $7.60 | ||||||
Class B Shares: | |||||||
Net asset value per share ($8,532,390 ÷ 1,133,326 shares outstanding), no par value, unlimited shares authorized | $7.53 | ||||||
Offering price per share | $7.53 | ||||||
Redemption proceeds per share (94.50/100 of $7.53) | $7.12 | ||||||
Class C Shares: | |||||||
Net asset value per share ($7,333,299 ÷ 995,307 shares outstanding), no par value, unlimited shares authorized | $7.37 | ||||||
Offering price per share | $7.37 | ||||||
Redemption proceeds per share (99.00/100 of $7.37) | $7.30 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $19,768 received from an affiliated issuer) (Note 5) | $ | 1,436,776 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 704,043 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 17,117 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 433,150 | |||||||||||
Directors'/Trustees' fees | 2,566 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 4,579 | |||||||||||
Portfolio accounting fees | 83,177 | |||||||||||
Distribution services fee--Class B Shares (Note 5) | 85,031 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 65,398 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 162,363 | |||||||||||
Shareholder services fee--Class B Shares (Note 5) | 28,343 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 21,675 | |||||||||||
Account administration fee--Class A Shares | 7,911 | |||||||||||
Account administration fee--Class C Shares | 125 | |||||||||||
Share registration costs | 53,163 | |||||||||||
Printing and postage | 60,964 | |||||||||||
Insurance premiums | 4,643 | |||||||||||
Miscellaneous | 2,853 | |||||||||||
TOTAL EXPENSES | 2,029,601 | |||||||||||
Waivers and Reimbursement (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (433,256 | ) | |||||||||
Waiver of administrative personnel and services fee | (54,059 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENT | (487,315 | ) | ||||||||||
Net expenses | 1,542,286 | |||||||||||
Net investment income (loss) | (105,510 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (42,781,838 | ) | ||||||||||
Net change in unrealized appreciation of investments | 3,649,160 | |||||||||||
Net realized and unrealized loss on investments | (39,132,678 | ) | ||||||||||
Change in net assets resulting from operations | $ | (39,238,188 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (105,510 | ) | $ | (1,147,470 | ) | ||
Net realized loss on investments | (42,781,838 | ) | (10,506,699 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 3,649,160 | 1,380,057 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (39,238,188 | ) | (10,274,112 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (257,727 | ) | |||||
Class A Shares | - -- | (11,660,461 | ) | |||||
Class B Shares | - -- | (4,329,484 | ) | |||||
Class C Shares | - -- | (2,139,318 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (18,386,990 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 27,010,203 | 70,026,996 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 15,708,083 | ||||||
Cost of shares redeemed | (44,087,682 | ) | (63,105,962 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (17,077,479 | ) | 22,629,117 | |||||
Change in net assets | (56,315,667 | ) | (6,031,985 | ) | ||||
Net Assets: | ||||||||
Beginning of period | 145,913,379 | 151,945,364 | ||||||
End of period | $ | 89,597,712 | $ | 145,913,379 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine diversified portfolios. The financial statements included herein are only those of Federated MDT Large Cap Growth Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class B Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of Class A Shares, Class B Shares and Class C Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Trustees.
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as account administration, distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | 2008 | |||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 483,659 | $ | 3,711,106 | 481,360 | $ | 5,340,579 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 16,469 | 193,018 | ||||||||||
Shares redeemed | (471,901 | ) | (3,239,715 | ) | (37,394 | ) | (447,625 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 11,758 | $ | 471,391 | 460,435 | $ | 5,085,972 | ||||||||
Year Ended July 31 | | 2009 | 2008 | |||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 3,026,777 | $ | 21,351,688 | 4,265,442 | $ | 49,806,979 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 882,581 | 10,255,594 | ||||||||||
Shares redeemed | (3,985,294 | ) | (27,833,107 | ) | (2,448,438 | ) | (27,452,372 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (958,517 | ) | $ | (6,481,419 | ) | 2,699,585 | $ | 32,610,201 | ||||||
Year Ended July 31 | | 2009 | 2008 | |||||||||||
Class B Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 129,934 | $ | 919,642 | 376,994 | $ | 4,378,454 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 344,460 | 4,012,963 | ||||||||||
Shares redeemed | (1,165,518 | ) | (8,608,170 | ) | (2,405,450 | ) | (27,366,232 | ) | ||||||
NET CHANGE RESULTING FROM CLASS B SHARE TRANSACTIONS | (1,035,584 | ) | $ | (7,688,528 | ) | (1,683,996 | ) | $ | (18,974,815 | ) | ||||
Year Ended July 31 | | 2009 | 2008 | |||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 148,843 | $ | 1,027,767 | 912,018 | $ | 10,500,984 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 109,439 | 1,246,508 | ||||||||||
Shares redeemed | (644,873 | ) | (4,406,690 | ) | (734,780 | ) | (7,839,733 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (496,030 | ) | $ | (3,378,923 | ) | 286,677 | $ | 3,907,759 | ||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (2,478,373 | ) | $ | (17,077,479 | ) | 1,762,701 | $ | 22,629,117 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments for net operating loss and expiration of capital loss carryforwards.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital | | Undistributed Net Investment Income (Loss) | | Accumulated Net Realized Gain (Loss) |
$(76,752,196) | $105,510 | $76,646,686 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | ||
Ordinary income 1 | $-- | $ | 6,355,795 | ||
Long-term capital gains | $-- | $ | 12,031,195 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | | $ | 9,249,994 | |
Capital loss carryforwards and deferrals | $ | (74,953,653 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $80,265,443. The net unrealized appreciation of investments for federal tax purposes was $9,249,994. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $10,722,724 and net unrealized depreciation from investments for those securities having an excess of cost over value of $1,472,730.
At July 31, 2009, the Fund had a capital loss carryforward of $57,272,769 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2010 | $21,688,057 | |
2016 | $ 183,375 | |
2017 | $35,401,337 |
As a result of the tax-free transfer of assets from Federated Large Cap Growth Fund, the use of certain capital loss carryforwards listed above may be limited.
Capital loss carryforwards of $76,646,626 expired during the year ended July 31, 2009.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $17,680,884 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages of certain classes of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $432,093 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $54,059 of its fee. The net fee paid to FAS was 0.230% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class B Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class B Shares | 0.75% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $8,268 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $4,127 in sales charges from the sale of Class A Shares. FSC also retained $825 of CDSC relating to redemptions of Class A Shares and $545 relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares, Class B Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Financial intermediaries may include a company affiliated with management of Federated Investors, Inc. A financial intermediary affiliated with management of Federated Investors, Inc. received $20,172 of Service Fees for the year ended July 31, 2009. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $707 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares, Class B Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.25%, 1.50%, 2.25% and 2.25%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $1,163. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 507,081 | 25,616,687 | 24,204,804 | 1,918,964 | $1,918,964 | $19,768 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 361,637,425 |
Sales | $ | 379,250,512 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT LARGE CAP GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Large Cap Growth Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Large Cap Growth Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract - May 2009
FEDERATED MDT LARGE CAP GROWTH FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
For the periods covered by the report, the Fund's performance for the three-year period was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee, after waivers and expense reimbursements, if any, was above the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive. In this regard, the Board had been previously advised that, while comparisons to fund peer groups are highly important in judging the reasonableness of advisory fees, the Fund's quantitative focus makes fee and expense comparisons particularly difficult. Although the Fund's advisory fee was above the median of the peer range, the peer group of funds varied widely in their complexity, and the management of the Fund is among the more complex relative to its peers. The Board will continue to monitor advisory fees and other expenses borne by the Fund.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Large Cap Growth Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R882
37314 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Large Cap Value Fund
Established 2008
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class C Shares
Class K Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended | Period Ended | |||||
| 7/31/2009 | | 7/31/2008 | 1 | ||
Net Asset Value, Beginning of Period | $9.46 | $10.00 | ||||
Income From Investment Operations: | ||||||
Net investment income | 0.09 | 2 | 0.03 | 2 | ||
Net realized and unrealized loss on investments | (2.81 | ) | (0.57 | ) | ||
TOTAL FROM INVESTMENT OPERATIONS | (2.72 | ) | (0.54 | ) | ||
Less Distributions: | ||||||
Distributions from net investment income | (0.05 | ) | - -- | |||
Net Asset Value, End of Period | $6.69 | $9.46 | ||||
Total Return 3 | (28.74 | )% | (5.40 | )% | ||
Ratios to Average Net Assets: | ||||||
Net expenses | 1.22 | % | 1.24 | % 4 | ||
Net investment income | 1.47 | % | 0.80 | % 4 | ||
Expense waiver/reimbursement 5 | 73.48 | % | 111.75 | % 4 | ||
Supplemental Data: | ||||||
Net assets, end of period (000 omitted) | $210 | $64 | ||||
Portfolio turnover | 179 | % | 41 | % |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
2 Per share numbers have been calculated using the average shares method.
3 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
4 Computed on an annualized basis.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended | Period Ended | |||||
| 7/31/2009 | | 7/31/2008 | 1 | ||
Net Asset Value, Beginning of Period | $9.47 | $10.00 | ||||
Income From Investment Operations: | ||||||
Net investment income | 0.04 | 2 | 0.02 | 2 | ||
Net realized and unrealized loss on investments | (2.80 | ) | (0.55 | ) | ||
TOTAL FROM INVESTMENT OPERATIONS | (2.76 | ) | (0.53 | ) | ||
Less Distributions: | ||||||
Distributions from net investment income | (0.05 | ) | - -- | |||
Net Asset Value, End of Period | $6.66 | $9.47 | ||||
Total Return 3 | (29.13 | )% | (5.30 | )% | ||
Ratios to Average Net Assets: | ||||||
Net expenses | 1.96 | % | 1.99 | % 4 | ||
Net investment income | 0.72 | % | 0.05 | % 4 | ||
Expense waiver/reimbursement 5 | 66.48 | % | 111.80 | % 4 | ||
Supplemental Data: | ||||||
Net assets, end of period (000 omitted) | $21 | $0 | 6 | |||
Portfolio turnover | 179 | % | 41 | % |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
2 Per share numbers have been calculated using the average shares method.
3 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
4 Computed on an annualized basis.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
6 Represents less than $1,000.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class K Shares
(For a Share Outstanding Throughout Each Period)
Year Ended | Period Ended | |||||
| 7/31/2009 | | 7/31/2008 | 1 | ||
Net Asset Value, Beginning of Period | $9.47 | $10.00 | ||||
Income From Investment Operations: | ||||||
Net investment income | 0.03 | 2 | 0.03 | 2 | ||
Net realized and unrealized loss on investments | (2.76 | ) | (0.56 | ) | ||
TOTAL FROM INVESTMENT OPERATIONS | (2.73 | ) | (0.53 | ) | ||
Less Distributions: | ||||||
Distributions from net investment income | (0.06 | ) | - -- | |||
Net Asset Value, End of Period | $6.68 | $9.47 | ||||
Total Return 3 | (28.86 | )% | (5.30 | )% | ||
Ratios to Average Net Assets: | ||||||
Net expenses | 1.72 | % | 1.74 | % 4 | ||
Net investment income | 0.52 | % | 0.30 | % 4 | ||
Expense waiver/reimbursement 5 | 63.08 | % | 111.71 | % 4 | ||
Supplemental Data: | ||||||
Net assets, end of period (000 omitted) | $6 | $0 | 6 | |||
Portfolio turnover | 179 | % | 41 | % |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
2 Per share numbers have been calculated using the average shares method.
3 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
4 Computed on an annualized basis.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
6 Represents less than $1,000.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual: | ||||||
Class A Shares | $1,000 | $1,122.50 | $ 6.42 | |||
Class C Shares | $1,000 | $1,117.40 | $10.34 | |||
Class K Shares | $1,000 | $1,118.90 | $ 9.09 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $1,018.74 | $ 6.11 | |||
Class C Shares | $1,000 | $1,015.03 | $ 9.84 | |||
Class K Shares | $1,000 | $1,016.22 | $ 8.65 |
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
Class A Shares | | 1.22% |
Class C Shares | 1.97% | |
Class K Shares | 1.73% |
Management's Discussion of Fund Performance (unaudited)
The fund's total return, based on net asset value, for the fiscal year ended July 31, 2009 was -28.74% for Class A Shares, -29.13% for Class C Shares and -28.86% for Class K Shares. The total return of the Russell 1000 ® Value Index 1 was -22.94% for the same reporting period. The fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell index.
The following discussion will focus on the performance of the fund's Class A Shares.
1 The Russell 1000® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
MARKET OVERVIEW
Over the 12-month reporting period ending July 31, 2009, domestic equity markets performed poorly, in response to a material decline in global economic conditions. The Russell 3000 ® Index, 2 which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 3 which exceeded the return of mid- and small-cap stocks 4 as evidenced by the -20.72% and -22.23% results for the Russell 2000 ®5 and the Russell Midcap ® Indexes, 6 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 8
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
2 The Russell 3000® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 ® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged and investments cannot be made directly in an index.
3 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000® Index, which represents approximately 69% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made directly in an index.
4 Small-company stocks may be less liquid and subject to greater price volatility than large-capitalization stocks.
5 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index. The index is unmanaged and investments cannot be made directly in an index.
6 The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 31% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made directly in an index.
7 The Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000® Growth or the Russell 2000® Growth indexes. The index is unmanaged and investments cannot be made directly in an index.
8 The Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000® Value or the Russell 2000® Value indexes. The index is unmanaged and investments cannot be made directly in an index.
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 1000 ® Value Index was stock selection in the Utilities sector. Stock selection in the Industrials sector provided a modest contribution to relative performance. An underweight in the Financials sector also contributed significantly. Individual stocks contributing to the fund's performance relative to the Russell 1000 ® Value Index included General Electric Company and Exxon Mobil Corporation.
The most significant negative factor in the fund's performance relative to the Russell 1000 ® Value Index was stock selection in the Materials and Energy sectors. Additionally, an overweight in the Materials sector and an underweight in the Telecomm Services sector each detracted moderately from relative performance. Individual stocks detracting from the fund's performance relative to the Russell 1000 ® Value Index included: Goldman Sachs Group, Dow Chemical Company, Alcoa Incorporated and Valero Energy Corporation.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Value Fund (Class A Shares) (the "Fund") from March 7, 2008 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Value Index (Russell 1000 ® Value). 2
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -32.65% | |
Start of Performance (3/7/2008) | - -27.48% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcvarack39020edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50%.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Value has been adjusted to reflect reinvestment of dividends on securities in the index.
2 The Russell 1000 ® Value is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
GROWTH OF A $10,000 INVESTMENT - CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Value Fund (Class C Shares) (the "Fund") from March 7, 2008 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Value Index (Russell 1000 ® Value). 2
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -29.83% | |
Start of Performance (3/7/2008) | - -24.74% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcvarack39020edg2.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Value has been adjusted to reflect reinvestment of dividends on securities in the index.
2 The Russell 1000 ® Value is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
GROWTH OF A $10,000 INVESTMENT - CLASS K SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Value Fund (Class K Shares) (the "Fund") from March 7, 2008 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Value Index (Russell 1000 ® Value). 2
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -28.86% | |
Start of Performance (3/7/2008) | - -24.54% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcvarack39020edg3.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Value has been adjusted to reflect reinvestment of dividends on securities in the index.
2 The Russell 1000 ® Value is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Integrated Domestic Oil | 8.6 | % | |
Property Liability Insurance | 8.3 | % | |
Electric Utility | 6.1 | % | |
Railroad | 5.8 | % | |
Crude Oil & Gas Production | 4.9 | % | |
Integrated International Oil | 4.7 | % | |
Offshore Driller | 4.6 | % | |
Department Stores | 4.2 | % | |
Securities Brokerage | 4.2 | % | |
Home Products | 4.0 | % | |
Services to Medical Professionals | 4.0 | % | |
Defense Aerospace | 3.7 | % | |
Multi-Line Insurance | 2.5 | % | |
Defense Electronics | 2.3 | % | |
Clothing Stores | 1.7 | % | |
Gas Distributor | 1.7 | % | |
Grocery Chain | 1.7 | % | |
Packaged Foods | 1.7 | % | |
Miscellaneous Machinery | 1.4 | % | |
Multi-Industry Capital Goods | 1.4 | % | |
Biotechnology | 1.3 | % | |
Computer Stores | 1.2 | % | |
Commodity Chemicals | 1.0 | % | |
Other 2 | 13.3 | % | |
Cash Equivalents 3 | 12.0 | % | |
Other Assets and Liabilities - Net 4 | (6.3 | )% | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | ||
COMMON STOCKS--94.3% | |||||
Agricultural Chemicals--0.2% | |||||
39 | FMC Corp. | $ | 1,897 | ||
Apparel--0.1% | |||||
36 | Columbia Sportswear Co. | 1,275 | |||
Auto Part Replacement--0.4% | |||||
114 | Genuine Parts Co. | 4,038 | |||
Biotechnology--1.3% | |||||
189 | 1 | Amgen, Inc. | 11,777 | ||
Building Materials--0.0% | |||||
1 | 1 | Owens Corning, Inc. | 18 | ||
Cable TV--0.3% | |||||
120 | 1 | Discovery Communications, Inc. | 2,940 | ||
Clothing Stores--1.7% | |||||
923 | Gap (The), Inc. | 15,063 | |||
Cogeneration--0.5% | |||||
276 | 1 | Mirant Corp. | 4,985 | ||
Commercial Services--0.3% | |||||
149 | 1 | Corrections Corp. of America | 2,572 | ||
Commodity Chemicals--1.0% | |||||
185 | Eastman Chemical Co. | 9,187 | |||
Computer Peripherals--0.3% | |||||
212 | 1 | Lexmark International Group, Class A | 3,070 | ||
Computer Stores--1.2% | |||||
284 | 1 | Ingram Micro, Inc., Class A | 4,777 | ||
171 | 1 | Tech Data Corp. | 5,973 | ||
TOTAL | 10,750 | ||||
Construction Machinery--0.2% | |||||
149 | Trinity Industries, Inc. | 2,080 | |||
Crude Oil & Gas Production--4.9% | |||||
409 | Apache Corp. | 34,336 | |||
128 | 1 | Newfield Exploration Co. | 5,034 | ||
173 | Pioneer Natural Resources, Inc. | 4,939 | |||
TOTAL | 44,309 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Defense Aerospace--3.7% | |||||
340 | Boeing Co. | $ | 14,589 | ||
191 | General Dynamics Corp. | 10,579 | |||
107 | Lockheed Martin Corp. | 7,999 | |||
TOTAL | 33,167 | ||||
Defense Electronics--2.3% | |||||
66 | Grainger (W.W.), Inc. | 5,934 | |||
52 | L-3 Communications Holdings, Inc. | 3,926 | |||
195 | Northrop Grumman Corp. | 8,693 | |||
53 | Raytheon Co. | 2,488 | |||
TOTAL | 21,041 | ||||
Department Stores--4.2% | |||||
54 | Dillards, Inc., Class A | 573 | |||
559 | 1 | Sears Holdings Corp. | 37,084 | ||
TOTAL | 37,657 | ||||
Discount Department Stores--0.8% | |||||
215 | 1 | BJ's Wholesale Club, Inc. | 7,170 | ||
Diversified Leisure--0.1% | |||||
35 | International Speedway Corp., Class A | 895 | |||
Electric & Electrical Original Equipment Manufacturers--0.3% | |||||
137 | Molex, Inc. | 2,433 | |||
Electric Utility--6.1% | |||||
530 | Edison International | 17,130 | |||
723 | Sempra Energy | 37,907 | |||
TOTAL | 55,037 | ||||
Electronics Stores--0.2% | |||||
145 | RadioShack Corp. | 2,249 | |||
Gas Distributor--1.7% | |||||
190 | Energen Corp. | 7,851 | |||
182 | National Fuel Gas Co. | 7,386 | |||
TOTAL | 15,237 | ||||
Grocery Chain--1.7% | |||||
823 | Safeway, Inc. | 15,579 | |||
Home Products--4.0% | |||||
647 | Procter & Gamble Co. | 35,915 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Hospitals--0.2% | |||||
36 | Universal Health Services, Inc., Class B | $ | 2,002 | ||
Industrial Machinery--0.6% | |||||
50 | Flowserve Corp. | 4,039 | |||
82 | 1 | Terex Corp. | 1,245 | ||
TOTAL | 5,284 | ||||
Insurance Brokerage--0.4% | |||||
83 | Axis Capital Holdings Ltd. | 2,362 | |||
31 | Endurance Specialty Holdings Ltd. | 1,035 | |||
TOTAL | 3,397 | ||||
Integrated Domestic Oil--8.6% | |||||
870 | ConocoPhillips | 38,028 | |||
1,229 | Marathon Oil Corp. | 39,635 | |||
TOTAL | 77,663 | ||||
Integrated International Oil--4.7% | |||||
544 | Chevron Corp. | 37,792 | |||
67 | Exxon Mobil Corp. | 4,716 | |||
TOTAL | 42,508 | ||||
Life Insurance--0.2% | |||||
37 | Torchmark Corp. | 1,445 | |||
Maritime--0.7% | |||||
68 | Alexander and Baldwin, Inc. | 1,987 | |||
117 | Overseas Shipholding Group, Inc. | 4,019 | |||
TOTAL | 6,006 | ||||
Medical Supplies--0.9% | |||||
158 | AmerisourceBergen Corp. | 3,116 | |||
93 | McKesson HBOC, Inc. | 4,757 | |||
TOTAL | 7,873 | ||||
Medical Technology--0.8% | |||||
12 | 1 | Mettler-Toledo International, Inc. | 1,009 | ||
138 | 1 | Zimmer Holdings, Inc. | 6,431 | ||
TOTAL | 7,440 | ||||
Metal Containers--0.2% | |||||
30 | Ball Corp. | 1,451 | |||
Mini-Mill Producer--0.3% | |||||
193 | Commercial Metals Corp. | 3,192 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Miscellaneous Machinery--1.4% | |||||
199 | Illinois Tool Works, Inc. | $ | 8,069 | ||
65 | Parker-Hannifin Corp. | 2,878 | |||
23 | Rockwell Automation, Inc. | 952 | |||
17 | SPX Corp. | 898 | |||
TOTAL | 12,797 | ||||
Motion Pictures--0.5% | |||||
51 | 1 | Dreamworks Animation SKG, Inc. | 1,607 | ||
113 | Walt Disney Co. | 2,839 | |||
TOTAL | 4,446 | ||||
Multi-Industry Capital Goods--1.4% | |||||
235 | United Technologies Corp. | 12,800 | |||
Multi-Line Insurance--2.5% | |||||
533 | Allstate Corp. | 14,343 | |||
60 | Assurant, Inc. | 1,531 | |||
163 | CIGNA Corp. | 4,629 | |||
25 | Hanover Insurance Group, Inc. | 983 | |||
59 | Unum Group | 1,107 | |||
TOTAL | 22,593 | ||||
Offshore Driller--4.6% | |||||
405 | ENSCO International, Inc. | 15,345 | |||
790 | Noble Corp. | 26,749 | |||
TOTAL | 42,094 | ||||
Oil Refiner--0.1% | |||||
46 | Sunoco, Inc. | 1,136 | |||
Oil Service, Explore & Drill--0.7% | |||||
61 | 1 | Exterran Holdings, Inc. | 1,061 | ||
63 | 1 | Seacor Holdings, Inc. | 5,007 | ||
TOTAL | 6,068 | ||||
Packaged Foods--1.7% | |||||
68 | Campbell Soup Co. | 2,110 | |||
456 | Kraft Foods, Inc., Class A | 12,923 | |||
TOTAL | 15,033 | ||||
Property Liability Insurance--8.3% | |||||
21 | Allied World Assurance Holdings Ltd. | 913 | |||
41 | 1 | Arch Capital Group Ltd. | 2,550 | ||
77 | Berkley, W. R. Corp. | 1,789 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Property Liability Insurance--continued | |||||
427 | Chubb Corp. | $ | 19,719 | ||
81 | Everest Re Group Ltd. | 6,498 | |||
42 | HCC Insurance Holdings, Inc. | 1,054 | |||
241 | Loews Corp. | 7,235 | |||
61 | RenaissanceRe Holdings Ltd. | 3,065 | |||
755 | The Travelers Cos., Inc. | 32,518 | |||
TOTAL | 75,341 | ||||
Railroad--5.8% | |||||
133 | CSX Corp. | 5,336 | |||
895 | Norfolk Southern Corp. | 38,709 | |||
141 | Union Pacific Corp. | 8,110 | |||
TOTAL | 52,155 | ||||
Resorts--0.3% | |||||
102 | 1 | Vail Resorts, Inc. | 2,918 | ||
Securities Brokerage--4.2% | |||||
234 | Goldman Sachs Group, Inc. | 38,212 | |||
Semiconductor Distribution--0.8% | |||||
294 | 1 | Arrow Electronics, Inc. | 7,576 | ||
Semiconductor Manufacturing--0.4% | |||||
231 | Maxim Integrated Products, Inc. | 4,093 | |||
Semiconductor Manufacturing Equipment--0.5% | |||||
216 | 1 | Novellus Systems, Inc. | 4,227 | ||
Services to Medical Professionals--4.0% | |||||
165 | Aetna, Inc. | 4,450 | |||
240 | 1 | Health Net, Inc. | 3,247 | ||
88 | 1 | Medco Health Solutions, Inc. | 4,652 | ||
399 | UnitedHealth Group, Inc. | 11,196 | |||
241 | 1 | Wellpoint, Inc. | 12,686 | ||
TOTAL | 36,231 | ||||
Software Packaged/Custom--0.3% | |||||
59 | 1 | DST Systems, Inc. | 2,616 | ||
Stainless Steel Producer--0.8% | |||||
196 | Allegheny Technologies, Inc. | 5,308 | |||
106 | Carpenter Technology Corp. | 1,981 | |||
TOTAL | 7,289 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Telephone Utility--0.1% | |||||
31 | Telephone and Data System, Inc. | $ | 798 | ||
Trucking--0.8% | |||||
216 | Ryder System, Inc. | 7,588 | |||
TOTAL COMMON STOCKS (IDENTIFIED COST $839,129) | 854,613 | ||||
MUTUAL FUND--12.0% | |||||
108,397 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 108,397 | ||
TOTAL INVESTMENTS--106.3% (IDENTIFIED COST $947,526) 4 | 963,010 | ||||
OTHER ASSETS AND LIABILITIES - NET--(6.3)% 5 | (56,804) | ||||
TOTAL NET ASSETS--100% | $ | 906,206 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $957,092.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | | Level 3-- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $811,442 | $-- | $-- | $811,442 | ||||
International | 43,171 | - -- | - -- | 43,171 | ||||
Mutual Fund | 108,397 | - -- | - -- | 108,397 | ||||
TOTAL SECURITIES | $963,010 | $-- | $-- | $963,010 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $108,397 of investments in an affiliated issuer (Note 5) (identified cost $947,526) | $ | 963,010 | |||||
Income receivable | 884 | ||||||
Receivable for investments sold | 1,955 | ||||||
TOTAL ASSETS | 965,849 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 1,580 | |||||
Payable for custodian fees | 3,303 | ||||||
Payable for transfer and dividend disbursing agent fees and expenses | 10,228 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for portfolio accounting fees | 13,167 | ||||||
Payable for distribution services fee (Note 5) | 14 | ||||||
Payable for shareholder services fee (Note 5) | 63 | ||||||
Payable for share registration costs | 7,403 | ||||||
Accrued expenses | 1,385 | ||||||
TOTAL LIABILITIES | 59,643 | ||||||
Net assets for 135,296 shares outstanding | $ | 906,206 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 1,074,853 | |||||
Net unrealized appreciation of investments | 15,484 | ||||||
Accumulated net realized loss on investments | (190,755 | ) | |||||
Undistributed net investment income | 6,624 | ||||||
TOTAL NET ASSETS | $ | 906,206 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($669,352 ÷ 99,870 shares outstanding), no par value, unlimited shares authorized | $6.70 | ||||||
Offering price per share | $6.70 | ||||||
Redemption proceeds per share | $6.70 | ||||||
Class A Shares: | |||||||
Net asset value per share ($210,257 ÷ 31,436 shares outstanding), no par value, unlimited shares authorized | $6.69 | ||||||
Offering price per share (100/94.50 of $6.69) | $7.08 | ||||||
Redemption proceeds per share | $6.69 | ||||||
Class C Shares: | |||||||
Net asset value per share ($20,722 ÷ 3,110 shares outstanding), no par value, unlimited shares authorized | $6.66 | ||||||
Offering price per share | $6.66 | ||||||
Redemption proceeds per share (99.00/100 of $6.66) | $6.59 | ||||||
Class K Shares: | |||||||
Net asset value per share ($5,875 ÷ 880 shares outstanding), no par value, unlimited shares authorized | $6.68 | ||||||
Offering price per share | $6.68 | ||||||
Redemption proceeds per share | $6.68 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $630 received from an affiliated issuer) (Note 5) | $ | 18,161 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 5,048 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 11,154 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Institutional Shares | 43,492 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class A Shares | 10,672 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class C Shares | 944 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class K Shares | 135 | |||||||||||
Directors'/Trustees' fees | 630 | |||||||||||
Auditing fees | 13,300 | |||||||||||
Legal fees | 2,895 | |||||||||||
Portfolio accounting fees | 72,325 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 97 | |||||||||||
Distribution services fee--Class K Shares (Note 5) | 9 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 328 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 32 | |||||||||||
Share registration costs | 48,376 | |||||||||||
Printing and postage | 31,096 | |||||||||||
Insurance premiums | 4,341 | |||||||||||
Miscellaneous | 3,080 | |||||||||||
TOTAL EXPENSES | 517,954 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (5,048 | ) | |||||||||
Waiver of administrative personnel and services fee | (54,993 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class A Shares | (193 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class C Shares | (11 | ) | ||||||||||
Reimbursement of other operating expenses | (450,700 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (510,945 | ) | ||||||||||
Net expenses | 7,009 | |||||||||||
Net investment income | 11,152 | |||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (189,746 | ) | ||||||||||
Net change in unrealized depreciation of investments | 51,330 | |||||||||||
Net realized and unrealized loss on investments | (138,416 | ) | ||||||||||
Change in net assets resulting from operations | $ | (127,264 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 | 1 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income | $ | 11,152 | $ | 2,255 | ||||
Net realized loss on investments | (189,746 | ) | (1,009 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 51,330 | (35,846 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (127,264 | ) | (34,600 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net investment income | ||||||||
Institutional Shares | (5,519 | ) | - -- | |||||
Class A Shares | (1,095 | ) | - -- | |||||
Class C Shares | (168 | ) | - -- | |||||
Class K Shares | (1 | ) | - -- | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (6,783 | ) | - -- | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 531,070 | 574,741 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | 4,007 | - -- | ||||||
Cost of shares redeemed | (31,893 | ) | (3,072 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 503,184 | 571,669 | ||||||
Change in net assets | 369,137 | 537,069 | ||||||
Net Assets: | ||||||||
Beginning of period | 537,069 | - -- | ||||||
End of period (including undistributed net investment income of $6,624 and $2,255, respectively) | $ | 906,206 | $ | 537,069 |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Large Cap Value Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class C Shares and Class K Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Institutional Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
The Fund's Institutional Shares, Class A Shares, Class C Shares and Class K Shares became effective with the Securities and Exchange Commission (SEC) on March 3, 2008.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that Institutional Shares, Class A Shares, Class C Shares and Class K Shares may bear distribution services fees, shareholder services fees and certain transfer and dividend disbursing agent fees unique to those classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2008 and 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 49,450 | $ | 315,000 | 50,010 | $ | 500,100 | ||||||||
Shares issued to shareholders in payment of distributions declared | 420 | 2,745 | - -- | - -- | ||||||||||
Shares redeemed | - -- | - -- | (10 | ) | (100 | ) | ||||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 49,870 | $ | 317,745 | 50,000 | $ | 500,000 | ||||||||
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 29,517 | $ | 190,960 | 7,012 | $ | 74,441 | ||||||||
Shares issued to shareholders in payment of distributions declared | 168 | 1,094 | - -- | - -- | ||||||||||
Shares redeemed | (4,963 | ) | (30,343 | ) | (298 | ) | (2,972 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 24,722 | $ | 161,711 | 6,714 | $ | 71,469 | ||||||||
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 3,329 | $ | 20,310 | 10 | $ | 100 | ||||||||
Shares issued to shareholders in payment of distributions declared | 26 | 168 | - -- | - -- | ||||||||||
Shares redeemed | (255 | ) | (1,550 | ) | - -- | - -- | ||||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | 3,100 | $ | 18,928 | 10 | $ | 100 | ||||||||
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Class K Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 870 | $ | 4,800 | 10 | $ | 100 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | - -- | - -- | ||||||||||
Shares redeemed | - -- | - -- | - -- | - -- | ||||||||||
NET CHANGE RESULTING FROM CLASS K SHARE TRANSACTIONS | 870 | $ | 4,800 | 10 | $ | 100 | ||||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 78,562 | $ | 503,184 | 56,734 | $ | 571,669 |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the year ended July 31, 2009 was as follows:
Ordinary income | | $6,783 |
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | | $ | 6,624 | |
Net unrealized appreciation | $ | 5,918 | ||
Capital loss carryforwards and deferrals | $ | (181,189 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $957,092. The net unrealized appreciation of investments for federal tax purposes was $5,918. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $52,748 and net unrealized depreciation from investments for those securities having an excess of cost over value of $46,830.
At July 31, 2009, the Fund had a capital loss carryforward of $27,377 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire in 2017.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post-October losses of $153,812 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser voluntarily waived $5,017 of its fee and voluntarily reimbursed $450,700 of other operating expenses. For the year ended July 31, 2009, an affiliate of the adviser reimbursed $204 of transfer and dividend disbursing agent fees and expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $54,993 of its fee. The net fee paid to FAS was 31.944% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class C Shares and Class K Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class C Shares | 0.75% | |
Class K Shares | 0.50% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC did not retain any fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $148 in sales charges from the sale of Class A Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares, Class C Shares and Class K Shares (after the voluntary waivers and reimbursements) will not exceed 0.99%, 1.24%, 1.99% and 1.74%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $31. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 73,796 | 832,442 | 797,841 | 108,397 | $108,397 | $630 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 1,624,297 |
Sales | $ | 1,167,348 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
11. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended July 31, 2009, 100.00% of total ordinary dividends paid by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information is reported in conjunction with the reporting of your distributions on Form 1099-DIV.
Of the ordinary income distributions made by the Fund during the year ended July 31, 2009, 100.00% qualify for the dividend received deduction available to corporate shareholders.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT LARGE CAP VALUE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Large Cap Value Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Large Cap Value Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended and the changes in its net assets, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
3 | ||
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract - May 2009
FEDERATED MDT LARGE CAP VALUE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. Because the Fund did not yet have a meaningful operating history, the Board's decision to approve the contract reflects the exercise of its business judgment primarily on whether to authorize the continued offering of this new investment vehicle, as originally proposed by, and based on information previously requested by the Board and provided by, the Federated organization, and based on Federated's recommendation to go forward with the Fund.
The Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
The Board also considered the compensation and benefits received by the Adviser. This included fees received or to be received for services provided to the Fund by other entities in the Federated organization and research services (if any) received by the Adviser from brokers that execute fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Since the inception of the Fund, the Board requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board occurring since the Fund's inception, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract initially occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the fees charged by other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
It was recognized that the factors mentioned above relating to such matters as fund performance and any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with the Fund, are essentially impossible to apply before the Fund has experienced any meaningful operating history. Nevertheless, the Board monitors the Fund's performance quarterly as information becomes available. Moreover, in connection with the Board's governance of other Federated fund, it should be noted that the Board regularly receives financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports cover not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discuss any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waive fees and/or reimburse expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. With due regard for the fact that the Fund did not yet have a meaningful operating history, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many of the shareholders that have invested in the Fund since its inception may have done so on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the contract on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. As noted, not all of the factors and considerations identified above were relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that are relevant, the Board's decision to approve the contract reflects its determination that, based upon the information previously requested and supplied, Federated's proposal to establish and manage the Fund, and its past performance and actions in providing services to other mutual funds, provide a satisfactory basis to support the business decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's Web site at FederatedInvestors.com. To access this information from the "Products" section of the Web site, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's Web site at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's Web site at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's Web site at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Large Cap Value Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R668
Cusip 31421R650
Cusip 31421R643
39020 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Large Cap Value Fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 | 1 | ||
Net Asset Value, Beginning of Period | $9.47 | $10.00 | ||||
Income From Investment Operations: | ||||||
Net investment income | 0.11 | 2 | 0.04 | 2 | ||
Net realized and unrealized loss on investments | (2.82 | ) | (0.57 | ) | ||
TOTAL FROM INVESTMENT OPERATIONS | (2.71 | ) | (0.53 | ) | ||
Less Distributions: | ||||||
Distributions from net investment income | (0.06 | ) | - -- | |||
Net Asset Value, End of Period | $6.70 | $ 9.47 | ||||
Total Return 3 | (28.65 | )% | (5.30 | )% | ||
Ratios to Average Net Assets: | ||||||
Net expenses | 0.97 | % | 0.99 | % 4 | ||
Net investment income | 1.73 | % | 1.05 | % 4 | ||
Expense waiver/reimbursement 5 | 76.80 | % | 111.72 | % 4 | ||
Supplemental Data: | ||||||
Net assets, end of period (000 omitted) | $669 | $473 | ||||
Portfolio turnover | 179 | % | 41 | % |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
2 Per share numbers have been calculated using the average shares method.
3 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
4 Computed on an annualized basis.
5 This expense decrease is reflected in both the net expense and the net investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual | $1,000 | $1,122.30 | $5.10 | |||
Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,019.98 | $4.86 |
1 Expenses are equal to the Fund's annualized net expense ratio of 0.97%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period).
Management's Discussion of Fund Performance (unaudited)
The fund's Institutional Shares total return for the fiscal year ended July 31, 2009 was -28.65%. The total return of the Russell 1000 ® Value Index 1 was -22.94% for the same reporting period. The fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell index.
MARKET OVERVIEW
Over the 12-month reporting period ending July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, 2 which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 3 which exceeded the return of mid- and small-cap stocks 4 as evidenced by the -20.72% and -22.23% results for the Russell 2000 ®5 and the Russell Midcap ® Indexes, 6 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 8
1 The Russell 1000 ® Value Index measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
2 The Russell 3000 ® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 ® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged and investments cannot be made directly in an index.
3 Russell Top 200 ® Index measures the performance of the 200 largest companies in the Russell 1000 ® Index, which represents approximately 69% of the total market capitalization of the Russell 1000 ® Index. The index is unmanaged and investments cannot be made directly in an index.
4 Small-company stocks may be less liquid and subject to greater price volatility than large-capitalization stocks.
5 The Russell 2000 ® Index measures the performance of the 2,000 smallest companies in the Russell 3000 ® Index, which represents approximately 10% of the total market capitalization of the Russell 3000 ® Index. The index is unmanaged and investments cannot be made directly in an index.
6 The Russell Midcap ® Index measures the performance of the 800 smallest companies in the Russell 1000 ® Index, which represent approximately 31% of the total market capitalization of the Russell 1000 ® Index. The index is unmanaged and investments cannot be made directly in an index.
7 The Russell 3000 ® Growth Index measures the performance of those Russell 3000 ® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Growth or the Russell 2000 ® Growth Indexes. The index is unmanaged and investments cannot be made directly in an index.
8 The Russell 3000 ® Value Index measures the performance of those Russell 3000 ® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Value or the Russell 2000 ® Value Indexes. The index is unmanaged and investments cannot be made directly in an index.
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 1000 ® Value Index was stock selection in the Utilities sector. Stock selection in the Industrials sector provided a modest contribution to relative performance. An underweight in the Financials sector also contributed significantly. Individual stocks contributing to the fund's performance relative to the Russell 1000 ® Value Index included General Electric Company and Exxon Mobil Corporation.
The most significant negative factor in the fund's performance relative to the Russell 1000 ® Value Index was stock selection in the Materials and Energy sectors. Additionally, an overweight in the Materials sector and an underweight in the Telecomm Services sector each detracted moderately from relative performance. Individual stocks detracting from the fund's performance relative to the Russell 1000 ® Value Index included: Goldman Sachs Group, Dow Chemical Company, Alcoa Incorporated and Valero Energy Corporation.
GROWTH OF A $10,000 INVESTMENT - INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Large Cap Value Fund (Institutional Shares) (the "Fund") from March 7, 2008 (start of performance) to July 31, 2009, compared to the Russell 1000 ® Value Index (Russell 1000 ® Value). 2
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -28.65% | |
Start of Performance (3/7/2008) | - -24.38% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmlcvaris39021edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 1000 ® Value has been adjusted to reflect reinvestment of dividends on securities in the index.
2 The Russell 1000 ® Value is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Integrated Domestic Oil | 8.6 | % | |
Property Liability Insurance | 8.3 | % | |
Electric Utility | 6.1 | % | |
Railroad | 5.8 | % | |
Crude Oil & Gas Production | 4.9 | % | |
Integrated International Oil | 4.7 | % | |
Offshore Driller | 4.6 | % | |
Department Stores | 4.2 | % | |
Securities Brokerage | 4.2 | % | |
Home Products | 4.0 | % | |
Services to Medical Professionals | 4.0 | % | |
Defense Aerospace | 3.7 | % | |
Multi-Line Insurance | 2.5 | % | |
Defense Electronics | 2.3 | % | |
Clothing Stores | 1.7 | % | |
Gas Distributor | 1.7 | % | |
Grocery Chain | 1.7 | % | |
Packaged Foods | 1.7 | % | |
Miscellaneous Machinery | 1.4 | % | |
Multi-Industry Capital Goods | 1.4 | % | |
Biotechnology | 1.3 | % | |
Computer Stores | 1.2 | % | |
Commodity Chemicals | 1.0 | % | |
Other 2 | 13.3 | % | |
Cash Equivalents 3 | 12.0 | % | |
Other Assets and Liabilities - Net 4 | (6.3 | )% | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | ||
COMMON STOCKS--94.3% | |||||
Agricultural Chemicals--0.2% | |||||
39 | FMC Corp. | $ | 1,897 | ||
Apparel--0.1% | |||||
36 | Columbia Sportswear Co. | 1,275 | |||
Auto Part Replacement--0.4% | |||||
114 | Genuine Parts Co. | 4,038 | |||
Biotechnology--1.3% | |||||
189 | 1 | Amgen, Inc. | 11,777 | ||
Building Materials--0.0% | |||||
1 | 1 | Owens Corning, Inc. | 18 | ||
Cable TV--0.3% | |||||
120 | 1 | Discovery Communications, Inc. | 2,940 | ||
Clothing Stores--1.7% | |||||
923 | Gap (The), Inc. | 15,063 | |||
Cogeneration--0.5% | |||||
276 | 1 | Mirant Corp. | 4,985 | ||
Commercial Services--0.3% | |||||
149 | 1 | Corrections Corp. of America | 2,572 | ||
Commodity Chemicals--1.0% | |||||
185 | Eastman Chemical Co. | 9,187 | |||
Computer Peripherals--0.3% | |||||
212 | 1 | Lexmark International Group, Class A | 3,070 | ||
Computer Stores--1.2% | |||||
284 | 1 | Ingram Micro, Inc., Class A | 4,777 | ||
171 | 1 | Tech Data Corp. | 5,973 | ||
TOTAL | 10,750 | ||||
Construction Machinery--0.2% | |||||
149 | Trinity Industries, Inc. | 2,080 | |||
Crude Oil & Gas Production--4.9% | |||||
409 | Apache Corp. | 34,336 | |||
128 | 1 | Newfield Exploration Co. | 5,034 | ||
173 | Pioneer Natural Resources, Inc. | 4,939 | |||
TOTAL | 44,309 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Defense Aerospace--3.7% | |||||
340 | Boeing Co. | $ | 14,589 | ||
191 | General Dynamics Corp. | 10,579 | |||
107 | Lockheed Martin Corp. | 7,999 | |||
TOTAL | 33,167 | ||||
Defense Electronics--2.3% | |||||
66 | Grainger (W.W.), Inc. | 5,934 | |||
52 | L-3 Communications Holdings, Inc. | 3,926 | |||
195 | Northrop Grumman Corp. | 8,693 | |||
53 | Raytheon Co. | 2,488 | |||
TOTAL | 21,041 | ||||
Department Stores--4.2% | |||||
54 | Dillards, Inc., Class A | 573 | |||
559 | 1 | Sears Holdings Corp. | 37,084 | ||
TOTAL | 37,657 | ||||
Discount Department Stores--0.8% | |||||
215 | 1 | BJ's Wholesale Club, Inc. | 7,170 | ||
Diversified Leisure--0.1% | |||||
35 | International Speedway Corp., Class A | 895 | |||
Electric & Electrical Original Equipment Manufacturers--0.3% | |||||
137 | Molex, Inc. | 2,433 | |||
Electric Utility--6.1% | |||||
530 | Edison International | 17,130 | |||
723 | Sempra Energy | 37,907 | |||
TOTAL | 55,037 | ||||
Electronics Stores--0.2% | |||||
145 | RadioShack Corp. | 2,249 | |||
Gas Distributor--1.7% | |||||
190 | Energen Corp. | 7,851 | |||
182 | National Fuel Gas Co. | 7,386 | |||
TOTAL | 15,237 | ||||
Grocery Chain--1.7% | |||||
823 | Safeway, Inc. | 15,579 | |||
Home Products--4.0% | |||||
647 | Procter & Gamble Co. | 35,915 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Hospitals--0.2% | |||||
36 | Universal Health Services, Inc., Class B | $ | 2,002 | ||
Industrial Machinery--0.6% | |||||
50 | Flowserve Corp. | 4,039 | |||
82 | 1 | Terex Corp. | 1,245 | ||
TOTAL | 5,284 | ||||
Insurance Brokerage--0.4% | |||||
83 | Axis Capital Holdings Ltd. | 2,362 | |||
31 | Endurance Specialty Holdings Ltd. | 1,035 | |||
TOTAL | 3,397 | ||||
Integrated Domestic Oil--8.6% | |||||
870 | ConocoPhillips | 38,028 | |||
1,229 | Marathon Oil Corp. | 39,635 | |||
TOTAL | 77,663 | ||||
Integrated International Oil--4.7% | |||||
544 | Chevron Corp. | 37,792 | |||
67 | Exxon Mobil Corp. | 4,716 | |||
TOTAL | 42,508 | ||||
Life Insurance--0.2% | |||||
37 | Torchmark Corp. | 1,445 | |||
Maritime--0.7% | |||||
68 | Alexander and Baldwin, Inc. | 1,987 | |||
117 | Overseas Shipholding Group, Inc. | 4,019 | |||
TOTAL | 6,006 | ||||
Medical Supplies--0.9% | |||||
158 | AmerisourceBergen Corp. | 3,116 | |||
93 | McKesson HBOC, Inc. | 4,757 | |||
TOTAL | 7,873 | ||||
Medical Technology--0.8% | |||||
12 | 1 | Mettler-Toledo International, Inc. | 1,009 | ||
138 | 1 | Zimmer Holdings, Inc. | 6,431 | ||
TOTAL | 7,440 | ||||
Metal Containers--0.2% | |||||
30 | Ball Corp. | 1,451 | |||
Mini-Mill Producer--0.3% | |||||
193 | Commercial Metals Corp. | 3,192 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Miscellaneous Machinery--1.4% | |||||
199 | Illinois Tool Works, Inc. | $ | 8,069 | ||
65 | Parker-Hannifin Corp. | 2,878 | |||
23 | Rockwell Automation, Inc. | 952 | |||
17 | SPX Corp. | 898 | |||
TOTAL | 12,797 | ||||
Motion Pictures--0.5% | |||||
51 | 1 | Dreamworks Animation SKG, Inc. | 1,607 | ||
113 | Walt Disney Co. | 2,839 | |||
TOTAL | 4,446 | ||||
Multi-Industry Capital Goods--1.4% | |||||
235 | United Technologies Corp. | 12,800 | |||
Multi-Line Insurance--2.5% | |||||
533 | Allstate Corp. | 14,343 | |||
60 | Assurant, Inc. | 1,531 | |||
163 | CIGNA Corp. | 4,629 | |||
25 | Hanover Insurance Group, Inc. | 983 | |||
59 | Unum Group | 1,107 | |||
TOTAL | 22,593 | ||||
Offshore Driller--4.6% | |||||
405 | ENSCO International, Inc. | 15,345 | |||
790 | Noble Corp. | 26,749 | |||
TOTAL | 42,094 | ||||
Oil Refiner--0.1% | |||||
46 | Sunoco, Inc. | 1,136 | |||
Oil Service, Explore & Drill--0.7% | |||||
61 | 1 | Exterran Holdings, Inc. | 1,061 | ||
63 | 1 | Seacor Holdings, Inc. | 5,007 | ||
TOTAL | 6,068 | ||||
Packaged Foods--1.7% | |||||
68 | Campbell Soup Co. | 2,110 | |||
456 | Kraft Foods, Inc., Class A | 12,923 | |||
TOTAL | 15,033 | ||||
Property Liability Insurance--8.3% | |||||
21 | Allied World Assurance Holdings Ltd. | 913 | |||
41 | 1 | Arch Capital Group Ltd. | 2,550 | ||
77 | Berkley, W. R. Corp. | 1,789 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Property Liability Insurance--continued | |||||
427 | Chubb Corp. | $ | 19,719 | ||
81 | Everest Re Group Ltd. | 6,498 | |||
42 | HCC Insurance Holdings, Inc. | 1,054 | |||
241 | Loews Corp. | 7,235 | |||
61 | RenaissanceRe Holdings Ltd. | 3,065 | |||
755 | The Travelers Cos., Inc. | 32,518 | |||
TOTAL | 75,341 | ||||
Railroad--5.8% | |||||
133 | CSX Corp. | 5,336 | |||
895 | Norfolk Southern Corp. | 38,709 | |||
141 | Union Pacific Corp. | 8,110 | |||
TOTAL | 52,155 | ||||
Resorts--0.3% | |||||
102 | 1 | Vail Resorts, Inc. | 2,918 | ||
Securities Brokerage--4.2% | |||||
234 | Goldman Sachs Group, Inc. | 38,212 | |||
Semiconductor Distribution--0.8% | |||||
294 | 1 | Arrow Electronics, Inc. | 7,576 | ||
Semiconductor Manufacturing--0.4% | |||||
231 | Maxim Integrated Products, Inc. | 4,093 | |||
Semiconductor Manufacturing Equipment--0.5% | |||||
216 | 1 | Novellus Systems, Inc. | 4,227 | ||
Services to Medical Professionals--4.0% | |||||
165 | Aetna, Inc. | 4,450 | |||
240 | 1 | Health Net, Inc. | 3,247 | ||
88 | 1 | Medco Health Solutions, Inc. | 4,652 | ||
399 | UnitedHealth Group, Inc. | 11,196 | |||
241 | 1 | Wellpoint, Inc. | 12,686 | ||
TOTAL | 36,231 | ||||
Software Packaged/Custom--0.3% | |||||
59 | 1 | DST Systems, Inc. | 2,616 | ||
Stainless Steel Producer--0.8% | |||||
196 | Allegheny Technologies, Inc. | 5,308 | |||
106 | Carpenter Technology Corp. | 1,981 | |||
TOTAL | 7,289 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Telephone Utility--0.1% | |||||
31 | Telephone and Data System, Inc. | $ | 798 | ||
Trucking--0.8% | |||||
216 | Ryder System, Inc. | 7,588 | |||
TOTAL COMMON STOCKS (IDENTIFIED COST $839,129) | 854,613 | ||||
MUTUAL FUND--12.0% | |||||
108,397 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 108,397 | ||
TOTAL INVESTMENTS--106.3% (IDENTIFIED COST $947,526) 4 | 963,010 | ||||
OTHER ASSETS AND LIABILITIES - NET--(6.3)% 5 | (56,804) | ||||
TOTAL NET ASSETS--100% | $ | 906,206 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $957,092.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | | Level 3-- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $811,442 | $-- | $-- | $811,442 | ||||
International | 43,171 | - -- | - -- | 43,171 | ||||
Mutual Fund | 108,397 | - -- | - -- | 108,397 | ||||
TOTAL SECURITIES | $963,010 | $-- | $-- | $963,010 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $108,397 of investments in an affiliated issuer (Note 5) (identified cost $947,526) | $ | 963,010 | |||||
Income receivable | 884 | ||||||
Receivable for investments sold | 1,955 | ||||||
TOTAL ASSETS | 965,849 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 1,580 | |||||
Payable for custodian fees | 3,303 | ||||||
Payable for transfer and dividend disbursing agent fees and expenses | 10,228 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for portfolio accounting fees | 13,167 | ||||||
Payable for distribution services fee (Note 5) | 14 | ||||||
Payable for shareholder services fee (Note 5) | 63 | ||||||
Payable for share registration costs | 7,403 | ||||||
Accrued expenses | 1,385 | ||||||
TOTAL LIABILITIES | 59,643 | ||||||
Net assets for 135,296 shares outstanding | $ | 906,206 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 1,074,853 | |||||
Net unrealized appreciation of investments | 15,484 | ||||||
Accumulated net realized loss on investments | (190,755 | ) | |||||
Undistributed net investment income | 6,624 | ||||||
TOTAL NET ASSETS | $ | 906,206 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($669,352 ÷ 99,870 shares outstanding), no par value, unlimited shares authorized | $6.70 | ||||||
Offering price per share | $6.70 | ||||||
Redemption proceeds per share | $6.70 | ||||||
Class A Shares: | |||||||
Net asset value per share ($210,257 ÷ 31,436 shares outstanding), no par value, unlimited shares authorized | $6.69 | ||||||
Offering price per share (100/94.50 of $6.69) | $7.08 | ||||||
Redemption proceeds per share | $6.69 | ||||||
Class C Shares: | |||||||
Net asset value per share ($20,722 ÷ 3,110 shares outstanding), no par value, unlimited shares authorized | $6.66 | ||||||
Offering price per share | $6.66 | ||||||
Redemption proceeds per share (99.00/100 of $6.66) | $6.59 | ||||||
Class K Shares: | |||||||
Net asset value per share ($5,875 ÷ 880 shares outstanding), no par value, unlimited shares authorized | $6.68 | ||||||
Offering price per share | $6.68 | ||||||
Redemption proceeds per share | $6.68 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $630 received from an affiliated issuer) (Note 5) | $ | 18,161 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 5,048 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 11,154 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Institutional Shares | 43,492 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class A Shares | 10,672 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class C Shares | 944 | |||||||||||
Transfer and dividend disbursing agent fees and expenses--Class K Shares | 135 | |||||||||||
Directors'/Trustees' fees | 630 | |||||||||||
Auditing fees | 13,300 | |||||||||||
Legal fees | 2,895 | |||||||||||
Portfolio accounting fees | 72,325 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 97 | |||||||||||
Distribution services fee--Class K Shares (Note 5) | 9 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 328 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 32 | |||||||||||
Share registration costs | 48,376 | |||||||||||
Printing and postage | 31,096 | |||||||||||
Insurance premiums | 4,341 | |||||||||||
Miscellaneous | 3,080 | |||||||||||
TOTAL EXPENSES | 517,954 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (5,048 | ) | |||||||||
Waiver of administrative personnel and services fee | (54,993 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class A Shares | (193 | ) | ||||||||||
Reimbursement of transfer and dividend disbursing agent fees and expenses--Class C Shares | (11 | ) | ||||||||||
Reimbursement of other operating expenses | (450,700 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (510,945 | ) | ||||||||||
Net expenses | 7,009 | |||||||||||
Net investment income | 11,152 | |||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (189,746 | ) | ||||||||||
Net change in unrealized depreciation of investments | 51,330 | |||||||||||
Net realized and unrealized loss on investments | (138,416 | ) | ||||||||||
Change in net assets resulting from operations | $ | (127,264 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 | 1 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income | $ | 11,152 | $ | 2,255 | ||||
Net realized loss on investments | (189,746 | ) | (1,009 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 51,330 | (35,846 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (127,264 | ) | (34,600 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net investment income | ||||||||
Institutional Shares | (5,519 | ) | - -- | |||||
Class A Shares | (1,095 | ) | - -- | |||||
Class C Shares | (168 | ) | - -- | |||||
Class K Shares | (1 | ) | - -- | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (6,783 | ) | - -- | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 531,070 | 574,741 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | 4,007 | - -- | ||||||
Cost of shares redeemed | (31,893 | ) | (3,072 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 503,184 | 571,669 | ||||||
Change in net assets | 369,137 | 537,069 | ||||||
Net Assets: | ||||||||
Beginning of period | 537,069 | - -- | ||||||
End of period (including undistributed net investment income of $6,624 and $2,255, respectively) | $ | 906,206 | $ | 537,069 |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Large Cap Value Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class C Shares and Class K Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Class A Shares, Class C Shares and Class K Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
The Fund's Institutional Shares, Class A Shares, Class C Shares and Class K Shares became effective with the Securities and Exchange Commission (SEC) on March 3, 2008.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that Institutional Shares, Class A Shares, Class C Shares and Class K Shares may bear distribution services fees, shareholder services fees and certain transfer and dividend disbursing agent fees unique to those classes. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2008 and 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 49,450 | $ | 315,000 | 50,010 | $ | 500,100 | ||||||||
Shares issued to shareholders in payment of distributions declared | 420 | 2,745 | - -- | - -- | ||||||||||
Shares redeemed | - -- | - -- | (10 | ) | (100 | ) | ||||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 49,870 | $ | 317,745 | 50,000 | $ | 500,000 | ||||||||
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 29,517 | $ | 190,960 | 7,012 | $ | 74,441 | ||||||||
Shares issued to shareholders in payment of distributions declared | 168 | 1,094 | - -- | - -- | ||||||||||
Shares redeemed | (4,963 | ) | (30,343 | ) | (298 | ) | (2,972 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 24,722 | $ | 161,711 | 6,714 | $ | 71,469 | ||||||||
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 3,329 | $ | 20,310 | 10 | $ | 100 | ||||||||
Shares issued to shareholders in payment of distributions declared | 26 | 168 | - -- | - -- | ||||||||||
Shares redeemed | (255 | ) | (1,550 | ) | - -- | - -- | ||||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | 3,100 | $ | 18,928 | 10 | $ | 100 | ||||||||
| Year Ended 7/31/2009 | | Period Ended 7/31/2008 1 | |||||||||||
Class K Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 870 | $ | 4,800 | 10 | $ | 100 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | - -- | - -- | ||||||||||
Shares redeemed | - -- | - -- | - -- | - -- | ||||||||||
NET CHANGE RESULTING FROM CLASS K SHARE TRANSACTIONS | 870 | $ | 4,800 | 10 | $ | 100 | ||||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 78,562 | $ | 503,184 | 56,734 | $ | 571,669 |
1 Reflects operations for the period from March 7, 2008 (date of initial investment) to July 31, 2008.
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the year ended July 31, 2009 was as follows:
Ordinary income | | $6,783 |
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | | $ | 6,624 | |
Net unrealized appreciation | $ | 5,918 | ||
Capital loss carryforwards and deferrals | $ | (181,189 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $957,092. The net unrealized appreciation of investments for federal tax purposes was $5,918. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $52,748 and net unrealized depreciation from investments for those securities having an excess of cost over value of $46,830.
At July 31, 2009, the Fund had a capital loss carryforward of $27,377 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire in 2017.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post-October losses of $153,812 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.75% of the Fund's average daily net assets. Subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser voluntarily waived $5,017 of its fee and voluntarily reimbursed $450,700 of other operating expenses. For the year ended July 31, 2009, an affiliate of the adviser reimbursed $204 of transfer and dividend disbursing agent fees and expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $54,993 of its fee. The net fee paid to FAS was 31.944% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares, Class C Shares and Class K Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class C Shares | 0.75% | |
Class K Shares | 0.50% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC did not retain any fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $148 in sales charges from the sale of Class A Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares, Class C Shares and Class K Shares (after the voluntary waivers and reimbursements) will not exceed 0.99%, 1.24%, 1.99% and 1.74%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $31. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 73,796 | 832,442 | 797,841 | 108,397 | $108,397 | $630 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 1,624,297 |
Sales | $ | 1,167,348 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the SEC, the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
11. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended July 31, 2009, 100.00% of total ordinary dividends paid by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information is reported in conjunction with the reporting of your distributions on Form 1099-DIV.
Of the ordinary income distributions made by the Fund during the year ended July 31, 2009, 100.00% qualify for the dividend received deduction available to corporate shareholders.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT LARGE CAP VALUE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Large Cap Value Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Large Cap Value Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended and the changes in its net assets, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract - May 2009
FEDERATED MDT LARGE CAP VALUE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. Because the Fund did not yet have a meaningful operating history, the Board's decision to approve the contract reflects the exercise of its business judgment primarily on whether to authorize the continued offering of this new investment vehicle, as originally proposed by, and based on information previously requested by the Board and provided by, the Federated organization, and based on Federated's recommendation to go forward with the Fund.
The Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
The Board also considered the compensation and benefits received by the Adviser. This included fees received or to be received for services provided to the Fund by other entities in the Federated organization and research services (if any) received by the Adviser from brokers that execute fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Since the inception of the Fund, the Board requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board occurring since the Fund's inception, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract initially occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. The Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the fees charged by other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
It was recognized that the factors mentioned above relating to such matters as fund performance and any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with the Fund, are essentially impossible to apply before the Fund has experienced any meaningful operating history. Nevertheless, the Board monitors the Fund's performance quarterly as information becomes available. Moreover, in connection with the Board's governance of other Federated fund, it should be noted that the Board regularly receives financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports cover not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discuss any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waive fees and/or reimburse expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. With due regard for the fact that the Fund did not yet have a meaningful operating history, the Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many of the shareholders that have invested in the Fund since its inception may have done so on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the contract on the totality of the circumstances and relevant factors, and with a view to past and future long-term considerations. As noted, not all of the factors and considerations identified above were relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that are relevant, the Board's decision to approve the contract reflects its determination that, based upon the information previously requested and supplied, Federated's proposal to establish and manage the Fund, and its past performance and actions in providing services to other mutual funds, provide a satisfactory basis to support the business decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's Web site at FederatedInvestors.com. To access this information from the "Products" section of the Web site, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's Web site at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's Web site at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's Web site at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Large Cap Value Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R635
39021 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Mid Cap Growth Fund
Established 2005
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class C Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $12.10 | $13.05 | $10.67 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.04 | ) 3 | (0.11 | ) 3 | (0.11 | ) 3 | (0.09 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.90 | ) | (0.72 | ) | 2.81 | 0.76 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.94 | ) | (0.83 | ) | 2.70 | 0.67 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.12 | ) | (0.32 | ) | - -- | ||||||
Redemption fees | - -- | - -- | 0.00 | 4 | - -- | |||||||
Net Asset Value, End of Period | $ 8.16 | $12.10 | $13.05 | $10.67 | ||||||||
Total Return 5 | (32.56 | )% | (6.47 | )% | 25.67 | % | 6.70 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.49 | % | 1.50 | % | 1.50 | % | 2.02 | % 6 | ||||
Net investment income (loss) | (0.47 | )% | (0.82 | )% | (0.88 | )% | (0.92 | )% 6 | ||||
Expense waiver/reimbursement 7 | 3.68 | % | 4.06 | % | 15.03 | % | 27.33 | % 6 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $7,982 | $10,242 | $6,446 | $104 | ||||||||
Portfolio turnover | 270 | % | 216 | % | 141 | % | 201 | % |
1 MDT Mid Cap Growth Fund (the "Predecessor Fund") was reorganized into Federated MDT Mid Cap Growth Fund (the "Fund"), as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Represents less than $0.01.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
6 Computed on an annualized basis.
7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $11.84 | $12.86 | $10.60 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.10 | ) 3 | (0.19 | ) 3 | (0.19 | ) 3 | (0.17 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.82 | ) | (0.71 | ) | 2.77 | 0.77 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.92 | ) | (0.90 | ) | 2.58 | 0.60 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.12 | ) | (0.32 | ) | - -- | ||||||
Redemption fees | - -- | - -- | 0.00 | 4 | - -- | |||||||
Net Asset Value, End of Period | $ 7.92 | $11.84 | $12.86 | $10.60 | ||||||||
Total Return 5 | (33.11 | )% | (7.12 | )% | 24.69 | % | 6.00 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 2.24 | % | 2.24 | % | 2.25 | % | 2.77 | % 6 | ||||
Net investment income (loss) | (1.23 | )% | (1.51 | )% | (1.56 | )% | (1.67 | )% 6 | ||||
Expense waiver/reimbursement 7 | 3.84 | % | 3.86 | % | 26.77 | % | 27.33 | % 6 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $590 | $909 | $123 | $6 | ||||||||
Portfolio turnover | 270 | % | 216 | % | 141 | % | 201 | % |
1 The Predecessor Fund was reorganized into the Fund as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Represents less than $0.01.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
6 Computed on an annualized basis.
7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual: | ||||||
Class A Shares | $1,000 | $1,090.90 | $ 7.72 | |||
Class C Shares | $1,000 | $1,086.40 | $ 11.59 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $ 1,017.41 | $ 7.45 | |||
Class C Shares | $1,000 | $1,013.69 | $ 11.18 |
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
Class A Shares | | 1.49% |
Class C Shares | 2.24% |
Management's Discussion of Fund Performance (unaudited)
The Fund's total returns, based on net asset value, for the fiscal year ended July 31, 2009 were -32.56% for Class A Shares and -33.11% for Class C Shares. The total returns of the Russell Midcap ® Growth Index (Russell Midcap ® Growth) and the Lipper Mid-Cap Growth Funds Index, respectively, were -21.87% and -21.62% for the same period. The Fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell index.
1 The Russell Midcap® Growth measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12 month period ending July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000® Index, 3 which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200® Index, 4 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000® Index 5 and the Russell Midcap® Index, 6 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000® Value Index. 8
The best performing sectors in the Russell 3000® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
4 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000® Index, which represents approximately 65% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
5 Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
6 Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 35% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
7 Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000® Growth or the Russell 2000® Growth indexes. The index is unmanaged and investments cannot be made in an index.
8 Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000® Value or the Russell 2000® Value indexes. The index is unmanaged and investments cannot be made in an index.
FUND PERFORMANCE
The most significant positive factor in the Fund's performance relative to the Russell Midcap ® Growth was stock selection in the Materials sector. Additionally, an underweight in the Energy sector provided a significant positive contribution to the Fund's performance. Individual stocks contributing to the Fund's performance relative to the Russell Midcap ® Growth Index included: Fiserv Incorporated, Mednax Incorporated, Waters Corporation and Scotts Company.
The most significant negative factor in the Fund's performance relative to the Russell Midcap ® Growth Index was stock selection in the Consumer Discretionary, Industrials and Consumer Staples sectors. Stock selection in Information Technology also detracted moderately. Individual stocks detracting from the Fund's performance relative to the Russell Midcap ® Growth included: SPX Corporation, Dish Network Corporation, Avon Products Incorporated and Amphenol Corporation.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Mid Cap Growth Fund (Class A Shares) (the "Fund") 2 from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell Midcap ® Growth Index (Russell Midcap ® Growth) 3 and the Lipper Mid-Cap Growth Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -36.25% | |
Start of Performance (9/15/2005) | - -5.61% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmmcgarac37324edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50%.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell Midcap ® Growth and the Lipper Mid-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Mid Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Mid Cap Growth Fund.
3 The Russell Midcap ® Growth is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
GROWTH OF A $10,000 INVESTMENT - CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Mid Cap Growth Fund (Class C Shares) (the "Fund") 2 from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell Midcap ® Growth Index (Russell Midcap ® Growth) 3 and the Lipper Mid-Cap Growth Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -33.78% | |
Start of Performance (9/15/2005) | - -4.95% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmmcgarac37324edg2.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell Midcap ® Growth and Lipper Mid-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Mid Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Mid Cap Growth Fund.
3 The Russell Midcap ® Growth is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Undesignated Consumer Cyclicals | 10.0 | % | |
Software Packaged/Custom | 8.6 | % | |
Services to Medical Professionals | 6.7 | % | |
Financial Services | 5.5 | % | |
Medical Supplies | 5.0 | % | |
Soft Drinks | 4.3 | % | |
Computer Services | 3.7 | % | |
Defense Aerospace | 3.7 | % | |
Clothing Stores | 3.5 | % | |
Agricultural Chemicals | 3.3 | % | |
Auto Original Equipment Manufacturers | 3.3 | % | |
Generic Drugs | 3.2 | % | |
Mutual Fund Adviser | 3.1 | % | |
Plastic Containers | 3.0 | % | |
Cable TV | 2.9 | % | |
Packaged Foods | 2.9 | % | |
Commodity Chemicals | 2.7 | % | |
Defense Electronics | 2.6 | % | |
Ethical Drugs | 2.6 | % | |
Home Health Care | 2.1 | % | |
Metal Containers | 2.0 | % | |
Restaurant | 1.8 | % | |
Advertising | 1.6 | % | |
Medical Technology | 1.3 | % | |
Other 2 | 8.7 | % | |
Cash Equivalents 3 | 2.8 | % | |
Other Assets and Liabilities - Net 4 | (0.9 | )% | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | ||||
COMMON STOCKS--98.1% | |||||||
Advertising--1.6% | |||||||
9,219 | Omnicom Group, Inc. | $ | 313,446 | ||||
Agricultural Chemicals--3.3% | |||||||
16,688 | Scotts Co. | 651,666 | |||||
Auto Original Equipment Manufacturers--3.3% | |||||||
4,307 | 1 | AutoZone, Inc. | 661,426 | ||||
Biotechnology--0.9% | |||||||
1,310 | 1 | Hospira, Inc. | 50,343 | ||||
2,482 | 1 | Waters Corp. | 124,720 | ||||
TOTAL | 175,063 | ||||||
Cable TV - 2.9% | |||||||
34,197 | 1 | DISH Network Corp., Class A | 579,639 | ||||
Clothing Stores--3.5% | |||||||
1,630 | 1 | Aeropostale, Inc. | 59,332 | ||||
14,552 | 1 | Hanesbrands, Inc. | 289,585 | ||||
13,406 | Limited Brands, Inc. | 173,474 | |||||
3,756 | Ross Stores, Inc. | 165,602 | |||||
TOTAL | 687,993 | ||||||
Commodity Chemicals--2.7% | |||||||
21,147 | Celanese Corp. | 543,478 | |||||
Computer Services--3.7% | |||||||
2,917 | 1 | Affiliated Computer Services, Inc., Class A | 138,295 | ||||
10,913 | 1 | Fiserv, Inc. | 517,385 | ||||
1,743 | 1 | Salesforce.com, Inc. | 75,542 | ||||
TOTAL | 731,222 | ||||||
Computer Stores--0.2% | |||||||
1,401 | 1 | GameStop Corp. | 30,668 | ||||
Cosmetics & Toiletries--0.4% | |||||||
2,284 | International Flavors & Fragrances, Inc. | 80,534 | |||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Crude Oil & Gas Production--0.0% | |||||||
52 | 1 | Southwestern Energy Co. | $ | 2,154 | |||
Defense Aerospace--3.7% | |||||||
9,114 | 1 | Alliant Techsystems, Inc. | 717,454 | ||||
640 | 1 | TransDigm Group, Inc. | 24,506 | ||||
TOTAL | 741,960 | ||||||
Defense Electronics--2.6% | |||||||
6,724 | L-3 Communications Holdings, Inc. | 507,662 | |||||
Department Stores--0.6% | |||||||
2,369 | 1 | Kohl's Corp. | 115,015 | ||||
Discount Department Stores--0.5% | |||||||
577 | 1 | Dollar Tree, Inc. | 26,611 | ||||
2,160 | TJX Cos., Inc. | 78,257 | |||||
TOTAL | 104,868 | ||||||
Electronic Instruments--0.1% | |||||||
404 | 1 | Dolby Laboratories, Class A | 16,819 | ||||
Ethical Drugs--2.6% | |||||||
1,597 | 1 | Sepracor, Inc. | 27,708 | ||||
18,862 | 1 | Valeant Pharmaceuticals International | 486,640 | ||||
TOTAL | 514,348 | ||||||
Financial Services--5.5% | |||||||
4,542 | Equifax, Inc. | 118,319 | |||||
4,985 | 1 | InterContinentalExchange, Inc. | 468,889 | ||||
17,762 | Moody's Corp. | 421,670 | |||||
5,555 | Total System Services, Inc. | 81,547 | |||||
TOTAL | 1,090,425 | ||||||
Generic Drugs--3.2% | |||||||
48,003 | 1 | Mylan Laboratories, Inc. | 633,160 | ||||
Home Health Care--2.1% | |||||||
15,814 | 1 | Lincare Holdings, Inc. | 414,011 | ||||
Home Products--0.3% | |||||||
1,508 | Tupperware Brands Corp. | 51,378 | |||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Hospitals--0.3% | |||||||
8,741 | 1 | Health Management Association, Class A | $ | 52,708 | |||
Insurance Brokerage--0.6% | |||||||
5,305 | Gallagher (Arthur J.) & Co. | 121,484 | |||||
Internet Services--0.6% | |||||||
2,615 | 1 | NetFlix, Inc. | 114,903 | ||||
57 | 1 | Priceline.com, Inc. | 7,388 | ||||
TOTAL | 122,291 | ||||||
Magazine Publishing--0.3% | |||||||
1,735 | McGraw-Hill Cos., Inc. | 54,392 | |||||
Medical Supplies--5.0% | |||||||
11,078 | AmerisourceBergen Corp. | 218,458 | |||||
15,539 | 1 | Hologic, Inc. | 228,268 | ||||
17,409 | 1 | Kinetic Concepts, Inc. | 550,473 | ||||
TOTAL | 997,199 | ||||||
Medical Technology--1.3% | |||||||
1,919 | 1 | Mettler-Toledo International, Inc. | 161,311 | ||||
1,266 | 1 | Millipore Corp. | 88,114 | ||||
TOTAL | 249,425 | ||||||
Metal Containers--2.0% | |||||||
7,195 | Ball Corp. | 347,950 | |||||
2,276 | 1 | Crown Holdings, Inc. | 57,128 | ||||
TOTAL | 405,078 | ||||||
Miscellaneous Communications--0.4% | |||||||
18,699 | Qwest Communications International, Inc. | 72,178 | |||||
Miscellaneous Machinery--0.8% | |||||||
3,415 | Nordson Corp. | 153,334 | |||||
Multi-Industry Transportation--0.2% | |||||||
1,355 | Brinks Co. (The) | 36,788 | |||||
Mutual Fund Adviser--3.1% | |||||||
8,508 | 1 | Affiliated Managers Group | 561,698 | ||||
2,056 | Waddell & Reed Financial, Inc., Class A | 58,329 | |||||
TOTAL | 620,027 | ||||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Outpatient Clinics--0.4% | |||||||
1,476 | 1 | DaVita, Inc. | $ | 73,357 | |||
Packaged Foods--2.9% | |||||||
4,912 | Campbell Soup Co. | 152,419 | |||||
10,590 | Hershey Foods Corp. | 423,070 | |||||
TOTAL | 575,489 | ||||||
Plastic Containers--3.0% | |||||||
23,203 | 1 | Pactiv Corp. | 584,252 | ||||
Restaurant--1.8% | |||||||
1,152 | Brinker International, Inc. | 19,169 | |||||
3,702 | Darden Restaurants, Inc. | 119,908 | |||||
2,993 | 1 | Green Mountain Coffee, Inc. | 210,827 | ||||
TOTAL | 349,904 | ||||||
Securities Brokerage--0.8% | |||||||
8,905 | 1 | TD Ameritrade Holding Corp. | 165,099 | ||||
Semiconductor Manufacturing--0.3% | |||||||
3,418 | National Semiconductor Corp. | 51,475 | |||||
Services to Medical Professionals--6.7% | |||||||
12,869 | MEDNAX, Inc. | 596,478 | |||||
13,415 | Quest Diagnostics, Inc. | 732,727 | |||||
TOTAL | 1,329,205 | ||||||
Soft Drinks--4.3% | |||||||
42,247 | Coca-Cola Enterprises, Inc. | 793,821 | |||||
1,820 | 1 | Hansen Natural Corp. | 56,438 | ||||
TOTAL | 850,259 | ||||||
Software Packaged/Custom--8.6% | |||||||
38,151 | CA, Inc. | 806,512 | |||||
1,097 | 1 | DST Systems, Inc. | 48,630 | ||||
5,607 | 1 | McAfee, Inc. | 249,960 | ||||
2,289 | 1 | Red Hat, Inc. | 52,258 | ||||
21,086 | Rovi Corp. | 551,610 | |||||
TOTAL | 1,708,970 | ||||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Specialty Retailing--0.8% | |||||||
3,191 | Advance Auto Parts, Inc. | $ | 147,520 | ||||
882 | 1 | Big Lots, Inc. | 20,321 | ||||
TOTAL | 167,841 | ||||||
Toys & Games--0.2% | |||||||
851 | 1 | Marvel Entertainment, Inc. | 33,666 | ||||
Undesignated Consumer Cyclicals--10.0% | |||||||
2,838 | 1 | Apollo Group, Inc., Class A | 195,935 | ||||
1,005 | DeVRY, Inc. | 49,989 | |||||
1,807 | 1 | FTI Consulting, Inc. | 98,355 | ||||
9,944 | Herbalife Ltd. | 342,173 | |||||
3,709 | 1 | ITT Educational Services, Inc. | 361,071 | ||||
26,000 | 1 | Iron Mountain, Inc. | 759,460 | ||||
449 | Strayer Education, Inc. | 95,359 | |||||
2,442 | 1 | Weight Watchers International, Inc. | 68,083 | ||||
TOTAL | 1,970,425 | ||||||
TOTAL COMMON STOCKS (IDENTIFIED COST $17,612,276) | 19,391,781 | ||||||
MUTUAL FUND--2.8% | |||||||
559,439 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 559,439 | ||||
TOTAL INVESTMENTS -- 100.9% (IDENTIFIED COST $18,171,715) 4 | 19,951,220 | ||||||
OTHER ASSETS AND LIABILITIES - NET--(0.9)% 5 | (186,673 | ) | |||||
TOTAL NET ASSETS--100% | $ | 19,764,547 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $18,223,197.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | | | | | ||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | Level 3-- Significant Unobservable Inputs | | Total | ||
Equity Securities: | ||||||||
Domestic | $19,049,608 | $-- | $-- | $19,049,608 | ||||
International | 342,173 | - -- | - -- | 342,173 | ||||
Mutual Fund | 559,439 | - -- | - -- | 559,439 | ||||
TOTAL SECURITIES | $19,951,220 | $-- | $-- | $19,951,220 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $559,439 of investments in an affiliated issuer (Note 5) (identified cost $18,171,715) | $ | 19,951,220 | |||||
Income receivable | 4,187 | ||||||
Receivable for investments sold | 676,591 | ||||||
Receivable for shares sold | 44,263 | ||||||
TOTAL ASSETS | 20,676,261 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 829,665 | |||||
Payable for shares redeemed | 25,113 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for distribution services fee (Note 5) | 346 | ||||||
Payable for shareholder services fee (Note 5) | 4,645 | ||||||
Accrued expenses | 29,445 | ||||||
TOTAL LIABILITIES | 911,714 | ||||||
Net assets for 2,413,437 shares outstanding | $ | 19,764,547 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 23,656,573 | |||||
Net unrealized appreciation of investments | 1,779,505 | ||||||
Accumulated net realized loss on investments | (5,671,531 | ) | |||||
TOTAL NET ASSETS | $ | 19,764,547 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($11,191,997 ÷ 1,360,343 shares outstanding), no par value, unlimited shares authorized | $8.23 | ||||||
Offering price per share | $8.23 | ||||||
Redemption proceeds per share | $8.23 | ||||||
Class A Shares: | |||||||
Net asset value per share ($7,982,412 ÷ 978,600 shares outstanding), no par value, unlimited shares authorized | $8.16 | ||||||
Offering price per share (100/94.50 of $8.16) | $8.63 | ||||||
Redemption proceeds per share | $8.16 | ||||||
Class C Shares: | |||||||
Net asset value per share ($590,138 ÷ 74,494 shares outstanding), no par value, unlimited shares authorized | $7.92 | ||||||
Offering price per share | $7.92 | ||||||
Redemption proceeds per share (99.00/100 of $7.92) | $7.84 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $4,476 received from an affiliated issuer) (Note 5) | $ | 120,171 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 114,306 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 19,801 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 62,636 | |||||||||||
Directors'/Trustees' fees | 1,329 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 2,212 | |||||||||||
Portfolio accounting fees | 69,566 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 5,353 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 18,584 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 1,784 | |||||||||||
Share registration costs | 36,895 | |||||||||||
Printing and postage | 29,735 | |||||||||||
Insurance premiums | 4,369 | |||||||||||
Miscellaneous | 2,877 | |||||||||||
TOTAL EXPENSES | 621,947 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (114,306 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,874 | ) | ||||||||||
Waiver of distribution services fee--Class C Shares | (15 | ) | ||||||||||
Reimbursement of other operating expenses | (279,313 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (438,508 | ) | ||||||||||
Net expenses | 183,439 | |||||||||||
Net investment income (loss) | (63,268 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (4,848,435 | ) | ||||||||||
Net change in unrealized appreciation of investments | 1,669,549 | |||||||||||
Net realized and unrealized loss on investments | (3,178,886 | ) | ||||||||||
Change in net assets resulting from operations | $ | (3,242,154 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (63,268 | ) | $ | (95,701 | ) | ||
Net realized loss on investments | (4,848,435 | ) | (815,534 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 1,669,549 | (274,204 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (3,242,154 | ) | (1,185,439 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (10,164 | ) | |||||
Class A Shares | - -- | (99,042 | ) | |||||
Class C Shares | - -- | (4,334 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (113,540 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 12,048,175 | 9,679,167 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 104,453 | ||||||
Cost of shares redeemed | (2,927,540 | ) | (1,875,638 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 9,120,635 | 7,907,982 | ||||||
Change in net assets | 5,878,481 | 6,609,003 | ||||||
Net Assets: | ||||||||
Beginning of period | 13,886,066 | 7,277,063 | ||||||
End of period | $ | 19,764,547 | $ | 13,886,066 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Mid Cap Growth Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Institutional Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Trustees.
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 1,227,634 | $ | 8,855,455 | 200,619 | $ | 2,563,412 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 266 | 3,799 | ||||||||||
Shares redeemed | (91,906 | ) | (694,574 | ) | (30,323 | ) | (384,900 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 1,135,728 | $ | 8,160,881 | 170,562 | $ | 2,182,311 | ||||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 321,930 | $ | 2,570,094 | 447,249 | $ | 6,047,252 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 6,900 | 98,193 | ||||||||||
Shares redeemed | (189,980 | ) | (1,614,766 | ) | (101,571 | ) | (1,283,471 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 131,950 | $ | 955,328 | 352,578 | $ | 4,861,974 | ||||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 79,421 | $ | 622,626 | 83,860 | $ | 1,068,503 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 176 | 2,461 | ||||||||||
Shares redeemed | (81,747 | ) | (618,200 | ) | (16,800 | ) | (207,267 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (2,326 | ) | $ | 4,426 | 67,236 | $ | 863,697 | |||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 1,265,352 | $ | 9,120,635 | 590,376 | $ | 7,907,982 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for net operating loss.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||
Paid-In Capital | | Undistributed Net Investment Income (Loss) |
$(63,268) | $63,268 |
Net investment income (loss), net realized gains (losses), and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $-- | $90,850 | ||
Long-term capital gains | $-- | $22,690 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | | $ | 1,728,023 | |
Capital loss carryforwards and deferrals | $ | (5,620,049 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $18,223,197. The net unrealized appreciation of investments for federal tax purposes was $1,728,023. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $1,947,833 and net unrealized depreciation from investments for those securities having an excess of cost over value of $219,810.
At July 31, 2009, the Fund had a capital loss carryforward of $3,411,837 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2016 | $ 80,433 | |
2017 | $3,331,404 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $2,208,212 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.90% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $114,006 of its fee and reimbursed $279,313 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | Average Aggregate Daily Net Assets of the Federated Funds | |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,874 of its fee. The net fee paid to FAS was 1.458% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | Percentage of Average Daily Net Assets of Class | |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FSC voluntarily waived $15 of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC did not retain any fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $182 in sales charges from the sale of Class A Shares. FSC also retained $109 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $235 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.25%, 1.50% and 2.25%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $300. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 909,461 | 10,777,263 | 11,127,285 | 559,439 | $559,439 | $4,476 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 43,882,168 |
Sales | $ | 35,093,011 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds, and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND
SHAREHOLDERS OF FEDERATED MDT MID CAP GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Mid Cap Growth Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Mid Cap Growth Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised 9 portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory Contract - May 2009
FEDERATED MDT MID CAP GROWTH FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
For the periods covered by the report, the Fund's performance for the three-year period was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and outperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Mid Cap Growth Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R874
Cusip 31421R866
37324 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Mid Cap
Growth Fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $12.18 | $13.10 | $10.69 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.03 | ) 3 | (0.07 | ) 3 | (0.05 | ) 3 | (0.07 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.92 | ) | (0.73 | ) | 2.77 | 0.76 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.95 | ) | (0.80 | ) | 2.72 | 0.69 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.12 | ) | (0.32 | ) | - -- | ||||||
Redemption fees | - -- | - -- | 0.01 | - -- | ||||||||
Net Asset Value, End of Period | $8.23 | $12.18 | $13.10 | $10.69 | ||||||||
Total Return 4 | (32.43 | )% | (6.22 | )% | 25.90 | % | 6.90 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.24 | % | 1.25 | % | 1.25 | % | 1.77 | % 5 | ||||
Net investment income (loss) | (0.42 | )% | (0.57 | )% | (0.45 | )% | (0.67 | )% 5 | ||||
Expense waiver/reimbursement 6 | 3.01 | % | 3.95 | % | 42.16 | % | 27.33 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $11,192 | $2,735 | $708 | $225 | ||||||||
Portfolio turnover | 270 | % | 216 | % | 141 | % | 201 | % |
1 MDT Mid Cap Growth Fund (the "Predecessor Fund") was reorganized into Federated MDT Mid Cap Growth Fund (the "Fund"), as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual | $1,000 | $1,091.50 | $6.43 | |||
Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,018.65 | $6.21 |
1 Expenses are equal to the Fund's annualized net expense ratio of 1.24%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period).
Management's Discussion of Fund Performance (unaudited)
The Fund's total return, based on net asset value, for the fiscal year ended July 31, 2009 was -32.43%. The total returns of the Russell Midcap ® Growth Index (Russell Midcap ® Growth) 1 and the Lipper Mid-Cap Growth Funds Index, 2 respectively, were -21.87% and -21.62% for the same period. The Fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell index.
1 The Russell Midcap® Growth measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12-month period ended July 31, 2009 domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, 3 which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 4 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000 ® Index 5 and the Russell Midcap ® Index, 6 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 8
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 Russell 3000 ® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
4 Russell Top 200 ® Index measures the performance of the 200 largest companies in the Russell 1000 ® Index, which represents approximately 65% of the total market capitalization of the Russell 1000 ® Index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
5 Russell 2000 ® Index measures the performance of the 2,000 smallest companies in the Russell 3000 ® Index, which represents approximately 10% of the total market capitalization of the Russell 3000 ® Index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
6 Russell Midcap ® Index measures the performance of the 800 smallest companies in the Russell 1000 ® Index, which represent approximately 35% of the total market capitalization of the Russell 1000 ® Index. The index is unmanaged and unlike the fund, not affected by cash flows. It is not possible to invest directly in an index.
7 Russell 3000 ® Growth Index measures the performance of those Russell 3000 ® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Growth or the Russell 2000 ® Growth indexes. The index is unmanaged and investments cannot be made in an index.
8 Russell 3000 ® Value Index measures the performance of those Russell 3000 ® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Value or the Russell 2000 ® Value indexes. The index is unmanaged and investments cannot be made in an index.
FUND PERFORMANCE
The most significant positive factor in the Fund's performance relative to the Russell Midcap ® Growth was stock selection in the Materials sector. Additionally, an underweight in the Energy sector provided a significant positive contribution to the Fund's performance. Individual stocks contributing to the Fund's performance relative to the Russell Midcap ® Growth Index included: Fiserv Incorporated, Mednax Incorporated, Waters Corporation and Scotts Company.
The most significant negative factor in the Fund's performance relative to the Russell Midcap ® Growth Index was stock selection in the Consumer Discretionary, Industrials and Consumer Staples sectors. Stock selection in Information Technology also detracted moderately. Individual stocks detracting from the Fund's performance relative to the Russell Midcap ® Growth included: SPX Corporation, Dish Network Corporation, Avon Products Incorporated and Amphenol Corporation.
GROWTH OF A $10,000 INVESTMENT - INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Mid Cap Growth Fund (Institutional Shares) (the "Fund") 2 from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell Midcap ® Growth Index (Russell Midcap ® Growth) 3 and the Lipper Mid-Cap Growth Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -32.43% | |
Start of Performance (9/15/2005) | - -4.02% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmmcgaris37327edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell Midcap ® Growth and Lipper Mid-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Mid Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Mid Cap Growth Fund.
3 The Russell Midcap ® Growth is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Undesignated Consumer Cyclicals | 10.0 | % | |
Software Packaged/Custom | 8.6 | % | |
Services to Medical Professionals | 6.7 | % | |
Financial Services | 5.5 | % | |
Medical Supplies | 5.0 | % | |
Soft Drinks | 4.3 | % | |
Computer Services | 3.7 | % | |
Defense Aerospace | 3.7 | % | |
Clothing Stores | 3.5 | % | |
Agricultural Chemicals | 3.3 | % | |
Auto Original Equipment Manufacturers | 3.3 | % | |
Generic Drugs | 3.2 | % | |
Mutual Fund Adviser | 3.1 | % | |
Plastic Containers | 3.0 | % | |
Cable TV | 2.9 | % | |
Packaged Foods | 2.9 | % | |
Commodity Chemicals | 2.7 | % | |
Defense Electronics | 2.6 | % | |
Ethical Drugs | 2.6 | % | |
Home Health Care | 2.1 | % | |
Metal Containers | 2.0 | % | |
Restaurant | 1.8 | % | |
Advertising | 1.6 | % | |
Medical Technology | 1.3 | % | |
Other 2 | 8.7 | % | |
Cash Equivalents 3 | 2.8 | % | |
Other Assets and Liabilities - Net 4 | (0.9 | )% | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | ||||
COMMON STOCKS--98.1% | |||||||
Advertising--1.6% | |||||||
9,219 | Omnicom Group, Inc. | $ | 313,446 | ||||
Agricultural Chemicals--3.3% | |||||||
16,688 | Scotts Co. | 651,666 | |||||
Auto Original Equipment Manufacturers--3.3% | |||||||
4,307 | 1 | AutoZone, Inc. | 661,426 | ||||
Biotechnology--0.9% | |||||||
1,310 | 1 | Hospira, Inc. | 50,343 | ||||
2,482 | 1 | Waters Corp. | 124,720 | ||||
TOTAL | 175,063 | ||||||
Cable TV - 2.9% | |||||||
34,197 | 1 | DISH Network Corp., Class A | 579,639 | ||||
Clothing Stores--3.5% | |||||||
1,630 | 1 | Aeropostale, Inc. | 59,332 | ||||
14,552 | 1 | Hanesbrands, Inc. | 289,585 | ||||
13,406 | Limited Brands, Inc. | 173,474 | |||||
3,756 | Ross Stores, Inc. | 165,602 | |||||
TOTAL | 687,993 | ||||||
Commodity Chemicals--2.7% | |||||||
21,147 | Celanese Corp. | 543,478 | |||||
Computer Services--3.7% | |||||||
2,917 | 1 | Affiliated Computer Services, Inc., Class A | 138,295 | ||||
10,913 | 1 | Fiserv, Inc. | 517,385 | ||||
1,743 | 1 | Salesforce.com, Inc. | 75,542 | ||||
TOTAL | 731,222 | ||||||
Computer Stores--0.2% | |||||||
1,401 | 1 | GameStop Corp. | 30,668 | ||||
Cosmetics & Toiletries--0.4% | |||||||
2,284 | International Flavors & Fragrances, Inc. | 80,534 | |||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Crude Oil & Gas Production--0.0% | |||||||
52 | 1 | Southwestern Energy Co. | $ | 2,154 | |||
Defense Aerospace--3.7% | |||||||
9,114 | 1 | Alliant Techsystems, Inc. | 717,454 | ||||
640 | 1 | TransDigm Group, Inc. | 24,506 | ||||
TOTAL | 741,960 | ||||||
Defense Electronics--2.6% | |||||||
6,724 | L-3 Communications Holdings, Inc. | 507,662 | |||||
Department Stores--0.6% | |||||||
2,369 | 1 | Kohl's Corp. | 115,015 | ||||
Discount Department Stores--0.5% | |||||||
577 | 1 | Dollar Tree, Inc. | 26,611 | ||||
2,160 | TJX Cos., Inc. | 78,257 | |||||
TOTAL | 104,868 | ||||||
Electronic Instruments--0.1% | |||||||
404 | 1 | Dolby Laboratories, Class A | 16,819 | ||||
Ethical Drugs--2.6% | |||||||
1,597 | 1 | Sepracor, Inc. | 27,708 | ||||
18,862 | 1 | Valeant Pharmaceuticals International | 486,640 | ||||
TOTAL | 514,348 | ||||||
Financial Services--5.5% | |||||||
4,542 | Equifax, Inc. | 118,319 | |||||
4,985 | 1 | InterContinentalExchange, Inc. | 468,889 | ||||
17,762 | Moody's Corp. | 421,670 | |||||
5,555 | Total System Services, Inc. | 81,547 | |||||
TOTAL | 1,090,425 | ||||||
Generic Drugs--3.2% | |||||||
48,003 | 1 | Mylan Laboratories, Inc. | 633,160 | ||||
Home Health Care--2.1% | |||||||
15,814 | 1 | Lincare Holdings, Inc. | 414,011 | ||||
Home Products--0.3% | |||||||
1,508 | Tupperware Brands Corp. | 51,378 | |||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Hospitals--0.3% | |||||||
8,741 | 1 | Health Management Association, Class A | $ | 52,708 | |||
Insurance Brokerage--0.6% | |||||||
5,305 | Gallagher (Arthur J.) & Co. | 121,484 | |||||
Internet Services--0.6% | |||||||
2,615 | 1 | NetFlix, Inc. | 114,903 | ||||
57 | 1 | Priceline.com, Inc. | 7,388 | ||||
TOTAL | 122,291 | ||||||
Magazine Publishing--0.3% | |||||||
1,735 | McGraw-Hill Cos., Inc. | 54,392 | |||||
Medical Supplies--5.0% | |||||||
11,078 | AmerisourceBergen Corp. | 218,458 | |||||
15,539 | 1 | Hologic, Inc. | 228,268 | ||||
17,409 | 1 | Kinetic Concepts, Inc. | 550,473 | ||||
TOTAL | 997,199 | ||||||
Medical Technology--1.3% | |||||||
1,919 | 1 | Mettler-Toledo International, Inc. | 161,311 | ||||
1,266 | 1 | Millipore Corp. | 88,114 | ||||
TOTAL | 249,425 | ||||||
Metal Containers--2.0% | |||||||
7,195 | Ball Corp. | 347,950 | |||||
2,276 | 1 | Crown Holdings, Inc. | 57,128 | ||||
TOTAL | 405,078 | ||||||
Miscellaneous Communications--0.4% | |||||||
18,699 | Qwest Communications International, Inc. | 72,178 | |||||
Miscellaneous Machinery--0.8% | |||||||
3,415 | Nordson Corp. | 153,334 | |||||
Multi-Industry Transportation--0.2% | |||||||
1,355 | Brinks Co. (The) | 36,788 | |||||
Mutual Fund Adviser--3.1% | |||||||
8,508 | 1 | Affiliated Managers Group | 561,698 | ||||
2,056 | Waddell & Reed Financial, Inc., Class A | 58,329 | |||||
TOTAL | 620,027 | ||||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Outpatient Clinics--0.4% | |||||||
1,476 | 1 | DaVita, Inc. | $ | 73,357 | |||
Packaged Foods--2.9% | |||||||
4,912 | Campbell Soup Co. | 152,419 | |||||
10,590 | Hershey Foods Corp. | 423,070 | |||||
TOTAL | 575,489 | ||||||
Plastic Containers--3.0% | |||||||
23,203 | 1 | Pactiv Corp. | 584,252 | ||||
Restaurant--1.8% | |||||||
1,152 | Brinker International, Inc. | 19,169 | |||||
3,702 | Darden Restaurants, Inc. | 119,908 | |||||
2,993 | 1 | Green Mountain Coffee, Inc. | 210,827 | ||||
TOTAL | 349,904 | ||||||
Securities Brokerage--0.8% | |||||||
8,905 | 1 | TD Ameritrade Holding Corp. | 165,099 | ||||
Semiconductor Manufacturing--0.3% | |||||||
3,418 | National Semiconductor Corp. | 51,475 | |||||
Services to Medical Professionals--6.7% | |||||||
12,869 | MEDNAX, Inc. | 596,478 | |||||
13,415 | Quest Diagnostics, Inc. | 732,727 | |||||
TOTAL | 1,329,205 | ||||||
Soft Drinks--4.3% | |||||||
42,247 | Coca-Cola Enterprises, Inc. | 793,821 | |||||
1,820 | 1 | Hansen Natural Corp. | 56,438 | ||||
TOTAL | 850,259 | ||||||
Software Packaged/Custom--8.6% | |||||||
38,151 | CA, Inc. | 806,512 | |||||
1,097 | 1 | DST Systems, Inc. | 48,630 | ||||
5,607 | 1 | McAfee, Inc. | 249,960 | ||||
2,289 | 1 | Red Hat, Inc. | 52,258 | ||||
21,086 | Rovi Corp. | 551,610 | |||||
TOTAL | 1,708,970 | ||||||
Shares | | | Value | ||||
COMMON STOCKS--continued | |||||||
Specialty Retailing--0.8% | |||||||
3,191 | Advance Auto Parts, Inc. | $ | 147,520 | ||||
882 | 1 | Big Lots, Inc. | 20,321 | ||||
TOTAL | 167,841 | ||||||
Toys & Games--0.2% | |||||||
851 | 1 | Marvel Entertainment, Inc. | 33,666 | ||||
Undesignated Consumer Cyclicals--10.0% | |||||||
2,838 | 1 | Apollo Group, Inc., Class A | 195,935 | ||||
1,005 | DeVRY, Inc. | 49,989 | |||||
1,807 | 1 | FTI Consulting, Inc. | 98,355 | ||||
9,944 | Herbalife Ltd. | 342,173 | |||||
3,709 | 1 | ITT Educational Services, Inc. | 361,071 | ||||
26,000 | 1 | Iron Mountain, Inc. | 759,460 | ||||
449 | Strayer Education, Inc. | 95,359 | |||||
2,442 | 1 | Weight Watchers International, Inc. | 68,083 | ||||
TOTAL | 1,970,425 | ||||||
TOTAL COMMON STOCKS (IDENTIFIED COST $17,612,276) | 19,391,781 | ||||||
MUTUAL FUND--2.8% | |||||||
559,439 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 559,439 | ||||
TOTAL INVESTMENTS -- 100.9% (IDENTIFIED COST $18,171,715) 4 | 19,951,220 | ||||||
OTHER ASSETS AND LIABILITIES - NET--(0.9)% 5 | (186,673 | ) | |||||
TOTAL NET ASSETS--100% | $ | 19,764,547 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $18,223,197.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | | | | | ||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | Level 3-- Significant Unobservable Inputs | | Total | ||
Equity Securities: | ||||||||
Domestic | $19,049,608 | $-- | $-- | $19,049,608 | ||||
International | 342,173 | - -- | - -- | 342,173 | ||||
Mutual Fund | 559,439 | - -- | - -- | 559,439 | ||||
TOTAL SECURITIES | $19,951,220 | $-- | $-- | $19,951,220 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $559,439 of investments in an affiliated issuer (Note 5) (identified cost $18,171,715) | $ | 19,951,220 | |||||
Income receivable | 4,187 | ||||||
Receivable for investments sold | 676,591 | ||||||
Receivable for shares sold | 44,263 | ||||||
TOTAL ASSETS | 20,676,261 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 829,665 | |||||
Payable for shares redeemed | 25,113 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for distribution services fee (Note 5) | 346 | ||||||
Payable for shareholder services fee (Note 5) | 4,645 | ||||||
Accrued expenses | 29,445 | ||||||
TOTAL LIABILITIES | 911,714 | ||||||
Net assets for 2,413,437 shares outstanding | $ | 19,764,547 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 23,656,573 | |||||
Net unrealized appreciation of investments | 1,779,505 | ||||||
Accumulated net realized loss on investments | (5,671,531 | ) | |||||
TOTAL NET ASSETS | $ | 19,764,547 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($11,191,997 ÷ 1,360,343 shares outstanding), no par value, unlimited shares authorized | $8.23 | ||||||
Offering price per share | $8.23 | ||||||
Redemption proceeds per share | $8.23 | ||||||
Class A Shares: | |||||||
Net asset value per share ($7,982,412 ÷ 978,600 shares outstanding), no par value, unlimited shares authorized | $8.16 | ||||||
Offering price per share (100/94.50 of $8.16) | $8.63 | ||||||
Redemption proceeds per share | $8.16 | ||||||
Class C Shares: | |||||||
Net asset value per share ($590,138 ÷ 74,494 shares outstanding), no par value, unlimited shares authorized | $7.92 | ||||||
Offering price per share | $7.92 | ||||||
Redemption proceeds per share (99.00/100 of $7.92) | $7.84 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $4,476 received from an affiliated issuer) (Note 5) | $ | 120,171 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 114,306 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 19,801 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 62,636 | |||||||||||
Directors'/Trustees' fees | 1,329 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 2,212 | |||||||||||
Portfolio accounting fees | 69,566 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 5,353 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 18,584 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 1,784 | |||||||||||
Share registration costs | 36,895 | |||||||||||
Printing and postage | 29,735 | |||||||||||
Insurance premiums | 4,369 | |||||||||||
Miscellaneous | 2,877 | |||||||||||
TOTAL EXPENSES | 621,947 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (114,306 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,874 | ) | ||||||||||
Waiver of distribution services fee--Class C Shares | (15 | ) | ||||||||||
Reimbursement of other operating expenses | (279,313 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (438,508 | ) | ||||||||||
Net expenses | 183,439 | |||||||||||
Net investment income (loss) | (63,268 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (4,848,435 | ) | ||||||||||
Net change in unrealized appreciation of investments | 1,669,549 | |||||||||||
Net realized and unrealized loss on investments | (3,178,886 | ) | ||||||||||
Change in net assets resulting from operations | $ | (3,242,154 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (63,268 | ) | $ | (95,701 | ) | ||
Net realized loss on investments | (4,848,435 | ) | (815,534 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 1,669,549 | (274,204 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (3,242,154 | ) | (1,185,439 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (10,164 | ) | |||||
Class A Shares | - -- | (99,042 | ) | |||||
Class C Shares | - -- | (4,334 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (113,540 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 12,048,175 | 9,679,167 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 104,453 | ||||||
Cost of shares redeemed | (2,927,540 | ) | (1,875,638 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 9,120,635 | 7,907,982 | ||||||
Change in net assets | 5,878,481 | 6,609,003 | ||||||
Net Assets: | ||||||||
Beginning of period | 13,886,066 | 7,277,063 | ||||||
End of period | $ | 19,764,547 | $ | 13,886,066 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Mid Cap Growth Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Class A Shares and Class C Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Trustees.
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 1,227,634 | $ | 8,855,455 | 200,619 | $ | 2,563,412 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 266 | 3,799 | ||||||||||
Shares redeemed | (91,906 | ) | (694,574 | ) | (30,323 | ) | (384,900 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 1,135,728 | $ | 8,160,881 | 170,562 | $ | 2,182,311 | ||||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 321,930 | $ | 2,570,094 | 447,249 | $ | 6,047,252 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 6,900 | 98,193 | ||||||||||
Shares redeemed | (189,980 | ) | (1,614,766 | ) | (101,571 | ) | (1,283,471 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 131,950 | $ | 955,328 | 352,578 | $ | 4,861,974 | ||||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 79,421 | $ | 622,626 | 83,860 | $ | 1,068,503 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 176 | 2,461 | ||||||||||
Shares redeemed | (81,747 | ) | (618,200 | ) | (16,800 | ) | (207,267 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (2,326 | ) | $ | 4,426 | 67,236 | $ | 863,697 | |||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 1,265,352 | $ | 9,120,635 | 590,376 | $ | 7,907,982 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for net operating loss.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||
Paid-In Capital | | Undistributed Net Investment Income (Loss) |
$(63,268) | $63,268 |
Net investment income (loss), net realized gains (losses), and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $-- | $90,850 | ||
Long-term capital gains | $-- | $22,690 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | | $ | 1,728,023 | |
Capital loss carryforwards and deferrals | $ | (5,620,049 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $18,223,197. The net unrealized appreciation of investments for federal tax purposes was $1,728,023. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $1,947,833 and net unrealized depreciation from investments for those securities having an excess of cost over value of $219,810.
At July 31, 2009, the Fund had a capital loss carryforward of $3,411,837 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2016 | $ 80,433 | |
2017 | $3,331,404 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $2,208,212 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.90% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $114,006 of its fee and reimbursed $279,313 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | Average Aggregate Daily Net Assets of the Federated Funds | |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,874 of its fee. The net fee paid to FAS was 1.458% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | Percentage of Average Daily Net Assets of Class | |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FSC voluntarily waived $15 of its fee. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC did not retain any fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $182 in sales charges from the sale of Class A Shares. FSC also retained $109 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $235 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.25%, 1.50% and 2.25%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $300. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 909,461 | 10,777,263 | 11,127,285 | 559,439 | $559,439 | $4,476 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 43,882,168 |
Sales | $ | 35,093,011 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds, and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND
SHAREHOLDERS OF FEDERATED MDT MID CAP GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Mid Cap Growth Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Mid Cap Growth Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised 9 portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee and Chairman of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory Contract - May 2009
FEDERATED MDT MID CAP GROWTH FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
For the periods covered by the report, the Fund's performance for the three-year period was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and outperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Mid CapGrowth Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R858
37327 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Small Cap Core Fund
Established 2005
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class C Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.21 | $13.22 | $11.11 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.04 | ) 3 | (0.08 | ) 3 | (0.10 | ) 3 | (0.13 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.59 | ) | (2.22 | ) | 2.21 | 1.24 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.63 | ) | (2.30 | ) | 2.11 | 1.11 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.71 | ) | - -- | - -- | |||||||
Net Asset Value, End of Period | $ 6.58 | $10.21 | $13.22 | $11.11 | ||||||||
Total Return 4 | (35.55 | )% | (18.09 | )% | 18.99 | % | 11.10 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.74 | % | 1.75 | % | 1.75 | % | 2.01 | % 5 | ||||
Net investment income (loss) | (0.53 | )% | (0.68 | )% | (0.77 | )% | (1.16 | )% 5 | ||||
Expense waiver/reimbursement 6 | 5.73 | % | 3.85 | % | 7.96 | % | 9.41 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $1,652 | $2,623 | $2,414 | $324 | ||||||||
Portfolio turnover | 222 | % | 243 | % | 237 | % | 209 | % |
1 The MDT Small Cap Core Fund (the "Predecessor Fund") was reorganized into Federated MDT Small Cap Core Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $9.99 | $13.04 | $11.05 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.08 | ) 3 | (0.16 | ) 3 | (0.19 | ) 3 | (0.23 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.52 | ) | (2.18 | ) | 2.18 | 1.28 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.60 | ) | (2.34 | ) | 1.99 | 1.05 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.71 | ) | - -- | - -- | |||||||
Net Asset Value, End of Period | $6.39 | $ 9.99 | $13.04 | $11.05 | ||||||||
Total Return 4 | (36.04 | )% | (18.66 | )% | 18.01 | % | 10.50 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 2.49 | % | 2.46 | % | 2.50 | % | 2.76 | % 5 | ||||
Net investment income (loss) | (1.29 | )% | (1.40 | )% | (1.52 | )% | (1.91 | )% 5 | ||||
Expense waiver/reimbursement 6 | 5.61 | % | 3.90 | % | 8.63 | % | 9.41 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $1,366 | $2,759 | $3,299 | $1,505 | ||||||||
Portfolio turnover | 222 | % | 243 | % | 237 | % | 209 | % |
1 The Predecessor Fund was reorganized into the Fund as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual: | ||||||
Class A Shares | $1,000 | $1,142.40 | $ 9.24 | |||
Class C Shares | $1,000 | $ 1,137.00 | $13.19 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $1,016.17 | $ 8.70 | |||
Class C Shares | $1,000 | $1,012.45 | $12.42 |
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
Class A Shares | | 1.74% |
Class C Shares | 2.49% |
Management's Discussion of Fund Performance (unaudited)
The fund's total return for the fiscal year ended July 31, 2009 was -35.55% for Class A Shares and -36.04% for Class C Shares based on net asset value. The total returns of the Russell 2000 ® Index 1 and the Lipper Small-Cap Core Funds Index 2 were -20.72% and -18.60%, respectively, for the same reporting period. The fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell Index.
The following discussion will focus on the performance of the fund's Class A Shares.
1 The Russell 2000 ® Index measures the performance of the 2,000 smallest companies in the Russell 3000 ® Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The index is unmanaged and investments cannot be made directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12- month reporting period ending July 31, 2009 domestic equity markets performed poorly, in response to a material decline in global economic conditions. The Russell 3000 ® Index, 3 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 4 which exceeded the return of mid- and small-cap stocks 5 as evidenced by the -20.72% and -22.23% results for the Russell 2000 ® and the Russell Midcap ® Indexes, 6 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 8
The best performing sectors in the Russell 2000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 The Russell 3000 ® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged and investments cannot be made directly in an index.
4 The Russell Top 200 ® Index measures the performance of the 200 largest companies in the Russell 1000 ® Index, which represents approximately 69% of the total market capitalization of the Russell 1000 Index. The index is unmanaged and investments cannot be made directly in an index.
5 Small-company stocks may be less liquid and subject to greater price volatility than large-capitalization stocks.
6 The Russell Midcap Index ® measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 ® Index. The index is unmanaged and investments cannot be made directly in an index.
7 The Russell 3000 ® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Growth or the Russell 2000 ® Growth indexes. The index is unmanaged and investments cannot be made directly in an index.
8 The Russell 3000 ® Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Value or the Russell 2000 ® Value indexes. The index is unmanaged and investments cannot be made directly in an index.
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 2000 ® Index was stock selection in the Telecomm Services, Utilities and Consumer Staples sectors. Individual stocks contributing to the fund's performance relative to the Russell 2000 ® Index included: Green Mountain Coffee Roasters, Rock-Tenn Company, Jarden Corporation and Cathay Bancorp Incorporated.
The most significant negative factor in the fund's performance relative to the Russell 2000 ® Index was stock selection in the Consumer Discretionary, Health Care and Industrials sectors. Stock selection in the Information Technology and Materials sectors detracted more moderately. Additionally, an underweight in the Information Technology sector detracted from the fund's performance moderately. Individual stocks detracting from the fund's performance relative to the Russell 2000 ® Index included: Schnitzer Steel Industries Incorporated, Complete Production, Robbins & Myers Incorporated and Warnaco Group Incorporated.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Small Cap Core Fund 2 (Class A Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000 ® Index 3 and the Lipper Small-Cap Core Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -39.07% | |
Start of Performance (9/15/2005) | - -10.18% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmsccarac37328edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50%.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 ® Index and the Lipper Small-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Core Fund pursuant to a reorganization that took place on December 6, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Core Fund.
3 The Russell 2000 ® Index is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
GROWTH OF A $10,000 INVESTMENT - CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Small Cap Core Fund 2 (Class C Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000 ® Index 3 and the Lipper Small-Cap Core Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -36.68% | |
Start of Performance (9/15/2005) | - -9.52% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmsccarac37328edg2.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 ® Index and the Lipper Small-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Core Fund pursuant to a reorganization that took place on December 6, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Core Fund.
3 The Russell 2000 ® Index is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets |
Clothing Stores | 6.8% | |
Restaurant | 6.8% | |
Undesignated Consumer Cyclicals | 5.0% | |
Computer Services | 4.1% | |
Financial Services | 3.6% | |
Semiconductor Manufacturing | 3.4% | |
Electric Utility | 3.1% | |
Home Health Care | 3.1% | |
Property Liability Insurance | 3.1% | |
Commodity Chemicals | 2.8% | |
Paper Products | 2.8% | |
Home Products | 2.6% | |
Services to Medical Professionals | 2.6% | |
Ethical Drugs | 2.3% | |
Miscellaneous Components | 2.2% | |
Technology | 2.2% | |
Apparel | 2.1% | |
Packaged Foods | 2.1% | |
Regional Bank | 2.1% | |
Specialty Chemicals | 1.8% | |
Multi-Line Insurance | 1.7% | |
Other Communications Equipment | 1.5% | |
Computer Networking | 1.4% | |
Miscellaneous Machinery | 1.4% | |
Grocery Chain | 1.3% | |
Medical Supplies | 1.3% | |
Electrical Equipment | 1.2% | |
Industry Composition | | Percentage of Total Net Assets |
Multi-Industry Basic | 1.2% | |
Telecommunication Equipment & Services | 1.2% | |
Hotels and Motels | 1.1% | |
Furniture | 1.0% | |
Toys & Games | 1.0% | |
Other 2 | 19.8% | |
Cash Equivalents 3,4 | 0.0% | |
Other Assets and Liabilities - Net 5 | 0.3% | |
TOTAL | 100.0% |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the adviser assigns a classification to securities not classified by the GICS and to securities for which the adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Represents less than 0.1%.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--99.7% | ||||||
Airline - National--0.4% | ||||||
1,428 | Aircastle Ltd. | $ | 10,367 | |||
614 | 1 | Atlas Air Worldwide Holdings, Inc. | 15,325 | |||
TOTAL | 25,692 | |||||
Apparel--2.1% | ||||||
2,713 | 1 | Carter's, Inc. | 76,886 | |||
1,792 | Jones Apparel Group, Inc. | 24,658 | ||||
927 | 1 | Warnaco Group, Inc. | 33,678 | |||
TOTAL | 135,222 | |||||
Auto Rentals--0.1% | ||||||
223 | 1 | Dollar Thrifty Automotive Group | 3,691 | |||
Biotechnology--0.5% | ||||||
267 | 1 | Air Methods Corp. | 7,852 | |||
1,086 | 1 | BioCryst Pharmaceuticals, Inc. | 9,991 | |||
483 | 1 | Martek Biosciences Corp. | 11,235 | |||
TOTAL | 29,078 | |||||
Building Materials--0.5% | ||||||
644 | Universal Forest Products, Inc. | 28,748 | ||||
Clothing Stores--6.8% | ||||||
3,159 | Buckle, Inc. | 97,739 | ||||
1,287 | Cato Corp., Class A | 25,586 | ||||
1,520 | 1 | Children's Place Retail Stores, Inc. | 49,810 | |||
1,268 | 1 | Citi Trends, Inc. | 37,026 | |||
1,082 | 1 | Fossil, Inc. | 28,500 | |||
1,377 | 1 | Gymboree Corp. | 54,777 | |||
1,979 | 1 | J. Crew Group, Inc. | 55,729 | |||
1,119 | 1 | Jos A. Bank Clothiers, Inc. | 40,944 | |||
1,972 | Mens Wearhouse, Inc. | 42,615 | ||||
TOTAL | 432,726 | |||||
Commercial Services--0.7% | ||||||
1,105 | 1 | VistaPrint Ltd. | 45,581 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Commodity Chemicals--2.8% | ||||||
1,499 | Compass Minerals International, Inc. | $ | 79,732 | |||
579 | Innophos Holdings, Inc. | 10,874 | ||||
1,136 | Newmarket Corp. | 85,938 | ||||
45 | Stepan Co. | 2,015 | ||||
TOTAL | 178,559 | |||||
Computer Networking--1.4% | ||||||
696 | Black Box Corp. | 19,119 | ||||
2,882 | 1 | Starent Networks Corp. | 69,110 | |||
TOTAL | 88,229 | |||||
Computer Peripherals--0.7% | ||||||
1,809 | 1 | Synaptics, Inc. | 43,362 | |||
Computer Services--4.1% | ||||||
6,308 | Fair Isaac & Co., Inc. | 121,051 | ||||
1,606 | 1 | Riverbed Technology, Inc. | 32,136 | |||
1,222 | 1 | Synnex Corp. | 34,729 | |||
1,833 | Syntel, Inc. | 72,550 | ||||
TOTAL | 260,466 | |||||
Construction Machinery--0.3% | ||||||
891 | 1 | Orion Marine Group, Inc. | 19,923 | |||
Contracting--0.1% | ||||||
153 | 1 | Baker Michael Corp. | 6,525 | |||
Cosmetics & Toiletries--0.7% | ||||||
1,724 | 1 | Bare Escentuals, Inc. | 15,275 | |||
1,198 | 1 | Helen of Troy Ltd. | 26,057 | |||
TOTAL | 41,332 | |||||
Crude Oil & Gas Production--0.4% | ||||||
516 | 1 | Arena Resources, Inc. | 16,837 | |||
8 | 1 | Tetra Technologies, Inc. | 62 | |||
841 | W&T Offshore, Inc. | 8,990 | ||||
TOTAL | 25,889 | |||||
Defense Aerospace--0.8% | ||||||
1,195 | 1 | AAR Corp. | 22,860 | |||
71 | 1 | MOOG, Inc., Class A | 1,914 | |||
569 | Triumph Group, Inc. | 22,726 | ||||
TOTAL | 47,500 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Discount Department Stores--0.2% | ||||||
730 | 1 | 99 Cents Only Stores | $ | 10,695 | ||
Diversified Leisure--0.5% | ||||||
552 | 1 | Life Time Fitness, Inc. | 14,048 | |||
1,714 | 1 | Pinnacle Entertainment, Inc. | 17,191 | |||
TOTAL | 31,239 | |||||
Electric Utility--3.1% | ||||||
1,539 | Avista Corp. | 28,502 | ||||
1,734 | 1 | El Paso Electric Co. | 26,201 | |||
700 | Idacorp, Inc. | 19,404 | ||||
1,034 | PNM Resources, Inc. | 12,615 | ||||
4,033 | UniSource Energy Corp. | 111,311 | ||||
TOTAL | 198,033 | |||||
Electrical Equipment--1.2% | ||||||
2,447 | Brady (W.H.) Co. | 71,966 | ||||
82 | 1 | Littelfuse, Inc. | 1,919 | |||
TOTAL | 73,885 | |||||
Electrical Test/Measuring Equipment--0.3% | ||||||
562 | Badger Meter, Inc. | 20,710 | ||||
Electronic & Electrical Original Equipment Manufacturers--0.7% | ||||||
1,153 | Cubic Corp. | 45,151 | ||||
Electronic Components--0.2% | ||||||
575 | 1 | Volterra Semiconductor Corp. | 9,539 | |||
Electronic Instruments--0.9% | ||||||
1,729 | 1 | Cymer, Inc. | 59,149 | |||
Ethical Drugs--2.3% | ||||||
524 | 1 | Matrixx Initiatives, Inc. | 2,955 | |||
5,526 | 1 | Valeant Pharmaceuticals International | 142,571 | |||
TOTAL | 145,526 | |||||
Financial Services--3.6% | ||||||
1,402 | 1 | America's Car-Mart, Inc. | 30,662 | |||
8,073 | Deluxe Corp. | 126,342 | ||||
2,772 | 1 | Global Cash Access LLC | 24,948 | |||
864 | 1 | Nelnet, Inc., Class A | 12,347 | |||
2,007 | 1 | PHH Corp. | 36,788 | |||
TOTAL | 231,087 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Food Wholesaling--0.3% | ||||||
1,298 | 1 | Winn-Dixie Stores, Inc. | $ | 18,393 | ||
Furniture--1.0% | ||||||
364 | Aaron's, Inc. | 9,999 | ||||
1,298 | La-Z Boy Chair Co. | 8,787 | ||||
2,893 | Tempur-Pedic International, Inc. | 42,903 | ||||
TOTAL | 61,689 | |||||
Gas Distributor--0.3% | ||||||
483 | WGL Holdings, Inc. | 15,997 | ||||
Generic Drugs--0.3% | ||||||
366 | 1 | Hi-Tech Pharmacal Co., Inc. | 5,728 | |||
986 | 1 | Par Pharmaceutical Cos., Inc. | 15,983 | |||
TOTAL | 21,711 | |||||
Grocery Chain--1.3% | ||||||
1,204 | Casey's General Stores, Inc. | 33,026 | ||||
1,126 | Ruddick Corp. | 26,461 | ||||
760 | Weis Markets, Inc. | 25,133 | ||||
TOTAL | 84,620 | |||||
Home Health Care--3.1% | ||||||
202 | 1 | Amedisys, Inc. | 9,031 | |||
1,744 | 1 | Amerigroup Corp. | 43,042 | |||
1,052 | 1 | Gentiva Health Services, Inc. | 22,387 | |||
3,130 | 1 | LHC Group, Inc. | 91,866 | |||
2,034 | 1 | Odyssey Healthcare, Inc. | 23,696 | |||
419 | 1 | Wellcare Health Plans, Inc. | 9,327 | |||
TOTAL | 199,349 | |||||
Home Products--2.6% | ||||||
1,030 | 1 | Central Garden & Pet Co., Class A | 11,629 | |||
4,580 | Tupperware Brands Corp. | 156,041 | ||||
TOTAL | 167,670 | |||||
Hotels and Motels--1.1% | ||||||
3,805 | Ameristar Casinos, Inc. | 71,115 | ||||
Industrial Machinery--0.3% | ||||||
1,357 | 1 | Columbus McKinnon Corp. | 19,636 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Industrial Services--0.2% | ||||||
312 | 1 | ATC Technology Corp. | $ | 6,527 | ||
189 | 1 | EnerNOC, Inc. | 5,799 | |||
TOTAL | 12,326 | |||||
Insurance Brokerage--0.5% | ||||||
1,077 | AmTrust Financial Services, Inc. | 13,161 | ||||
790 | Life Partners Holdings, Inc. | 17,048 | ||||
TOTAL | 30,209 | |||||
Internet Services--0.5% | ||||||
284 | 1 | Blue Nile, Inc. | 13,129 | |||
2,191 | 1 | EarthLink Network, Inc. | 18,514 | |||
TOTAL | 31,643 | |||||
Leasing--0.1% | ||||||
356 | Financial Federal Corp. | 7,220 | ||||
Life Insurance--0.2% | ||||||
712 | American Equity Investment Life Holding Co. | 5,155 | ||||
914 | 1 | Universal American Financial Corp. | 8,317 | |||
TOTAL | 13,472 | |||||
Long-Term Care Centers--0.1% | ||||||
342 | Assisted Living Concepts, Inc. | 4,925 | ||||
Machined Parts Original Equipment Manufacturers--0.0% | ||||||
366 | Titan International, Inc. | 2,723 | ||||
Maritime--0.1% | ||||||
467 | Ship Finance International Ltd. | 5,758 | ||||
Medical Supplies--1.3% | ||||||
581 | 1 | Align Technology, Inc. | 6,339 | |||
4,293 | 1 | American Medical Systems Holdings, Inc. | 65,640 | |||
236 | 1 | NuVasive, Inc. | 9,768 | |||
TOTAL | 81,747 | |||||
Medical Technology--0.1% | ||||||
401 | 1 | Ev3, Inc. | 4,920 | |||
150 | 1 | Thoratec Laboratories Corp. | 3,771 | |||
TOTAL | 8,691 | |||||
Metal Distribution--0.2% | ||||||
1,011 | Castle (A.M.) & Co. | 10,666 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Metal Fabrication--0.3% | ||||||
920 | CIRCOR International, Inc. | $ | 21,215 | |||
Miscellaneous Communications--0.2% | ||||||
1,211 | Harte-Hanks | 13,103 | ||||
Miscellaneous Components--2.2% | ||||||
1,498 | 1 | Amkor Technology, Inc. | 9,377 | |||
1,757 | 1 | Applied Micro Circuits Corp. | 15,198 | |||
4,037 | 1 | Atheros Communications | 100,925 | |||
334 | 1 | MKS Instruments, Inc. | 6,470 | |||
539 | 1 | Zoran Corp. | 6,209 | |||
TOTAL | 138,179 | |||||
Miscellaneous Food Products--0.6% | ||||||
534 | 1 | Fresh Del Monte Produce, Inc. | 11,433 | |||
753 | The Anderson's, Inc. | 24,262 | ||||
TOTAL | 35,695 | |||||
Miscellaneous Machinery--1.4% | ||||||
1,939 | Nordson Corp. | 87,061 | ||||
Miscellaneous Metals--0.1% | ||||||
622 | 1 | Stillwater Mining Co. | 4,161 | |||
Multi-Industry Basic--1.2% | ||||||
5,574 | Olin Corp. | 76,865 | ||||
Multi-Line Insurance--1.7% | ||||||
486 | 1 | Amerisafe, Inc. | 8,082 | |||
142 | 1 | FPIC Insurance Group, Inc. | 4,878 | |||
235 | Harleysville Group, Inc. | 7,290 | ||||
1,450 | Infinity Property & Casualty | 60,233 | ||||
298 | 1 | Navigators Group, Inc. | 14,694 | |||
323 | Safety Insurance Group, Inc. | 10,420 | ||||
TOTAL | 105,597 | |||||
Mutual Fund Adviser--0.2% | ||||||
797 | Calamos Asset Management, Inc. | 10,967 | ||||
Newspaper Publishing--0.0% | ||||||
75 | Belo (A.H.) Corp., Series A | 215 | ||||
Offshore Driller--0.0% | ||||||
7 | 1 | Hornbeck Offshore Services, Inc. | 152 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Oil Service, Explore & Drill--0.4% | ||||||
264 | 1 | Dawson Geophysical Co. | $ | 8,028 | ||
1,635 | 1 | Venoco, Inc. | 14,453 | |||
TOTAL | 22,481 | |||||
Oil Well Supply--0.3% | ||||||
736 | 1 | Oil States International, Inc. | 19,960 | |||
Other Communications Equipment--1.5% | ||||||
7,964 | 1 | Skyworks Solutions, Inc. | 96,205 | |||
Other Tobacco Products--0.5% | ||||||
964 | Schweitzer-Mauduit International, Inc. | 31,523 | ||||
Packaged Foods--2.1% | ||||||
2,292 | 1 | Chiquita Brands International | 28,077 | |||
2,341 | Lancaster Colony Corp. | 106,609 | ||||
TOTAL | 134,686 | |||||
Paper Products--2.8% | ||||||
89 | 1 | Buckeye Technologies, Inc. | 565 | |||
1,295 | Glatfelter (P.H.) Co. | 13,403 | ||||
3,678 | Rock-Tenn Co. | 165,363 | ||||
TOTAL | 179,331 | |||||
Personal Loans--0.2% | ||||||
598 | 1 | World Acceptance Corp. | 14,185 | |||
Plastic--0.1% | ||||||
648 | Spartech Corp. | 8,100 | ||||
Plastic Containers--0.4% | ||||||
1,500 | 1 | Bway Holding Co. | 23,925 | |||
Pollution Control--0.1% | ||||||
209 | 1 | Tetra Tech, Inc. | 6,295 | |||
Printed Circuit Boards--0.7% | ||||||
3,929 | 1 | PMC-Sierra, Inc. | 35,950 | |||
390 | 1 | Sigma Designs, Inc. | 6,306 | |||
TOTAL | 42,256 | |||||
Printing--0.2% | ||||||
916 | 1 | Valassis Communications, Inc. | 10,433 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Property Liability Insurance--3.1% | ||||||
576 | 1 | Argo Group International Holdings Ltd. | $ | 19,354 | ||
1,311 | 1 | CNA Surety Corp. | 20,609 | |||
453 | 1 | First Mercury Financial Corp. | 6,546 | |||
4,456 | Horace Mann Educators Corp. | 50,576 | ||||
1,627 | OneBeacon Insurance Group Ltd. | 18,385 | ||||
436 | Platinum Underwriters Holdings Ltd. | 14,715 | ||||
742 | 1 | ProAssurance Corp. | 37,679 | |||
1,723 | Selective Insurance Group, Inc. | 25,742 | ||||
TOTAL | 193,606 | |||||
Regional Bank--2.1% | ||||||
773 | Bank of the Ozarks, Inc. | 19,541 | ||||
1,707 | CVB Financial Corp. | 12,871 | ||||
1,068 | City Holding Co. | 34,411 | ||||
4,730 | First Midwest Bancorp, Inc. | 39,543 | ||||
1,036 | Oriental Financial Group | 14,618 | ||||
692 | United Bankshares, Inc. | 14,020 | ||||
TOTAL | 135,004 | |||||
Restaurant--6.8% | ||||||
1,282 | Bob Evans Farms, Inc. | 37,204 | ||||
382 | 1 | California Pizza Kitchen, Inc. | 6,303 | |||
2,829 | 1 | Cheesecake Factory, Inc. | 54,798 | |||
518 | 1 | Chipotle Mexican Grill, Inc., Class B | 42,347 | |||
1,335 | Cracker Barrel Old Country Store, Inc. | 38,528 | ||||
93 | DineEquity, Inc. | 2,298 | ||||
1,812 | 1 | Domino's Pizza, Inc. | 14,895 | |||
1,700 | 1 | Green Mountain Coffee, Inc. | 119,748 | |||
2,691 | 1 | P.F. Chang's China Bistro, Inc. | 91,252 | |||
2,262 | 1 | Texas Roadhouse, Inc. | 25,176 | |||
TOTAL | 432,549 | |||||
Rubber--0.2% | ||||||
966 | Cooper Tire & Rubber Co. | 14,258 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Savings & Loan--0.1% | ||||||
807 | Astoria Financial Corp. | $ | 7,836 | |||
19 | 1 | Ocwen Financial Corp. | 271 | |||
TOTAL | 8,107 | |||||
Securities Brokerage--0.5% | ||||||
859 | 1 | Interactive Brokers Group, Inc., Class A | 16,141 | |||
360 | 1 | Piper Jaffray Cos., Inc. | 16,510 | |||
TOTAL | 32,651 | |||||
Semiconductor Distribution--0.1% | ||||||
511 | 1 | Tyler Technologies, Inc. | 7,869 | |||
Semiconductor Manufacturing--3.4% | ||||||
399 | 1 | Cabot Microelectronics Corp. | 13,534 | |||
806 | Micrel, Inc. | 6,303 | ||||
1,887 | 1 | Monolithic Power Systems | 41,873 | |||
613 | 1 | NetLogic Microsystems, Inc. | 24,361 | |||
881 | 1 | Omnivision Technologies, Inc. | 11,656 | |||
4,517 | 1 | RF Micro Devices, Inc. | 23,488 | |||
2,827 | 1 | Semtech Corp. | 52,017 | |||
839 | 1 | Standard Microsystems Corp. | 19,465 | |||
3,482 | 1 | Triquint Semiconductor, Inc. | 25,001 | |||
TOTAL | 217,698 | |||||
Semiconductor Manufacturing Equipment--0.8% | ||||||
1,752 | 1 | Tessera Technologies, Inc. | 49,214 | |||
196 | 1 | Veeco Instruments, Inc. | 3,693 | |||
TOTAL | 52,907 | |||||
Services To Medical Professionals--2.6% | ||||||
268 | 1 | Genoptix, Inc. | 8,391 | |||
1,466 | 1 | HMS Holdings Corp. | 56,294 | |||
3,463 | 1 | PharMerica Corp. | 72,584 | |||
1,082 | 1 | RehabCare Group, Inc. | 26,033 | |||
TOTAL | 163,302 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Shoes--0.6% | ||||||
790 | 1 | Steven Madden Ltd. | $ | 25,327 | ||
814 | 1 | Timberland Co., Class A | 11,103 | |||
TOTAL | 36,430 | |||||
Software Packaged/Custom--0.8% | ||||||
281 | 1 | ArcSight, Inc. | 5,331 | |||
343 | 1 | Interactive Intelligence, Inc. | 5,543 | |||
1,098 | Pegasystems, Inc. | 31,073 | ||||
659 | 1 | Rackspace Hosting, Inc. | 9,252 | |||
TOTAL | 51,199 | |||||
Specialty Chemicals--1.8% | ||||||
120 | Arch Chemicals, Inc. | 3,186 | ||||
3,562 | Koppers Holdings, Inc. | 99,415 | ||||
769 | 1 | Targacept, Inc. | 8,251 | |||
TOTAL | 110,852 | |||||
Specialty Retailing--0.5% | ||||||
632 | 1 | Tractor Supply Co. | 30,317 | |||
Surveillance-Detection--0.0% | ||||||
14 | 1 | Checkpoint Systems, Inc. | 243 | |||
Technology--2.2% | ||||||
4,011 | 1 | STEC, Inc. | 136,735 | |||
Telecommunication Equipment & Services--1.2% | ||||||
610 | 1 | Anaren, Inc. | 10,968 | |||
395 | Applied Signal Technology, Inc. | 9,875 | ||||
829 | 1 | Global Crossing Ltd. | 9,011 | |||
212 | 1 | Neutral Tandem, Inc. | 6,572 | |||
290 | 1 | Novatel Wireless, Inc. | 2,749 | |||
1,466 | Plantronics, Inc. | 34,700 | ||||
TOTAL | 73,875 | |||||
Toys & Games--1.0% | ||||||
4,129 | 1 | JAKKS Pacific, Inc. | 47,607 | |||
1,183 | 1 | RC2 Corp. | 18,064 | |||
TOTAL | 65,671 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Truck Manufacturing--0.1% | ||||||
1,080 | 1 | Force Protection, Inc. | $ | 5,584 | ||
328 | Spartan Motors, Inc. | 2,296 | ||||
TOTAL | 7,880 | |||||
Undesignated Consumer Cyclicals--5.0% | ||||||
87 | 1 | Capella Education Co. | 5,599 | |||
1,526 | 1 | Corinthian Colleges, Inc. | 23,561 | |||
1,068 | 1 | Geo Group, Inc. | 19,203 | |||
144 | 1 | Hillenbrand, Inc. | 2,609 | |||
627 | 1 | Lincoln Educational Services | 12,766 | |||
7,388 | 1 | Rent-A-Center, Inc. | 153,375 | |||
1,458 | Speedway Motorsports, Inc. | 23,270 | ||||
2,628 | 1 | Wright Express Corp. | 74,320 | |||
TOTAL | 314,703 | |||||
Undesignated Consumer Staples--0.2% | ||||||
2,293 | Jackson Hewitt Tax Service, Inc. | 13,873 | ||||
Undesignated Health--0.3% | ||||||
639 | 1 | Eclipsys Corp. | 11,630 | |||
504 | 1 | HealthSouth Corp. | 7,258 | |||
TOTAL | 18,888 | |||||
Undesignated Technology--0.1% | ||||||
1,002 | 1 | American Reprographics Co. | 8,667 | |||
TOTAL COMMON STOCKS (IDENTIFIED COST $5,831,166) | 6,316,971 | |||||
MUTUAL FUND--0.0% | ||||||
536 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 536 | |||
TOTAL INVESTMENTS--99.7% (IDENTIFIED COST $5,831,702) 4 | 6,317,507 | |||||
OTHER ASSETS AND LIABILITIES - NET--0.3% 5 | 19,343 | |||||
TOTAL NET ASSETS--100% | $ | 6,336,850 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $6,011,462.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | | Level 3-- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $6,186,134 | $-- | $-- | $6,186,134 | ||||
International | 130,837 | - -- | - -- | 130,837 | ||||
Mutual Fund | 536 | - -- | - -- | 536 | ||||
TOTAL SECURITIES | $6,317,507 | $-- | $-- | $ 6,317,507 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $536 of investments in an affiliated issuer (Note 5) (identified cost $5,831,702) | $ | 6,317,507 | |||||
Income receivable | 983 | ||||||
Receivable for investments sold | 1,023,822 | ||||||
Receivable for shares sold | 18,404 | ||||||
TOTAL ASSETS | 7,360,716 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 917,675 | |||||
Payable for shares redeemed | 48,390 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for distribution services fee (Note 5) | 823 | ||||||
Payable for shareholder services fee (Note 5) | 1,192 | ||||||
Accrued expenses | 33,286 | ||||||
TOTAL LIABILITIES | 1,023,866 | ||||||
Net assets for 965,091 shares outstanding | $ | 6,336,850 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 14,154,872 | |||||
Net unrealized appreciation of investments | 485,805 | ||||||
Accumulated net realized loss on investments | (8,303,011 | ) | |||||
Accumulated net investment income (loss) | (816 | ) | |||||
TOTAL NET ASSETS | $ | 6,336,850 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($3,319,226 ÷ 500,275 shares outstanding), no par value, unlimited shares authorized | $6.63 | ||||||
Offering price per share | $6.63 | ||||||
Redemption proceeds per share | $6.63 | ||||||
Class A Shares: | |||||||
Net asset value per share ($1,651,634 ÷ 251,106 shares outstanding), no par value, unlimited shares authorized | $6.58 | ||||||
Offering price per share (100/94.50 of $6.58) | $6.96 | ||||||
Redemption proceeds per share | $6.58 | ||||||
Class C Shares: | |||||||
Net asset value per share ($1,365,990 ÷ 213,710 shares outstanding), no par value, unlimited shares authorized | $6.39 | ||||||
Offering price per share | $6.39 | ||||||
Redemption proceeds per share (99.00/100 of $6.39) | $6.33 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $2,746 received from an affiliated issuer and net of foreign taxes withheld of $87) | $ | 105,354 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 100,906 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 27,780 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 65,145 | |||||||||||
Directors'/Trustees' fees | 1,322 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 1,881 | |||||||||||
Portfolio accounting fees | 73,466 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 13,193 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 4,528 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 4,397 | |||||||||||
Share registration costs | 39,803 | |||||||||||
Printing and postage | 34,847 | |||||||||||
Insurance premiums | 4,375 | |||||||||||
Miscellaneous | 2,860 | |||||||||||
TOTAL EXPENSES | 627,003 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (100,906 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,913 | ) | ||||||||||
Reimbursement of other operating expenses | (328,188 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (474,007 | ) | ||||||||||
Net expenses | 152,996 | |||||||||||
Net investment income (loss) | (47,642 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (7,274,016 | ) | ||||||||||
Net change in unrealized depreciation of investments | 1,589,177 | |||||||||||
Net realized and unrealized loss on investments | (5,684,839 | ) | ||||||||||
Change in net assets resulting from operations | $ | (5,732,481 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (47,642 | ) | $ | (92,417 | ) | ||
Net realized loss on investments | (7,274,016 | ) | (968,490 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 1,589,177 | (1,160,449 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (5,732,481 | ) | (2,221,356 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (217,102 | ) | |||||
Class A Shares | - -- | (164,846 | ) | |||||
Class C Shares | - -- | (186,389 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (568,337 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 4,037,000 | 11,231,271 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 289,237 | ||||||
Cost of shares redeemed | (7,413,895 | ) | (2,591,978 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (3,376,895 | ) | 8,928,530 | |||||
Change in net assets | (9,109,376 | ) | 6,138,837 | |||||
Net Assets: | ||||||||
Beginning of period | 15,446,226 | 9,307,389 | ||||||
End of period (including accumulated net investment income (loss) of $(816) and $0, respectively) | $ | 6,336,850 | $ | 15,446,226 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Small Cap Core Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Institutional Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 396,523 | $ | 2,399,606 | 775,627 | $ | 8,473,003 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 5,282 | 62,326 | ||||||||||
Shares redeemed | (875,070 | ) | (5,394,526 | ) | (72,893 | ) | (839,798 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | (478,547 | ) | $ | (2,994,920 | ) | 708,016 | $ | 7,695,531 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 159,748 | $ | 971,747 | 127,938 | $ | 1,534,598 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 12,340 | 144,868 | ||||||||||
Shares redeemed | (165,560 | ) | (1,017,358 | ) | (65,972 | ) | (737,190 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (5,812 | ) | $ | (45,611 | ) | 74,306 | $ | 942,276 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 104,084 | $ | 665,647 | 103,368 | $ | 1,223,670 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 7,110 | 82,043 | ||||||||||
Shares redeemed | (166,401 | ) | (1,002,011 | ) | (87,328 | ) | (1,014,990 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (62,317 | ) | $ | (336,364 | ) | 23,150 | $ | 290,723 | ||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (546,676 | ) | $ | (3,376,895 | ) | 805,472 | $ | 8,928,530 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments for net operating loss and passive foreign investment company adjustments.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital | Undistributed Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) | ||
$(45,832) | $46,826 | $(994) |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $-- | $508,584 | ||
Long-term capital gains | $-- | $ 59,753 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | $ | 306,045 | ||
Capital loss carryforwards and deferrals | $ | (8,124,067 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
At July 31, 2009, the cost of investments for federal tax purposes was $6,011,462. The net unrealized appreciation of investments for federal tax purposes was $306,045. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $597,384 and net unrealized depreciation from investments for those securities having an excess of cost over value of $291,339.
At July 31, 2009, the Fund had a capital loss carryforward of $2,191,573 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire in 2017.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $5,932,494 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 1.15% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name | Percentage of Average Daily Net Assets of Class | |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may also voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $100,782 of its fee and reimbursed $328,188 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | Average Aggregate Daily Net Assets of the Federated Funds | |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,913 of its fee. The net fee paid to FAS was 2.109% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore, the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | Percentage of Average Daily Net Assets of Class | |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $4,177 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $598 in sales charges from the sale of Class A Shares. FSC also retained $494 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.50%, 1.75% and 2.50%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $124. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 180,688 | 3,712,047 | 3,892,199 | 536 | $536 | $2,746 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 20,150,803 |
Sales | $ | 23,477,159 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation, and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT SMALL CAP CORE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Small Cap Core Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Small Cap Core Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastora Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract - May 2009
FEDERATED MDT SMALL CAP CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
The Fund's performance fell below the median of the relevant peer group for both the one- and three-year periods covered by the report. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Small Cap Core Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R817
Cusip 31421R791
37328 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Small Cap Core Fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.28 | $13.28 | $11.14 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.02 | ) 3 | (0.05 | ) 3 | (0.07 | ) 3 | (0.10 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.63 | ) | (2.24 | ) | 2.21 | 1.24 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.65 | ) | (2.29 | ) | 2.14 | 1.14 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.71 | ) | - -- | - -- | |||||||
Net Asset Value, End of Period | $6.63 | $10.28 | $13.28 | $11.14 | ||||||||
Total Return 4 | (35.51 | )% | (17.92 | )% | 19.21 | % | 11.40 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.49 | % | 1.50 | % | 1.50 | % | 1.76 | % 5 | ||||
Net investment income (loss) | (0.30 | )% | (0.43 | )% | (0.51 | )% | (0.91 | )% 5 | ||||
Expense waiver/reimbursement 6 | 5.22 | % | 3.55 | % | 8.14 | % | 9.41 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $3,319 | $10,064 | $3,595 | $784 | ||||||||
Portfolio turnover | 222 | % | 243 | % | 237 | % | 209 | % |
1 MDT Small Cap Core Fund (the "Predecessor Fund") was reorganized into Federated MDT Small Cap Core Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual | $1,000 | $1,143.10 | $7.92 | |||
Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,017.41 | $7.45 |
1 Expenses are equal to the Fund's annualized net expense ratio of 1.49%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period).
Management's Discussion of Fund Performance (unaudited)
The fund's total return for the fiscal year ended July 31, 2009 was -35.51% based on net asset value. The total returns of the Russell 2000 ® Index 1 and the Lipper Small-Cap Core Funds Index 2 were -20.72% and -18.60%, respectively, for the same reporting period. The fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell Index.
1 The Russell 2000 ® Index measures the performance of the 2,000 smallest companies in the Russell 3000 ® Index, which represents approximately 10% of the total market capitalization of the Russell 3000 ® Index. The index is unmanaged and investments cannot be made directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12-month reporting period ending July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, 3 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 4 which exceeded the return of mid- and small-cap stocks 5 as evidenced by the -20.72% and -22.23% results for the Russell 2000 ® and the Russell Midcap ® Indexes, 6 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 7 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 8
The best performing sectors in the Russell 2000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 The Russell 3000 ® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 ® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged and investments cannot be made directly in an index.
4 The Russell Top 200 ® Index measures the performance of the 200 largest companies in the Russell 1000 ® Index, which represents approximately 69% of the total market capitalization of the Russell 1000 ® Index. The index is unmanaged and investments cannot be made directly in an index.
5 Small-company stocks may be less liquid and subject to greater price volatility than large-capitalization stocks.
6 The Russell Midcap ® Index measures the performance of the 800 smallest companies in the Russell 1000 ® Index, which represent approximately 31% of the total market capitalization of the Russell 1000 ® Index. The index is unmanaged and investments cannot be made directly in an index.
7 The Russell 3000 ® Growth Index measures the performance of those Russell 3000 ® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Growth or the Russell 2000 ® Growth indexes. The index is unmanaged and investments cannot be made directly in an index.
8 The Russell 3000 ® Value Index measures the performance of those Russell 3000 ® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 ® Value or the Russell 2000 ® Value indexes. The index is unmanaged and investments cannot be made directly in an index.
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 2000 ® Index was stock selection in the Telecomm Services, Utilities and Consumer Staples sectors. Individual stocks contributing to the fund's performance relative to the Russell 2000 ® Index included: Green Mountain Coffee Roasters, Rock-Tenn Company, Jarden Corporation and Cathay Bancorp Incorporated.
The most significant negative factor in the fund's performance relative to the Russell 2000 ® Index was stock selection in the Consumer Discretionary, Health Care and Industrials sectors. Stock selection in the Information Technology and Materials sectors detracted more moderately. Additionally, an underweight in the Information Technology sector detracted moderately. Individual stocks detracting from the fund's performance relative to the Russell 2000 ® Index included: Schnitzer Steel Industries Incorporated, Complete Production, Robbins & Myers Incorporated and Warnaco Group Incorporated.
GROWTH OF A $10,000 INVESTMENT - INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Small Cap Core Fund 2 (Institutional Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000 ® Index 3 and the Lipper Small-Cap Core Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -35.51% | |
Start of Performance (9/15/2005) | - -8.69% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmsccaris37322edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 ® Index and the Lipper Small-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Core Fund pursuant to a reorganization that took place on December 6, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Core Fund.
3 The Russell 2000® Index is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets |
Clothing Stores | 6.8% | |
Restaurant | 6.8% | |
Undesignated Consumer Cyclicals | 5.0% | |
Computer Services | 4.1% | |
Financial Services | 3.6% | |
Semiconductor Manufacturing | 3.4% | |
Electric Utility | 3.1% | |
Home Health Care | 3.1% | |
Property Liability Insurance | 3.1% | |
Commodity Chemicals | 2.8% | |
Paper Products | 2.8% | |
Home Products | 2.6% | |
Services to Medical Professionals | 2.6% | |
Ethical Drugs | 2.3% | |
Miscellaneous Components | 2.2% | |
Technology | 2.2% | |
Apparel | 2.1% | |
Packaged Foods | 2.1% | |
Regional Bank | 2.1% | |
Specialty Chemicals | 1.8% | |
Multi-Line Insurance | 1.7% | |
Other Communications Equipment | 1.5% | |
Computer Networking | 1.4% | |
Miscellaneous Machinery | 1.4% | |
Grocery Chain | 1.3% | |
Medical Supplies | 1.3% | |
Electrical Equipment | 1.2% | |
Industry Composition | | Percentage of Total Net Assets |
Multi-Industry Basic | 1.2% | |
Telecommunication Equipment & Services | 1.2% | |
Hotels and Motels | 1.1% | |
Furniture | 1.0% | |
Toys & Games | 1.0% | |
Other 2 | 19.8% | |
Cash Equivalents 3,4 | 0.0% | |
Other Assets and Liabilities - Net 5 | 0.3% | |
TOTAL | 100.0% |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the adviser assigns a classification to securities not classified by the GICS and to securities for which the adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Represents less than 0.1%.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | ||
COMMON STOCKS--99.7% | |||||
Airline - National--0.4% | |||||
1,428 | Aircastle Ltd. | $ | 10,367 | ||
614 | 1 | Atlas Air Worldwide Holdings, Inc. | 15,325 | ||
TOTAL | 25,692 | ||||
Apparel--2.1% | |||||
2,713 | 1 | Carter's, Inc. | 76,886 | ||
1,792 | Jones Apparel Group, Inc. | 24,658 | |||
927 | 1 | Warnaco Group, Inc. | 33,678 | ||
TOTAL | 135,222 | ||||
Auto Rentals--0.1% | |||||
223 | 1 | Dollar Thrifty Automotive Group | 3,691 | ||
Biotechnology--0.5% | |||||
267 | 1 | Air Methods Corp. | 7,852 | ||
1,086 | 1 | BioCryst Pharmaceuticals, Inc. | 9,991 | ||
483 | 1 | Martek Biosciences Corp. | 11,235 | ||
TOTAL | 29,078 | ||||
Building Materials--0.5% | |||||
644 | Universal Forest Products, Inc. | 28,748 | |||
Clothing Stores--6.8% | |||||
3,159 | Buckle, Inc. | 97,739 | |||
1,287 | Cato Corp., Class A | 25,586 | |||
1,520 | 1 | Children's Place Retail Stores, Inc. | 49,810 | ||
1,268 | 1 | Citi Trends, Inc. | 37,026 | ||
1,082 | 1 | Fossil, Inc. | 28,500 | ||
1,377 | 1 | Gymboree Corp. | 54,777 | ||
1,979 | 1 | J. Crew Group, Inc. | 55,729 | ||
1,119 | 1 | Jos A. Bank Clothiers, Inc. | 40,944 | ||
1,972 | Mens Wearhouse, Inc. | 42,615 | |||
TOTAL | 432,726 | ||||
Commercial Services--0.7% | |||||
1,105 | 1 | VistaPrint Ltd. | 45,581 | ||
Commodity Chemicals--2.8% | |||||
1,499 | Compass Minerals International, Inc. | 79,732 | |||
579 | Innophos Holdings, Inc. | 10,874 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Commodity Chemicals--continued | |||||
1,136 | Newmarket Corp. | $ | 85,938 | ||
45 | Stepan Co. | 2,015 | |||
TOTAL | 178,559 | ||||
Computer Networking--1.4% | |||||
696 | Black Box Corp. | 19,119 | |||
2,882 | 1 | Starent Networks Corp. | 69,110 | ||
TOTAL | 88,229 | ||||
Computer Peripherals--0.7% | |||||
1,809 | 1 | Synaptics, Inc. | 43,362 | ||
Computer Services--4.1% | |||||
6,308 | Fair Isaac & Co., Inc. | 121,051 | |||
1,606 | 1 | Riverbed Technology, Inc. | 32,136 | ||
1,222 | 1 | Synnex Corp. | 34,729 | ||
1,833 | Syntel, Inc. | 72,550 | |||
TOTAL | 260,466 | ||||
Construction Machinery--0.3% | |||||
891 | 1 | Orion Marine Group, Inc. | 19,923 | ||
Contracting--0.1% | |||||
153 | 1 | Baker Michael Corp. | 6,525 | ||
Cosmetics & Toiletries--0.7% | |||||
1,724 | 1 | Bare Escentuals, Inc. | 15,275 | ||
1,198 | 1 | Helen of Troy Ltd. | 26,057 | ||
TOTAL | 41,332 | ||||
Crude Oil & Gas Production--0.4% | |||||
516 | 1 | Arena Resources, Inc. | 16,837 | ||
8 | 1 | Tetra Technologies, Inc. | 62 | ||
841 | W&T Offshore, Inc. | 8,990 | |||
TOTAL | 25,889 | ||||
Defense Aerospace--0.8% | |||||
1,195 | 1 | AAR Corp. | 22,860 | ||
71 | 1 | MOOG, Inc., Class A | 1,914 | ||
569 | Triumph Group, Inc. | 22,726 | |||
TOTAL | 47,500 | ||||
Discount Department Stores--0.2% | |||||
730 | 1 | 99 Cents Only Stores | 10,695 | ||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Diversified Leisure--0.5% | |||||
552 | 1 | Life Time Fitness, Inc. | $ | 14,048 | |
1,714 | 1 | Pinnacle Entertainment, Inc. | 17,191 | ||
TOTAL | 31,239 | ||||
Electric Utility--3.1% | |||||
1,539 | Avista Corp. | 28,502 | |||
1,734 | 1 | El Paso Electric Co. | 26,201 | ||
700 | Idacorp, Inc. | 19,404 | |||
1,034 | PNM Resources, Inc. | 12,615 | |||
4,033 | UniSource Energy Corp. | 111,311 | |||
TOTAL | 198,033 | ||||
Electrical Equipment--1.2% | |||||
2,447 | Brady (W.H.) Co. | 71,966 | |||
82 | 1 | Littelfuse, Inc. | 1,919 | ||
TOTAL | 73,885 | ||||
Electrical Test/Measuring Equipment--0.3% | |||||
562 | Badger Meter, Inc. | 20,710 | |||
Electronic & Electrical Original Equipment Manufacturers--0.7% | |||||
1,153 | Cubic Corp. | 45,151 | |||
Electronic Components--0.2% | |||||
575 | 1 | Volterra Semiconductor Corp. | 9,539 | ||
Electronic Instruments--0.9% | |||||
1,729 | 1 | Cymer, Inc. | 59,149 | ||
Ethical Drugs--2.3% | |||||
524 | 1 | Matrixx Initiatives, Inc. | 2,955 | ||
5,526 | 1 | Valeant Pharmaceuticals International | 142,571 | ||
TOTAL | 145,526 | ||||
Financial Services--3.6% | |||||
1,402 | 1 | America's Car-Mart, Inc. | 30,662 | ||
8,073 | Deluxe Corp. | 126,342 | |||
2,772 | 1 | Global Cash Access LLC | 24,948 | ||
864 | 1 | Nelnet, Inc., Class A | 12,347 | ||
2,007 | 1 | PHH Corp. | 36,788 | ||
TOTAL | 231,087 | ||||
Food Wholesaling--0.3% | |||||
1,298 | 1 | Winn-Dixie Stores, Inc. | 18,393 | ||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Furniture--1.0% | |||||
364 | Aaron's, Inc. | $ | 9,999 | ||
1,298 | La-Z Boy Chair Co. | 8,787 | |||
2,893 | Tempur-Pedic International, Inc. | 42,903 | |||
TOTAL | 61,689 | ||||
Gas Distributor--0.3% | |||||
483 | WGL Holdings, Inc. | 15,997 | |||
Generic Drugs--0.3% | |||||
366 | 1 | Hi-Tech Pharmacal Co., Inc. | 5,728 | ||
986 | 1 | Par Pharmaceutical Cos., Inc. | 15,983 | ||
TOTAL | 21,711 | ||||
Grocery Chain--1.3% | |||||
1,204 | Casey's General Stores, Inc. | 33,026 | |||
1,126 | Ruddick Corp. | 26,461 | |||
760 | Weis Markets, Inc. | 25,133 | |||
TOTAL | 84,620 | ||||
Home Health Care--3.1% | |||||
202 | 1 | Amedisys, Inc. | 9,031 | ||
1,744 | 1 | Amerigroup Corp. | 43,042 | ||
1,052 | 1 | Gentiva Health Services, Inc. | 22,387 | ||
3,130 | 1 | LHC Group, Inc. | 91,866 | ||
2,034 | 1 | Odyssey Healthcare, Inc. | 23,696 | ||
419 | 1 | Wellcare Health Plans, Inc. | 9,327 | ||
TOTAL | 199,349 | ||||
Home Products--2.6% | |||||
1,030 | 1 | Central Garden & Pet Co., Class A | 11,629 | ||
4,580 | Tupperware Brands Corp. | 156,041 | |||
TOTAL | 167,670 | ||||
Hotels and Motels--1.1% | |||||
3,805 | Ameristar Casinos, Inc. | 71,115 | |||
Industrial Machinery--0.3% | |||||
1,357 | 1 | Columbus McKinnon Corp. | 19,636 | ||
Industrial Services--0.2% | |||||
312 | 1 | ATC Technology Corp. | 6,527 | ||
189 | 1 | EnerNOC, Inc. | 5,799 | ||
TOTAL | 12,326 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Insurance Brokerage--0.5% | |||||
1,077 | AmTrust Financial Services, Inc. | $ | 13,161 | ||
790 | Life Partners Holdings, Inc. | 17,048 | |||
TOTAL | 30,209 | ||||
Internet Services--0.5% | |||||
284 | 1 | Blue Nile, Inc. | 13,129 | ||
2,191 | 1 | EarthLink Network, Inc. | 18,514 | ||
TOTAL | 31,643 | ||||
Leasing--0.1% | |||||
356 | Financial Federal Corp. | 7,220 | |||
Life Insurance--0.2% | |||||
712 | American Equity Investment Life Holding Co. | 5,155 | |||
914 | 1 | Universal American Financial Corp. | 8,317 | ||
TOTAL | 13,472 | ||||
Long-Term Care Centers--0.1% | |||||
342 | Assisted Living Concepts, Inc. | 4,925 | |||
Machined Parts Original Equipment Manufacturers--0.0% | |||||
366 | Titan International, Inc. | 2,723 | |||
Maritime--0.1% | |||||
467 | Ship Finance International Ltd. | 5,758 | |||
Medical Supplies--1.3% | |||||
581 | 1 | Align Technology, Inc. | 6,339 | ||
4,293 | 1 | American Medical Systems Holdings, Inc. | 65,640 | ||
236 | 1 | NuVasive, Inc. | 9,768 | ||
TOTAL | 81,747 | ||||
Medical Technology--0.1% | |||||
401 | 1 | Ev3, Inc. | 4,920 | ||
150 | 1 | Thoratec Laboratories Corp. | 3,771 | ||
TOTAL | 8,691 | ||||
Metal Distribution--0.2% | |||||
1,011 | Castle (A.M.) & Co. | 10,666 | |||
Metal Fabrication--0.3% | |||||
920 | CIRCOR International, Inc. | 21,215 | |||
Miscellaneous Communications--0.2% | |||||
1,211 | Harte-Hanks | 13,103 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Miscellaneous Components--2.2% | |||||
1,498 | 1 | Amkor Technology, Inc. | $ | 9,377 | |
1,757 | 1 | Applied Micro Circuits Corp. | 15,198 | ||
4,037 | 1 | Atheros Communications | 100,925 | ||
334 | 1 | MKS Instruments, Inc. | 6,470 | ||
539 | 1 | Zoran Corp. | 6,209 | ||
TOTAL | 138,179 | ||||
Miscellaneous Food Products--0.6% | |||||
534 | 1 | Fresh Del Monte Produce, Inc. | 11,433 | ||
753 | The Anderson's, Inc. | 24,262 | |||
TOTAL | 35,695 | ||||
Miscellaneous Machinery--1.4% | |||||
1,939 | Nordson Corp. | 87,061 | |||
Miscellaneous Metals--0.1% | |||||
622 | 1 | Stillwater Mining Co. | 4,161 | ||
Multi-Industry Basic--1.2% | |||||
5,574 | Olin Corp. | 76,865 | |||
Multi-Line Insurance--1.7% | |||||
486 | 1 | Amerisafe, Inc. | 8,082 | ||
142 | 1 | FPIC Insurance Group, Inc. | 4,878 | ||
235 | Harleysville Group, Inc. | 7,290 | |||
1,450 | Infinity Property & Casualty | 60,233 | |||
298 | 1 | Navigators Group, Inc. | 14,694 | ||
323 | Safety Insurance Group, Inc. | 10,420 | |||
TOTAL | 105,597 | ||||
Mutual Fund Adviser--0.2% | |||||
797 | Calamos Asset Management, Inc. | 10,967 | |||
Newspaper Publishing--0.0% | |||||
75 | Belo (A.H.) Corp., Series A | 215 | |||
Offshore Driller--0.0% | |||||
7 | 1 | Hornbeck Offshore Services, Inc. | 152 | ||
Oil Service, Explore & Drill--0.4% | |||||
264 | 1 | Dawson Geophysical Co. | 8,028 | ||
1,635 | 1 | Venoco, Inc. | 14,453 | ||
TOTAL | 22,481 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Oil Well Supply--0.3% | |||||
736 | 1 | Oil States International, Inc. | $ | 19,960 | |
Other Communications Equipment--1.5% | |||||
7,964 | 1 | Skyworks Solutions, Inc. | 96,205 | ||
Other Tobacco Products--0.5% | |||||
964 | Schweitzer-Mauduit International, Inc. | 31,523 | |||
Packaged Foods--2.1% | |||||
2,292 | 1 | Chiquita Brands International | 28,077 | ||
2,341 | Lancaster Colony Corp. | 106,609 | |||
TOTAL | 134,686 | ||||
Paper Products--2.8% | |||||
89 | 1 | Buckeye Technologies, Inc. | 565 | ||
1,295 | Glatfelter (P.H.) Co. | 13,403 | |||
3,678 | Rock-Tenn Co. | 165,363 | |||
TOTAL | 179,331 | ||||
Personal Loans--0.2% | |||||
598 | 1 | World Acceptance Corp. | 14,185 | ||
Plastic--0.1% | |||||
648 | Spartech Corp. | 8,100 | |||
Plastic Containers--0.4% | |||||
1,500 | 1 | Bway Holding Co. | 23,925 | ||
Pollution Control--0.1% | |||||
209 | 1 | Tetra Tech, Inc. | 6,295 | ||
Printed Circuit Boards--0.7% | |||||
3,929 | 1 | PMC-Sierra, Inc. | 35,950 | ||
390 | 1 | Sigma Designs, Inc. | 6,306 | ||
TOTAL | 42,256 | ||||
Printing--0.2% | |||||
916 | 1 | Valassis Communications, Inc. | 10,433 | ||
Property Liability Insurance--3.1% | |||||
576 | 1 | Argo Group International Holdings Ltd. | 19,354 | ||
1,311 | 1 | CNA Surety Corp. | 20,609 | ||
453 | 1 | First Mercury Financial Corp. | 6,546 | ||
4,456 | Horace Mann Educators Corp. | 50,576 | |||
1,627 | OneBeacon Insurance Group Ltd. | 18,385 | |||
436 | Platinum Underwriters Holdings Ltd. | 14,715 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Property Liability Insurance--continued | |||||
742 | 1 | ProAssurance Corp. | $ | 37,679 | |
1,723 | Selective Insurance Group, Inc. | 25,742 | |||
TOTAL | 193,606 | ||||
Regional Bank--2.1% | |||||
773 | Bank of the Ozarks, Inc. | 19,541 | |||
1,707 | CVB Financial Corp. | 12,871 | |||
1,068 | City Holding Co. | 34,411 | |||
4,730 | First Midwest Bancorp, Inc. | 39,543 | |||
1,036 | Oriental Financial Group | 14,618 | |||
692 | United Bankshares, Inc. | 14,020 | |||
TOTAL | 135,004 | ||||
Restaurant--6.8% | |||||
1,282 | Bob Evans Farms, Inc. | 37,204 | |||
382 | 1 | California Pizza Kitchen, Inc. | 6,303 | ||
2,829 | 1 | Cheesecake Factory, Inc. | 54,798 | ||
518 | 1 | Chipotle Mexican Grill, Inc., Class B | 42,347 | ||
1,335 | Cracker Barrel Old Country Store, Inc. | 38,528 | |||
93 | DineEquity, Inc. | 2,298 | |||
1,812 | 1 | Domino's Pizza, Inc. | 14,895 | ||
1,700 | 1 | Green Mountain Coffee, Inc. | 119,748 | ||
2,691 | 1 | P. F. Chang's China Bistro, Inc. | 91,252 | ||
2,262 | 1 | Texas Roadhouse, Inc. | 25,176 | ||
TOTAL | 432,549 | ||||
Rubber--0.2% | |||||
966 | Cooper Tire & Rubber Co. | 14,258 | |||
Savings & Loan--0.1% | |||||
807 | Astoria Financial Corp. | 7,836 | |||
19 | 1 | Ocwen Financial Corp. | 271 | ||
TOTAL | 8,107 | ||||
Securities Brokerage--0.5% | |||||
859 | 1 | Interactive Brokers Group, Inc., Class A | 16,141 | ||
360 | 1 | Piper Jaffray Cos., Inc. | 16,510 | ||
TOTAL | 32,651 | ||||
Semiconductor Distribution--0.1% | |||||
511 | 1 | Tyler Technologies, Inc. | 7,869 | ||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Semiconductor Manufacturing--3.4% | |||||
399 | 1 | Cabot Microelectronics Corp. | $ | 13,534 | |
806 | Micrel, Inc. | 6,303 | |||
1,887 | 1 | Monolithic Power Systems | 41,873 | ||
613 | 1 | NetLogic Microsystems, Inc. | 24,361 | ||
881 | 1 | Omnivision Technologies, Inc. | 11,656 | ||
4,517 | 1 | RF Micro Devices, Inc. | 23,488 | ||
2,827 | 1 | Semtech Corp. | 52,017 | ||
839 | 1 | Standard Microsystems Corp. | 19,465 | ||
3,482 | 1 | Triquint Semiconductor, Inc. | 25,001 | ||
TOTAL | 217,698 | ||||
Semiconductor Manufacturing Equipment--0.8% | |||||
1,752 | 1 | Tessera Technologies, Inc. | 49,214 | ||
196 | 1 | Veeco Instruments, Inc. | 3,693 | ||
TOTAL | 52,907 | ||||
Services To Medical Professionals--2.6% | |||||
268 | 1 | Genoptix, Inc. | 8,391 | ||
1,466 | 1 | HMS Holdings Corp. | 56,294 | ||
3,463 | 1 | PharMerica Corp. | 72,584 | ||
1,082 | 1 | RehabCare Group, Inc. | 26,033 | ||
TOTAL | 163,302 | ||||
Shoes--0.6% | |||||
790 | 1 | Steven Madden Ltd. | 25,327 | ||
814 | 1 | Timberland Co., Class A | 11,103 | ||
TOTAL | 36,430 | ||||
Software Packaged/Custom--0.8% | |||||
281 | 1 | ArcSight, Inc. | 5,331 | ||
343 | 1 | Interactive Intelligence, Inc. | 5,543 | ||
1,098 | Pegasystems, Inc. | 31,073 | |||
659 | 1 | Rackspace Hosting, Inc. | 9,252 | ||
TOTAL | 51,199 | ||||
Specialty Chemicals--1.8% | |||||
120 | Arch Chemicals, Inc. | 3,186 | |||
3,562 | Koppers Holdings, Inc. | 99,415 | |||
769 | 1 | Targacept, Inc. | 8,251 | ||
TOTAL | 110,852 | ||||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Specialty Retailing--0.5% | |||||
632 | 1 | Tractor Supply Co. | $ | 30,317 | |
Surveillance - Detection--0.0% | |||||
14 | 1 | Checkpoint Systems, Inc. | 243 | ||
Technology--2.2% | |||||
4,011 | 1 | STEC, Inc. | 136,735 | ||
Telecommunication Equipment & Services--1.2% | |||||
610 | 1 | Anaren, Inc. | 10,968 | ||
395 | Applied Signal Technology, Inc. | 9,875 | |||
829 | 1 | Global Crossing Ltd. | 9,011 | ||
212 | 1 | Neutral Tandem, Inc. | 6,572 | ||
290 | 1 | Novatel Wireless, Inc. | 2,749 | ||
1,466 | Plantronics, Inc. | 34,700 | |||
TOTAL | 73,875 | ||||
Toys & Games--1.0% | |||||
4,129 | 1 | JAKKS Pacific, Inc. | 47,607 | ||
1,183 | 1 | RC2 Corp. | 18,064 | ||
TOTAL | 65,671 | ||||
Truck Manufacturing--0.1% | |||||
1,080 | 1 | Force Protection, Inc. | 5,584 | ||
328 | Spartan Motors, Inc. | 2,296 | |||
TOTAL | 7,880 | ||||
Undesignated Consumer Cyclicals--5.0% | |||||
87 | 1 | Capella Education Co. | 5,599 | ||
1,526 | 1 | Corinthian Colleges, Inc. | 23,561 | ||
1,068 | 1 | Geo Group, Inc. | 19,203 | ||
144 | 1 | Hillenbrand, Inc. | 2,609 | ||
627 | 1 | Lincoln Educational Services | 12,766 | ||
7,388 | 1 | Rent-A-Center, Inc. | 153,375 | ||
1,458 | Speedway Motorsports, Inc. | 23,270 | |||
2,628 | 1 | Wright Express Corp. | 74,320 | ||
TOTAL | 314,703 | ||||
Undesignated Consumer Staples--0.2% | |||||
2,293 | Jackson Hewitt Tax Service, Inc. | 13,873 | |||
Shares | | | Value | ||
COMMON STOCKS--continued | |||||
Undesignated Health--0.3% | |||||
639 | 1 | Eclipsys Corp. | $ | 11,630 | |
504 | 1 | HealthSouth Corp. | 7,258 | ||
TOTAL | 18,888 | ||||
Undesignated Technology--0.1% | |||||
1,002 | 1 | American Reprographics Co. | 8,667 | ||
TOTAL COMMON STOCKS (IDENTIFIED COST $5,831,166) | 6,316,971 | ||||
MUTUAL FUND--0.0% | |||||
536 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 536 | ||
TOTAL INVESTMENTS--99.7% (IDENTIFIED COST $5,831,702) 4 | 6,317,507 | ||||
OTHER ASSETS AND LIABILITIES - NET--0.3% 5 | 19,343 | ||||
TOTAL NET ASSETS--100% | $ | 6,336,850 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $6,011,462.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | | Level 3-- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $6,186,134 | $-- | $-- | $6,186,134 | ||||
International | 130,837 | - -- | - -- | 130,837 | ||||
Mutual Fund | 536 | - -- | - -- | 536 | ||||
TOTAL SECURITIES | $6,317,507 | $-- | $-- | $6,317,507 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $536 of investments in an affiliated issuer (Note 5) (identified cost $5,831,702) | $ | 6,317,507 | |||||
Income receivable | 983 | ||||||
Receivable for investments sold | 1,023,822 | ||||||
Receivable for shares sold | 18,404 | ||||||
TOTAL ASSETS | 7,360,716 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 917,675 | |||||
Payable for shares redeemed | 48,390 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for distribution services fee (Note 5) | 823 | ||||||
Payable for shareholder services fee (Note 5) | 1,192 | ||||||
Accrued expenses | 33,286 | ||||||
TOTAL LIABILITIES | 1,023,866 | ||||||
Net assets for 965,091 shares outstanding | $ | 6,336,850 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 14,154,872 | |||||
Net unrealized appreciation of investments | 485,805 | ||||||
Accumulated net realized loss on investments | (8,303,011 | ) | |||||
Accumulated net investment income (loss) | (816 | ) | |||||
TOTAL NET ASSETS | $ | 6,336,850 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($3,319,226 ÷ 500,275 shares outstanding), no par value, unlimited shares authorized | $6.63 | ||||||
Offering price per share | $6.63 | ||||||
Redemption proceeds per share | $6.63 | ||||||
Class A Shares: | |||||||
Net asset value per share ($1,651,634 ÷ 251,106 shares outstanding), no par value, unlimited shares authorized | $6.58 | ||||||
Offering price per share (100/94.50 of $6.58) | $6.96 | ||||||
Redemption proceeds per share | $6.58 | ||||||
Class C Shares: | |||||||
Net asset value per share ($1,365,990 ÷ 213,710 shares outstanding), no par value, unlimited shares authorized | $6.39 | ||||||
Offering price per share | $6.39 | ||||||
Redemption proceeds per share (99.00/100 of $6.39) | $6.33 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $2,746 received from an affiliated issuer and net of foreign taxes withheld of $87) | $ | 105,354 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 100,906 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 27,780 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 65,145 | |||||||||||
Directors'/Trustees' fees | 1,322 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 1,881 | |||||||||||
Portfolio accounting fees | 73,466 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 13,193 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 4,528 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 4,397 | |||||||||||
Share registration costs | 39,803 | |||||||||||
Printing and postage | 34,847 | |||||||||||
Insurance premiums | 4,375 | |||||||||||
Miscellaneous | 2,860 | |||||||||||
TOTAL EXPENSES | 627,003 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (100,906 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,913 | ) | ||||||||||
Reimbursement of other operating expenses | (328,188 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (474,007 | ) | ||||||||||
Net expenses | 152,996 | |||||||||||
Net investment income (loss) | (47,642 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (7,274,016 | ) | ||||||||||
Net change in unrealized depreciation of investments | 1,589,177 | |||||||||||
Net realized and unrealized loss on investments | (5,684,839 | ) | ||||||||||
Change in net assets resulting from operations | $ | (5,732,481 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (47,642 | ) | $ | (92,417 | ) | ||
Net realized loss on investments | (7,274,016 | ) | (968,490 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 1,589,177 | (1,160,449 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (5,732,481 | ) | (2,221,356 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (217,102 | ) | |||||
Class A Shares | - -- | (164,846 | ) | |||||
Class C Shares | - -- | (186,389 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (568,337 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 4,037,000 | 11,231,271 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 289,237 | ||||||
Cost of shares redeemed | (7,413,895 | ) | (2,591,978 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (3,376,895 | ) | 8,928,530 | |||||
Change in net assets | (9,109,376 | ) | 6,138,837 | |||||
Net Assets: | ||||||||
Beginning of period | 15,446,226 | 9,307,389 | ||||||
End of period (including accumulated net investment income (loss) of $(816) and $0, respectively) | $ | 6,336,850 | $ | 15,446,226 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Small Cap Core Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Class A Shares and Class C Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers, and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 396,523 | $ | 2,399,606 | 775,627 | $ | 8,473,003 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 5,282 | 62,326 | ||||||||||
Shares redeemed | (875,070 | ) | (5,394,526 | ) | (72,893 | ) | (839,798 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | (478,547 | ) | $ | (2,994,920 | ) | 708,016 | $ | 7,695,531 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 159,748 | $ | 971,747 | 127,938 | $ | 1,534,598 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 12,340 | 144,868 | ||||||||||
Shares redeemed | (165,560 | ) | (1,017,358 | ) | (65,972 | ) | (737,190 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (5,812 | ) | $ | (45,611 | ) | 74,306 | $ | 942,276 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 104,084 | $ | 665,647 | 103,368 | $ | 1,223,670 | ||||||||
Shares issued to shareholders in payment of distributions declared | - -- | - -- | 7,110 | 82,043 | ||||||||||
Shares redeemed | (166,401 | ) | (1,002,011 | ) | (87,328 | ) | (1,014,990 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (62,317 | ) | $ | (336,364 | ) | 23,150 | $ | 290,723 | ||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | (546,676 | ) | $ | (3,376,895 | ) | 805,472 | $ | 8,928,530 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments for net operating loss and passive foreign investment company adjustments.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital | | Undistributed Net Investment Income (Loss) | | Accumulated Net Realized Gain (Loss) |
$(45,832) | $46,826 | $(994) |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $-- | $508,584 | ||
Long-term capital gains | $-- | $ 59,753 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | | $ | 306,045 | |
Capital loss carryforwards and deferrals | $ | (8,124,067 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales and the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
At July 31, 2009, the cost of investments for federal tax purposes was $6,011,462. The net unrealized appreciation of investments for federal tax purposes was $306,045. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $597,384 and net unrealized depreciation from investments for those securities having an excess of cost over value of $291,339.
At July 31, 2009, the Fund had a capital loss carryforward of $2,191,573 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire in 2017.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post-October losses of $5,932,494 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 1.15% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may also voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $100,782 of its fee and reimbursed $328,188 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,913 of its fee. The net fee paid to FAS was 2.109% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $4,177 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $598 in sales charges from the sale of Class A Shares. FSC also retained $494 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.50%, 1.75% and 2.50%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $124. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 180,688 | 3,712,047 | 3,892,199 | 536 | $536 | $2,746 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 20,150,803 |
Sales | $ | 23,477,159 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT SMALL CAP CORE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Small Cap Core Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Small Cap Core Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct professor of law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Positions: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract - May 2009
FEDERATED MDT SMALL CAP CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
The Fund's performance fell below the median of the relevant peer group for both the one- and three-year periods covered by the report. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Small Cap Core Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R783
37322 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated Investors
World-Class Investment Manager
Federated MDT Small Cap Growth Fund
Established 2005
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class B Shares
Class C Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights--Class A Shares
(For a Share Outstanding Throughout Each Period)
|
| Year Ended July 31, |
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| Period | 2 | ||||||
2009 |
| 2008 |
| 2007 | 1 | |||||||
Net Asset Value, Beginning of Period | $11.57 | $12.95 | $10.59 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.08 | )3 | (0.14 | )3 | (0.14 | )3 | (0.17 | )3 | ||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | (3.64 | ) | (1.17 | ) | 2.50 | 0.76 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.72 | ) | (1.31 | ) | 2.36 | 0.59 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | -- | (0.07 | ) | -- | -- | |||||||
Regulatory Settlement Proceeds | 0.00 | 4 | -- | -- | -- | |||||||
Net Asset Value, End of Period | $7.85 | $11.57 | $12.95 | $10.59 | ||||||||
Total Return5 | (32.15 | )%6 | (10.20 | )% | 22.29 | % | 5.90 | % | ||||
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Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.75 | % | 1.75 | % | 1.75 | % | 2.02 | %7 | ||||
Net investment income (loss) | (1.04 | )% | (1.20 | )% | (1.16 | )% | (1.50 | )%7 | ||||
Expense waiver/reimbursement8 | 1.02 | % | 1.05 | % | 25.97 | % | 22.65 | %7 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $21,682 | $31,874 | $532 | $157 | ||||||||
Portfolio turnover | 244 | % | 212 | % | 157 | % | 157 | % | ||||
1 MDT Small Cap Growth Fund (the “Predecessor Fund”) was reorganized into Federated MDT Small Cap Growth Fund (the “Fund”) as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund’s operations.
2 Reflects operations for the period from September 15, 2005 (date of initial investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Represents less than $0.01.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
6 During the period, the Fund received a regulatory settlement from an unaffiliated third party, which had an impact of 0.09% on the total return (See Notes to Financial Statements, Note 9).
7 Computed on an annualized basis.
8 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights--Class B Shares
(For a Share Outstanding Throughout Each Period)
Year Ended 7/31/2009 | Period Ended 7/31/2008 | 1 | ||||
Net Asset Value, Beginning of Period | $11.61 | $11.26 | ||||
Income From Investment Operations: | ||||||
Net investment income (loss) | (0.14 | )2 | (0.09 | )2 | ||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | (3.66 | ) | 0.44 | |||
TOTAL FROM INVESTMENT OPERATIONS | (3.80 | ) | 0.35 | |||
Regulatory Settlement Proceeds | 0.00 | 3 | -- | |||
Net Asset Value, End of Period | $7.81 | $11.61 | ||||
Total Return4 | (32.73 | )% | 3.11 | % | ||
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Ratios to Average Net Assets: | ||||||
Net expenses | 2.50 | % | 2.50 | %5 | ||
Net investment income (loss) | (1.75 | )% | (1.96 | )%5 | ||
Expense waiver/reimbursement6 | 1.02 | % | 1.05 | %5 | ||
Supplemental Data: | ||||||
Net assets, end of period (000 omitted) | $3,088 | $9,811 | ||||
Portfolio turnover | 244 | % | 212 | %7 | ||
1 Reflects operations for the period from March 13, 2008 (date of initial investment) to July 31, 2008.
2 Per share numbers have been calculated using the average shares method.
3 Represents less than $0.01.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
7 Portfolio turnover is calculated at the Fund level. Percentage indicated was calculated for the year ended July 31, 2008.
See Notes which are an integral part of the Financial Statements
Financial Highlights--Class C Shares
(For a Share Outstanding Throughout Each Period)
|
| Year Ended July 31, |
|
| Period | 2 | ||||||
2009 |
| 2008 |
| 2007 | 1 | |||||||
Net Asset Value, Beginning of Period | $11.32 | $12.77 | $10.52 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.14 | )3 | (0.22 | )3 | (0.23 | )3 | (0.26 | )3 | ||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | (3.56 | ) | (1.16 | ) |
| 2.48 | 0.78 | |||||
TOTAL FROM INVESTMENT OPERATIONS | (3.70 | ) | (1.38 | ) | 2.25 | 0.52 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | -- | (0.07 | ) | -- | -- | |||||||
Regulatory Settlement Proceeds | 0.00 | 4 | -- | -- | -- | |||||||
Net Asset Value, End of Period | $7.62 | $11.32 | $12.77 | $10.52 | ||||||||
Total Return5 | (32.69 | )% | (10.89 | )% | 21.39 | % | 5.20 | % | ||||
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Ratios to Average Net Assets: | ||||||||||||
Net expenses | 2.50 | % | 2.47 | % | 2.50 | % | 2.77 | %6 | ||||
Net investment income (loss) | (1.79 | )% | (1.93 | )% | (1.92 | )% | (2.25 | )%6 | ||||
Expense waiver/reimbursement7 | 1.02 | % | 1.07 | % | 27.07 | % | 25.65 | %6 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $4,069 | $6,450 | $702 | $348 | ||||||||
Portfolio turnover | 244 | % | 212 | % | 157 | % | 157 | % | ||||
1 The Predecessor Fund was reorganized into the Fund as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund’s operations.
2 Reflects operations for the period from September 15, 2005 (date of initial investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Represents less than $0.01.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
6 Computed on an annualized basis.
7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning |
| Ending |
| Expenses Paid | |
Actual: | ||||||
Class A Shares | $1,000 | $1,129.50 | $9.19 | |||
Class B Shares | $1,000 | $1,123.70 | $13.11 | |||
Class C Shares | $1,000 | $1,125.60 | $13.18 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $1,016.17 | $8.70 | |||
Class B Shares | $1,000 | $1,012.45 | $12.42 | |||
Class C Shares | $1,000 | $1,012.40 | $12.47 | |||
1 Expenses are equal to the Fund’s annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). The annualized net expense ratios are as follows:
Class A Shares |
| 1.74% |
Class B Shares | 2.49% | |
Class C Shares | 2.50% | |
Management’s Discussion of Fund Performance (unaudited)
The fund’s total return, based on net asset value, for the fiscal year ended July 31, 2009 was -32.15% for Class A Shares, -32.73% for Class B Shares and -32.69% for Class C Shares.1 The total returns of the Russell 2000® Growth Index2 and the Lipper Small-Cap Growth Funds Index3 were -20.86% and -19.81%, respectively, for the reporting period. The fund’s total return for the fiscal year reflected actual cash flows, transaction costs and other expenses which were not reflected in the total return of the Russell or Lipper index.
The following discussion will focus on the performance of the fund’s Class A Shares.
MARKET OVERVIEW
Over the twelve month period ending July 31, 2009 domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000® Index,4 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200® Index,5 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000® Index6 and the Russell Midcap® Index,7 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000® Growth Index8 returning -17.81% as compared to -22.74% for the Russell 3000 Value® Index.9
1 Small company stocks may be less liquid and subject to greater price volatility than large capitalization stocks.
2 Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The index is unmanaged and investments cannot be made in an index.
3 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
4 Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged and investments cannot be made in an index.
5 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000® Index, which represents approximately 65% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.The best performing sectors in the Russell 3000® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
FUND PERFORMANCE
The most significant positive factor in the fund’s performance relative to the Russell 2000® Growth Index was an underweight in the Energy sector. Additionally, an overweight in the Consumer Staples sector contributed moderately. Stock selection in the Consumer Staples sector and, to a lesser degree, the Materials sector contributed moderately to relative performance. Individual stocks contributing to the fund’s performance relative to the Russell 2000® Growth Index included: Green Mountain Coffee Roasters, Data Domain Incorporated, Bway Holding Company, and Pegasystems Incorporated.
The most significant negative factor in the fund’s performance relative to the Russell 2000® Growth Index was stock selection in the Industrials, Health Care, and Consumer Discretionary sectors. Stock selection in Information Technology detracted more moderately. An underweight in the Health Care sector also detracted significantly from relative performance. Individual stocks detracting from the fund’s performance relative to the Russell 2000® Growth Index included: Robbins & Myers, Incorporated, Gulf Island Fabrication, Incorporated, Parexel International Corporation, and Oil States International, Incorporated.
6 Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index. The index is unmanaged and investments cannot be made in an index.
7 Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 35% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
8 Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000® Growth or the Russell 2000® Growth indexes. The index is unmanaged and investments cannot be made in an index.
9 Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000® Value or the Russell 2000® Value indexes. The index is unmanaged and investments cannot be made in an index.
GROWTH OF A $10,000 INVESTMENT -- CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,0001 in the Federated MDT Small Cap Growth Fund2 (Class A Shares) (the “Fund”) from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000® Growth Index (Russell 2000® Growth)3 and the Lipper Small-Cap Growth Funds Index.4
Average Annual Total Returns for the Period Ended 7/31/2009 |
| |
1 Year | (35.87)% | |
Start of Performance (9/15/2005) | (7.29)% | |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50%.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund’s performance assumes the reinvestment of all dividends and distributions. The Russell 2000® Growth and the Lipper Small-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Growth Fund.
3 The Russell 2000® Growth is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund’s performance. The index is unmanaged and, unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
GROWTH OF A $10,000 INVESTMENT -- CLASS B SHARES
The Fund’s Class B Shares commenced operation on March 17, 2008. The Fund offers three other classes of shares: Institutional Shares, Class A Shares and Class C Shares. For the period prior to commencement of operations of Class B Shares, the performance information shown is for the Fund’s Institutional Shares, adjusted to reflect the expenses of Class B Shares. The graph below illustrates the hypothetical investment of $10,0001 in the Federated MDT Small Cap Growth Fund2 (Class B Shares) (the “Fund”) from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000® Growth Index (Russell 2000® Growth)3 and the Lipper Small-Cap Growth Funds Index.4
Average Annual Total Returns for the Period Ended 7/31/2009 |
| |
1 Year | (36.43)% | |
Start of Performance (9/15/2005) | (7.40)% | |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 5.50%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 5.50% on any redemption less than one year from the purchase date. The Fund’s performance assumes the reinvestment of all dividends and distributions. The Russell 2000® Growth and the Lipper Small-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Growth Fund.
3 The Russell 2000® Growth is not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund’s performance. The index is unmanaged and, unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
GROWTH OF A $10,000 INVESTMENT -- CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,0001 in the Federated MDT Small Cap Growth Fund2 (Class C Shares) (the “Fund”) from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000® Growth Index (Russell 2000® Growth)3 and the Lipper Small-Cap Growth Funds Index.4
Average Annual Total Returns for the Period Ended 7/31/2009 |
| |
1 Year | (33.36)% | |
Start of Performance (9/15/2005) | (6.65)% | |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund’s performance assumes the reinvestment of all dividends and distributions. The Russell 2000® Growth and the Lipper Small-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Growth Fund.
3 The Russell 2000® Growth is not adjusted to reflect sales charges, expenses, or other fees that the SEC requires to be reflected in the Fund’s performance. The index is unmanaged and, unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund’s industry composition1 was as follows:
Industry Composition |
| Percentage of | |
Clothing Stores | 9.1 | % | |
Restaurant | 8.9 | % | |
Software Packaged/Custom | 7.0 | % | |
Undesignated Consumer Cyclicals | 4.9 | % | |
Telecommunication Equipment & Services | 3.9 | % | |
Home Health Care | 3.8 | % | |
Apparel | 3.2 | % | |
Miscellaneous Components | 3.2 | % | |
Semiconductor Manufacturing | 3.0 | % | |
Packaged Foods | 2.9 | % | |
Computer Services | 2.7 | % | |
Services to Medical Professionals | 2.6 | % | |
Shoes | 2.5 | % | |
Medical Supplies | 2.3 | % | |
Other Communications Equipment | 1.9 | % | |
Furniture | 1.6 | % | |
Home Products | 1.6 | % | |
Computer Peripherals | 1.5 | % | |
Medical Technology | 1.5 | % | |
Miscellaneous Communications | 1.5 | % | |
Specialty Retailing | 1.5 | % | |
Printed Circuit Boards | 1.4 | % | |
Commodity Chemicals | 1.3 | % | |
Food Wholesaling | 1.3 | % | |
Grocery Chain | 1.3 | % | |
Computer Networking | 1.2 | % | |
Discount Department Stores | 1.2 | % | |
Electric & Electrical Original Equipment Manufacturers | 1.2 | % | |
Financial Services | 1.2 | % | |
Undesignated Technology | 1.2 | % | |
Contracting | 1.1 | % | |
Electrical Test/Measuring Equipment | 1.1 | % | |
Miscellaneous Machinery | 1.1 | % | |
Personal Loans | 1.1 | % | |
Roofing & Wallboard | 1.1 | % | |
Electronic Instruments | 1.0 | % | |
Hotels and Motels | 1.0 | % | |
Other2 | 8.7 | % | |
Cash Equivalents3 | 1.7 | % | |
Other Assets and Liabilities--Net4 | (0.3 | )% | |
TOTAL | 100.0 | % | |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund’s total net assets have been aggregated under the designation “Other.”
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares |
|
| Value |
| ||
COMMON STOCKS--98.6% |
| |||||
Apparel--3.2% |
| |||||
35,599 | 1 | Carter’s, Inc. | $ | 1,008,876 |
| |
15,045 | 1 | Maidenform Brands, Inc. | 208,072 |
| ||
26,205 | 1 | Warnaco Group, Inc. | 952,028 |
| ||
TOTAL | 2,168,976 |
| ||||
Biotechnology--0.5% |
| |||||
5,529 | 1 | Air Methods Corp. | 162,608 |
| ||
4,271 | 1 | BioCryst Pharmaceuticals, Inc. | 39,293 |
| ||
3,481 | 1 | Onyx Pharmaceuticals, Inc. | 125,038 |
| ||
TOTAL | 326,939 |
| ||||
Building Materials--0.2% |
| |||||
6,184 | Aaon, Inc. | 121,268 |
| |||
Clothing Stores--9.1% |
| |||||
10,829 | Buckle, Inc. | 335,049 |
| |||
42,472 | Cato Corp., Class A | 844,343 |
| |||
53,372 | 1 | Chicos Fas, Inc. | 612,177 |
| ||
26,232 | 1 | Children’s Place Retail Stores, Inc. | 859,623 |
| ||
26,796 | 1 | Citi Trends, Inc. | 782,443 |
| ||
32,688 | 1 | Fossil, Inc. | 861,002 |
| ||
16,155 | 1 | Gymboree Corp. | 642,646 |
| ||
30,211 | 1 | J. Crew Group, Inc. | 850,742 |
| ||
10,762 | 1 | Jos A. Bank Clothiers, Inc. | 393,782 |
| ||
TOTAL | 6,181,807 |
| ||||
Commercial Services--0.4% |
| |||||
6,590 | 1 | VistaPrint Ltd. | 271,838 |
| ||
Commodity Chemicals--1.3% |
| |||||
11,392 | Newmarket Corp. | 861,805 |
| |||
Computer Networking--1.2% |
| |||||
34,969 | 1 | Starent Networks Corp. | 838,557 |
| ||
Computer Peripherals--1.5% |
| |||||
26,818 | 1 | STEC, Inc. | 914,226 |
| ||
5,788 | 1 | Synaptics, Inc. | 138,738 |
| ||
TOTAL | 1,052,964 |
| ||||
Computer Services--2.7% |
| |||||
5,222 | 1 | CACI International, Inc., Class A | 241,256 |
| ||
34,880 | 1 | Riverbed Technology, Inc. | 697,949 |
| ||
COMMON STOCKS--continued |
| |||||
Computer Services--continued |
| |||||
23,535 | Syntel, Inc. | $ | 931,515 |
| ||
TOTAL | 1,870,720 |
| ||||
Contracting--1.1% |
| |||||
33,600 | 1 | Orion Marine Group, Inc. | 751,296 |
| ||
Cosmetics & Toiletries--0.1% |
| |||||
8,266 | 1 | Bare Escentuals, Inc. | 73,237 |
| ||
Crude Oil & Gas Production--0.3% |
| |||||
16,945 | W&T Offshore, Inc. | 181,142 |
| |||
Discount Department Stores--1.2% |
| |||||
53,398 | 1 | 99 Cents Only Stores | 782,281 |
| ||
4,047 | Pricesmart, Inc. | 66,007 |
| |||
TOTAL | 848,288 |
| ||||
Diversified Leisure--0.2% |
| |||||
10,268 | 1 | Pinnacle Entertainment, Inc. | 102,988 |
| ||
Electric & Electrical Original Equipment Manufacturers--1.2% |
| |||||
21,220 | Cubic Corp. | 830,975 |
| |||
Electrical Test/Measuring Equipment--1.1% |
| |||||
20,119 | Badger Meter, Inc. | 741,385 |
| |||
Electronic Components--0.2% |
| |||||
8,287 | 1 | Volterra Semiconductor Corp. | 137,481 |
| ||
Electronic Instruments--1.0% |
| |||||
34,079 | 1 | OSI Systems, Inc. | 675,105 |
| ||
Ethical Drugs--0.1% |
| |||||
14,400 | 1 | Matrixx Initiatives, Inc. | 81,216 |
| ||
Financial Services--1.2% |
| |||||
5,391 | Deluxe Corp. | 84,369 |
| |||
78,693 | 1 | Global Cash Access LLC | 708,237 |
| ||
TOTAL | 792,606 |
| ||||
Food Wholesaling--1.3% |
| |||||
43,380 | Calavo Growers, Inc. | 880,614 |
| |||
Furniture--1.6% |
| |||||
26,288 | Aaron’s, Inc. | 722,131 |
| |||
24,605 | Tempur-Pedic International, Inc. | 364,892 |
| |||
TOTAL | 1,087,023 |
| ||||
Grocery Chain--1.3% |
| |||||
33,407 | Casey’s General Stores, Inc. | 916,354 |
| |||
COMMON STOCKS--continued |
| |||||
Home Health Care--3.8% |
| |||||
2,719 | 1 | Amedisys, Inc. | $ | 121,566 |
| |
27,678 | 1 | Amerigroup Corp. | 683,093 |
| ||
39,072 | 1 | Gentiva Health Services, Inc. | 831,452 |
| ||
32,688 | 1 | LHC Group, Inc. | 959,393 |
| ||
TOTAL | 2,595,504 |
| ||||
Home Products--1.6% |
| |||||
31,614 | Tupperware Brands Corp. | 1,077,089 |
| |||
Hotels and Motels--1.0% |
| |||||
34,996 | Ameristar Casinos, Inc. | 654,075 |
| |||
Industrial Machinery--0.1% |
| |||||
4,144 | 1 | Chart Industries, Inc. | 79,813 |
| ||
Industrial Services--0.1% |
| |||||
2,680 | 1 | EnerNOC, Inc. | 82,222 |
| ||
Insurance Brokerage--0.3% |
| |||||
3,556 | AmTrust Financial Services, Inc. | 43,454 |
| |||
7,586 | Life Partners Holdings, Inc. | 163,706 |
| |||
TOTAL | 207,160 |
| ||||
Internet Services--0.2% |
| |||||
2,616 | 1 | Blue Nile, Inc. | 120,938 |
| ||
Mail Order--0.1% |
| |||||
12,020 | 1 | Coldwater Creek, Inc. | 88,227 |
| ||
Medical Supplies--2.3% |
| |||||
23,508 | 1 | Align Technology, Inc. | 256,472 |
| ||
51,695 | 1 | American Medical Systems Holdings, Inc. | 790,417 |
| ||
873 | 1 | MWI Veterinary Supply, Inc. | 33,506 |
| ||
1,293 | 1 | NuVasive, Inc. | 53,517 |
| ||
17,974 | 1 | PetMed Express, Inc. | 333,597 |
| ||
4,987 | 1 | Sirona Dental Systems, Inc. | 129,612 |
| ||
TOTAL | 1,597,121 |
| ||||
Medical Technology--1.5% |
| |||||
36,340 | 1 | Bruker BioSciences Corp. | 365,580 |
| ||
17,560 | 1 | Cyberonics, Inc. | 291,672 |
| ||
13,320 | 1 | Thoratec Laboratories Corp. | 334,865 |
| ||
TOTAL | 992,117 |
| ||||
Miscellaneous Communications--1.5% |
| |||||
13,415 | Harte-Hanks | 145,150 |
| |||
5,638 | 1 | NIC, Inc. | 42,792 |
| ||
593 | NTELOS Holdings Corp. | 9,186 |
| |||
COMMON STOCKS--continued |
| |||||
Miscellaneous Communications--continued |
| |||||
34,724 | 1 | j2 Global Communications, Inc. | $ | 833,029 |
| |
TOTAL | 1,030,157 |
| ||||
Miscellaneous Components--3.2% |
| |||||
28,880 | 1 | Amkor Technology, Inc. | 180,789 |
| ||
35,118 | 1 | Applied Micro Circuits Corp. | 303,771 |
| ||
36,727 | 1 | Atheros Communications | 918,175 |
| ||
21,857 | 1 | Power Integrations, Inc. | 640,192 |
| ||
9,397 | 1 | Zoran Corp. | 108,253 |
| ||
TOTAL | 2,151,180 |
| ||||
Miscellaneous Machinery--1.1% |
| |||||
17,201 | Nordson Corp. | 772,325 |
| |||
Motion Pictures--0.0% |
| |||||
1,853 | Cinemark Holdings, Inc. | 20,550 |
| |||
Mutual Fund Adviser--0.1% |
| |||||
2,307 | GAMCO Investors, Inc., Class A | 105,315 |
| |||
Oil Refiner--0.2% |
| |||||
3,130 | World Fuel Services Corp. | 137,282 |
| |||
Other Communications Equipment--1.9% |
| |||||
75,833 | 1 | Skyworks Solutions, Inc. | 916,063 |
| ||
21,551 | 1 | Syniverse Holdings, Inc. | 377,789 |
| ||
TOTAL | 1,293,852 |
| ||||
Packaged Foods--2.9% |
| |||||
51,940 | 1 | Bway Holding Co. | 828,443 |
| ||
6,286 | J&J Snack Foods Corp. | 272,435 |
| |||
18,669 | Lancaster Colony Corp. | 850,186 |
| |||
TOTAL | 1,951,064 |
| ||||
Paper Products--0.8% |
| |||||
8,073 | Rock-Tenn Co. | 362,962 |
| |||
20,920 | Wausau-Mosinee Paper Corp. | 196,648 |
| |||
TOTAL | 559,610 |
| ||||
Personal Loans--1.1% |
| |||||
29,267 | 1 | First Cash Financial Services, Inc. | 550,220 |
| ||
8,917 | 1 | World Acceptance Corp. | 211,511 |
| ||
TOTAL | 761,731 |
| ||||
Personnel Agency--0.3% |
| |||||
8,953 | 1 | Dyncorp International, Inc., Class A | 181,835 |
| ||
Poultry Products--0.6% |
| |||||
9,360 | Sanderson Farms, Inc. | 380,765 |
| |||
COMMON STOCKS--continued |
| |||||
Printed Circuit Boards--1.4% |
| |||||
90,653 | 1 | PMC-Sierra, Inc. | $ | 829,475 |
| |
6,034 | 1 | Sigma Designs, Inc. | 97,570 |
| ||
TOTAL | 927,045 |
| ||||
Printing--0.4% |
| |||||
21,471 | 1 | Valassis Communications, Inc. | 244,555 |
| ||
Recreational Goods--0.1% |
| |||||
4,651 | 1 | Sturm Ruger & Co., Inc. | 58,044 |
| ||
Recreational Vehicles--0.1% |
| |||||
2,392 | Polaris Industries, Inc., Class A | 90,585 |
| |||
Regional Bank--0.1% |
| |||||
1,425 | WestAmerica Bancorp. | 74,471 |
| |||
Restaurant--8.9% |
| |||||
7,604 | 1 | CEC Entertainment, Inc. | 221,809 |
| ||
57,795 | 1 | California Pizza Kitchen, Inc. | 953,617 |
| ||
14,487 | 1 | Carrols Restaurant Group, Inc. | 98,077 |
| ||
36,886 | 1 | Cheesecake Factory, Inc. | 714,482 |
| ||
10,523 | 1 | Chipotle Mexican Grill, Inc., Class B | 860,255 |
| ||
12,667 | Cracker Barrel Old Country Store, Inc. | 365,570 |
| |||
47,896 | 1 | Domino’s Pizza, Inc. | 393,705 |
| ||
13,866 | 1 | Green Mountain Coffee, Inc. | 976,721 |
| ||
21,588 | 1 | P. F. Chang’s China Bistro, Inc. | 732,049 |
| ||
800 | 1 | Papa Johns International, Inc. | 20,328 |
| ||
62,959 | 1 | Texas Roadhouse, Inc. | 700,734 |
| ||
TOTAL | 6,037,347 |
| ||||
Roofing & Wallboard--1.1% |
| |||||
43,723 | 1 | Beacon Roofing Supply, Inc. | 733,235 |
| ||
Rubber--0.4% |
| |||||
20,554 | Cooper Tire & Rubber Co. | 303,377 |
| |||
Semiconductor Distribution--0.6% |
| |||||
25,465 | 1 | Tyler Technologies, Inc. | 392,161 |
| ||
Semiconductor Manufacturing--3.0% |
| |||||
21,389 | 1 | Monolithic Power Systems | 474,622 |
| ||
7,099 | 1 | NVE Corp. | 381,429 |
| ||
9,383 | 1 | NetLogic Microsystems, Inc. | 372,880 |
| ||
45,291 | 1 | Semtech Corp. | 833,354 |
| ||
TOTAL | 2,062,285 |
| ||||
COMMON STOCKS--continued |
| |||||
Semiconductor Manufacturing Equipment--0.6% |
| |||||
10,481 | 1 | Tessera Technologies, Inc. | $ | 294,411 |
| |
7,173 | 1 | Veeco Instruments, Inc. | 135,139 |
| ||
TOTAL | 429,550 |
| ||||
Services to Medical Professionals--2.6% |
| |||||
1,939 | 1 | Bio-Reference Laboratories, Inc. | 62,164 |
| ||
23,189 | 1 | Genoptix, Inc. | 726,048 |
| ||
10,225 | 1 | HMS Holdings Corp. | 392,640 |
| ||
13,089 | 1 | PharMerica Corp. | 274,345 |
| ||
11,868 | 1 | RehabCare Group, Inc. | 285,544 |
| ||
2,037 | 1 | Virtual Radiologic Corp. | 23,792 |
| ||
TOTAL | 1,764,533 |
| ||||
Shoes--2.5% |
| |||||
21,572 | 1 | Steven Madden Ltd. | 691,598 |
| ||
39,689 | 1 | Timberland Co., Class A | 541,358 |
| ||
20,732 | Wolverine World Wide, Inc. | 499,641 |
| |||
TOTAL | 1,732,597 |
| ||||
Software Packaged/Custom--7.0% |
| |||||
1,845 | 1 | ACI Worldwide, Inc. | 27,804 |
| ||
11,812 | 1 | Actuate Software Corp. | 61,777 |
| ||
1,510 | Acxiom Corp. | 14,571 |
| |||
24,925 | 1 | Advent Software, Inc. | 908,516 |
| ||
22,184 | 1 | ArcSight, Inc. | 420,830 |
| ||
4,809 | 1 | Ariba, Inc. | 50,543 |
| ||
22,982 | 1 | Art Technology Group, Inc. | 87,102 |
| ||
1,225 | 1 | Bottomline Technologies, Inc. | 12,532 |
| ||
36,289 | 1 | CSG Systems International, Inc. | 605,301 |
| ||
17,402 | 1 | Interactive Intelligence, Inc. | 281,216 |
| ||
32,726 | Pegasystems, Inc. | 926,146 |
| |||
103,022 | 1 | S1 Corp. | 730,426 |
| ||
6,248 | 1 | Sourcefire, Inc. | 110,215 |
| ||
26,679 | 1 | Successfactors, Inc. | 281,463 |
| ||
17,445 | 1 | ValueClick, Inc. | 200,618 |
| ||
2,069 | 1 | Websense, Inc. | 30,621 |
| ||
TOTAL | 4,749,681 |
| ||||
Specialty Chemicals--0.2% |
| |||||
62 | Chemed Corp. | 2,734 |
| |||
3,714 | Koppers Holdings, Inc. | 103,658 |
| |||
TOTAL | 106,392 |
| ||||
COMMON STOCKS--continued |
| |||||
Specialty Retailing--1.5% |
| |||||
6,512 | 1 | Jo-Ann Stores, Inc. | $ | 151,730 |
| |
5,747 | 1 | Kirkland’s, Inc. | 79,366 |
| ||
16,039 | 1 | Tractor Supply Co. | 769,391 |
| ||
TOTAL | 1,000,487 |
| ||||
Surveillance-Detection--0.5% |
| |||||
10,856 | Brinks Home Security Holding | 323,726 |
| |||
Telecommunication Equipment & Services--3.9% |
| |||||
20,581 | 1 | Acme Packet, Inc. | 206,633 |
| ||
32,609 | Applied Signal Technology, Inc. | 815,225 |
| |||
64,633 | 1 | Arris Group, Inc. | 787,230 |
| ||
18,125 | 1 | Neutral Tandem, Inc. | 561,875 |
| ||
6,655 | 1 | Novatel Wireless, Inc. | 63,089 |
| ||
10,698 | Plantronics, Inc. | 253,222 |
| |||
TOTAL | 2,687,274 |
| ||||
Undesignated Consumer Cyclicals--4.9% |
| |||||
12,573 | 1 | APAC Customer Services, Inc. | 62,614 |
| ||
7,608 | 1 | Avis Budget Group, Inc. | 65,048 |
| ||
943 | 1 | Capella Education Co. | 60,691 |
| ||
46,104 | 1 | Corinthian Colleges, Inc. | 711,846 |
| ||
6,524 | 1 | Euronet Worldwide, Inc. | 137,265 |
| ||
25,868 | 1 | Geo Group, Inc. | 465,107 |
| ||
17,115 | 1 | Grand Canyon Education, Inc. | 299,684 |
| ||
21,931 | 1 | Lincoln Educational Services | 446,515 |
| ||
13,300 | Nu Skin Enterprises, Inc., Class A | 239,533 |
| |||
30,825 | 1 | Wright Express Corp. | 871,731 |
| ||
TOTAL | 3,360,034 |
| ||||
Undesignated Health--0.9% |
| |||||
27,084 | 1 | Eclipsys Corp. | 492,929 |
| ||
9,035 | 1 | HealthSouth Corp. | 130,104 |
| ||
TOTAL | 623,033 |
| ||||
Undesignated Technology--1.2% |
| |||||
65,260 | 1 | RightNow Technologies, Inc. | 785,730 |
| ||
TOTAL COMMON STOCKS (IDENTIFIED COST $57,076,446) | 67,120,658 |
| ||||
MUTUAL FUND--1.7% |
| |||||
1,182,053 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% | $ | 1,182,053 |
| |
TOTAL INVESTMENTS--100.3% (IDENTIFIED COST $58,258,499)4 | 68,302,711 |
| ||||
OTHER ASSETS AND LIABILITIES--NET--(0.3)%5 | (216,584 | ) | ||||
TOTAL NET ASSETS--100% | $ | 68,086,127 |
| |||
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $58,718,397.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund’s assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1-- |
| Level 2-- |
| Level 3-- |
| Total | |
Equity Securities: |
|
|
|
| ||||
Domestic |
| $66,848,820 |
| $-- |
| $-- |
| $66,848,820 |
International |
| 271,838 |
| -- |
| -- |
| 271,838 |
Mutual Fund |
| 1,182,053 |
| -- |
| -- |
| 1,182,053 |
TOTAL SECURITIES |
| $68,302,711 |
| $-- | �� | $-- |
| $68,302,711 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: |
|
| ||||||
Total investments in securities, at value including $1,182,053 of investments in an affiliated issuer (Note 5) (identified cost $58,258,499) | $ | 68,302,711 | ||||||
Cash | 111 | |||||||
Income receivable | 17,100 | |||||||
Receivable for investments sold | 2,248,747 | |||||||
Receivable for shares sold | 227,505 | |||||||
TOTAL ASSETS | 70,796,174 | |||||||
Liabilities: | ||||||||
Payable for investments purchased | $ | 2,176,640 | ||||||
Payable for shares redeemed | 392,868 | |||||||
Payable for distribution services fee (Note 5) | 4,334 | |||||||
Payable for shareholder services fee (Note 5) | 14,971 | |||||||
Accrued expenses | 121,234 | |||||||
TOTAL LIABILITIES | 2,710,047 | |||||||
Net assets for 8,643,760 shares outstanding | $ | 68,086,127 | ||||||
Net Assets Consist of: | ||||||||
Paid-in capital | $ | 116,506,529 | ||||||
Net unrealized appreciation of investments and translation of assets and liabilities in foreign currency | 10,044,509 | |||||||
Accumulated net realized loss on investments | (58,464,911 | ) | ||||||
TOTAL NET ASSETS | $ | 68,086,127 | ||||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | ||||||||
Institutional Shares: | ||||||||
Net asset value per share ($39,246,221 ÷ 4,951,345 shares outstanding), | $7.93 | |||||||
Offering price per share | $7.93 | |||||||
Redemption proceeds per share | $7.93 | |||||||
Class A Shares: | ||||||||
Net asset value per share ($21,682,113 ÷ 2,763,209 shares outstanding), | $7.85 | |||||||
Offering price per share (100/94.50 of $7.85) | $8.31 | |||||||
Redemption proceeds per share | $7.85 | |||||||
Class B Shares: | ||||||||
Net asset value per share ($3,088,411 ÷ 395,196 shares outstanding), | $7.81 | |||||||
Offering price per share | $7.81 | |||||||
Redemption proceeds per share (94.50/100 of $7.81) | $7.38 | |||||||
Class C Shares: | ||||||||
Net asset value per share ($4,069,382 ÷ 534,010 shares outstanding), | $7.62 | |||||||
Offering price per share | $7.62 | |||||||
Redemption proceeds per share (99.00/100 of $7.62) | $7.54 | |||||||
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: |
|
|
| |||||||||
Dividends (including $23,627 received from an affiliated issuer) (Note 5) | $ | 534,680 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 878,484 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 57,854 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 456,027 | |||||||||||
Directors’/Trustees’ fees | 2,043 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 2,232 | |||||||||||
Portfolio accounting fees | 77,814 | |||||||||||
Distribution services fee--Class B Shares (Note 5) | 35,273 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 31,200 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 54,370 | |||||||||||
Shareholder services fee--Class B Shares (Note 5) | 11,758 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 10,158 | |||||||||||
Account administration fee--Class A Shares | 263 | |||||||||||
Account administration fee--Class C Shares | 242 | |||||||||||
Share registration costs | 61,622 | |||||||||||
Printing and postage | 81,804 | |||||||||||
Insurance premiums | 4,584 | |||||||||||
Miscellaneous | 6,542 | |||||||||||
TOTAL EXPENSES | 2,064,770 | |||||||||||
Waivers and Reimbursement (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (723,410 | ) | |||||||||
Waiver of administrative personnel and services fee | (54,234 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENT | (777,644 | ) | ||||||||||
Net expenses | 1,287,126 | |||||||||||
Net investment income (loss) | (752,446 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions: | ||||||||||||
Net realized loss on investments | (43,745,847 | ) | ||||||||||
Net change in unrealized appreciation of investments and translation of assets and liabilities in foreign currency | 6,155,270 | |||||||||||
Net realized and unrealized loss on investments and foreign currency transactions | (37,590,577 | ) | ||||||||||
Change in net assets resulting from operations | $ | (38,343,023 | ) | |||||||||
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 |
| 2009 |
| 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (752,446 | ) | $ | (628,923 | ) | ||
Net realized loss on investments | (43,745,847 | ) | (11,971,658 | ) | ||||
Net change in unrealized appreciation/depreciation of investments and translation of assets and liabilities in foreign currency | 6,155,270 | 9,435,934 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (38,343,023 | ) | (3,164,647 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | -- | (155,811 | ) | |||||
Class A Shares | -- | (11,057 | ) | |||||
Class C Shares | -- | (6,609 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | -- | (173,477 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 47,977,404 | 73,388,956 | ||||||
Proceeds from shares issued in connection with the tax-free transfer of assets from Federated Technology Fund | -- | 44,263,203 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | -- | 146,644 | ||||||
Cost of shares redeemed | (51,913,689 | ) | (21,595,763 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (3,936,285 | ) | 96,203,040 | |||||
Regulatory Settlement Proceeds: | ||||||||
Net increase from regulatory settlement proceeds (Note 9) | 21,744 | -- | ||||||
Change in net assets | (42,257,564 | ) | 92,864,916 | |||||
Net Assets: | ||||||||
Beginning of period | 110,343,691 | 17,478,775 | ||||||
End of period (including accumulated net investment income (loss) of $0 and $(1,014), respectively) | $ | 68,086,127 | $ | 110,343,691 | ||||
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Small Cap Growth Fund (the “Fund”), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class B Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of Institutional Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
Effective March 13, 2008, the Fund began offering Class B Shares.
On March 14, 2008, the Fund received assets from Federated Technology Fund as the result of a tax-free reorganization, as follows:
Shares of the Fund Issued |
| Federated |
| Unrealized |
| Net Assets of |
| Net Assets |
3,954,962 | $44,263,203 | $(6,136,744) | $40,850,828 | $85,114,031 | ||||
1 Unrealized Depreciation is included in the Federated Technology Fund Net Assets Received amount shown above.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the “Trustees”).
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund’s NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers, and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment’s value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer’s operations or regulatory changes or market developments affecting the issuer’s industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund’s custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund’s Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as account administration, distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue Code (the “Code”) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund’s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies (FCs) are translated into U.S. dollars based on the rates of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of FCs, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
|
| Year Ended |
| Year Ended | ||||||||||
Institutional Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 5,176,597 | $ | 39,561,116 | 4,827,064 | $ | 59,077,425 | ||||||||
Shares issued to shareholders in payment of distributions declared |
| -- |
|
|
| -- |
|
| 10,017 |
|
| 133,229 |
| |
Shares redeemed | (5,561,903 | ) | (39,745,579 | ) | (747,875 | ) | (8,924,748 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | (385,306 | ) | $ | (184,463 | ) | 4,089,206 | $ | 50,285,906 | ||||||
|
| Year Ended |
| Year Ended | ||||||||||
Class A Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 813,650 | $ | 6,394,677 | 1,014,861 | $ | 12,172,465 | ||||||||
Shares issued in connection with tax-free transfer of assets from Federated Technology Fund | -- | -- | 1,965,099 | 21,986,533 | ||||||||||
Shares issued to shareholders in payment of distributions declared |
| -- |
|
| -- |
|
| 766 |
|
| 10,117 |
| ||
Shares redeemed | (805,473 | ) | (6,183,703 | ) | (266,794 | ) | (3,116,808 | ) | ||||||
NET CHANGE RESULTING FROM | 8,177 | $ | 210,974 | 2,713,932 | $ | 31,052,307 | ||||||||
| Year Ended |
|
| Period Ended |
| |||||||||
Class B Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 57,338 | $ | 513,202 | 12,136 | $ | 147,178 | ||||||||
Shares issued to shareholders in payment of distributions declared |
| -- |
|
|
| -- |
|
| ,540,719 |
|
|
| 17,345,297 |
|
Shares redeemed | (507,162 | ) | (4,183,051 | ) | (707,835 | ) | (8,399,050 | ) | ||||||
NET CHANGE RESULTING FROM | (449,824 | ) | $ | (3,669,849 | ) | 845,020 | $ | 9,093,425 | ||||||
|
| Year Ended |
| Year Ended | ||||||||||
Class C Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 201,191 | $ | 1,508,409 | 164,693 | $ | 1,991,888 | ||||||||
Shares issued in connection with tax-free transfer of assets from Federated Technology Fund | -- | -- | 449,144 | 4,931,373 | ||||||||||
Shares issued to shareholders in payment of distributions declared |
| -- |
|
|
| -- |
|
| 254 |
|
|
| 3,298 |
|
Shares redeemed | (236,842 | ) | (1,801,356 | ) | (99,359 | ) | (1,155,157 | ) | ||||||
NET CHANGE RESULTING FROM | (35,651 | ) | $ | (292,947 | ) | 514,732 | $ | 5,771,402 | ||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS |
| (862,604 | ) |
| $ | (3,936,285 | ) |
| 8,162,890 |
|
| $ | 96,203,040 |
|
1 Reflects operations for the period from March 13, 2008 (date of initial investment) to July 31, 2008.
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments for expiration of capital loss carryforwards and net operating loss.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital |
| Undistributed |
| Accumulated |
$(60,132,536) | $753,460 | $59,379,076 | ||
Net investment income (loss), net realized gains (losses), and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 |
| 2008 | |
Ordinary income1 | $-- | $149,972 | ||
Long-term capital gains | $-- | $23,505 | ||
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation |
| $ | 9,584,611 |
|
Capital loss carryforwards and deferrals | $ | (58,005,013 | ) | |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $58,718,397. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation resulting from foreign currency transactions was $9,584,314. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $10,119,067 and net unrealized depreciation from investments for those securities having an excess of cost over value of $534,753.
At July 31, 2009, the Fund had a capital loss carryforward of $22,546,183 which will reduce the Fund’s taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year |
| Expiration Amount |
2010 | $2,459,915 | |
2016 | $202,553 | |
2017 | $19,883,715 | |
Capital loss carryforwards of $59,356,831 expired during the year ended July 31, 2009.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $35,458,830 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund’s investment adviser (the “Adviser”). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 1.15% of the Fund’s average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund’s aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name |
| Percentage of Average Daily |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% | |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $722,268 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee |
| Average Aggregate Daily Net Assets |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion | |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $54,234 of its fee. The net fee paid to FAS was 0.282% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund’s Class A Shares, Class B Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name |
| Percentage of Average Daily |
Class A Shares | 0.05% | |
Class B Shares | 0.75% | |
Class C Shares | 0.75% | |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $9,188 of fees paid by the Fund. For the year ended July 31, 2009, the Fund’s Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $2,381 in sales charges from the sale of Class A Shares. FSC also retained $2,371 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund’s Class A Shares, Class B Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $846 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund’s Institutional Shares, Class A Shares, Class B Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.50%, 1.75%, 2.50% and 2.50%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $1,142. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate |
| Balance of |
| Purchases/ |
| Sales/ |
| Balance of |
| Value |
| Dividend |
Prime Value Obligations Fund, Institutional Shares |
| 1,320,459 |
| 25,975,518 |
| 26,113,924 |
| 1,182,053 |
| $1,182,053 |
| $23,627 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases |
| $ | 188,796,812 |
Sales | $ | 192,710,445 | |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. REGULATORY SETTLEMENT PROCEEDS
The Fund received $21,744 in settlement of administrative proceedings against other unaffiliated third parties involving findings by the SEC of market timing and/or late trading of mutual funds. The settlement is recorded as an increase to paid-in capital in the accompanying financial statements.
10. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, “Federated”), and various Federated funds (“Federated Funds”) have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated’s first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General (“NYAG”), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds, and their respective counsel have been defending this litigation, and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys’ fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares, or other adverse consequences for the Federated Funds.
11. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT SMALL CAP GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Small Cap Growth Fund (the “Fund”) (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Small Cap Growth Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
/s/Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust’s business affairs and for exercising all the Trust’s powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are “interested persons” of the Fund (i.e., “Interested” Board members) and those who are not (i.e., “Independent” Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised 9 portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund’s Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name |
| Principal Occupation(s) for Past Five Years, |
John F. Donahue* | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex’s Executive Committee. | |
J. Christopher Donahue* | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. | |
* Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name |
| Principal Occupation(s) for Past Five Years, |
John T. Conroy, Jr. | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. | |
Nicholas P. Constantakis | Principal Occupation: Director or Trustee of the Federated Fund Complex. | |
John F. Cunningham | Principal Occupation: Director or Trustee of the Federated Fund Complex. | |
Maureen Lally-Green | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct professor of law, Duquesne University School of Law. | |
Peter E. Madden | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. | |
Charles F. Mansfield, Jr. | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. | |
R. James Nicholson | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. | |
Thomas M. O’Neill | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). | |
John S. Walsh | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. | |
James F. Will | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. | |
OFFICERS
Name |
| Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. | |
Richard A. Novak | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. | |
Brian P. Bouda | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract--May 2009
FEDERATED MDT SMALL CAP GROWTH FUND (THE “FUND”)
The Fund’s Board reviewed the Fund’s investment advisory contract at meetings held in May 2009. The Board’s decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds’ Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser’s fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser’s cost of providing the services; the extent to which the Adviser may realize “economies of scale” as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser’s relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser’s services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund’s advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer’s evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board’s formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board’s consideration of the advisory contract included review of the Senior Officer’s evaluation, accompanying data and additional reports covering such matters as: the Adviser’s investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund’s short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund’s investment objectives; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund’s relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated’s responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board’s evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund’s performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund’s investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund’s ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund’s investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser’s investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated’s fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund’s quantitative investment program is of such a type.
For both the one- and three-year periods covered by the report, the Fund’s performance was above the median of the relevant peer group. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and outperformed its benchmark index for the three-year period.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated’s subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds’ administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated’s profit margins did not appear to be excessive and the Board agreed.
The Senior Officer’s evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer’s evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated’s fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund’s investment advisory fee, after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer’s evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund’s advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser’s industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board’s approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board’s decision to approve the contract reflects its determination that Federated’s performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated’s website at FederatedInvestors.com. To access this information from the “Products” section of the website, click on the “Prospectuses and Regulatory Reports” link under “Related Information,” then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund’s page, click on the “Prospectuses and Regulatory Reports” link. Form N-PX filings are also available at the SEC’s website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q.” These filings are available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the “Products” section of Federated’s website at FederatedInvestors.com by clicking on “Portfolio Holdings” under “Related Information,” then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund’s page, click on the “Portfolio Holdings” link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the trust’s/fund’s prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
Federated Investors
World-Class Investment Manager
Federated MDT Small Cap Growth Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R775
Cusip 31421R767
Cusip 31421R676
37313 (9/09)
Federated is a registered mark of Federated Investors, Inc.
2009 ©Federated Investors, Inc.
Federated Investors
World-Class Investment Manager
Federated MDT Small Cap Growth Fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT’S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND FUND OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
|
| Year Ended July 31, | 1 |
| Period | 2 | ||||||
2009 |
| 2008 |
| 2007 | ||||||||
Net Asset Value, Beginning of Period | $11.66 | $13.02 | $10.61 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.06 | )3 | (0.11 | )3 | (0.13 | )3 | (0.13 | )3 | ||||
Net realized and unrealized gain (loss) on investments and foreign currency transactions | (3.67 | ) | (1.18 | ) |
| 2.54 | 0.74 | |||||
TOTAL FROM INVESTMENT OPERATIONS | (3.73 | ) | (1.29 | ) | 2.41 | 0.61 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | -- | (0.07 | ) | -- | -- | |||||||
Regulatory Settlement Proceeds | 0.00 | 4 | -- | -- | -- | |||||||
Net Asset Value, End of Period | $7.93 | $11.66 | $13.02 | $10.61 | ||||||||
Total Return5 | (31.99 | )% | (9.99 | )% | 22.71 | % | 6.10 | % | ||||
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Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.50 | % | 1.50 | % | 1.50 | % | 1.77 | %6 | ||||
Net investment income (loss) | (0.80 | )% | (0.91 | )% | (1.03 | )% | (1.25 | )%6 | ||||
Expense waiver/reimbursement7 | 1.02 | % | 1.09 | % | 5.58 | % | 25.65 | %6 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $39,246 | $62,209 | $16,245 | $227 | ||||||||
Portfolio turnover | 244 | % | 212 | % | 157 | % | 157 | % | ||||
1 MDT Small Cap Growth Fund (the “Predecessor Fund”) was reorganized into Federated MDT Small Cap Growth Fund (the “Fund”) as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund’s operations.
2 Reflects operations for the period from September 15, 2005 (date of initial investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Represents less than $0.01.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
6 Computed on an annualized basis.
7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning |
| Ending |
| Expenses Paid | |
Actual | $1,000 | $1,131.20 | $7.87 | |||
Hypothetical (assuming a 5% return | $1,000 | $1,017.41 | $7.45 | |||
1 Expenses are equal to the Fund’s annualized net expense ratio of 1.49%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).
Management’s Discussion of Fund Performance (unaudited)
The fund’s total return, based on net asset value, for the fiscal year ended July 31, 2009 was -31.99% for the fund’s Institutional Shares.1 The total returns of the Russell 2000® Growth Index2 and the Lipper Small-Cap Growth Funds Index3 were -20.86% and -19.81%, respectively, for the reporting period. The fund’s total return for the fiscal year reflected actual cash flows, transaction costs and other expenses which were not reflected in the total return of the Russell index.
1 Small company stocks may be less liquid and subject to greater price volatility than large capitalization stocks.
2 Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The index is unmanaged and investments cannot be made in an index.
3 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
MARKET OVERVIEW
Over the twelve month period ending July 31, 2009 domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000® Index,4 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200® Index,5 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000® Index6 and the Russell Midcap® Index,7 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000® Growth Index8 returning - -17.81% as compared to -22.74% for the Russell 3000 Value® Index.9
The best performing sectors in the Russell 3000® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
4 Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged and investments cannot be made in an index.
5 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000® Index, which represents approximately 65% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
6 Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index. The index is unmanaged and investments cannot be made in an index.
7 Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 35% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
8 Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000® Growth or the Russell 2000® Growth indexes. The index is unmanaged and investments cannot be made in an index.
9 Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000® Value or the Russell 2000® Value indexes. The index is unmanaged and investments cannot be made in an index.
FUND PERFORMANCE
The most significant positive factor in the fund’s performance relative to the Russell 2000® Growth Index was an underweight in the Energy sector. Additionally, an overweight in the Consumer Staples sector contributed moderately. Stock selection in the Consumer Staples sector and, to a lesser degree, the Materials sector contributed moderately to relative performance. Individual stocks contributing to the Fund’s performance relative to the Russell 2000® Growth Index included: Green Mountain Coffee Roasters, Data Domain Incorporated, Bway Holding Company, and Pegasystems Incorporated.
The most significant negative factor in the fund’s performance relative to the Russell 2000® Growth Index was stock selection in the Industrials, Health Care, and Consumer Discretionary sectors. Stock selection in Information Technology detracted more moderately. An underweight in the Health Care sector also detracted significantly from relative performance. Individual stocks detracting from the Fund’s performance relative to the Russell 2000® Growth Index included: Robbins & Myers, Incorporated, Gulf Island Fabrication, Incorporated, Parexel International Corporation, and Oil States International, Incorporated.
GROWTH OF A $10,000 INVESTMENT -- INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,0001 in the Federated MDT Small Cap Growth Fund2 (Institutional Shares) (the “Fund”) from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000® Growth Index (Russell 2000® Growth)3 and the Lipper Small-Cap Growth Funds Index.4
Average Annual Total Returns for the Period Ended 7/31/2009 |
| |
1 Year | -31.99% | |
Start of Performance (9/15/2005) | -5.68% | |
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 Represents a hypothetical investment of $10,000 in the Fund. The Fund’s performance assumes the reinvestment of all dividends and distributions. The Russell 2000® Growth and the Lipper Small-Cap Growth Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Growth Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Growth Fund.
3 The Russell 2000® Growth is not adjusted to reflect sales charges, expenses, or other fees that the Securities and Exchange Commission requires to be reflected in the Fund’s performance. The index is unmanaged and, unlike the Fund, is not affected by cashflows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund’s industry composition1 was as follows:
Industry Composition |
| Percentage of | |
Clothing Stores | 9.1 | % | |
Restaurant | 8.9 | % | |
Software Packaged/Custom | 7.0 | % | |
Undesignated Consumer Cyclicals | 4.9 | % | |
Telecommunication Equipment & Services | 3.9 | % | |
Home Health Care | 3.8 | % | |
Apparel | 3.2 | % | |
Miscellaneous Components | 3.2 | % | |
Semiconductor Manufacturing | 3.0 | % | |
Packaged Foods | 2.9 | % | |
Computer Services | 2.7 | % | |
Services to Medical Professionals | 2.6 | % | |
Shoes | 2.5 | % | |
Medical Supplies | 2.3 | % | |
Other Communications Equipment | 1.9 | % | |
Furniture | 1.6 | % | |
Home Products | 1.6 | % | |
Computer Peripherals | 1.5 | % | |
Medical Technology | 1.5 | % | |
Miscellaneous Communications | 1.5 | % | |
Specialty Retailing | 1.5 | % | |
Printed Circuit Boards | 1.4 | % | |
Commodity Chemicals | 1.3 | % | |
Food Wholesaling | 1.3 | % | |
Grocery Chain | 1.3 | % | |
Computer Networking | 1.2 | % | |
Discount Department Stores | 1.2 | % | |
Electric & Electrical Original Equipment Manufacturers | 1.2 | % | |
Financial Services | 1.2 | % | |
Undesignated Technology | 1.2 | % | |
Contracting | 1.1 | % | |
Electrical Test/Measuring Equipment | 1.1 | % | |
Miscellaneous Machinery | 1.1 | % | |
Personal Loans | 1.1 | % | |
Roofing & Wallboard | 1.1 | % | |
Electronic Instruments | 1.0 | % | |
Hotels and Motels | 1.0 | % | |
Other2 | 8.7 | % | |
Cash Equivalents3 | 1.7 | % | |
Other Assets and Liabilities--Net4 | (0.3 | )% | |
TOTAL | 100.0 | % | |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund’s total net assets have been aggregated under the designation “Other.”
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares |
|
| Value |
| ||
COMMON STOCKS--98.6% |
|
| ||||
Apparel--3.2% |
|
| ||||
35,599 | 1 | Carter’s, Inc. |
| $ | 1,008,876 |
|
15,045 | 1 | Maidenform Brands, Inc. |
| 208,072 |
| |
26,205 | 1 | Warnaco Group, Inc. |
| 952,028 |
| |
TOTAL |
| 2,168,976 |
| |||
Biotechnology--0.5% |
|
| ||||
5,529 | 1 | Air Methods Corp. |
| 162,608 |
| |
4,271 | 1 | BioCryst Pharmaceuticals, Inc. |
| 39,293 |
| |
3,481 | 1 | Onyx Pharmaceuticals, Inc. |
| 125,038 |
| |
TOTAL |
| 326,939 |
| |||
Building Materials--0.2% |
|
| ||||
6,184 | Aaon, Inc. |
| 121,268 |
| ||
Clothing Stores--9.1% |
|
| ||||
10,829 | Buckle, Inc. |
| 335,049 |
| ||
42,472 | Cato Corp., Class A |
| 844,343 |
| ||
53,372 | 1 | Chicos Fas, Inc. |
| 612,177 |
| |
26,232 | 1 | Children’s Place Retail Stores, Inc. |
| 859,623 |
| |
26,796 | 1 | Citi Trends, Inc. |
| 782,443 |
| |
32,688 | 1 | Fossil, Inc. |
| 861,002 |
| |
16,155 | 1 | Gymboree Corp. |
| 642,646 |
| |
30,211 | 1 | J. Crew Group, Inc. |
| 850,742 |
| |
10,762 | 1 | Jos A. Bank Clothiers, Inc. |
| 393,782 |
| |
TOTAL |
| 6,181,807 |
| |||
Commercial Services--0.4% |
|
| ||||
6,590 | 1 | VistaPrint Ltd. |
| 271,838 |
| |
Commodity Chemicals--1.3% |
|
| ||||
11,392 | Newmarket Corp. |
| 861,805 |
| ||
Computer Networking--1.2% |
|
| ||||
34,969 | 1 | Starent Networks Corp. |
| 838,557 |
| |
Computer Peripherals--1.5% |
|
| ||||
26,818 | 1 | STEC, Inc. |
| 914,226 |
| |
5,788 | 1 | Synaptics, Inc. |
| 138,738 |
| |
TOTAL |
| 1,052,964 |
| |||
Computer Services--2.7% |
|
| ||||
5,222 | 1 | CACI International, Inc., Class A |
| $ | 241,256 |
|
34,880 | 1 | Riverbed Technology, Inc. |
| 697,949 |
| |
23,535 | Syntel, Inc. |
| 931,515 |
| ||
TOTAL |
| 1,870,720 |
| |||
Contracting--1.1% |
|
| ||||
33,600 | 1 | Orion Marine Group, Inc. |
| 751,296 |
| |
Cosmetics & Toiletries--0.1% |
|
| ||||
8,266 | 1 | Bare Escentuals, Inc. |
| 73,237 |
| |
Crude Oil & Gas Production--0.3% |
|
| ||||
16,945 | W&T Offshore, Inc. |
| 181,142 |
| ||
Discount Department Stores--1.2% |
|
| ||||
53,398 | 1 | 99 Cents Only Stores |
| 782,281 |
| |
4,047 | Pricesmart, Inc. |
| 66,007 |
| ||
TOTAL |
| 848,288 |
| |||
Diversified Leisure--0.2% |
|
| ||||
10,268 | 1 | Pinnacle Entertainment, Inc. |
| 102,988 |
| |
Electric & Electrical Original Equipment Manufacturers--1.2% |
|
| ||||
21,220 | Cubic Corp. |
| 830,975 |
| ||
Electrical Test/Measuring Equipment--1.1% |
|
| ||||
20,119 | Badger Meter, Inc. |
| 741,385 |
| ||
Electronic Components--0.2% |
|
| ||||
8,287 | 1 | Volterra Semiconductor Corp. |
| 137,481 |
| |
Electronic Instruments--1.0% |
|
| ||||
34,079 | 1 | OSI Systems, Inc. |
| 675,105 |
| |
Ethical Drugs--0.1% |
|
| ||||
14,400 | 1 | Matrixx Initiatives, Inc. |
| 81,216 |
| |
Financial Services--1.2% |
|
| ||||
5,391 | Deluxe Corp. |
| 84,369 |
| ||
78,693 | 1 | Global Cash Access LLC |
| 708,237 |
| |
TOTAL |
| 792,606 |
| |||
Food Wholesaling--1.3% |
|
| ||||
43,380 | Calavo Growers, Inc. |
| 880,614 |
| ||
Furniture--1.6% |
|
| ||||
26,288 | Aaron’s, Inc. |
| 722,131 |
| ||
24,605 | Tempur-Pedic International, Inc. |
| 364,892 |
| ||
TOTAL |
| 1,087,023 |
| |||
Grocery Chain--1.3% |
|
| ||||
33,407 | Casey’s General Stores, Inc. |
| 916,354 |
| ||
Home Health Care--3.8% |
|
| ||||
2,719 | 1 | Amedisys, Inc. |
| $ | 121,566 |
|
27,678 | 1 | Amerigroup Corp. |
| 683,093 |
| |
39,072 | 1 | Gentiva Health Services, Inc. |
| 831,452 |
| |
32,688 | 1 | LHC Group, Inc. |
| 959,393 |
| |
TOTAL |
| 2,595,504 |
| |||
Home Products--1.6% |
|
| ||||
31,614 | Tupperware Brands Corp. |
| 1,077,089 |
| ||
Hotels and Motels--1.0% |
|
| ||||
34,996 | Ameristar Casinos, Inc. |
| 654,075 |
| ||
Industrial Machinery--0.1% |
|
| ||||
4,144 | 1 | Chart Industries, Inc. |
| 79,813 |
| |
Industrial Services--0.1% |
|
| ||||
2,680 | 1 | EnerNOC, Inc. |
| 82,222 |
| |
Insurance Brokerage--0.3% |
|
| ||||
3,556 | AmTrust Financial Services, Inc. |
| 43,454 |
| ||
7,586 | Life Partners Holdings, Inc. |
| 163,706 |
| ||
TOTAL |
| 207,160 |
| |||
Internet Services--0.2% |
|
| ||||
2,616 | 1 | Blue Nile, Inc. |
| 120,938 |
| |
Mail Order--0.1% |
|
| ||||
12,020 | 1 | Coldwater Creek, Inc. |
| 88,227 |
| |
Medical Supplies--2.3% |
|
| ||||
23,508 | 1 | Align Technology, Inc. |
| 256,472 |
| |
51,695 | 1 | American Medical Systems Holdings, Inc. |
| 790,417 |
| |
873 | 1 | MWI Veterinary Supply, Inc. |
| 33,506 |
| |
1,293 | 1 | NuVasive, Inc. |
| 53,517 |
| |
17,974 | 1 | PetMed Express, Inc. |
| 333,597 |
| |
4,987 | 1 | Sirona Dental Systems, Inc. |
| 129,612 |
| |
TOTAL |
| 1,597,121 |
| |||
Medical Technology--1.5% |
|
| ||||
36,340 | 1 | Bruker BioSciences Corp. |
| 365,580 |
| |
17,560 | 1 | Cyberonics, Inc. |
| 291,672 |
| |
13,320 | 1 | Thoratec Laboratories Corp. |
| 334,865 |
| |
TOTAL |
| 992,117 |
| |||
Miscellaneous Communications--1.5% |
|
| ||||
13,415 | Harte-Hanks |
| $ | 145,150 |
| |
5,638 | 1 | NIC, Inc. |
| 42,792 |
| |
593 | NTELOS Holdings Corp. |
| 9,186 |
| ||
34,724 | 1 | j2 Global Communications, Inc. |
| 833,029 |
| |
TOTAL |
| 1,030,157 |
| |||
Miscellaneous Components--3.2% |
|
| ||||
28,880 | 1 | Amkor Technology, Inc. |
| 180,789 |
| |
35,118 | 1 | Applied Micro Circuits Corp. |
| 303,771 |
| |
36,727 | 1 | Atheros Communications |
| 918,175 |
| |
21,857 | 1 | Power Integrations, Inc. |
| 640,192 |
| |
9,397 | 1 | Zoran Corp. |
| 108,253 |
| |
TOTAL |
| 2,151,180 |
| |||
Miscellaneous Machinery--1.1% |
|
| ||||
17,201 | Nordson Corp. |
| 772,325 |
| ||
Motion Pictures--0.0% |
|
| ||||
1,853 | Cinemark Holdings, Inc. |
| 20,550 |
| ||
Mutual Fund Adviser--0.1% |
|
| ||||
2,307 | GAMCO Investors, Inc., Class A |
| 105,315 |
| ||
Oil Refiner--0.2% |
|
| ||||
3,130 | World Fuel Services Corp. |
| 137,282 |
| ||
Other Communications Equipment--1.9% |
|
| ||||
75,833 | 1 | Skyworks Solutions, Inc. |
| 916,063 |
| |
21,551 | 1 | Syniverse Holdings, Inc. |
| 377,789 |
| |
TOTAL |
| 1,293,852 |
| |||
Packaged Foods--2.9% |
|
| ||||
51,940 | 1 | Bway Holding Co. |
| 828,443 |
| |
6,286 | J&J Snack Foods Corp. |
| 272,435 |
| ||
18,669 | Lancaster Colony Corp. |
| 850,186 |
| ||
TOTAL |
| 1,951,064 |
| |||
Paper Products--0.8% |
|
| ||||
8,073 | Rock-Tenn Co. |
| 362,962 |
| ||
20,920 | Wausau-Mosinee Paper Corp. |
| 196,648 |
| ||
TOTAL |
| 559,610 |
| |||
Personal Loans--1.1% |
|
| ||||
29,267 | 1 | First Cash Financial Services, Inc. |
| 550,220 |
| |
8,917 | 1 | World Acceptance Corp. |
| 211,511 |
| |
TOTAL |
| 761,731 |
| |||
Personnel Agency--0.3% |
|
| ||||
8,953 | 1 | Dyncorp International, Inc., Class A |
| $ | 181,835 |
|
Poultry Products--0.6% |
|
| ||||
9,360 | Sanderson Farms, Inc. |
| 380,765 |
| ||
Printed Circuit Boards--1.4% |
|
| ||||
90,653 | 1 | PMC-Sierra, Inc. |
| 829,475 |
| |
6,034 | 1 | Sigma Designs, Inc. |
| 97,570 |
| |
TOTAL |
| 927,045 |
| |||
Printing--0.4% |
|
| ||||
21,471 | 1 | Valassis Communications, Inc. |
| 244,555 |
| |
Recreational Goods--0.1% |
|
| ||||
4,651 | 1 | Sturm Ruger & Co., Inc. |
| 58,044 |
| |
Recreational Vehicles--0.1% |
|
| ||||
2,392 | Polaris Industries, Inc., Class A |
| 90,585 |
| ||
Regional Bank--0.1% |
|
| ||||
1,425 | WestAmerica Bancorp. |
| 74,471 |
| ||
Restaurant--8.9% |
|
| ||||
7,604 | 1 | CEC Entertainment, Inc. |
| 221,809 |
| |
57,795 | 1 | California Pizza Kitchen, Inc. |
| 953,617 |
| |
14,487 | 1 | Carrols Restaurant Group, Inc. |
| 98,077 |
| |
36,886 | 1 | Cheesecake Factory, Inc. |
| 714,482 |
| |
10,523 | 1 | Chipotle Mexican Grill, Inc., Class B |
| 860,255 |
| |
12,667 | Cracker Barrel Old Country Store, Inc. |
| 365,570 |
| ||
47,896 | 1 | Domino’s Pizza, Inc. |
| 393,705 |
| |
13,866 | 1 | Green Mountain Coffee, Inc. |
| 976,721 |
| |
21,588 | 1 | P. F. Chang’s China Bistro, Inc. |
| 732,049 |
| |
800 | 1 | Papa Johns International, Inc. |
| 20,328 |
| |
62,959 | 1 | Texas Roadhouse, Inc. |
| 700,734 |
| |
TOTAL |
| 6,037,347 |
| |||
Roofing & Wallboard--1.1% |
|
| ||||
43,723 | 1 | Beacon Roofing Supply, Inc. |
| 733,235 |
| |
Rubber--0.4% |
|
| ||||
20,554 | Cooper Tire & Rubber Co. |
| 303,377 |
| ||
Semiconductor Distribution--0.6% |
|
| ||||
25,465 | 1 | Tyler Technologies, Inc. |
| 392,161 |
| |
Semiconductor Manufacturing--3.0% |
|
| ||||
21,389 | 1 | Monolithic Power Systems |
| $ | 474,622 |
|
7,099 | 1 | NVE Corp. |
| 381,429 |
| |
9,383 | 1 | NetLogic Microsystems, Inc. |
| 372,880 |
| |
45,291 | 1 | Semtech Corp. |
| 833,354 |
| |
TOTAL |
| 2,062,285 |
| |||
Semiconductor Manufacturing Equipment--0.6% |
|
| ||||
10,481 | 1 | Tessera Technologies, Inc. |
| 294,411 |
| |
7,173 | 1 | Veeco Instruments, Inc. |
| 135,139 |
| |
TOTAL |
| 429,550 |
| |||
Services to Medical Professionals--2.6% |
|
| ||||
1,939 | 1 | Bio-Reference Laboratories, Inc. |
| 62,164 |
| |
23,189 | 1 | Genoptix, Inc. |
| 726,048 |
| |
10,225 | 1 | HMS Holdings Corp. |
| 392,640 |
| |
13,089 | 1 | PharMerica Corp. |
| 274,345 |
| |
11,868 | 1 | RehabCare Group, Inc. |
| 285,544 |
| |
2,037 | 1 | Virtual Radiologic Corp. |
| 23,792 |
| |
TOTAL |
| 1,764,533 |
| |||
Shoes--2.5% |
|
| ||||
21,572 | 1 | Steven Madden Ltd. |
| 691,598 |
| |
39,689 | 1 | Timberland Co., Class A |
| 541,358 |
| |
20,732 | Wolverine World Wide, Inc. |
| 499,641 |
| ||
TOTAL |
| 1,732,597 |
| |||
Software Packaged/Custom--7.0% |
|
| ||||
1,845 | 1 | ACI Worldwide, Inc. |
| 27,804 |
| |
11,812 | 1 | Actuate Software Corp. |
| 61,777 |
| |
1,510 | Acxiom Corp. |
| 14,571 |
| ||
24,925 | 1 | Advent Software, Inc. |
| 908,516 |
| |
22,184 | 1 | ArcSight, Inc. |
| 420,830 |
| |
4,809 | 1 | Ariba, Inc. |
| 50,543 |
| |
22,982 | 1 | Art Technology Group, Inc. |
| 87,102 |
| |
1,225 | 1 | Bottomline Technologies, Inc. |
| 12,532 |
| |
36,289 | 1 | CSG Systems International, Inc. |
| 605,301 |
| |
17,402 | 1 | Interactive Intelligence, Inc. |
| 281,216 |
| |
32,726 | Pegasystems, Inc. |
| 926,146 |
| ||
103,022 | 1 | S1 Corp. |
| 730,426 |
| |
6,248 | 1 | Sourcefire, Inc. |
| 110,215 |
| |
26,679 | 1 | Successfactors, Inc. |
| 281,463 |
| |
17,445 | 1 | ValueClick, Inc. |
|
| 200,618 |
|
2,069 | 1 | Websense, Inc. |
| 30,621 |
| |
TOTAL |
| 4,749,681 |
| |||
Specialty Chemicals--0.2% |
|
| ||||
62 | Chemed Corp. |
| 2,734 |
| ||
3,714 | Koppers Holdings, Inc. |
| 103,658 |
| ||
TOTAL |
| 106,392 |
| |||
Specialty Retailing--1.5% |
|
| ||||
6,512 | 1 | Jo-Ann Stores, Inc. |
| 151,730 |
| |
5,747 | 1 | Kirkland’s, Inc. |
| 79,366 |
| |
16,039 | 1 | Tractor Supply Co. |
| 769,391 |
| |
TOTAL |
| 1,000,487 |
| |||
Surveillance-Detection--0.5% |
|
| ||||
10,856 | Brinks Home Security Holding |
| 323,726 |
| ||
Telecommunication Equipment & Services--3.9% |
|
| ||||
20,581 | 1 | Acme Packet, Inc. |
| 206,633 |
| |
32,609 | Applied Signal Technology, Inc. |
| 815,225 |
| ||
64,633 | 1 | Arris Group, Inc. |
| 787,230 |
| |
18,125 | 1 | Neutral Tandem, Inc. |
| 561,875 |
| |
6,655 | 1 | Novatel Wireless, Inc. |
| 63,089 |
| |
10,698 | Plantronics, Inc. |
| 253,222 |
| ||
TOTAL |
| 2,687,274 |
| |||
Undesignated Consumer Cyclicals--4.9% |
|
| ||||
12,573 | 1 | APAC Customer Services, Inc. |
| 62,614 |
| |
7,608 | 1 | Avis Budget Group, Inc. |
| 65,048 |
| |
943 | 1 | Capella Education Co. |
| 60,691 |
| |
46,104 | 1 | Corinthian Colleges, Inc. |
| 711,846 |
| |
6,524 | 1 | Euronet Worldwide, Inc. |
| 137,265 |
| |
25,868 | 1 | Geo Group, Inc. |
| 465,107 |
| |
17,115 | 1 | Grand Canyon Education, Inc. |
| 299,684 |
| |
21,931 | 1 | Lincoln Educational Services |
| 446,515 |
| |
13,300 | Nu Skin Enterprises, Inc., Class A |
| 239,533 |
| ||
30,825 | 1 | Wright Express Corp. |
| 871,731 |
| |
TOTAL |
| 3,360,034 |
| |||
Undesignated Health--0.9% |
|
| ||||
27,084 | 1 | Eclipsys Corp. |
| 492,929 |
| |
9,035 | 1 | HealthSouth Corp. |
| 130,104 |
| |
TOTAL |
| 623,033 |
| |||
Undesignated Technology--1.2% |
|
| ||||
65,260 | 1 | RightNow Technologies, Inc. |
| $ | 785,730 |
|
TOTAL COMMON STOCKS (IDENTIFIED COST $57,076,446) |
| 67,120,658 |
| |||
MUTUAL FUND--1.7% |
|
| ||||
1,182,053 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% |
| 1,182,053 |
| |
TOTAL INVESTMENTS--100.3% (IDENTIFIED COST $58,258,499)4 |
| 68,302,711 |
| |||
OTHER ASSETS AND LIABILITIES - -- NET--(0.3)%5 |
| (216,584 | ) | |||
TOTAL NET ASSETS--100% |
| $ | 68,086,127 |
| ||
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $58,718,397.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund’s assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1-- |
| Level 2-- |
| Level 3-- |
| Total | |
Equity Securities: | ||||||||
Domestic | $66,848,820 | $-- | $-- | $66,848,820 | ||||
International | 271,838 | -- | -- | 271,838 | ||||
Mutual Fund | 1,182,053 | -- | -- | 1,182,053 | ||||
TOTAL SECURITIES | $68,302,711 | $-- | $-- | $68,302,711 | ||||
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: |
|
| |||||
Total investments in securities, at value including $1,182,053 of investments in an affiliated issuer (Note 5) (identified cost $58,258,499) | $ | 68,302,711 | |||||
Cash | 111 | ||||||
Income receivable | 17,100 | ||||||
Receivable for investments sold | 2,248,747 | ||||||
Receivable for shares sold | 227,505 | ||||||
TOTAL ASSETS | 70,796,174 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 2,176,640 | |||||
Payable for shares redeemed | 392,868 | ||||||
Payable for distribution services fee (Note 5) | 4,334 | ||||||
Payable for shareholder services fee (Note 5) | 14,971 | ||||||
Accrued expenses | 121,234 | ||||||
TOTAL LIABILITIES | 2,710,047 | ||||||
Net assets for 8,643,760 shares outstanding | $ | 68,086,127 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 116,506,529 | |||||
Net unrealized appreciation of investments and translation of assets and liabilities in foreign currency | 10,044,509 | ||||||
Accumulated net realized loss on investments | (58,464,911 | ) | |||||
TOTAL NET ASSETS | $ | 68,086,127 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($39,246,221 ÷ 4,951,345 shares outstanding), no par value, unlimited shares authorized | $7.93 | ||||||
Offering price per share | $7.93 | ||||||
Redemption proceeds per share | $7.93 | ||||||
Class A Shares: | |||||||
Net asset value per share ($21,682,113 ÷ 2,763,209 shares outstanding), no par value, unlimited shares authorized | $7.85 | ||||||
Offering price per share (100/94.50 of $7.85) | $8.31 | ||||||
Redemption proceeds per share | $7.85 | ||||||
Class B Shares: | |||||||
Net asset value per share ($3,088,411 ÷ 395,196 shares outstanding), | $7.81 | ||||||
Offering price per share | $7.81 | ||||||
Redemption proceeds per share (94.50/100 of $7.81) | $7.38 | ||||||
Class C Shares: | |||||||
Net asset value per share ($4,069,382 ÷ 534,010 shares outstanding), | $7.62 | ||||||
Offering price per share | $7.62 | ||||||
Redemption proceeds per share (99.00/100 of $7.62) | $7.54 | ||||||
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: |
|
|
| |||||||||
Dividends (including $23,627 received from an affiliated issuer) (Note 5) | $ | 534,680 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 878,484 | ||||||||||
Administrative personnel and services fee (Note 5) | 270,000 | |||||||||||
Custodian fees | 57,854 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 456,027 | |||||||||||
Directors’/Trustees’ fees | 2,043 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 2,232 | |||||||||||
Portfolio accounting fees | 77,814 | |||||||||||
Distribution services fee--Class B Shares (Note 5) | 35,273 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 31,200 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 54,370 | |||||||||||
Shareholder services fee--Class B Shares (Note 5) | 11,758 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 10,158 | |||||||||||
Account administration fee--Class A Shares | 263 | |||||||||||
Account administration fee--Class C Shares | 242 | |||||||||||
Share registration costs | 61,622 | |||||||||||
Printing and postage | 81,804 | |||||||||||
Insurance premiums | 4,584 | |||||||||||
Miscellaneous | 6,542 | |||||||||||
TOTAL EXPENSES | 2,064,770 | |||||||||||
Waivers and Reimbursement (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (723,410 | ) | |||||||||
Waiver of administrative personnel and services fee | (54,234 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENT | (777,644 | ) | ||||||||||
Net expenses | 1,287,126 | |||||||||||
Net investment income (loss) | (752,446 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions: | ||||||||||||
Net realized loss on investments | (43,745,847 | ) | ||||||||||
Net change in unrealized appreciation of investments and translation of assets and liabilities in foreign currency | 6,155,270 | |||||||||||
Net realized and unrealized loss on investments and foreign currency transactions | (37,590,577 | ) | ||||||||||
Change in net assets resulting from operations | $ | (38,343,023 | ) | |||||||||
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 |
| 2009 |
| 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (752,446 | ) | $ | (628,923 | ) | ||
Net realized loss on investments | (43,745,847 | ) | (11,971,658 | ) | ||||
Net change in unrealized appreciation/depreciation of investments and translation of assets and liabilities in foreign currency | 6,155,270 | 9,435,934 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (38,343,023 | ) | (3,164,647 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | -- | (155,811 | ) | |||||
Class A Shares | -- | (11,057 | ) | |||||
Class C Shares | -- | (6,609 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | -- | (173,477 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 47,977,404 | 73,388,956 | ||||||
Proceeds from shares issued in connection with the tax-free transfer of assets from Federated Technology Fund | -- | 44,263,203 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | -- | 146,644 | ||||||
Cost of shares redeemed | (51,913,689 | ) | (21,595,763 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | (3,936,285 | ) | 96,203,040 | |||||
Regulatory Settlement Proceeds: | ||||||||
Net increase from regulatory settlement proceeds (Note 9) | 21,744 | -- | ||||||
Change in net assets | (42,257,564 | ) | 92,864,916 | |||||
Net Assets: | ||||||||
Beginning of period | 110,343,691 | 17,478,775 | ||||||
End of period (including accumulated net investment income (loss) of | $ | 68,086,127 | $ | 110,343,691 | ||||
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Act”), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Small Cap Growth Fund (the “Fund”), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder’s interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers four classes of shares: Institutional Shares, Class A Shares, Class B Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of Class A Shares, Class B Shares and Class C Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
Effective March 13, 2008, the Fund began offering Class B Shares.
On March 14, 2008, the Fund received assets from Federated Technology Fund as the result of a tax-free reorganization, as follows:
Shares of the |
| Federated |
| Unrealized |
| Net Assets of the |
| Net Assets of the |
3,954,962 | $44,263,203 | $(6,136,744) | $40,850,828 | $85,114,031 | ||||
1 Unrealized Depreciation is included in the Federated Technology Fund Net Assets Received amount shown above.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the “Trustees”).
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund’s NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers, and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a “bid” evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a “mid” evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment’s value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer’s operations or regulatory changes or market developments affecting the issuer’s industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund’s custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a “securities entitlement” and exercises “control” as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund’s Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income, if any, are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses, and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as account administration, distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund’s policy to comply with the Subchapter M provision of the Internal Revenue Code (the “Code”) and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”. As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund’s major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies (FCs) are translated into U.S. dollars based on the rates of exchange of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expenses are translated at the rate of exchange quoted on the respective date that such transactions are recorded. The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of portfolio securities, sales and maturities of short-term securities, sales of FCs, currency gains or losses realized between the trade and settlement dates on securities transactions, the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities other than investments in securities at fiscal year end, resulting from changes in the exchange rate.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 |
| 2009 |
| 2008 | ||||||||||
Institutional Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 5,176,597 | $ | 39,561,116 | 4,827,064 | $ | 59,077,425 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 10,017 | 133,229 |
| |||||||||
Shares redeemed | (5,561,903 | ) | (39,745,579 | ) | (747,875 | ) | (8,924,748 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | (385,306 | ) | $ | (184,463 | ) | 4,089,206 | $ | 50,285,906 | ||||||
Year Ended July 31 |
| 2009 |
| 2008 | ||||||||||
Class A Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 813,650 | $ | 6,394,677 | 1,014,861 | $ | 12,172,465 | ||||||||
Shares issued in connection with tax-free transfer of assets from Federated Technology Fund | -- | -- | 1,965,099 | 21,986,533 | ||||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 766 | 10,117 |
| |||||||||
Shares redeemed | (805,473 | ) | (6,183,703 | ) | (266,794 | ) | (3,116,808 | ) | ||||||
NET CHANGE RESULTING FROM | 8,177 | $ | 210,974 | 2,713,932 | $ | 31,052,307 | ||||||||
| Year Ended |
|
| Period Ended |
| |||||||||
Class B Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 57,338 | $ | 513,202 | 12,136 | $ | 147,178 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 1,540,719 | 17,345,297 | ||||||||||
Shares redeemed | (507,162 | ) | (4,183,051 | ) | (707,835 | ) | (8,399,050 | ) | ||||||
NET CHANGE RESULTING FROM | (449,824 | ) | $ | (3,669,849 | ) | 845,020 | $ | 9,093,425 | ||||||
Year Ended July 31 |
| 2009 |
| 2008 | ||||||||||
Class C Shares: |
| Shares |
| Amount |
| Shares |
| Amount | ||||||
Shares sold | 201,191 | $ | 1,508,409 | 164,693 | $ | 1,991,888 | ||||||||
Shares issued in connection with tax-free transfer of assets from Federated Technology Fund | -- | -- | 449,144 | 4,931,373 | ||||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 254 | 3,298 |
| |||||||||
Shares redeemed | (236,842 | ) | (1,801,356 | ) | (99,359 | ) | (1,155,157 | ) | ||||||
NET CHANGE RESULTING FROM | (35,651 | ) | $ | (292,947 | ) | 514,732 | $ | 5,771,402 | ||||||
NET CHANGE RESULTING FROM | (862,604 | ) | $ | (3,936,285 | ) | 8,162,890 | $ | 96,203,040 |
| |||||
1 Reflects operations for the period from March 13, 2008 (date of initial investment) to July 31, 2008.
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due primarily to differing treatments for expiration of capital loss carryforwards and net operating loss.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||||
Paid-In Capital |
| Undistributed |
| Accumulated |
$(60,132,536) | $753,460 | $59,379,076 | ||
Net investment income (loss), net realized gains (losses), and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 |
| 2008 | |
Ordinary income1 | $-- | $149,972 | ||
Long-term capital gains | $-- | $23,505 | ||
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation |
| $ | 9,584,611 |
|
Capital loss carryforwards and deferrals | $ | (58,005,013 | ) | |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $58,718,397. The net unrealized appreciation of investments for federal tax purposes excluding any unrealized appreciation resulting from foreign currency transactions was $9,584,314. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $10,119,067 and net unrealized depreciation from investments for those securities having an excess of cost over value of $534,753.
At July 31, 2009, the Fund had a capital loss carryforward of $22,546,183 which will reduce the Fund’s taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year |
| Expiration Amount |
2010 | $2,459,915 | |
2016 | $202,553 | |
2017 | $19,883,715 | |
Capital loss carryforwards of $59,356,831 expired during the year ended July 31, 2009.
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $35,458,830 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund’s investment adviser (the “Adviser”). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 1.15% of the Fund’s average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund’s aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name |
| Percentage of Average Daily |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% | |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $722,268 of its fee.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee |
| Average Aggregate Daily Net Assets |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion | |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $54,234 of its fee. The net fee paid to FAS was 0.282% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the “Plan”) pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund’s Class A Shares, Class B Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name |
| Percentage of Average Daily |
Class A Shares | 0.05% | |
Class B Shares | 0.75% | |
Class C Shares | 0.75% | |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $9,188 of fees paid by the Fund. For the year ended July 31, 2009, the Fund’s Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $2,381 in sales charges from the sale of Class A Shares. FSC also retained $2,371 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund’s Class A Shares, Class B Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $846 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund’s Institutional Shares, Class A Shares, Class B Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.50%, 1.75%, 2.50% and 2.50%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $1,142. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate |
| Balance of |
| Purchases/ |
| Sales/ |
| Balance of |
| Value |
| Dividend |
Prime Value Obligations | 1,320,459 | 25,975,518 | 26,113,924 | 1,182,053 | $1,182,053 | $23,627 | ||||||
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases |
| $ | 188,796,812 |
Sales | $ | 192,710,445 | |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. REGULATORY SETTLEMENT PROCEEDS
The Fund received $21,744 in settlement of administrative proceedings against other unaffiliated third parties involving findings by the SEC of market timing and/or late trading of mutual funds. The settlement is recorded as an increase to paid-in capital in the accompanying financial statements.
10. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, “Federated”), and various Federated funds (“Federated Funds”) have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated’s first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General (“NYAG”), and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds, and their respective counsel have been defending this litigation, and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys’ fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares, or other adverse consequences for the Federated Funds.
11. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT SMALL CAP GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Small Cap Growth Fund (the “Fund”) (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Small Cap Growth Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust’s business affairs and for exercising all the Trust’s powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are “interested persons” of the Fund (i.e., “Interested” Board members) and those who are not (i.e., “Independent” Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised 9 portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund’s Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name |
| Principal Occupation(s) for Past Five Years, |
John F. Donahue* | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex’s Executive Committee. | |
J. Christopher Donahue* | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. | |
* Family relationships and reasons for “interested” status: John F. Donahue is the father of J. Christopher Donahue; both are “interested” due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name |
| Principal Occupation(s) for Past Five Years, |
John T. Conroy, Jr. | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. | |
Nicholas P. Constantakis | Principal Occupation: Director or Trustee of the Federated Fund Complex. | |
John F. Cunningham | Principal Occupation: Director or Trustee of the Federated Fund Complex. | |
Maureen Lally-Green | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct professor of law, Duquesne University School of Law. | |
Name |
| Principal Occupation(s) for Past Five Years, |
Peter E. Madden | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. | |
Charles F. Mansfield, Jr. | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. | |
R. James Nicholson | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. | |
Thomas M. O’Neill | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). | |
Name |
| Principal Occupation(s) for Past Five Years, |
John S. Walsh | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. | |
James F. Will | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. | |
OFFICERS
Name |
| Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. | |
Richard A. Novak | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. | |
Brian P. Bouda | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
|
|
|
Evaluation and Approval of Advisory
Contract--May 2009
FEDERATED MDT SMALL CAP GROWTH FUND (THE “FUND”)
The Fund’s Board reviewed the Fund’s investment advisory contract at meetings held in May 2009. The Board’s decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds’ Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser’s fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser’s cost of providing the services; the extent to which the Adviser may realize “economies of scale” as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser’s relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser’s services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund’s advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer’s evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board’s formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board’s consideration of the advisory contract included review of the Senior Officer’s evaluation, accompanying data and additional reports covering such matters as: the Adviser’s investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund’s short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or “peer group” funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund’s investment objectives; the Fund’s expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund’s portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund’s relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated’s responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board’s evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund’s performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund’s investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund’s ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund’s investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser’s investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated’s fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund’s quantitative investment program is of such a type.
For both the one- and three-year periods covered by the report, the Fund’s performance was above the median of the relevant peer group. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and outperformed its benchmark index for the three-year period.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated’s subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds’ administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated’s profit margins did not appear to be excessive and the Board agreed.
The Senior Officer’s evaluation also discussed the notion of possible realization of “economies of scale” as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer’s evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with “breakpoints” that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated’s fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund’s investment advisory fee, after waivers and expense reimbursements, if any, was below the median of the relevant peer group. The Board reviewed the fees and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer’s evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund’s advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund’s operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser’s industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board’s approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board’s decision to approve the contract reflects its determination that Federated’s performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund’s portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on “Form N-PX” of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated’s website at FederatedInvestors.com. To access this information from the “Products” section of the website, click on the “Prospectuses and Regulatory Reports” link under “Related Information,” then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund’s page, click on the “Prospectuses and Regulatory Reports” link. Form N-PX filings are also available at the SEC’s website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on “Form N-Q.” These filings are available on the SEC’s website at www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. (Call
1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the “Products” section of Federated’s website at FederatedInvestors.com by clicking on “Portfolio Holdings” under “Related Information,” then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund’s page, click on the “Portfolio Holdings” link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund’s prospectus, which contains facts concerning its objective and policies, management fees, expenses, and other information.
Federated Investors
World-Class Investment Manager
Federated MDT Small Cap Growth Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R759
37315 (9/09)
Federated is a registered mark of Federated Investors, Inc.
2009 © Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Small Cap Value Fund
Established 2005
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class C Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.33 | $11.37 | $10.61 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.01 | ) 3 | (0.04 | ) 3 | (0.05 | ) 3 | (0.07 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.53 | ) | (0.24 | ) | 0.81 | 0.68 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.54 | ) | (0.28 | ) | 0.76 | 0.61 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.76 | ) | - -- | - -- | |||||||
Net Asset Value, End of Period | $ 6.79 | $10.33 | $11.37 | $10.61 | ||||||||
Total Return 4 | (34.27 | )% | (2.69 | )% | 7.16 | % | 6.10 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.74 | % | 1.75 | % | 1.75 | % | 2.00 | % 5 | ||||
Net investment income (loss) | (0.15 | )% | (0.32 | )% | (0.44 | )% | (0.59 | )% 5 | ||||
Expense waiver/reimbursement 6 | 1.98 | % | 3.05 | % | 4.45 | % | 34.07 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $1,795 | $3,179 | $2,950 | $699 | ||||||||
Portfolio turnover | 264 | % | 245 | % | 240 | % | 124 | % |
1 MDT Small Cap Value Fund (the "Predecessor Fund") was reorganized into Federated MDT Small Cap Value Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.10 | $11.21 | $10.54 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.06 | ) 3 | (0.12 | ) 3 | (0.14 | ) 3 | (0.15 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.45 | ) | (0.23 | ) | 0.81 | 0.69 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.51 | ) | (0.35 | ) | 0.67 | 0.54 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.76 | ) | - -- | - -- | |||||||
Net Asset Value, End of Period | $ 6.59 | $10.10 | $11.21 | $10.54 | ||||||||
Total Return 4 | (34.75 | )% | (3.38 | )% | 6.36 | % | 5.40 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 2.49 | % | 2.50 | % | 2.50 | % | 2.75 | % 5 | ||||
Net investment income (loss) | (0.89 | )% | (1.11 | )% | (1.20 | )% | (1.34 | )% 5 | ||||
Expense waiver/reimbursement 6 | 2.01 | % | 2.73 | % | 4.06 | % | 34.07 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $3,078 | $3,195 | $951 | $51 | ||||||||
Portfolio turnover | 264 | % | 245 | % | 240 | % | 124 | % |
1 The Predecessor Fund was reorganized into the Fund as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual: | ||||||
Class A Shares | $1,000 | $1,056.00 | $ 8.82 | |||
Class C Shares | $1,000 | $1,052.70 | $12.62 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $1,016.22 | $ 8.65 | |||
Class C Shares | $1,000 | $1,012.50 | $12.37 |
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
Class A Shares | | 1.73% |
Class C Shares | 2.48% |
Management's Discussion of Fund Performance (unaudited)
The Fund's total return for the fiscal year ended July 31, 2009 was -34.27% for Class A Shares and -34.75% for Class C Shares, respectively, based on net asset value. The total returns of the Russell 2000 ® Value Index 1 and the Lipper Small-Cap Value Funds Index 2 were -20.67% and -16.55%, respectively, for the same reporting period. The Fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell index.
The following discussion will focus on the performance of the Fund's Class A Shares.
1 The Russell 2000® Value Index offers investors access to the small-cap value segment of the U.S. equity universe. The Russell 2000 Value is constructed to provide a comprehensive and unbiased barometer of the small-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine value probability approximates the aggregate small-cap value manager's opportunity set. The index is unmanaged, and investments cannot be made directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends. The index is unmanaged, and investments cannot be made directly in an index.
MARKET OVERVIEW
Over the 12-month reporting period ended July 31, 2009 domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, 3 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 4 which exceeded the return of mid- and small-cap stocks 5 as evidenced by the -20.72% and -22.23% results for the Russell 2000 ® Index 6 and the Russell Midcap ® Index, 7 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 8 returning -17.81% as compared to -22.74% for the Russell 3000 ® Value Index. 9
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 The Russell 3000® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged, and investments cannot be made directly in an index.
4 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000 Index, which represents approximately 69% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and investments cannot be made directly in an index.
5 Small-company stocks may be less liquid and subject to greater price volatility than large-capitalization stocks.
6 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The index is unmanaged, and investments cannot be made directly in an index.
7 The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and investments cannot be made directly in an index.
8 The Russell 3000® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indexes. The index is unmanaged, and investments cannot be made directly in an index.
9 The Russell 3000® Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 Value or the Russell 2000 Value indexes. The index is unmanaged, and investments cannot be made directly in an index.
FUND PERFORMANCE
The most significant positive factor in the Fund's performance relative to the Russell 2000 ® Value Index was stock selection in the Financials and Energy sectors. Stock selection in the Telecomm Services sector also contributed moderately. Individual stocks contributing to the Fund's performance relative to the Russell 2000 ® Value Index included: Ocwen Financial Corporation; Jos. A. Bank Clothiers, Incorporated; Valeant Pharmaceuticals International; and Western Refining, Incorporated.
The most significant negative factor in the Fund's performance relative to the Russell 2000 ® Value Index was an overweight in the Energy sector. Stock selection in the Industrials, Consumer Discretionary, Consumer Staples and Information Technology sectors also detracted significantly. Individual stocks detracting from the Fund's performance relative to the Russell 2000 ® Value Index included: The Andersons, Incorporated; Genco Shipping & Trading Limited; Terra Industries, Incorporated; and Ferro Corporation.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Small Cap Value Fund 2 (Class A Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000 ® Value Index (Russell 2000 ® Value) 3 and the Lipper Small-Cap Value Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -37.88% | |
Start of Performance (9/15/2005) | - -9.22% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmscvarac37334edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50%.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 ® Value and the Lipper Small-Cap Value Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Value Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Value Fund.
3 The Russell 2000 ® Value is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
GROWTH OF A $10,000 INVESTMENT - CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Small Cap Value Fund 2 (Class C Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000 ® Value Index (Russell 2000 ® Value) 3 and the Lipper Small-Cap Value Funds Index. 4 The Fund's total return for the fiscal year reflected actual cash flows, transaction costs and other expenses which were not reflected in the total return of the Russell index.
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -35.40% | |
Start of Performance (9/15/2005) | - -8.57% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmscvarac37334edg2.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00%, as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 ® Value and the Lipper Small-Cap Value Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Value Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Value Fund.
3 The Russell 2000 ® Value is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Property Liability Insurance | 9.4 | % | |
Multi-Line Insurance | 7.0 | % | |
Electric Utility | 6.4 | % | |
Financial Services | 4.6 | % | |
Grocery Chain | 4.3 | % | |
Specialty Retailing | 4.1 | % | |
Regional Bank | 3.2 | % | |
Clothing Stores | 3.1 | % | |
Crude Oil & Gas Production | 2.8 | % | |
Restaurant | 2.1 | % | |
Apparel | 1.9 | % | |
Packaged Foods | 1.9 | % | |
Paper Products | 1.8 | % | |
Poultry Products | 1.6 | % | |
Printed Circuit Boards | 1.6 | % | |
Savings & Loan | 1.6 | % | |
Computer Services | 1.5 | % | |
Cosmetics & Toiletries | 1.5 | % | |
Services to Medical Professionals | 1.5 | % | |
Undesignated Consumer Cyclicals | 1.5 | % | |
Electrical Equipment | 1.4 | % | |
Home Health Care | 1.3 | % | |
Industry Composition | | Percentage of Total Net Assets | |
Book Publishing | 1.2 | % | |
Computer Networking | 1.2 | % | |
Hotels and Motels | 1.2 | % | |
Leasing | 1.2 | % | |
Ethical Drugs | 1.1 | % | |
Other Tobacco Products | 1.1 | % | |
Miscellaneous Food Products | 1.0 | % | |
Shoes | 1.0 | % | |
Other 2 | 22.9 | % | |
Cash Equivalents 3 | 1.3 | % | |
Other Assets and Liabilities - Net 4 | 0.7 | % | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--98.0% | ||||||
Agricultural Machinery--0.1% | ||||||
1,873 | Alamo Group, Inc. | $ | 25,904 | |||
Airline - National--0.2% | ||||||
1,523 | 1 | Atlas Air Worldwide Holdings, Inc. | 38,014 | |||
Aluminum--0.2% | ||||||
1,381 | Kaiser Aluminum Corp. | 45,656 | ||||
Apparel--1.9% | ||||||
15,731 | 1 | Iconix Brand Group, Inc. | 275,607 | |||
11,794 | Jones Apparel Group, Inc. | 162,285 | ||||
TOTAL | 437,892 | |||||
Book Publishing--1.2% | ||||||
12,044 | Scholastic Corp. | 271,592 | ||||
Building Materials--0.1% | ||||||
374 | Ameron, Inc. | 27,871 | ||||
Cable TV--0.3% | ||||||
12,569 | 1 | Mediacom Communications Corp. | 60,206 | |||
Closed End Fund--0.3% | ||||||
9,274 | Pennantpark Investment Corp. | 76,789 | ||||
Clothing Stores--3.1% | ||||||
12,991 | Cato Corp., Class A | 258,261 | ||||
621 | 1 | Charlotte Russe Holdings, Inc. | 9,321 | |||
952 | 1 | Children's Place Retail Stores, Inc. | 31,197 | |||
20,340 | 1 | Dress Barn, Inc. | 317,101 | |||
216 | 1 | Jos A. Bank Clothiers, Inc. | 7,903 | |||
5,260 | Mens Wearhouse, Inc. | 113,669 | ||||
TOTAL | 737,452 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Commodity Chemicals--0.7% | ||||||
2,300 | Newmarket Corp. | $ | 173,995 | |||
Computer Networking--1.2% | ||||||
10,118 | Black Box Corp. | 277,941 | ||||
Computer Peripherals--0.3% | ||||||
10,371 | 1 | RadiSys Corp. | 82,138 | |||
Computer Services--1.5% | ||||||
3,929 | Fair Isaac & Co., Inc. | 75,398 | ||||
9,411 | 1 | Synnex Corp. | 267,461 | |||
TOTAL | 342,859 | |||||
Construction Machinery--0.4% | ||||||
4,696 | Tutor Perini Corp. | 86,641 | ||||
Contracting--0.1% | ||||||
1,099 | 1 | Insituform Technologies, Inc., Class A | 20,222 | |||
Cosmetics & Toiletries--1.5% | ||||||
11,727 | 1 | Helen of Troy Ltd. | 255,062 | |||
15,082 | 1 | Sally Beauty Holdings, Inc. | 105,272 | |||
TOTAL | 360,334 | |||||
Crude Oil & Gas Production--2.8% | ||||||
10,377 | 1 | ATP Oil & Gas Corp. | 80,422 | |||
1,938 | Berry Petroleum Co., Class A | 45,969 | ||||
6,265 | 1 | Harvest Natural Resources, Inc. | 40,535 | |||
17,620 | 1 | Rosetta Resources, Inc. | 182,719 | |||
8,145 | 1 | Stone Energy Corp. | 88,455 | |||
7,209 | 1 | Swift Energy Co. | 142,017 | |||
9,059 | 1 | Tetra Technologies, Inc. | 69,845 | |||
TOTAL | 649,962 | |||||
Defense Aerospace--0.5% | ||||||
5,875 | 1 | AAR Corp. | 112,389 | |||
Defense Electronics--0.4% | ||||||
8,174 | 1 | Herley Industries, Inc. | 99,559 | |||
Diversified Leisure--0.8% | ||||||
7,105 | 1 | Life Time Fitness, Inc. | 180,822 | |||
1,375 | 1 | Pinnacle Entertainment, Inc. | 13,791 | |||
TOTAL | 194,613 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Electric & Electric Original Equipment Manufacturer--0.5% | ||||||
3,257 | Cubic Corp. | $ | 127,544 | |||
Electric Utility--6.4% | ||||||
5,981 | Allete, Inc. | 191,272 | ||||
14,683 | Avista Corp. | 271,929 | ||||
2,441 | Black Hills Corp. | 63,490 | ||||
684 | Cleco Corp. | 16,204 | ||||
10,028 | Empire Distribution Electric Co. | 184,014 | ||||
12,320 | Idacorp, Inc. | 341,510 | ||||
1,268 | PNM Resources, Inc. | 15,470 | ||||
1,815 | Portland General Electric Co. | 34,539 | ||||
7,102 | UIL Holdings Corp. | 173,289 | ||||
3,534 | UniSource Energy Corp. | 97,538 | ||||
5,107 | Unitil Corp. | 105,409 | ||||
TOTAL | 1,494,664 | |||||
Electrical Equipment--1.4% | ||||||
10,919 | Brady (W.H.) Co. | 321,128 | ||||
Electronic Instruments--0.2% | ||||||
1,272 | 1 | Cymer, Inc. | 43,515 | |||
Ethical Drugs--1.1% | ||||||
9,923 | 1 | Valeant Pharmaceuticals International | 256,013 | |||
Financial Services--4.6% | ||||||
1,418 | 1 | America's Car-Mart, Inc. | 31,012 | |||
6,556 | 1 | Asset Acceptance Capital Corp. | 50,743 | |||
6,444 | Banco Latinoamericano de Comercio Exterior SA, Class E | 82,934 | ||||
17,013 | Blackrock Kelso Capital Corp. | 143,590 | ||||
10,435 | Deluxe Corp. | 163,308 | ||||
8,835 | 1 | Encore Capital Group, Inc. | 109,201 | |||
16,995 | Hercules Technology Growth Capital, Inc. | 166,381 | ||||
5,365 | 1 | Nelnet, Inc., Class A | 76,666 | |||
14,231 | 1 | PHH Corp. | 260,854 | |||
TOTAL | 1,084,689 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Food Processing--0.5% | ||||||
14,379 | B&G Foods, Inc., Class A | $ | 120,065 | |||
Furniture--0.3% | ||||||
2,699 | Aaron's, Inc. | 74,142 | ||||
Gas Distributor--0.8% | ||||||
1,067 | Laclede Group, Inc. | 35,819 | ||||
1,840 | NICOR, Inc. | 67,050 | ||||
2,431 | WGL Holdings, Inc. | 80,515 | ||||
TOTAL | 183,384 | |||||
Generic Drugs--0.8% | ||||||
4,489 | 1 | Hi-Tech Pharmacal Co., Inc. | 70,253 | |||
6,724 | 1 | Par Pharmaceutical Cos., Inc. | 108,996 | |||
TOTAL | 179,249 | |||||
Greeting Cards--0.4% | ||||||
5,594 | American Greetings Corp., Class A | 88,217 | ||||
Grocery Chain--4.3% | ||||||
9,784 | Casey's General Stores, Inc. | 268,375 | ||||
5,080 | Ruddick Corp. | 119,380 | ||||
10,592 | 1 | The Pantry, Inc. | 185,890 | |||
12,898 | Weis Markets, Inc. | 426,537 | ||||
TOTAL | 1,000,182 | |||||
Home Health Care--1.3% | ||||||
19,272 | 1 | Odyssey Healthcare, Inc. | 224,519 | |||
3,447 | 1 | Wellcare Health Plans, Inc. | 76,730 | |||
TOTAL | 301,249 | |||||
Home Products--0.8% | ||||||
17,190 | 1 | Central Garden & Pet Co., Class A | 194,075 | |||
Hospitals--0.3% | ||||||
6,830 | 1 | MedCath Corp. | 82,370 | |||
Hotels and Motels--1.2% | ||||||
14,830 | Ameristar Casinos, Inc. | 277,173 | ||||
Insurance Brokerage--0.2% | ||||||
1,981 | Baldwin & Lyons, Inc., Class B | 42,928 | ||||
Internet Services--0.8% | ||||||
4,521 | 1 | EarthLink Network, Inc. | 38,202 | |||
15,958 | United Online, Inc. | 146,494 | ||||
TOTAL | 184,696 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Leasing--1.2% | ||||||
3,931 | Financial Federal Corp. | $ | 79,721 | |||
16,653 | Textainer Group Holdings Ltd. | 200,169 | ||||
TOTAL | 279,890 | |||||
Life Insurance--0.9% | ||||||
13,770 | American Equity Investment Life Holding Co. | 99,695 | ||||
56 | Delphi Financial Group, Inc., Class A | 1,335 | ||||
12,314 | 1 | Universal American Financial Corp. | 112,057 | |||
TOTAL | 213,087 | |||||
Long-Term Care Centers--0.8% | ||||||
2,286 | Assisted Living Concepts, Inc. | 32,918 | ||||
10,686 | 1 | Kindred Healthcare, Inc. | 150,031 | |||
TOTAL | 182,949 | |||||
Maritime--0.5% | ||||||
3,589 | Genco Shipping & Trading Ltd. | 85,813 | ||||
2,445 | TAL International Group, Inc. | 27,115 | ||||
TOTAL | 112,928 | |||||
Medical Technology--0.2% | ||||||
4,851 | 1 | Ev3, Inc. | 59,522 | |||
Metal Fabrication--0.1% | ||||||
7,090 | North American Galvanizing Co. | 35,450 | ||||
Miscellaneous Communications--0.8% | ||||||
17,470 | Harte-Hanks | 189,025 | ||||
Miscellaneous Food Products--1.0% | ||||||
2,069 | 1 | Fresh Del Monte Produce, Inc. | 44,297 | |||
5,661 | The Anderson's, Inc. | 182,397 | ||||
TOTAL | 226,694 | |||||
Miscellaneous Machinery--0.8% | ||||||
4,140 | Nordson Corp. | 185,886 | ||||
Miscellaneous Metals--0.1% | ||||||
7,712 | 1 | USEC, Inc. | 29,845 | |||
Motion Pictures--0.7% | ||||||
15,547 | Cinemark Holdings, Inc. | 172,416 | ||||
Multi-Line Insurance--7.0% | ||||||
13,864 | 1 | Amerisafe, Inc. | 230,558 | |||
3,919 | EMC Insurance Group, Inc. | 94,801 | ||||
5,423 | 1 | FPIC Insurance Group, Inc. | 186,280 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Multi-Line Insurance--continued | ||||||
5,749 | Harleysville Group, Inc. | $ | 178,334 | |||
10,029 | Infinity Property & Casualty | 416,605 | ||||
20,327 | Montpelier Re Holdings Ltd. | 318,727 | ||||
4,659 | 1 | Navigators Group, Inc. | 229,735 | |||
TOTAL | 1,655,040 | |||||
Natural Gas Production--0.3% | ||||||
5,382 | 1 | Natural Gas Services Group, Inc. | 74,218 | |||
Office Supplies--0.3% | ||||||
4,371 | Ennis Business Forms, Inc. | 64,385 | ||||
Offshore Driller--0.8% | ||||||
4,219 | 1 | Bristow Group, Inc. | 139,649 | |||
1,814 | 1 | Hornbeck Offshore Services, Inc. | 39,509 | |||
TOTAL | 179,158 | |||||
Oil Refiner--0.9% | ||||||
10,180 | 1 | CVR Energy, Inc. | 86,937 | |||
13,421 | Delek US Holdings, Inc. | 114,347 | ||||
TOTAL | 201,284 | |||||
Oil Service, Explore & Drill--0.8% | ||||||
6,290 | 1 | Cal Dive International, Inc. | 56,170 | |||
900 | 1 | Dawson Geophysical Co. | 27,369 | |||
14,820 | 1 | Global Industries Ltd. | 101,221 | |||
TOTAL | 184,760 | |||||
Other Communications Equipment--0.2% | ||||||
3,034 | 1 | Netgear, Inc. | 51,608 | |||
108 | 1 | Skyworks Solutions, Inc. | 1,305 | |||
TOTAL | 52,913 | |||||
Other Tobacco Products--1.1% | ||||||
8,002 | Schweitzer-Mauduit International, Inc. | 261,665 | ||||
Outpatient Clinics--0.3% | ||||||
4,141 | 1 | U.S. Physical Therapy, Inc. | 67,705 | |||
Packaged Foods--1.9% | ||||||
8,065 | 1 | Bway Holding Co. | 128,637 | |||
3,109 | 1 | Chiquita Brands International | 38,085 | |||
666 | J&J Snack Foods Corp. | 28,864 | ||||
5,449 | Lancaster Colony Corp. | 248,147 | ||||
TOTAL | 443,733 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Paper Products--1.8% | ||||||
5,256 | Clearwater Paper Corp. | $ | 210,608 | |||
17,605 | Glatfelter (P.H.) Co. | 182,212 | ||||
867 | 1 | Orchids Paper Products Co. | 19,811 | |||
1,994 | Wausau-Mosinee Paper Corp. | 18,744 | ||||
TOTAL | 431,375 | |||||
Personal Loans--0.4% | ||||||
4,351 | 1 | World Acceptance Corp. | 103,206 | |||
Personnel Agency--0.1% | ||||||
3,585 | 1 | StarTek, Inc. | 33,878 | |||
Plastic--0.4% | ||||||
4,215 | 1 | Polyone Corp. | 18,082 | |||
6,009 | Spartech Corp. | 75,113 | ||||
TOTAL | 93,195 | |||||
Poultry Products--1.6% | ||||||
9,529 | Sanderson Farms, Inc. | 387,640 | ||||
Printed Circuit Boards--1.6% | ||||||
6,992 | 1 | PMC-Sierra, Inc. | 63,977 | |||
10,460 | 1 | Sigma Designs, Inc. | 169,138 | |||
15,471 | 1 | TTM Technologies | 152,699 | |||
TOTAL | 385,814 | |||||
Printing--0.3% | ||||||
5,300 | Multi-Color Corp. | 82,786 | ||||
Property Liability Insurance--9.4% | ||||||
4,572 | American Physicians Capital, Inc. | 203,408 | ||||
8,006 | American Physicians Service Group, Inc. | 179,094 | ||||
4,886 | 1 | American Safety Insurance Holdings, Ltd. | 80,277 | |||
4,362 | 1 | Argo Group International Holdings Ltd. | 146,563 | |||
2,207 | 1 | CNA Surety Corp. | 34,694 | |||
624 | 1 | Enstar Group Ltd. | 37,346 | |||
4,161 | 1 | First Mercury Financial Corp. | 60,126 | |||
620 | 1 | Hallmark Financial Services, Inc. | 4,067 | |||
11,344 | Horace Mann Educators Corp. | 128,754 | ||||
4,801 | Max Capital Group Ltd. | 95,876 | ||||
20,928 | Meadowbrook Insurance Group, Inc. | 165,541 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Property Liability Insurance--continued | ||||||
7,172 | National Interstate Corp. | $ | 129,239 | |||
4,323 | OneBeacon Insurance Group Ltd. | 48,850 | ||||
9,391 | 1 | PMA Capital Corp. | 54,468 | |||
10,945 | Platinum Underwriters Holdings Ltd. | 369,394 | ||||
5,351 | 1 | ProAssurance Corp. | 271,724 | |||
3,897 | RLI Corp. | 193,330 | ||||
TOTAL | 2,202,751 | |||||
Regional Bank--3.2% | ||||||
1,510 | 1 | Alliance Financial Corp. | 42,869 | |||
5,795 | First Bancorp, Inc. | 105,527 | ||||
1,258 | Great Southern Bancorp, Inc. | 26,418 | ||||
4,429 | 1 | Northrim BanCorp, Inc. | 65,106 | |||
6,611 | Oriental Financial Group | 93,281 | ||||
1,681 | Park National Corp. | 107,164 | ||||
3,410 | Peoples Bancorp, Inc. | 62,437 | ||||
1,281 | Southside Bancshares, Inc. | 29,002 | ||||
4,056 | The First of Long Island Corp. | 103,915 | ||||
8,477 | Trustco Bank Corp. | 53,320 | ||||
7,065 | Wilshire Bancorp, Inc. | 51,998 | ||||
TOTAL | 741,037 | |||||
Restaurant--2.1% | ||||||
13,209 | Bob Evans Farms, Inc. | 383,325 | ||||
5,562 | 1 | Domino's Pizza, Inc. | 45,720 | |||
8,321 | Ruby Tuesday, Inc. | 62,241 | ||||
TOTAL | 491,286 | |||||
Rubber--0.0% | ||||||
439 | Cooper Tire & Rubber Co. | 6,480 | ||||
Savings & Loan--1.6% | ||||||
3,072 | Dime Community Bancorp, Inc. | 36,987 | ||||
4,489 | First Defiance Financial Corp. | 68,368 | ||||
8,314 | Newalliance Bancshares, Inc. | 101,847 | ||||
1,312 | OceanFirst Financial Corp. | 15,967 | ||||
8,279 | 1 | Ocwen Financial Corp. | 117,976 | |||
2,386 | Roma Financial Corp. | 30,732 | ||||
TOTAL | 371,877 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Semiconductor Manufacturing--0.4% | ||||||
14,370 | 1 | Triquint Semiconductor, Inc. | $ | 103,177 | ||
Services to Medical Professionals--1.5% | ||||||
10,618 | 1 | BioScrip, Inc. | 62,752 | |||
11,608 | 1 | RehabCare Group, Inc. | 279,289 | |||
TOTAL | 342,041 | |||||
Shoes--1.0% | ||||||
6,037 | 1 | Genesco, Inc. | 131,124 | |||
4,281 | 1 | Skechers USA, Inc., Class A | 59,206 | |||
4,071 | 1 | Timberland Co., Class A | 55,528 | |||
TOTAL | 245,858 | |||||
Silver Production--0.7% | ||||||
11,202 | Coeur d'Alene Mines Corp. | 159,068 | ||||
Specialty Retailing--4.1% | ||||||
8,213 | Asbury Automotive Group, Inc. | 114,900 | ||||
4,345 | Barnes & Noble, Inc. | 100,065 | ||||
15,413 | 1 | Cabela's, Inc., Class A | 249,845 | |||
6,577 | 1 | Conn's, Inc. | 82,936 | |||
8,411 | 1 | Dorman Products, Inc. | 137,688 | |||
14,419 | Finish Line, Inc., Class A | 125,445 | ||||
1,574 | Pep Boys-Manny Moe & Jack | 15,630 | ||||
3,323 | Sonic Automotive, Inc. | 40,873 | ||||
7,634 | Stage Stores, Inc. | 95,272 | ||||
TOTAL | 962,654 | |||||
Surveillance-Detection--0.2% | ||||||
2,308 | 1 | Checkpoint Systems, Inc. | 39,998 | |||
Technology Services--0.2% | ||||||
6,355 | Web.com Group, Inc. | 39,020 | ||||
Telecommunication Equipment & Services--0.6% | ||||||
5,031 | 1 | Arris Group, Inc. | 61,278 | |||
3,108 | Plantronics, Inc. | 73,566 | ||||
TOTAL | 134,844 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Telephone Utility--0.2% | ||||||
894 | Atlantic Telephone Network, Inc. | $ | 37,485 | |||
Toys & Games--0.4% | ||||||
5,758 | 1 | RC2 Corp. | 87,925 | |||
Truck Manufacturing--0.3% | ||||||
4,172 | Federal Signal Corp. | 36,964 | ||||
4,618 | Spartan Motors, Inc. | 32,326 | ||||
TOTAL | 69,290 | |||||
Trucking--0.1% | ||||||
1,092 | 1 | Marten Transport Ltd. | 19,263 | |||
Undesignated Consumer Cyclicals--1.5% | ||||||
9,074 | 1 | Cornell Corrections, Inc. | 155,438 | |||
2,734 | 1 | Lincoln Educational Services | 55,664 | |||
3,370 | 1 | Rent-A-Center, Inc. | 69,961 | |||
15,302 | Stewart Enterprises, Inc., Class A | 74,827 | ||||
324 | 1 | Universal Technical Institute, Inc. | 5,142 | |||
TOTAL | 361,032 | |||||
Undesignated Technology--0.1% | ||||||
3,711 | 1 | American Reprographics Co. | 32,100 | |||
TOTAL COMMON STOCKS (IDENTIFIED COST $20,433,757) | 23,014,945 | |||||
MUTUAL FUND--1.3% | ||||||
300,557 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 300,557 | |||
TOTAL INVESTMENTS--99.3% (IDENTIFIED COST $20,734,314) 4 | 23,315,502 | |||||
OTHER ASSETS AND LIABILITIES--NET - 0.7% 5 | 160,839 | |||||
TOTAL NET ASSETS--100% | $ | 23,476,341 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $20,952,943.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1 -- quoted prices in active markets for identical securities
Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1-- Quoted Prices and Investments in Mutual Funds | | Level 2-- Other Significant Observable Inputs | | Level 3-- Significant Unobservable Inputs | | Total | |
Equity Securities: | ||||||||
Domestic | $21,546,080 | $-- | $-- | $21,546,080 | ||||
International | 1,468,865 | - -- | - -- | 1,468,865 | ||||
Mutual Fund | 300,557 | - -- | - -- | 300,557 | ||||
TOTAL SECURITIES | $23,315,502 | $-- | $-- | $23,315,502 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | ||||||||
Total investments in securities, at value including $300,557 of investments in an affiliated issuer (Note 5) (identified cost $20,734,314) | $ | 23,315,502 | ||||||
Cash | 7,999 | |||||||
Income receivable | 14,274 | |||||||
Receivable for investments sold | 1,101,874 | |||||||
Receivable for shares sold | 68,441 | |||||||
TOTAL ASSETS | 24,508,090 | |||||||
Liabilities: | ||||||||
Payable for investments purchased | $ | 958,136 | ||||||
Payable for shares redeemed | 9,618 | |||||||
Payable for auditing fees | 22,500 | |||||||
Payable for distribution services fee (Note 5) | 1,843 | |||||||
Payable for shareholder services fee (Note 5) | 2,757 | |||||||
Accrued expenses | 36,895 | |||||||
TOTAL LIABILITIES | 1,031,749 | |||||||
Net assets for 3,442,160 shares outstanding | $ | 23,476,341 | ||||||
Net Assets Consist of: | ||||||||
Paid-in capital | $ | 34,797,003 | ||||||
Net unrealized appreciation of investments | 2,581,188 | |||||||
Accumulated net realized loss on investments | (13,901,850 | ) | ||||||
TOTAL NET ASSETS | $ | 23,476,341 | ||||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | ||||||||
Institutional Shares: | ||||||||
Net asset value per share ($18,604,227 ÷ 2,710,795 shares outstanding), no par value, unlimited shares authorized | $6.86 | |||||||
Offering price per share | $6.86 | |||||||
Redemption proceeds per share | $6.86 | |||||||
Class A Shares: | ||||||||
Net asset value per share ($1,794,571 ÷ 264,250 shares outstanding), no par value, unlimited shares authorized | $6.79 | |||||||
Offering price per share (100/94.50 of $6.79) | $7.19 | |||||||
Redemption proceeds per share | $6.79 | |||||||
Class C Shares: | ||||||||
Net asset value per share ($3,077,543 ÷ 467,115 shares outstanding), no par value, unlimited shares authorized | $6.59 | |||||||
Offering price per share | $6.59 | |||||||
Redemption proceeds per share (99.00/100 of $6.59) | $6.52 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $7,356 received from an affiliated issuer (Note 5) and net of foreign taxes withheld of $587) | $ | 357,510 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 254,857 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 37,417 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 71,454 | |||||||||||
Directors'/Trustees' fees | 1,353 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 1,461 | |||||||||||
Portfolio accounting fees | 75,593 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 21,581 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 5,401 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 7,194 | |||||||||||
Share registration costs | 37,895 | |||||||||||
Printing and postage | 33,255 | |||||||||||
Insurance premiums | 4,492 | |||||||||||
Interest expense | 106 | |||||||||||
Miscellaneous | 2,384 | |||||||||||
TOTAL EXPENSES | 806,943 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (254,857 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,779 | ) | ||||||||||
Reimbursement of other operating expenses | (142,853 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (442,489 | ) | ||||||||||
Net expenses | 364,454 | |||||||||||
Net investment income (loss) | (6,944 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (11,773,391 | ) | ||||||||||
Net change in unrealized appreciation of investments | 2,264,282 | |||||||||||
Net realized and unrealized loss on investments | (9,509,109 | ) | ||||||||||
Change in net assets resulting from operations | $ | (9,516,053 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (6,944 | ) | $ | (34,816 | ) | ||
Net realized loss on investments | (11,773,391 | ) | (2,063,606 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 2,264,282 | 950,455 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (9,516,053 | ) | (1,147,967 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (638,272 | ) | |||||
Class A Shares | - -- | (198,621 | ) | |||||
Class C Shares | - -- | (63,763 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (900,656 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 16,057,040 | 21,054,023 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 316,054 | ||||||
Cost of shares redeemed | (10,819,501 | ) | (6,659,980 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 5,237,539 | 14,710,097 | ||||||
Change in net assets | (4,278,514 | ) | 12,661,474 | |||||
Net Assets: | ||||||||
Beginning of period | 27,754,855 | 15,093,381 | ||||||
End of period | $ | 23,476,341 | $ | 27,754,855 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Small Cap Value Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Institutional Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 1,959,660 | $ | 13,399,032 | 1,548,526 | $ | 16,894,234 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 7,094 | 75,830 | ||||||||||
Shares redeemed | (1,301,790 | ) | (9,195,866 | ) | (482,513 | ) | (5,241,402 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 657,870 | $ | 4,203,166 | 1,073,107 | $ | 11,728,662 | ||||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 100,371 | $ | 768,645 | 134,417 | $ | 1,472,044 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 17,137 | 182,165 | ||||||||||
Shares redeemed | (143,809 | ) | (981,169 | ) | (103,407 | ) | (1,103,930 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (43,438 | ) | $ | (212,524 | ) | 48,147 | $ | 550,279 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 254,156 | $ | 1,889,363 | 256,136 | $ | 2,687,745 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 5,566 | 58,059 | ||||||||||
Shares redeemed | (103,429 | ) | (642,466 | ) | (30,126 | ) | (314,648 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | 150,727 | $ | 1,246,897 | 231,576 | $ | 2,431,156 | ||||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 765,159 | $ | 5,237,539 | 1,352,830 | $ | 14,710,097 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for net operating loss.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||
Paid-In Capital | | Undistributed Net Investment Income (Loss) |
$(6,944) | $6,944 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $-- | $885,746 | ||
Long-term capital gains | $-- | $ 14,910 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | | $ 2,362,559 | |
Capital loss carryforwards and deferrals | $(13,683,221 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $20,952,943. The net unrealized appreciation of investments for federal tax purposes was $2,362,559. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,739,556 and net unrealized depreciation from investments for those securities having an excess of cost over value of $376,997.
At July 31, 2009, the Fund had a capital loss carryforward of $4,459,356 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2016 | $ 176,370 | |
2017 | $4,282,986 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $9,223,865 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 1.15% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each Class of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $254,441 of its fee and reimbursed $142,853 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,779 of its fee. The net fee paid to FAS was 0.836% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $14,357 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $945 in sales charges from the sale of Class A Shares. FSC also retained $2,716 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.50%, 1.75% and 2.50%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $416. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 382,184 | 12,573,734 | 12,655,361 | 300,557 | $300,557 | $7,356 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $63,915,257 |
Sales | $58,890,272 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT SMALL CAP VALUE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Small Cap Value Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Small Cap Value Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract - May 2009
FEDERATED MDT SMALL CAP VALUE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
For the periods covered by the report, the Fund's performance for the three-year period was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Small Cap Value Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R742
Cusip 31421R734
37334 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Small Cap Value Fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.41 | $11.42 | $10.64 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | 0.01 | 3 | (0.01 | ) 3 | (0.02 | ) 3 | (0.03 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.56 | ) | (0.24 | ) | 0.80 | 0.67 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.55 | ) | (0.25 | ) | 0.78 | 0.64 | ||||||
Less Distributions: | ||||||||||||
Distributions from net realized gain on investments | - -- | (0.76 | ) | - -- | - -- | |||||||
Net Asset Value, End of Period | $6.86 | $10.41 | $11.42 | $10.64 | ||||||||
Total Return 4 | (34.10 | )% | (2.41 | )% | 7.33 | % | 6.40 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.49 | % | 1.50 | % | 1.50 | % | 1.75 | % 5 | ||||
Net investment income (loss) | 0.13 | % | (0.08 | )% | (0.17 | )% | (0.34 | )% 5 | ||||
Expense waiver/reimbursement 6 | 2.00 | % | 2.80 | % | 3.75 | % | 34.07 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $18,604 | $21,381 | $11,192 | $599 | ||||||||
Portfolio turnover | 264 | % | 245 | % | 240 | % | 124 | % |
1 MDT Small Cap Value Fund (the "Predecessor Fund") was reorganized into the Federated MDT Small Cap Value Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial public investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual | $1,000 | $1,057.00 | $7.55 | |||
Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,017.46 | $7.40 |
1 Expenses are equal to the Fund's annualized net expense ratio of 1.48%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period).
Management's Discussion of Fund Performance (unaudited)
The Fund's total return for the fiscal year ended July 31, 2009 was -34.10%. The total returns of the Russell 2000 ® Value Index 1 and the Lipper Small-Cap Value Funds Index 2 were -20.67% and -16.55%, respectively, for the same reporting period. The Fund's total return for the fiscal year reflected taxes, sales charges, expenses or other fees which were not reflected in the total return of the Russell index.
1 The Russell 2000® Value Index offers investors access to the small-cap value segment of the U.S. equity universe. The Russell 2000 Value is constructed to provide a comprehensive and unbiased barometer of the small-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine value probability approximates the aggregate small-cap value manager's opportunity set. The index is unmanaged, and investments cannot be made directly in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends. The index is unmanaged, and investments cannot be made directly in an index.
Market Overview
Over the reporting period ended July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, 3 which represents the performance of the 3000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large-cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 4 which exceeded the return of mid- and small-cap stocks 5 as evidenced by the -20.72% and -22.23% results for the Russell 2000 ® Index 6 and the Russell Midcap ® Index, 7 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 8 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 9
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 The Russell 3000® Index offers investors access to the broad U.S. equity universe representing approximately 98% of the U.S. market. The Russell 3000 is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. The index is unmanaged, and investments cannot be made directly in an index.
4 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000 Index, which represents approximately 69% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and investments cannot be made directly in an index.
5 Small-company stocks may be less liquid and subject to greater price volatility than large-capitalization stocks.
6 The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index. The index is unmanaged, and investments cannot be made directly in an index.
7 The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000 Index, which represent approximately 31% of the total market capitalization of the Russell 1000 Index. The index is unmanaged, and investments cannot be made directly in an index.
8 The Russell 3000® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth or the Russell 2000 Growth indexes. The index is unmanaged, and investments cannot be made directly in an index.
9 The Russell 3000® Value Index measures the performance of those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000 Value or the Russell 2000 Value indexes. The index is unmanaged, and investments cannot be made directly in an index.
FUND PERFORMANCE
The most significant positive factor in the Fund's performance relative to the Russell 2000 ® Value Index was stock selection in the Financials and Energy sectors. Stock selection in the Telecomm Services sector also contributed moderately. Individual stocks contributing to the Fund's performance relative to the Russell 2000 ® Value Index included: Ocwen Financial Corporation; Jos. A. Bank Clothiers, Incorporated; Valeant Pharmaceuticals International; and Western Refining, Incorporated.
The most significant negative factor in the Fund's performance relative to the Russell 2000 ® Value Index was an overweight in the Energy sector. Stock selection in the Industrials, Consumer Discretionary, Consumer Staples, and Information Technology sectors also detracted significantly. Individual stocks detracting from the Fund's performance relative to the Russell 2000 ® Value Index included: The Andersons, Incorporated; Genco Shipping & Trading Limited; Terra Industries, Incorporated; and Ferro Corporation.
GROWTH OF A $10,000 INVESTMENT - INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Small Cap Value Fund 2 (Institutional Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 2000 ® Value Index (Russell 2000 ® Value) 3 and the Lipper Small-Cap Value Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | |
1 Year | - -34.10% | |
Start of Performance (9/15/2005) | - -7.65% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmscvaris37325edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 ® Value and the Lipper Small-Cap Value Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Small Cap Value Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the Fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Small Cap Value Fund.
3 The Russell 2000 ® Value is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Property Liability Insurance | 9.4 | % | |
Multi-Line Insurance | 7.0 | % | |
Electric Utility | 6.4 | % | |
Financial Services | 4.6 | % | |
Grocery Chain | 4.3 | % | |
Specialty Retailing | 4.1 | % | |
Regional Bank | 3.2 | % | |
Clothing Stores | 3.1 | % | |
Crude Oil & Gas Production | 2.8 | % | |
Restaurant | 2.1 | % | |
Apparel | 1.9 | % | |
Packaged Foods | 1.9 | % | |
Paper Products | 1.8 | % | |
Poultry Products | 1.6 | % | |
Printed Circuit Boards | 1.6 | % | |
Savings & Loan | 1.6 | % | |
Computer Services | 1.5 | % | |
Cosmetics & Toiletries | 1.5 | % | |
Services to Medical Professionals | 1.5 | % | |
Undesignated Consumer Cyclicals | 1.5 | % | |
Electrical Equipment | 1.4 | % | |
Home Health Care | 1.3 | % | |
Industry Composition | | Percentage of Total Net Assets | |
Book Publishing | 1.2 | % | |
Computer Networking | 1.2 | % | |
Hotels and Motels | 1.2 | % | |
Leasing | 1.2 | % | |
Ethical Drugs | 1.1 | % | |
Other Tobacco Products | 1.1 | % | |
Miscellaneous Food Products | 1.0 | % | |
Shoes | 1.0 | % | |
Other 2 | 22.9 | % | |
Cash Equivalents 3 | 1.3 | % | |
Other Assets and Liabilities - Net 4 | 0.7 | % | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the Adviser assigns a classification to securities not classified by the GICS and to securities for which the Adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--98.0% | ||||||
Agricultural Machinery--0.1% | ||||||
1,873 | Alamo Group, Inc. | $ | 25,904 | |||
Airline - National--0.2% | ||||||
1,523 | 1 | Atlas Air Worldwide Holdings, Inc. | 38,014 | |||
Aluminum--0.2% | ||||||
1,381 | Kaiser Aluminum Corp. | 45,656 | ||||
Apparel--1.9% | ||||||
15,731 | 1 | Iconix Brand Group, Inc. | 275,607 | |||
11,794 | Jones Apparel Group, Inc. | 162,285 | ||||
TOTAL | 437,892 | |||||
Book Publishing--1.2% | ||||||
12,044 | Scholastic Corp. | 271,592 | ||||
Building Materials--0.1% | ||||||
374 | Ameron, Inc. | 27,871 | ||||
Cable TV--0.3% | ||||||
12,569 | 1 | Mediacom Communications Corp. | 60,206 | |||
Closed End Fund--0.3% | ||||||
9,274 | Pennantpark Investment Corp. | 76,789 | ||||
Clothing Stores--3.1% | ||||||
12,991 | Cato Corp., Class A | 258,261 | ||||
621 | 1 | Charlotte Russe Holdings, Inc. | 9,321 | |||
952 | 1 | Children's Place Retail Stores, Inc. | 31,197 | |||
20,340 | 1 | Dress Barn, Inc. | 317,101 | |||
216 | 1 | Jos A. Bank Clothiers, Inc. | 7,903 | |||
5,260 | Mens Wearhouse, Inc. | 113,669 | ||||
TOTAL | 737,452 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Commodity Chemicals--0.7% | ||||||
2,300 | Newmarket Corp. | $ | 173,995 | |||
Computer Networking--1.2% | ||||||
10,118 | Black Box Corp. | 277,941 | ||||
Computer Peripherals--0.3% | ||||||
10,371 | 1 | RadiSys Corp. | 82,138 | |||
Computer Services--1.5% | ||||||
3,929 | Fair Isaac & Co., Inc. | 75,398 | ||||
9,411 | 1 | Synnex Corp. | 267,461 | |||
TOTAL | 342,859 | |||||
Construction Machinery--0.4% | ||||||
4,696 | Tutor Perini Corp. | 86,641 | ||||
Contracting--0.1% | ||||||
1,099 | 1 | Insituform Technologies, Inc., Class A | 20,222 | |||
Cosmetics & Toiletries--1.5% | ||||||
11,727 | 1 | Helen of Troy Ltd. | 255,062 | |||
15,082 | 1 | Sally Beauty Holdings, Inc. | 105,272 | |||
TOTAL | 360,334 | |||||
Crude Oil & Gas Production--2.8% | ||||||
10,377 | 1 | ATP Oil & Gas Corp. | 80,422 | |||
1,938 | Berry Petroleum Co., Class A | 45,969 | ||||
6,265 | 1 | Harvest Natural Resources, Inc. | 40,535 | |||
17,620 | 1 | Rosetta Resources, Inc. | 182,719 | |||
8,145 | 1 | Stone Energy Corp. | 88,455 | |||
7,209 | 1 | Swift Energy Co. | 142,017 | |||
9,059 | 1 | Tetra Technologies, Inc. | 69,845 | |||
TOTAL | 649,962 | |||||
Defense Aerospace--0.5% | ||||||
5,875 | 1 | AAR Corp. | 112,389 | |||
Defense Electronics--0.4% | ||||||
8,174 | 1 | Herley Industries, Inc. | 99,559 | |||
Diversified Leisure--0.8% | ||||||
7,105 | 1 | Life Time Fitness, Inc. | 180,822 | |||
1,375 | 1 | Pinnacle Entertainment, Inc. | 13,791 | |||
TOTAL | 194,613 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Electric & Electric Original Equipment Manufacturer--0.5% | ||||||
3,257 | Cubic Corp. | $ | 127,544 | |||
Electric Utility--6.4% | ||||||
5,981 | Allete, Inc. | 191,272 | ||||
14,683 | Avista Corp. | 271,929 | ||||
2,441 | Black Hills Corp. | 63,490 | ||||
684 | Cleco Corp. | 16,204 | ||||
10,028 | Empire Distribution Electric Co. | 184,014 | ||||
12,320 | Idacorp, Inc. | 341,510 | ||||
1,268 | PNM Resources, Inc. | 15,470 | ||||
1,815 | Portland General Electric Co. | 34,539 | ||||
7,102 | UIL Holdings Corp. | 173,289 | ||||
3,534 | UniSource Energy Corp. | 97,538 | ||||
5,107 | Unitil Corp. | 105,409 | ||||
TOTAL | 1,494,664 | |||||
Electrical Equipment--1.4% | ||||||
10,919 | Brady (W.H.) Co. | 321,128 | ||||
Electronic Instruments--0.2% | ||||||
1,272 | 1 | Cymer, Inc. | 43,515 | |||
Ethical Drugs--1.1% | ||||||
9,923 | 1 | Valeant Pharmaceuticals International | 256,013 | |||
Financial Services--4.6% | ||||||
1,418 | 1 | America's Car-Mart, Inc. | 31,012 | |||
6,556 | 1 | Asset Acceptance Capital Corp. | 50,743 | |||
6,444 | Banco Latinoamericano de Comercio Exterior SA, Class E | 82,934 | ||||
17,013 | Blackrock Kelso Capital Corp. | 143,590 | ||||
10,435 | Deluxe Corp. | 163,308 | ||||
8,835 | 1 | Encore Capital Group, Inc. | 109,201 | |||
16,995 | Hercules Technology Growth Capital, Inc. | 166,381 | ||||
5,365 | 1 | Nelnet, Inc., Class A | 76,666 | |||
14,231 | 1 | PHH Corp. | 260,854 | |||
TOTAL | 1,084,689 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Food Processing--0.5% | ||||||
14,379 | B&G Foods, Inc., Class A | $ | 120,065 | |||
Furniture--0.3% | ||||||
2,699 | Aaron's, Inc. | 74,142 | ||||
Gas Distributor--0.8% | ||||||
1,067 | Laclede Group, Inc. | 35,819 | ||||
1,840 | NICOR, Inc. | 67,050 | ||||
2,431 | WGL Holdings, Inc. | 80,515 | ||||
TOTAL | 183,384 | |||||
Generic Drugs--0.8% | ||||||
4,489 | 1 | Hi-Tech Pharmacal Co., Inc. | 70,253 | |||
6,724 | 1 | Par Pharmaceutical Cos., Inc. | 108,996 | |||
TOTAL | 179,249 | |||||
Greeting Cards--0.4% | ||||||
5,594 | American Greetings Corp., Class A | 88,217 | ||||
Grocery Chain--4.3% | ||||||
9,784 | Casey's General Stores, Inc. | 268,375 | ||||
5,080 | Ruddick Corp. | 119,380 | ||||
10,592 | 1 | The Pantry, Inc. | 185,890 | |||
12,898 | Weis Markets, Inc. | 426,537 | ||||
TOTAL | 1,000,182 | |||||
Home Health Care--1.3% | ||||||
19,272 | 1 | Odyssey Healthcare, Inc. | 224,519 | |||
3,447 | 1 | Wellcare Health Plans, Inc. | 76,730 | |||
TOTAL | 301,249 | |||||
Home Products--0.8% | ||||||
17,190 | 1 | Central Garden & Pet Co., Class A | 194,075 | |||
Hospitals--0.3% | ||||||
6,830 | 1 | MedCath Corp. | 82,370 | |||
Hotels and Motels--1.2% | ||||||
14,830 | Ameristar Casinos, Inc. | 277,173 | ||||
Insurance Brokerage--0.2% | ||||||
1,981 | Baldwin & Lyons, Inc., Class B | 42,928 | ||||
Internet Services--0.8% | ||||||
4,521 | 1 | EarthLink Network, Inc. | 38,202 | |||
15,958 | United Online, Inc. | 146,494 | ||||
TOTAL | 184,696 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Leasing--1.2% | ||||||
3,931 | Financial Federal Corp. | $ | 79,721 | |||
16,653 | Textainer Group Holdings Ltd. | 200,169 | ||||
TOTAL | 279,890 | |||||
Life Insurance--0.9% | ||||||
13,770 | American Equity Investment Life Holding Co. | 99,695 | ||||
56 | Delphi Financial Group, Inc., Class A | 1,335 | ||||
12,314 | 1 | Universal American Financial Corp. | 112,057 | |||
TOTAL | 213,087 | |||||
Long-Term Care Centers--0.8% | ||||||
2,286 | Assisted Living Concepts, Inc. | 32,918 | ||||
10,686 | 1 | Kindred Healthcare, Inc. | 150,031 | |||
TOTAL | 182,949 | |||||
Maritime--0.5% | ||||||
3,589 | Genco Shipping & Trading Ltd. | 85,813 | ||||
2,445 | TAL International Group, Inc. | 27,115 | ||||
TOTAL | 112,928 | |||||
Medical Technology--0.2% | ||||||
4,851 | 1 | Ev3, Inc. | 59,522 | |||
Metal Fabrication--0.1% | ||||||
7,090 | North American Galvanizing Co. | 35,450 | ||||
Miscellaneous Communications--0.8% | ||||||
17,470 | Harte-Hanks | 189,025 | ||||
Miscellaneous Food Products--1.0% | ||||||
2,069 | 1 | Fresh Del Monte Produce, Inc. | 44,297 | |||
5,661 | The Anderson's, Inc. | 182,397 | ||||
TOTAL | 226,694 | |||||
Miscellaneous Machinery--0.8% | ||||||
4,140 | Nordson Corp. | 185,886 | ||||
Miscellaneous Metals--0.1% | ||||||
7,712 | 1 | USEC, Inc. | 29,845 | |||
Motion Pictures--0.7% | ||||||
15,547 | Cinemark Holdings, Inc. | 172,416 | ||||
Multi-Line Insurance--7.0% | ||||||
13,864 | 1 | Amerisafe, Inc. | 230,558 | |||
3,919 | EMC Insurance Group, Inc. | 94,801 | ||||
5,423 | 1 | FPIC Insurance Group, Inc. | 186,280 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Multi-Line Insurance--continued | ||||||
5,749 | Harleysville Group, Inc. | $ | 178,334 | |||
10,029 | Infinity Property & Casualty | 416,605 | ||||
20,327 | Montpelier Re Holdings Ltd. | 318,727 | ||||
4,659 | 1 | Navigators Group, Inc. | 229,735 | |||
TOTAL | 1,655,040 | |||||
Natural Gas Production--0.3% | ||||||
5,382 | 1 | Natural Gas Services Group, Inc. | 74,218 | |||
Office Supplies--0.3% | ||||||
4,371 | Ennis Business Forms, Inc. | 64,385 | ||||
Offshore Driller--0.8% | ||||||
4,219 | 1 | Bristow Group, Inc. | 139,649 | |||
1,814 | 1 | Hornbeck Offshore Services, Inc. | 39,509 | |||
TOTAL | 179,158 | |||||
Oil Refiner--0.9% | ||||||
10,180 | 1 | CVR Energy, Inc. | 86,937 | |||
13,421 | Delek US Holdings, Inc. | 114,347 | ||||
TOTAL | 201,284 | |||||
Oil Service, Explore & Drill--0.8% | ||||||
6,290 | 1 | Cal Dive International, Inc. | 56,170 | |||
900 | 1 | Dawson Geophysical Co. | 27,369 | |||
14,820 | 1 | Global Industries Ltd. | 101,221 | |||
TOTAL | 184,760 | |||||
Other Communications Equipment--0.2% | ||||||
3,034 | 1 | Netgear, Inc. | 51,608 | |||
108 | 1 | Skyworks Solutions, Inc. | 1,305 | |||
TOTAL | 52,913 | |||||
Other Tobacco Products--1.1% | ||||||
8,002 | Schweitzer-Mauduit International, Inc. | 261,665 | ||||
Outpatient Clinics--0.3% | ||||||
4,141 | 1 | U.S. Physical Therapy, Inc. | 67,705 | |||
Packaged Foods--1.9% | ||||||
8,065 | 1 | Bway Holding Co. | 128,637 | |||
3,109 | 1 | Chiquita Brands International | 38,085 | |||
666 | J&J Snack Foods Corp. | 28,864 | ||||
5,449 | Lancaster Colony Corp. | 248,147 | ||||
TOTAL | 443,733 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Paper Products--1.8% | ||||||
5,256 | Clearwater Paper Corp. | $ | 210,608 | |||
17,605 | Glatfelter (P.H.) Co. | 182,212 | ||||
867 | 1 | Orchids Paper Products Co. | 19,811 | |||
1,994 | Wausau-Mosinee Paper Corp. | 18,744 | ||||
TOTAL | 431,375 | |||||
Personal Loans--0.4% | ||||||
4,351 | 1 | World Acceptance Corp. | 103,206 | |||
Personnel Agency--0.1% | ||||||
3,585 | 1 | StarTek, Inc. | 33,878 | |||
Plastic--0.4% | ||||||
4,215 | 1 | Polyone Corp. | 18,082 | |||
6,009 | Spartech Corp. | 75,113 | ||||
TOTAL | 93,195 | |||||
Poultry Products--1.6% | ||||||
9,529 | Sanderson Farms, Inc. | 387,640 | ||||
Printed Circuit Boards--1.6% | ||||||
6,992 | 1 | PMC-Sierra, Inc. | 63,977 | |||
10,460 | 1 | Sigma Designs, Inc. | 169,138 | |||
15,471 | 1 | TTM Technologies | 152,699 | |||
TOTAL | 385,814 | |||||
Printing--0.3% | ||||||
5,300 | Multi-Color Corp. | 82,786 | ||||
Property Liability Insurance--9.4% | ||||||
4,572 | American Physicians Capital, Inc. | 203,408 | ||||
8,006 | American Physicians Service Group, Inc. | 179,094 | ||||
4,886 | 1 | American Safety Insurance Holdings, Ltd. | 80,277 | |||
4,362 | 1 | Argo Group International Holdings Ltd. | 146,563 | |||
2,207 | 1 | CNA Surety Corp. | 34,694 | |||
624 | 1 | Enstar Group Ltd. | 37,346 | |||
4,161 | 1 | First Mercury Financial Corp. | 60,126 | |||
620 | 1 | Hallmark Financial Services, Inc. | 4,067 | |||
11,344 | Horace Mann Educators Corp. | 128,754 | ||||
4,801 | Max Capital Group Ltd. | 95,876 | ||||
20,928 | Meadowbrook Insurance Group, Inc. | 165,541 | ||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Property Liability Insurance--continued | ||||||
7,172 | National Interstate Corp. | $ | 129,239 | |||
4,323 | OneBeacon Insurance Group Ltd. | 48,850 | ||||
9,391 | 1 | PMA Capital Corp. | 54,468 | |||
10,945 | Platinum Underwriters Holdings Ltd. | 369,394 | ||||
5,351 | 1 | ProAssurance Corp. | 271,724 | |||
3,897 | RLI Corp. | 193,330 | ||||
TOTAL | 2,202,751 | |||||
Regional Bank--3.2% | ||||||
1,510 | 1 | Alliance Financial Corp. | 42,869 | |||
5,795 | First Bancorp, Inc. | 105,527 | ||||
1,258 | Great Southern Bancorp, Inc. | 26,418 | ||||
4,429 | 1 | Northrim BanCorp, Inc. | 65,106 | |||
6,611 | Oriental Financial Group | 93,281 | ||||
1,681 | Park National Corp. | 107,164 | ||||
3,410 | Peoples Bancorp, Inc. | 62,437 | ||||
1,281 | Southside Bancshares, Inc. | 29,002 | ||||
4,056 | The First of Long Island Corp. | 103,915 | ||||
8,477 | Trustco Bank Corp. | 53,320 | ||||
7,065 | Wilshire Bancorp, Inc. | 51,998 | ||||
TOTAL | 741,037 | |||||
Restaurant--2.1% | ||||||
13,209 | Bob Evans Farms, Inc. | 383,325 | ||||
5,562 | 1 | Domino's Pizza, Inc. | 45,720 | |||
8,321 | Ruby Tuesday, Inc. | 62,241 | ||||
TOTAL | 491,286 | |||||
Rubber--0.0% | ||||||
439 | Cooper Tire & Rubber Co. | 6,480 | ||||
Savings & Loan--1.6% | ||||||
3,072 | Dime Community Bancorp, Inc. | 36,987 | ||||
4,489 | First Defiance Financial Corp. | 68,368 | ||||
8,314 | Newalliance Bancshares, Inc. | 101,847 | ||||
1,312 | OceanFirst Financial Corp. | 15,967 | ||||
8,279 | 1 | Ocwen Financial Corp. | 117,976 | |||
2,386 | Roma Financial Corp. | 30,732 | ||||
TOTAL | 371,877 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Semiconductor Manufacturing--0.4% | ||||||
14,370 | 1 | Triquint Semiconductor, Inc. | $ | 103,177 | ||
Services to Medical Professionals--1.5% | ||||||
10,618 | 1 | BioScrip, Inc. | 62,752 | |||
11,608 | 1 | RehabCare Group, Inc. | 279,289 | |||
TOTAL | 342,041 | |||||
Shoes--1.0% | ||||||
6,037 | 1 | Genesco, Inc. | 131,124 | |||
4,281 | 1 | Skechers USA, Inc., Class A | 59,206 | |||
4,071 | 1 | Timberland Co., Class A | 55,528 | |||
TOTAL | 245,858 | |||||
Silver Production--0.7% | ||||||
11,202 | Coeur d'Alene Mines Corp. | 159,068 | ||||
Specialty Retailing--4.1% | ||||||
8,213 | Asbury Automotive Group, Inc. | 114,900 | ||||
4,345 | Barnes & Noble, Inc. | 100,065 | ||||
15,413 | 1 | Cabela's, Inc., Class A | 249,845 | |||
6,577 | 1 | Conn's, Inc. | 82,936 | |||
8,411 | 1 | Dorman Products, Inc. | 137,688 | |||
14,419 | Finish Line, Inc., Class A | 125,445 | ||||
1,574 | Pep Boys-Manny Moe & Jack | 15,630 | ||||
3,323 | Sonic Automotive, Inc. | 40,873 | ||||
7,634 | Stage Stores, Inc. | 95,272 | ||||
TOTAL | 962,654 | |||||
Surveillance-Detection--0.2% | ||||||
2,308 | 1 | Checkpoint Systems, Inc. | 39,998 | |||
Technology Services--0.2% | ||||||
6,355 | Web.com Group, Inc. | 39,020 | ||||
Telecommunication Equipment & Services--0.6% | ||||||
5,031 | 1 | Arris Group, Inc. | 61,278 | |||
3,108 | Plantronics, Inc. | 73,566 | ||||
TOTAL | 134,844 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Telephone Utility--0.2% | ||||||
894 | Atlantic Telephone Network, Inc. | $ | 37,485 | |||
Toys & Games--0.4% | ||||||
5,758 | 1 | RC2 Corp. | 87,925 | |||
Truck Manufacturing--0.3% | ||||||
4,172 | Federal Signal Corp. | 36,964 | ||||
4,618 | Spartan Motors, Inc. | 32,326 | ||||
TOTAL | 69,290 | |||||
Trucking--0.1% | ||||||
1,092 | 1 | Marten Transport Ltd. | 19,263 | |||
Undesignated Consumer Cyclicals--1.5% | ||||||
9,074 | 1 | Cornell Corrections, Inc. | 155,438 | |||
2,734 | 1 | Lincoln Educational Services | 55,664 | |||
3,370 | 1 | Rent-A-Center, Inc. | 69,961 | |||
15,302 | Stewart Enterprises, Inc., Class A | 74,827 | ||||
324 | 1 | Universal Technical Institute, Inc. | 5,142 | |||
TOTAL | 361,032 | |||||
Undesignated Technology--0.1% | ||||||
3,711 | 1 | American Reprographics Co. | 32,100 | |||
TOTAL COMMON STOCKS (IDENTIFIED COST $20,433,757) | 23,014,945 | |||||
MUTUAL FUND--1.3% | ||||||
300,557 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | 300,557 | |||
TOTAL INVESTMENTS--99.3% (IDENTIFIED COST $20,734,314) 4 | 23,315,502 | |||||
OTHER ASSETS AND LIABILITIES--NET - 0.7% 5 | 160,839 | |||||
TOTAL NET ASSETS--100% | $ | 23,476,341 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $20,952,943.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1 -- quoted prices in active markets for identical securities
Level 2 -- other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3 -- significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | ||||||||
| Level 1 - Quoted Prices and Investments in Mutual Funds | | Level 2 - Other Significant Observable Inputs | | Level 3 - Significant Unobservable Inputs | | Total | |
Equity Securities | ||||||||
Domestic | $21,546,080 | $-- | $-- | $21,546,080 | ||||
International | 1,468,865 | - -- | - -- | 1,468,865 | ||||
Mutual Fund | 300,557 | - -- | - -- | 300,557 | ||||
TOTAL SECURITIES | $23,315,502 | $-- | $-- | $23,315,502 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | ||||||||
Total investments in securities, at value including $300,557 of investments in an affiliated issuer (Note 5) (identified cost $20,734,314) | $ | 23,315,502 | ||||||
Cash | 7,999 | |||||||
Income receivable | 14,274 | |||||||
Receivable for investments sold | 1,101,874 | |||||||
Receivable for shares sold | 68,441 | |||||||
TOTAL ASSETS | 24,508,090 | |||||||
Liabilities: | ||||||||
Payable for investments purchased | $ | 958,136 | ||||||
Payable for shares redeemed | 9,618 | |||||||
Payable for auditing fees | 22,500 | |||||||
Payable for distribution services fee (Note 5) | 1,843 | |||||||
Payable for shareholder services fee (Note 5) | 2,757 | |||||||
Accrued expenses | 36,895 | |||||||
TOTAL LIABILITIES | 1,031,749 | |||||||
Net assets for 3,442,160 shares outstanding | $ | 23,476,341 | ||||||
Net Assets Consist of: | ||||||||
Paid-in capital | $ | 34,797,003 | ||||||
Net unrealized appreciation of investments | 2,581,188 | |||||||
Accumulated net realized loss on investments | (13,901,850 | ) | ||||||
TOTAL NET ASSETS | $ | 23,476,341 | ||||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | ||||||||
Institutional Shares: | ||||||||
Net asset value per share ($18,604,227 ÷ 2,710,795 shares outstanding), no par value, unlimited shares authorized | $6.86 | |||||||
Offering price per share | $6.86 | |||||||
Redemption proceeds per share | $6.86 | |||||||
Class A Shares: | ||||||||
Net asset value per share ($1,794,571 ÷ 264,250 shares outstanding), no par value, unlimited shares authorized | $6.79 | |||||||
Offering price per share (100/94.50 of $6.79) | $7.19 | |||||||
Redemption proceeds per share | $6.79 | |||||||
Class C Shares: | ||||||||
Net asset value per share ($3,077,543 ÷ 467,115 shares outstanding), no par value, unlimited shares authorized | $6.59 | |||||||
Offering price per share | $6.59 | |||||||
Redemption proceeds per share (99.00/100 of $6.59) | $6.52 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $7,356 received from an affiliated issuer (Note 5) and net of foreign taxes withheld of $587) | $ | 357,510 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 254,857 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 37,417 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 71,454 | |||||||||||
Directors'/Trustees' fees | 1,353 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 1,461 | |||||||||||
Portfolio accounting fees | 75,593 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 21,581 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 5,401 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 7,194 | |||||||||||
Share registration costs | 37,895 | |||||||||||
Printing and postage | 33,255 | |||||||||||
Insurance premiums | 4,492 | |||||||||||
Interest expense | 106 | |||||||||||
Miscellaneous | 2,384 | |||||||||||
TOTAL EXPENSES | 806,943 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (254,857 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,779 | ) | ||||||||||
Reimbursement of other operating expenses | (142,853 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (442,489 | ) | ||||||||||
Net expenses | 364,454 | |||||||||||
Net investment income (loss) | (6,944 | ) | ||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (11,773,391 | ) | ||||||||||
Net change in unrealized appreciation of investments | 2,264,282 | |||||||||||
Net realized and unrealized loss on investments | (9,509,109 | ) | ||||||||||
Change in net assets resulting from operations | $ | (9,516,053 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | (6,944 | ) | $ | (34,816 | ) | ||
Net realized loss on investments | (11,773,391 | ) | (2,063,606 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 2,264,282 | 950,455 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (9,516,053 | ) | (1,147,967 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net realized gain on investments | ||||||||
Institutional Shares | - -- | (638,272 | ) | |||||
Class A Shares | - -- | (198,621 | ) | |||||
Class C Shares | - -- | (63,763 | ) | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | - -- | (900,656 | ) | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 16,057,040 | 21,054,023 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | - -- | 316,054 | ||||||
Cost of shares redeemed | (10,819,501 | ) | (6,659,980 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 5,237,539 | 14,710,097 | ||||||
Change in net assets | (4,278,514 | ) | 12,661,474 | |||||
Net Assets: | ||||||||
Beginning of period | 27,754,855 | 15,093,381 | ||||||
End of period | $ | 23,476,341 | $ | 27,754,855 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Small Cap Value Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Class A Shares and Class C Shares are presented separately. The investment objective of the Fund is long-term capital appreciation.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified-cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 1,959,660 | $ | 13,399,032 | 1,548,526 | $ | 16,894,234 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 7,094 | 75,830 | ||||||||||
Shares redeemed | (1,301,790 | ) | (9,195,866 | ) | (482,513 | ) | (5,241,402 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 657,870 | $ | 4,203,166 | 1,073,107 | $ | 11,728,662 | ||||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 100,371 | $ | 768,645 | 134,417 | $ | 1,472,044 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 17,137 | 182,165 | ||||||||||
Shares redeemed | (143,809 | ) | (981,169 | ) | (103,407 | ) | (1,103,930 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | (43,438 | ) | $ | (212,524 | ) | 48,147 | $ | 550,279 | ||||||
Year Ended July 31 | | 2009 | | 2008 | ||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 254,156 | $ | 1,889,363 | 256,136 | $ | 2,687,745 | ||||||||
Shares issued to shareholders in payment of distributions declared | -- | -- | 5,566 | 58,059 | ||||||||||
Shares redeemed | (103,429 | ) | (642,466 | ) | (30,126 | ) | (314,648 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | 150,727 | $ | 1,246,897 | 231,576 | $ | 2,431,156 | ||||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 765,159 | $ | 5,237,539 | 1,352,830 | $ | 14,710,097 |
4. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. These differences are due to differing treatments for net operating loss.
For the year ended July 31, 2009, permanent differences identified and reclassified among the components of net assets were as follows:
Increase (Decrease) | ||
Paid-In Capital | | Undistributed Net Investment Income (Loss) |
$(6,944) | $6,944 |
Net investment income (loss), net realized gains (losses) and net assets were not affected by this reclassification.
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008 was as follows:
| 2009 | | 2008 | |
Ordinary income 1 | $-- | $885,746 | ||
Long-term capital gains | $-- | $ 14,910 |
1 For tax purposes, short-term capital gain distributions are considered ordinary income distributions.
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Net unrealized appreciation | | $ 2,362,559 | |
Capital loss carryforwards and deferrals | $(13,683,221 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $20,952,943. The net unrealized appreciation of investments for federal tax purposes was $2,362,559. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,739,556 and net unrealized depreciation from investments for those securities having an excess of cost over value of $376,997.
At July 31, 2009, the Fund had a capital loss carryforward of $4,459,356 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2016 | $ 176,370 | |
2017 | $4,282,986 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $9,223,865 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 1.15% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each Class of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $254,441 of its fee and reimbursed $142,853 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,779 of its fee. The net fee paid to FAS was 0.836% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $14,357 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $945 in sales charges from the sale of Class A Shares. FSC also retained $2,716 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC did not receive any fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.50%, 1.75% and 2.50%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $416. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 382,184 | 12,573,734 | 12,655,361 | 300,557 | $300,557 | $7,356 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $63,915,257 |
Sales | $58,890,272 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT SMALL CAP VALUE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Small Cap Value Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Small Cap Value Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised nine portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc. (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); Director, Midway Pacific (lumber). | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc. and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory
Contract - May 2009
FEDERATED MDT SMALL CAP VALUE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
For the periods covered by the report, the Fund's performance for the three-year period was above the median of the relevant peer group, and the Fund's performance fell below the median of the relevant peer group for the one-year period. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Small Cap Value Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R726
37325 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Tax Aware/All Cap Core Fund
Established 2005
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Class A Shares
Class C Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights - Class A Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.84 | $11.65 | $10.35 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | 0.02 | (0.00 | ) 3,4 | (0.02 | ) 3 | (0.05 | ) 3 | |||||
Net realized and unrealized gain (loss) on investments | (3.12 | ) | (0.81 | ) | 1.32 | 0.40 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.10 | ) | (0.81 | ) | 1.30 | 0.35 | ||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.00 | ) 4 | - -- | - -- | - -- | |||||||
Net Asset Value, End of Period | $ 7.74 | $10.84 | $11.65 | $10.35 | ||||||||
Total Return 5 | (28.55 | )% | (6.95 | )% | 12.56 | % | 3.50 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.64 | % | 1.65 | % | 1.65 | % | 2.01 | % 6 | ||||
Net investment income (loss) | 0.27 | % | (0.02 | )% | (0.14 | )% | (0.50 | )% 6 | ||||
Expense waiver/reimbursement 7 | 3.57 | % | 3.12 | % | 5.81 | % | 3.71 | % 6 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $5,044 | $6,862 | $3,903 | $2,061 | ||||||||
Portfolio turnover | 260 | % | 183 | % | 154 | % | 182 | % |
1 MDT Tax Aware/All Cap Core Fund (the "Predecessor Fund") was reorganized into the Federated MDT Tax Aware/All Cap Core Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Represents less than $0.01.
5 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
6 Computed on an annualized basis.
7 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Financial Highlights - Class C Shares
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.60 | $11.47 | $10.27 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | (0.05 | ) | (0.08 | ) 3 | (0.10 | ) 3 | (0.13 | ) 3 | ||||
Net realized and unrealized gain (loss) on investments | (3.04 | ) | (0.79 | ) | 1.30 | 0.40 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.09 | ) | (0.87 | ) | 1.20 | 0.27 | ||||||
Net Asset Value, End of Period | $ 7.51 | $10.60 | $11.47 | $10.27 | ||||||||
Total Return 4 | (29.15 | )% | (7.59 | )% | 11.68 | % | 2.70 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 2.39 | % | 2.37 | % | 2.40 | % | 2.76 | % 5 | ||||
Net investment income (loss) | (0.53 | )% | (0.73 | )% | (0.89 | )% | (1.25 | )% 5 | ||||
Expense waiver/reimbursement 6 | 3.57 | % | 3.19 | % | 5.70 | % | 3.71 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $2,294 | $3,587 | $3,007 | $1,329 | ||||||||
Portfolio turnover | 260 | % | 183 | % | 154 | % | 182 | % |
1 The Predecessor Fund was reorganized into the Fund as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase or redemption payments; and (2) ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs, such as sales charges (loads) on purchase or redemption payments. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual: | ||||||
Class A Shares | $1,000 | $1,171.00 | $ 8.77 | |||
Class C Shares | $1,000 | $1,166.10 | $12.78 | |||
Hypothetical (assuming a 5% return before expenses): | ||||||
Class A Shares | $1,000 | $1,016.71 | $ 8.15 | |||
Class C Shares | $1,000 | $1,012.99 | $11.88 |
1 Expenses are equal to the Fund's annualized net expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period). The annualized net expense ratios are as follows:
Class A Shares | | 1.63% |
Class C Shares | 2.38% |
Management's Discussion of Fund Performance (unaudited)
The fund's total return, based on net asset value, for the 12-month reporting period ended July 31, 2009 was -28.55% for Class A Shares and -29.15% for Class C Shares. The total returns of the Russell 3000 ® Index 1 and the Lipper Multi-Cap Core Funds Index 2 were -20.21% and -19.00%, respectively, for the reporting period. The Fund's total return for the fiscal year reflected actual cash flows, transaction costs, and other expenses which were not reflected in the total return of the Russell index.
The following discussion will focus on the performance of the fund's Class A Shares.
MARKET OVERVIEW
Over the 12-month reporting period ended July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period
1 Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged and investments cannot be made in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
down 20.21%. Large cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 3 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000 ® Index 4 and the Russell Midcap ® Index, 5 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 6 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 7
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 3000 ® Index was stock selection in the Materials and Financials sectors. Additionally, an underweight in the Financials sector and an overweight in the Consumer Discretionary sector each contributed moderately to relative performance. Individual stocks contributing to the fund's performance relative to the Russell 3000 ® Index included: Freeport-McMoRan Copper & Gold Incorporated, General Electric Company, Bank of America Corporation and International Business Machines.
The most significant negative factor in the fund's performance relative to the Russell 3000 ® Index was stock selection in the Industrials, Consumer Discretionary, Health Care and Energy sectors. Additionally, an underweight in the Consumer Staples sector and an overweight in the Energy sector each detracted from relative performance. Individual stocks detracting from the fund's performance relative to the Russell 3000 ® Index included: United States Steel Corporation, Cummins Engine Incorporated, Monsanto Company and Occidental Petroleum Corporation.
3 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000® Index, which represents approximately 65% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
4 Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index. The index is unmanaged and investments cannot be made in an index.
5 Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 35% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
6 Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000® Growth or the Russell 2000® Growth indexes. The index is unmanaged and investments cannot be made in an index.
7 Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000® Value or the Russell 2000® Value indexes. The index is unmanaged and investments cannot be made in an index.
GROWTH OF A $10,000 INVESTMENT - CLASS A SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Tax Aware/All Cap Core Fund 2 (Class A Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 3000 Index (Russell 3000) 3 and the Lipper Multi-Cap Core Funds Index. 4
Average Annual Total Returns 5 for the Period Ended 7/31/2009 | | |
1 Year | - -32.47% | |
Start of Performance (9/15/2005) | - -7.73% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmtaacarac3733c1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum sales charge of 5.50%.
1 Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 5.50% ($10,000 investment minus $550 sales charge = $9,450). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 3000 ® and the Lipper Multi-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Tax Aware/All Cap Core Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Tax Aware/All Cap Core Fund.
3 The Russell 3000 is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission (SEC) requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
5 Total returns quoted reflect all applicable sales charges.
GROWTH OF A $10,000 INVESTMENT - CLASS C SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Tax Aware/All Cap Core Fund 2 (Class C Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 3000 Index (Russell 3000) 3 and the Lipper Multi-Cap Core Funds Index. 4
Average Annual Total Returns 5 for the Period Ended 7/31/2009 | | |
1 Year | - -29.86% | |
Start of Performance (9/15/2005) | - -7.12% |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmtaacarac3733c2.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured. Total returns shown include the maximum contingent deferred sales charge (CDSC) of 1.00% as applicable.
1 Represents a hypothetical investment of $10,000 in the Fund. The maximum CDSC is 1.00% on any redemption less than one year from the purchase date. The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 3000 and the Lipper Multi-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Tax Aware/All Cap Core Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Tax Aware/All Cap Core Fund.
3 The Russell 3000 is not adjusted to reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
5 Total returns quoted reflect all applicable contingent deferred sales charges.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Property Liability Insurance | 5.4 | % | |
Electric Utility | 5.0 | % | |
Crude Oil & Gas Production | 4.8 | % | |
Integrated International Oil | 4.6 | % | |
Copper | 4.5 | % | |
Computers - High End | 4.3 | % | |
Railroad | 4.3 | % | |
Biotechnology | 3.9 | % | |
Undesignated Consumer Cyclicals | 3.9 | % | |
Department Stores | 3.8 | % | |
Securities Brokerage | 2.9 | % | |
Miscellaneous Food Products | 2.8 | % | |
Defense Aerospace | 2.7 | % | |
Software Packaged/Custom | 2.4 | % | |
Services to Medical Professionals | 2.3 | % | |
Integrated Domestic Oil | 2.2 | % | |
Multi-Industry Capital Goods | 1.9 | % | |
Cable TV | 1.8 | % | |
Computers - Midrange | 1.8 | % | |
Gas Distributor | 1.8 | % | |
Diversified Leisure | 1.6 | % | |
Internet Services | 1.6 | % | |
Clothing Stores | 1.3 | % | |
Diversified Tobacco | 1.3 | % | |
Multi-Line Insurance | 1.3 | % | |
Industry Composition | | Percentage of Total Net Assets | |
Computer Peripherals | 1.2 | % | |
Ethical Drugs | 1.2 | % | |
Agricultural Chemicals | 1.1 | % | |
Defense Electronics | 1.1 | % | |
Grocery Chain | 1.0 | % | |
Offshore Driller | 1.0 | % | |
Other 2 | 18.3 | % | |
Cash Equivalents 3 | 2.0 | % | |
Other Assets and Liabilities - Net 4 | (1.1 | )% | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the adviser assigns a classification to securities not classified by the GICS and to securities for which the adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--99.1% | ||||||
Advertising--0.3% | ||||||
904 | Omnicom Group, Inc. | $ | 30,736 | |||
Agricultural Chemicals--1.1% | ||||||
200 | Bunge Ltd. | 13,994 | ||||
324 | FMC Corp. | 15,759 | ||||
1,792 | 1 | Mosaic Co. (The) | 93,453 | |||
TOTAL | 123,206 | |||||
Aluminum--0.1% | ||||||
305 | Kaiser Aluminum Corp. | 10,083 | ||||
Apparel--0.3% | ||||||
248 | V.F. Corp. | 16,043 | ||||
389 | 1 | Warnaco Group, Inc. | 14,132 | |||
TOTAL | 30,175 | |||||
AT&T Divestiture--0.9% | ||||||
4,044 | AT&T, Inc. | 106,074 | ||||
Auto Original Equipment Manufacturer-0.1% | ||||||
70 | 1 | AutoZone, Inc. | 10,750 | |||
75 | Superior Industries International, Inc. | 1,184 | ||||
TOTAL | 11,934 | |||||
Biotechnology--3.9% | ||||||
5,756 | 1 | Amgen, Inc. | 358,656 | |||
721 | 1 | Biogen Idec, Inc. | 34,284 | |||
408 | 1 | Cephalon, Inc. | 23,929 | |||
122 | 1 | Charles River Laboratories International, Inc. | 4,035 | |||
498 | 1 | Gilead Sciences, Inc. | 24,367 | |||
64 | 1 | Hospira, Inc. | 2,460 | |||
TOTAL | 447,731 | |||||
Broadcasting--0.3% | ||||||
661 | 1 | American Tower Systems Corp. | 22,533 | |||
773 | News Corp., Inc. | 7,985 | ||||
TOTAL | 30,518 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Building Materials--0.1% | ||||||
205 | Universal Forest Products, Inc. | $ | 9,151 | |||
Cable TV--1.8% | ||||||
414 | 1 | DISH Network Corp., Class A | 7,017 | |||
3,518 | 1 | Discovery Communications Inc. | 86,191 | |||
301 | Time Warner Cable, Inc. | 9,951 | ||||
2,575 | Time Warner, Inc. | 68,650 | ||||
1,428 | 1 | Viacom, Inc., Class B | 33,072 | |||
TOTAL | 204,881 | |||||
Cement--0.3% | ||||||
673 | Texas Industries, Inc. | 30,622 | ||||
Clothing Stores--1.3% | ||||||
500 | 1 | Aeropostale, Inc. | 18,200 | |||
644 | 1 | Children's Place Retail Stores, Inc. | 21,104 | |||
636 | 1 | Fossil, Inc. | 16,752 | |||
1,474 | Gap (The), Inc. | 24,056 | ||||
77 | 1 | J. Crew Group, Inc. | 2,168 | |||
1,000 | 1 | Jos A. Bank Clothiers, Inc. | 36,590 | |||
686 | Ross Stores, Inc. | 30,246 | ||||
TOTAL | 149,116 | |||||
Cogeneration--0.4% | ||||||
2,702 | 1 | Mirant Corp. | 48,798 | |||
Commodity Chemicals--0.8% | ||||||
2,086 | Du Pont (E.I.) de Nemours & Co. | 64,520 | ||||
271 | Eastman Chemical Co. | 13,458 | ||||
483 | Westlake Chemical Corp. | 12,070 | ||||
TOTAL | 90,048 | |||||
Computer Peripherals--1.2% | ||||||
482 | 1 | Lexmark International Group, Class A | 6,979 | |||
5,301 | 1 | Sandisk Corp. | 94,464 | |||
1,276 | 1 | Synaptics, Inc. | 30,586 | |||
161 | 1 | Western Digital Corp. | 4,870 | |||
TOTAL | 136,899 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Computer Services--0.2% | ||||||
166 | 1 | Affiliated Computer Services, Inc., Class A | $ | 7,870 | ||
179 | 1 | Synnex Corp. | 5,087 | |||
310 | Syntel, Inc. | 12,270 | ||||
TOTAL | 25,227 | |||||
Computer Stores--0.1% | ||||||
1,003 | 1 | Ingram Micro, Inc., Class A | 16,870 | |||
Computers - High End--4.3% | ||||||
4,186 | IBM Corp. | 493,655 | ||||
Computers - Low End--0.4% | ||||||
110 | 1 | Apple, Inc. | 17,973 | |||
2,555 | 1 | Dell, Inc. | 34,186 | |||
TOTAL | 52,159 | |||||
Computers - Midrange--1.8% | ||||||
4,712 | Hewlett-Packard Co. | 204,030 | ||||
Construction Machinery--0.1% | ||||||
198 | Joy Global, Inc. | 7,362 | ||||
Contracting--0.1% | ||||||
143 | Harsco Corp. | 3,934 | ||||
188 | 1 | IHS, Inc., Class A | 9,389 | |||
TOTAL | 13,323 | |||||
Copper--4.5% | ||||||
8,607 | Freeport-McMoRan Copper & Gold, Inc. | 519,002 | ||||
Crude Oil & Gas Production--4.8% | ||||||
4,060 | Apache Corp. | 340,837 | ||||
1,209 | Cimarex Energy Co. | 43,258 | ||||
132 | 1 | Encore Aquisition Co. | 4,699 | |||
2,588 | 1 | Newfield Exploration Co. | 101,786 | |||
1,738 | Pioneer Natural Resources, Inc. | 49,620 | ||||
555 | St. Mary Land & Exploration Co. | 13,248 | ||||
TOTAL | 553,448 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Defense Aerospace--2.7% | ||||||
147 | 1 | Alliant Techsystems, Inc. | $ | 11,572 | ||
838 | Boeing Co. | 35,959 | ||||
1,426 | General Dynamics Corp. | 78,986 | ||||
424 | Goodrich (B.F.) Co. | 21,777 | ||||
1,949 | Lockheed Martin Corp. | 145,707 | ||||
413 | 1 | TransDigm Group, Inc. | 15,814 | |||
TOTAL | 309,815 | |||||
Defense Electronics--1.1% | ||||||
535 | L-3 Communications Holdings, Inc. | 40,393 | ||||
365 | Northrop Grumman Corp. | 16,272 | ||||
1,181 | Raytheon Co. | 55,448 | ||||
363 | Rockwell Collins | 15,319 | ||||
TOTAL | 127,432 | |||||
Department Stores--3.8% | ||||||
6,367 | Penney (J.C.) Co., Inc. | 191,965 | ||||
3,759 | 1 | Sears Holdings Corp. | 249,372 | |||
TOTAL | 441,337 | |||||
Discount Department Stores--0.1% | ||||||
693 | 1 | 99 Cents Only Stores | 10,152 | |||
Diversified Leisure--1.6% | ||||||
5,729 | Carnival Corp. | 160,355 | ||||
81 | International Speedway Corp., Class A | 2,071 | ||||
611 | 1 | Life Time Fitness, Inc. | 15,550 | |||
756 | 1 | Pinnacle Entertainment, Inc. | 7,583 | |||
TOTAL | 185,559 | |||||
Diversified Oil--0.3% | ||||||
611 | Murphy Oil Corp. | 35,560 | ||||
Diversified Tobacco--1.3% | ||||||
3,002 | Altria Group, Inc. | 52,625 | ||||
1,273 | Philip Morris International, Inc. | 59,322 | ||||
824 | Reynolds American, Inc. | 35,852 | ||||
TOTAL | 147,799 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Electric & Electrical Original Equipment Manufacturers--0.3% | ||||||
162 | Cubic Corp. | $ | 6,344 | |||
1,587 | Molex, Inc. | 28,185 | ||||
TOTAL | 34,529 | |||||
Electric Utility--5.0% | ||||||
406 | 1 | AES Corp. | 5,193 | |||
374 | Alliant Energy Corp. | 9,784 | ||||
2,081 | Ameren Corp. | 52,920 | ||||
58 | CH Energy Group, Inc. | 2,870 | ||||
3,592 | CMS Energy Corp. | 46,480 | ||||
824 | 1 | Calpine Corp. | 10,613 | |||
198 | DPL, Inc. | 4,742 | ||||
1,198 | DTE Energy Co. | 41,283 | ||||
344 | Dominion Resources, Inc. | 11,627 | ||||
1,690 | Edison International | 54,621 | ||||
733 | Entergy Corp. | 58,882 | ||||
91 | ITC Holdings Corp. | 4,341 | ||||
252 | Idacorp, Inc. | 6,985 | ||||
420 | OGE Energy Corp. | 12,642 | ||||
330 | Pinnacle West Capital Corp. | 10,547 | ||||
2,570 | Public Service Enterprises Group, Inc. | 83,397 | ||||
2,935 | Sempra Energy | 153,882 | ||||
445 | UniSource Energy Corp. | 12,282 | ||||
TOTAL | 583,091 | |||||
Electrical - Radio & TV--0.3% | ||||||
1,406 | Harman International Industries, Inc. | 34,700 | ||||
Electrical Equipment--0.0% | ||||||
192 | Belden, Inc. | 3,368 | ||||
Electronic Instruments--0.0% | ||||||
110 | 1 | Thermo Fisher Scientific Inc. | 4,981 | |||
Electronic Testing/Measuring Equipment--0.0% | ||||||
155 | 1 | Multi-Fineline Electronix, Inc. | 3,532 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Ethical Drugs--1.2% | ||||||
4,539 | Bristol-Myers Squibb Co. | $ | 98,678 | |||
869 | Eli Lilly & Co. | 30,319 | ||||
834 | 1 | King Pharmaceuticals, Inc. | 7,564 | |||
135 | 1 | Valeant Pharmaceuticals International | 3,483 | |||
TOTAL | 140,044 | |||||
Food Wholesaling--0.0% | ||||||
201 | 1 | Winn-Dixie Stores, Inc. | 2,848 | |||
Furniture--0.0% | ||||||
333 | Leggett and Platt, Inc. | 5,778 | ||||
Gas Distributor--1.8% | ||||||
298 | AGL Resources, Inc. | 10,019 | ||||
2,945 | Energen Corp. | 121,687 | ||||
245 | ONEOK, Inc. | 8,110 | ||||
989 | Questar Corp. | 32,706 | ||||
2,027 | 1 | Southern Union Co. | 39,283 | |||
TOTAL | 211,805 | |||||
Generic Drugs--0.6% | ||||||
5,076 | 1 | Mylan Laboratories, Inc. | 66,952 | |||
Grocery Chain--1.0% | ||||||
1,815 | Kroger Co. | 38,805 | ||||
3,390 | Safeway Inc. | 64,173 | ||||
402 | 1 | Whole Foods Market, Inc. | 9,724 | |||
TOTAL | 112,702 | |||||
Home Building--0.4% | ||||||
739 | D.R. Horton, Inc. | 8,565 | ||||
1,793 | KB HOME | 29,925 | ||||
456 | Lennar Corp., Class A | 5,399 | ||||
172 | Ryland Group, Inc. | 3,435 | ||||
TOTAL | 47,324 | |||||
Home Health Care--0.1% | ||||||
459 | 1 | Amerigroup Corp. | 11,328 | |||
77 | 1 | Gentiva Health Services, Inc. | 1,639 | |||
TOTAL | 12,967 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Home Products--0.1% | ||||||
366 | Fortune Brands, Inc. | $ | 14,483 | |||
Hospitals--0.1% | ||||||
148 | Universal Health Services, Inc., Class B | 8,230 | ||||
Hotels and Motels--0.3% | ||||||
659 | 1 | Wynn Resorts Ltd. | 33,721 | |||
Household Appliances--0.2% | ||||||
475 | Whirlpool Corp. | 27,118 | ||||
Industrial Machinery--0.4% | ||||||
345 | Flowserve Corp. | 27,866 | ||||
1,055 | 1 | Terex Corp. | 16,015 | |||
TOTAL | 43,881 | |||||
Insurance Brokerage--0.1% | ||||||
196 | Aspen Insurance Holdings Ltd. | 4,875 | ||||
214 | Axis Capital Holdings Ltd. | 6,090 | ||||
TOTAL | 10,965 | |||||
Integrated Domestic Oil--2.2% | ||||||
5,721 | ConocoPhillips | 250,065 | ||||
Integrated International Oil--4.6% | ||||||
7,521 | Exxon Mobil Corp. | 529,403 | ||||
Internet Services--1.6% | ||||||
272 | 1 | Amazon.com, Inc. | 23,327 | |||
2,793 | 1 | NetFlix, Inc. | 122,724 | |||
88 | 1 | Priceline.com, Inc. | 11,407 | |||
1,316 | 1 | eBay, Inc. | 27,965 | |||
TOTAL | 185,423 | |||||
Leasing--0.0% | ||||||
49 | GATX Corp. | 1,236 | ||||
Life Insurance--0.9% | ||||||
655 | Old Republic International Corp. | 6,773 | ||||
2,354 | Torchmark Corp. | 91,947 | ||||
TOTAL | 98,720 | |||||
Long-Term Care Centers--0.1% | ||||||
588 | 1 | Kindred Healthcare, Inc. | 8,256 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Maritime--0.1% | ||||||
237 | 1 | Kirby Corp. | $ | 8,771 | ||
248 | Overseas Shipholding Group, Inc. | 8,519 | ||||
TOTAL | 17,290 | |||||
Medical Supplies--0.5% | ||||||
572 | 1 | American Medical Systems Holdings, Inc. | 8,746 | |||
943 | McKesson HBOC, Inc. | 48,234 | ||||
TOTAL | 56,980 | |||||
Medical Technology--0.4% | ||||||
107 | 1 | Gen-Probe, Inc. | 3,972 | |||
706 | 1 | Thoratec Laboratories Corp. | 17,749 | |||
591 | 1 | Zimmer Holdings, Inc. | 27,541 | |||
TOTAL | 49,262 | |||||
Metal Containers--0.2% | ||||||
370 | Ball Corp. | 17,893 | ||||
301 | 1 | Crown Holdings, Inc. | 7,555 | |||
TOTAL | 25,448 | |||||
Miscellaneous Communications--0.1% | ||||||
533 | 1 | Leap Wireless International, Inc. | 12,765 | |||
Miscellaneous Components--0.7% | ||||||
748 | AVX Corp. | 8,221 | ||||
907 | 1 | Cree, Inc. | 29,078 | |||
1,596 | 1 | International Rectifier Corp. | 26,430 | |||
571 | 1 | Qlogic Corp. | 7,452 | |||
525 | 1 | Zoran Corp. | 6,048 | |||
TOTAL | 77,229 | |||||
Miscellaneous Food Products--2.8% | ||||||
10,869 | Archer-Daniels-Midland Co. | 327,374 | ||||
Miscellaneous Machinery--0.2% | ||||||
301 | Parker-Hannifin Corp. | 13,328 | ||||
119 | SPX Corp. | 6,286 | ||||
TOTAL | 19,614 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Money Center Bank--0.4% | ||||||
247 | Bank of New York Mellon Corp. | $ | 6,753 | |||
1,716 | U.S. Bancorp | 35,024 | ||||
TOTAL | 41,777 | |||||
Multi-Industry Capital Goods--1.9% | ||||||
2,886 | Honeywell International, Inc. | 100,144 | ||||
2,343 | KBR, Inc. | 49,648 | ||||
1,206 | United Technologies Corp. | 65,691 | ||||
TOTAL | 215,483 | |||||
Multi-Line Insurance--1.3% | ||||||
1,227 | AON Corp. | 48,405 | ||||
163 | 1 | Amerisafe, Inc. | 2,711 | |||
808 | CIGNA Corp. | 22,947 | ||||
458 | Cincinnati Financial Corp. | 11,061 | ||||
153 | Infinity Property & Casualty | 6,356 | ||||
654 | Montpelier Re Holdings Ltd. | 10,255 | ||||
2,806 | Unum Group | 52,669 | ||||
TOTAL | 154,404 | |||||
Mutual Fund Adviser--0.0% | ||||||
67 | 1 | Affiliated Managers Group | 4,423 | |||
Office Equipment--0.1% | ||||||
359 | Pitney Bowes, Inc. | 7,413 | ||||
Office Supplies--0.2% | ||||||
928 | Avery Dennison Corp. | 24,805 | ||||
Offshore Driller--1.0% | ||||||
1,436 | 1 | Transocean Ltd. | 114,435 | |||
Oil Refiner--0.2% | ||||||
668 | World Fuel Services Corp. | 29,298 | ||||
Oil Service, Explore & Drill--0.5% | ||||||
293 | 1 | McDermott International, Inc. | 5,725 | |||
3,151 | Patterson-UTI Energy, Inc. | 43,515 | ||||
178 | 1 | Seacor Holdings, Inc. | 14,147 | |||
TOTAL | 63,387 | |||||
Oil Well Supply--0.2% | ||||||
197 | 1 | Dresser-Rand Group, Inc. | 5,735 | |||
412 | 1 | Dril-Quip, Inc. | 17,423 | |||
TOTAL | 23,158 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Optical Reading Equipment--0.1% | ||||||
264 | 1 | Zebra Technologies Corp., Class A | $ | 6,452 | ||
Packaged Foods--0.2% | ||||||
447 | Campbell Soup Co. | 13,870 | ||||
212 | Kraft Foods, Inc., Class A | 6,008 | ||||
TOTAL | 19,878 | |||||
Paper Products--0.5% | ||||||
219 | Clearwater Paper Corp. | 8,775 | ||||
2,570 | MeadWestvaco Corp. | 50,089 | ||||
TOTAL | 58,864 | |||||
Personal Loans--0.1% | ||||||
286 | 1 | World Acceptance Corp. | 6,784 | |||
Personnel Agency--0.1% | ||||||
178 | 1 | Hewitt Associates, Inc. | 5,328 | |||
81 | Maximus, Inc. | 3,452 | ||||
TOTAL | 8,780 | |||||
Plastic Containers--0.2% | ||||||
544 | 1 | Owens-Illinois, Inc. | 18,463 | |||
Pollution Control--0.2% | ||||||
205 | 1 | Layne Christensen Co. | 4,865 | |||
297 | 1 | Stericycle, Inc. | 15,206 | |||
TOTAL | 20,071 | |||||
Property Liability Insurance--5.4% | ||||||
1,024 | Allied World Assurance Holdings Ltd. | 44,503 | ||||
2,427 | American Financial Group, Inc. | 59,194 | ||||
185 | 1 | Arch Capital Group Ltd. | 11,505 | |||
1,303 | Chubb Corp. | 60,173 | ||||
102 | Everest Re Group Ltd. | 8,182 | ||||
372 | HCC Insurance Holdings, Inc. | 9,337 | ||||
752 | Horace Mann Educators Corp. | 8,535 | ||||
59 | PartnerRe Ltd. | 4,047 | ||||
280 | Platinum Underwriters Holdings Ltd. | 9,450 | ||||
244 | RenaissanceRe Holdings Ltd. | 12,261 | ||||
8,882 | The Travelers Cos., Inc. | 382,548 | ||||
291 | Transatlantic Holdings, Inc. | 13,767 | ||||
TOTAL | 623,502 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Psychiatric Centers--0.0% | ||||||
141 | 1 | Magellan Health Services, Inc. | $ | 4,563 | ||
Railroad--4.3% | ||||||
2,260 | Burlington Northern Santa Fe Corp. | 177,613 | ||||
825 | CSX Corp. | 33,099 | ||||
5,021 | Union Pacific Corp. | 288,808 | ||||
TOTAL | 499,520 | |||||
Regional Bank--0.7% | ||||||
2,820 | Comerica, Inc. | 67,229 | ||||
432 | 1 | TFS Financial Corp. | 4,795 | |||
213 | United Bankshares, Inc. | 4,315 | ||||
TOTAL | 76,339 | |||||
Restaurant--0.4% | ||||||
136 | 1 | CEC Entertainment, Inc. | 3,967 | |||
454 | Darden Restaurants, Inc. | 14,705 | ||||
387 | 1 | Green Mountain Coffee, Inc. | 27,260 | |||
61 | 1 | P.F. Chang's China Bistro, Inc. | 2,069 | |||
51 | 1 | Panera Bread Co. | 2,803 | |||
TOTAL | 50,804 | |||||
Rubber--0.1% | ||||||
782 | Cooper Tire & Rubber Co. | 11,542 | ||||
Savings & Loan--0.1% | ||||||
492 | Hudson City Bancorp, Inc. | 6,918 | ||||
Securities Brokerage--2.9% | ||||||
1,954 | Goldman Sachs Group, Inc. | 319,088 | ||||
142 | 1 | Knight Capital Group, Inc., Class A | 2,637 | |||
184 | 1 | Piper Jaffray Cos., Inc. | 8,438 | |||
TOTAL | 330,163 | |||||
Semiconductor Distribution--0.4% | ||||||
1,460 | 1 | Avnet, Inc. | 35,624 | |||
285 | 1 | FormFactor, Inc. | 6,569 | |||
223 | 1 | Tyler Technologies, Inc. | 3,434 | |||
TOTAL | 45,627 | |||||
Semiconductor Manufacturing--0.3% | ||||||
502 | 1 | ATMI, Inc. | 9,131 | |||
257 | 1 | Silicon Laboratories, Inc. | 11,007 | |||
777 | Xilinx, Inc. | 16,853 | ||||
TOTAL | 36,991 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Semiconductor Manufacturing Equipment--0.1% | ||||||
720 | 1 | Novellus Systems, Inc. | $ | 14,090 | ||
Services to Medical Professionals--2.3% | ||||||
1,782 | 1 | Health Net, Inc. | 24,110 | |||
605 | 1 | Humana, Inc. | 19,874 | |||
1,670 | Omnicare, Inc. | 39,863 | ||||
654 | 1 | PharMerica Corp. | 13,708 | |||
167 | Quest Diagnostics, Inc. | 9,122 | ||||
2,171 | UnitedHealth Group, Inc. | 60,918 | ||||
1,894 | 1 | Wellpoint, Inc. | 99,700 | |||
TOTAL | 267,295 | |||||
Shoes--0.1% | ||||||
294 | 1 | Genesco, Inc. | 6,386 | |||
Soft Drinks--0.1% | ||||||
408 | 1 | Dr. Pepper Snapple Group, Inc. | 10,041 | |||
Software Packaged/Custom--2.4% | ||||||
184 | 1 | Advent Software, Inc. | 6,707 | |||
276 | 1 | ArcSight, Inc. | 5,236 | |||
1,164 | CA, Inc. | 24,607 | ||||
228 | 1 | Computer Sciences Corp. | 10,983 | |||
663 | 1 | DST Systems, Inc. | 29,391 | |||
721 | 1 | F5 Networks, Inc. | 26,764 | |||
172 | 1 | MSCI, Inc., Class A | 4,807 | |||
771 | Microsoft Corp. | 18,134 | ||||
215 | 1 | NetSuite, Inc. | 2,614 | |||
311 | 1 | Quest Software, Inc. | 4,584 | |||
4,841 | 1 | Red Hat, Inc. | 110,520 | |||
322 | Rovi Corp. | 8,424 | ||||
699 | 1 | Solera Holdings, Inc. | 18,824 | |||
242 | 1 | Symantec Corp. | 3,613 | |||
TOTAL | 275,208 | |||||
Specialty Chemicals--0.3% | ||||||
596 | Albemarle Corp. | 17,707 | ||||
95 | Lubrizol Corp. | 5,503 | ||||
186 | 1 | OM Group, Inc. | 6,261 | |||
TOTAL | 29,471 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Specialty Retailing--0.6% | ||||||
946 | 1 | Cabela's, Inc., Class A | $ | 15,335 | ||
1,477 | 1 | CarMax, Inc. | 23,824 | |||
15 | Monro Muffler Brake, Inc. | 399 | ||||
2,252 | Williams-Sonoma, Inc. | 31,663 | ||||
TOTAL | 71,221 | |||||
Stainless Steel Producer--0.8% | ||||||
3,261 | Allegheny Technologies, Inc. | 88,308 | ||||
240 | Carpenter Technology Corp. | 4,486 | ||||
TOTAL | 92,794 | |||||
Telecommunication Equipment & Services--0.3% | ||||||
252 | 1 | Amdocs Ltd. | 6,028 | |||
1,221 | 1 | Starent Networks Corp. | 29,280 | |||
TOTAL | 35,308 | |||||
Undesignated Consumer Cyclicals--3.9% | ||||||
1,760 | 1 | Apollo Group, Inc., Class A | 121,510 | |||
118 | 1 | Capella Education Co. | 7,594 | |||
1,579 | 1 | Corinthian Colleges, Inc. | 24,380 | |||
407 | DeVRY, Inc. | 20,244 | ||||
347 | 1 | FTI Consulting, Inc. | 18,887 | |||
1,868 | 1 | ITT Educational Services, Inc. | 181,850 | |||
2,165 | 1 | Iron Mountain, Inc. | 63,240 | |||
36 | Strayer Education, Inc. | 7,646 | ||||
TOTAL | 445,351 | |||||
Uniforms--0.0% | ||||||
80 | Unifirst Corp. | 3,114 | ||||
TOTAL COMMON STOCKS (IDENTIFIED COST $8,957,786) | 11,418,909 | |||||
Shares | | | Value | |||
MUTUAL FUND--2.0% | ||||||
231,630 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | $ | 231,630 | ||
TOTAL INVESTMENTS--101.1% (IDENTIFIED COST $9,189,416) 4 | 11,650,539 | |||||
OTHER ASSETS AND LIABILITIES - NET--(1.1)% 5 | (124,296 | ) | ||||
TOTAL NET ASSETS--100% | $ | 11,526,243 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $9,227,921.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | | | | | ||||
Level 1-- Quoted Prices and Investments in Mutual Funds | Level 2-- Other Significant Observable Inputs | Level 3-- Significant Unobservable Inputs | Total | |||||
Equity Securities: | ||||||||
Domestic | $11,032,951 | $-- | $-- | $11,032,951 | ||||
International | 385,958 | - -- | - -- | 385,958 | ||||
Mutual Fund | 231,630 | - -- | - -- | 231,630 | ||||
TOTAL SECURITIES | $11,650,539 | $-- | $-- | $11,650,539 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $231,630 of investments in an affiliated issuer (Note 5) (identified cost $9,189,416) | $ | 11,650,539 | |||||
Income receivable | 8,701 | ||||||
Receivable for investments sold | 48,075 | ||||||
Receivable for shares sold | 689 | ||||||
TOTAL ASSETS | 11,708,004 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 50,038 | |||||
Payable for shares redeemed | 68,406 | ||||||
Payable for custodian fees | 6,739 | ||||||
Payable for transfer and dividend disbursing agent fees and expenses | 9,644 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for portfolio accounting fees | 13,625 | ||||||
Payable for distribution services fee (Note 5) | 1,385 | ||||||
Payable for shareholder services fee (Note 5) | 3,455 | ||||||
Accrued expenses | 5,969 | ||||||
TOTAL LIABILITIES | 181,761 | ||||||
Net assets for 1,494,768 shares outstanding | $ | 11,526,243 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 17,514,318 | |||||
Net unrealized appreciation of investments | 2,461,123 | ||||||
Accumulated net realized loss on investments | (8,453,489 | ) | |||||
Undistributed net investment income | 4,291 | ||||||
TOTAL NET ASSETS | $ | 11,526,243 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($4,188,090 ÷ 538,100 shares outstanding), no par value, unlimited shares authorized | $7.78 | ||||||
Offering price per share | $7.78 | ||||||
Redemption proceeds per share | $7.78 | ||||||
Class A Shares: | |||||||
Net asset value per share ($5,043,820 ÷ 651,359 shares outstanding), no par value, unlimited shares authorized | $7.74 | ||||||
Offering price per share (100/94.50 of $7.74) | $8.19 | ||||||
Redemption proceeds per share | $7.74 | ||||||
Class C Shares: | |||||||
Net asset value per share ($2,294,333 ÷ 305,309 shares outstanding), no par value, unlimited shares authorized | $7.51 | ||||||
Offering price per share | $7.51 | ||||||
Redemption proceeds per share (99.00/100 of $7.51) | $7.43 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $4,313 received from an affiliated issuer (Note 5) and net of foreign taxes withheld of $44) | $ | 233,297 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 111,871 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 36,081 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 59,939 | |||||||||||
Directors'/Trustees' fees | 1,325 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 2,177 | |||||||||||
Portfolio accounting fees | 79,279 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 17,557 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 15,344 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 5,852 | |||||||||||
Share registration costs | 39,811 | |||||||||||
Printing and postage | 31,227 | |||||||||||
Insurance premiums | 4,375 | |||||||||||
Interest expense | 234 | |||||||||||
Miscellaneous | 2,363 | |||||||||||
TOTAL EXPENSES | 659,935 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (111,871 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,877 | ) | ||||||||||
Reimbursement of other operating expenses | (291,429 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (448,177 | ) | ||||||||||
Net expenses | 211,758 | |||||||||||
Net investment income | 21,539 | |||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (6,769,333 | ) | ||||||||||
Net change in unrealized appreciation of investments | 1,374,793 | |||||||||||
Net realized and unrealized loss on investments | (5,394,540 | ) | ||||||||||
Change in net assets resulting from operations | $ | (5,373,001 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 21,539 | $ | (10,751 | ) | |||
Net realized loss on investments | (6,769,333 | ) | (1,609,068 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 1,374,793 | 260,269 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (5,373,001 | ) | (1,359,550 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net investment income | ||||||||
Institutional Shares | (12,123 | ) | - -- | |||||
Class A Shares | (5,125 | ) | - -- | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (17,248 | ) | - -- | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 11,864,848 | 11,846,604 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | 11,952 | - -- | ||||||
Cost of shares redeemed | (10,292,351 | ) | (5,710,298 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 1,584,449 | 6,136,306 | ||||||
Change in net assets | (3,805,800 | ) | 4,776,756 | |||||
Net Assets: | ||||||||
Beginning of period | 15,332,043 | 10,555,287 | ||||||
End of period (including undistributed net investment income of $4,291 and $0, respectively) | $ | 11,526,243 | $ | 15,332,043 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Tax Aware/All Cap Core Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Institutional Shares are presented separately. The investment objective of the Fund is to provide long-term capital appreciation while seeking to minimize the impact of taxes.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | 2009 | 2008 | ||||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 449,790 | $ | 3,194,130 | 549,863 | $ | 6,491,359 | ||||||||
Shares issued to shareholders in payment of distributions declared | 976 | 6,958 | - -- | - -- | ||||||||||
Shares redeemed | (360,647 | ) | (2,719,672 | ) | (413,746 | ) | (4,792,720 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 90,119 | $ | 481,416 | 136,117 | $ | 1,698,639 | ||||||||
Year Ended July 31 | 2009 | 2008 | ||||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 947,917 | $ | 7,814,906 | 353,832 | $ | 4,174,842 | ||||||||
Shares issued to shareholders in payment of distributions declared | 703 | 4,994 | - -- | - -- | ||||||||||
Shares redeemed | (930,303 | ) | (6,506,356 | ) | (55,720 | ) | (639,826 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 18,317 | $ | 1,313,544 | 298,112 | $ | 3,535,016 | ||||||||
Year Ended July 31 | 2009 | 2008 | ||||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 118,890 | $ | 855,812 | 100,386 | $ | 1,180,403 | ||||||||
Shares redeemed | (152,072 | ) | (1,066,323 | ) | (23,958 | ) | (277,752 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (33,182 | ) | $ | (210,511 | ) | 76,428 | $ | 902,651 | ||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 75,254 | $ | 1,584,449 | 510,657 | $ | 6,136,306 |
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008, was as follows:
| 2009 | | 2008 | |
Ordinary income | $17,248 | $-- |
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | | $ | 4,291 | |
Net unrealized appreciation | $ | 2,422,618 | ||
Capital loss carryforwards and deferrals | $ | (8,414,984 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $9,227,921. The net unrealized appreciation of investments for federal tax purposes was $2,422,618. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,429,275 and net unrealized depreciation from investments for those securities having an excess of cost over value of $6,657.
At July 31, 2009, the Fund had a capital loss carryforward of $3,191,091 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2015 | $ 10,826 | |
2017 | $3,180,265 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $5,223,893 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.90% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $111,668 of its fee and reimbursed $291,429 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,877 of its fee. The net fee paid to FAS was 1.489% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore, the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $4,406 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $391 in sales charges from the sale of Class A Shares. FSC also retained $190 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $339 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.40%, 1.65% and 2.40%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $203. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 240,412 | 8,446,529 | 8,455,311 | 231,630 | $231,630 | $4,313 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 33,956,928 |
Sales | $ | 32,409,742 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation, and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
11. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended July 31, 2009, 100% of total ordinary dividends (including short-term capital gain) distributions made by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information is reported in conjunction with the reporting of your distributions on Form 1099-DIV.
Of the ordinary income (including short-term capital gain) distributions made by the Fund during the year ended July 31, 2009, 100% qualify for the dividend received deduction available to corporate shareholders.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT TAX AWARE/ALL CAP CORE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Tax Aware/All Cap Core Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Tax Aware/All Cap Core Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised 9 portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc.; (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber). | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory Contract - May 2009
FEDERATED MDT TAX AWARE/ALL CAP CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
The Fund's performance fell below the median of the relevant peer group for both the one- and three-year periods covered by the report. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Tax Aware/All Cap Core Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R403
Cusip 31421R502
37337 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
Federated
World-Class Investment Manager
Federated MDT Tax Aware/All Cap Core Fund
A Portfolio of Federated MDT Series
ANNUAL SHAREHOLDER REPORT
July 31, 2009
Institutional Shares
FINANCIAL HIGHLIGHTS
SHAREHOLDER EXPENSE EXAMPLE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
PORTFOLIO OF INVESTMENTS SUMMARY TABLE
PORTFOLIO OF INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
STATEMENT OF OPERATIONS
STATEMENT OF CHANGES IN NET ASSETS
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BOARD OF TRUSTEES AND TRUST OFFICERS
EVALUATION AND APPROVAL OF ADVISORY CONTRACT
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
QUARTERLY PORTFOLIO SCHEDULE
Not FDIC Insured * May Lose Value * No Bank Guarantee
Financial Highlights
(For a Share Outstanding Throughout Each Period)
Year Ended July 31, | Period Ended | |||||||||||
| 2009 | | 2008 | | 2007 | 1 | | 7/31/2006 | 2 | |||
Net Asset Value, Beginning of Period | $10.90 | $11.69 | $10.36 | $10.00 | ||||||||
Income From Investment Operations: | ||||||||||||
Net investment income (loss) | 0.02 | 0.03 | 3 | 0.01 | 3 | (0.03 | ) 3 | |||||
Net realized and unrealized gain (loss) on investments | (3.12 | ) | (0.82 | ) | 1.32 | 0.39 | ||||||
TOTAL FROM INVESTMENT OPERATIONS | (3.10 | ) | (0.79 | ) | 1.33 | 0.36 | ||||||
Less Distributions: | ||||||||||||
Distributions from net investment income | (0.02 | ) | - -- | - -- | - -- | |||||||
Net Asset Value, End of Period | $7.78 | $10.90 | $11.69 | $10.36 | ||||||||
Total Return 4 | (28.41 | )% | (6.76 | )% | 12.84 | % | 3.60 | % | ||||
Ratios to Average Net Assets: | ||||||||||||
Net expenses | 1.39 | % | 1.40 | % | 1.40 | % | 1.76 | % 5 | ||||
Net investment income (loss) | 0.44 | % | 0.27 | % | 0.12 | % | (0.25 | )% 5 | ||||
Expense waiver/reimbursement 6 | 3.69 | % | 3.03 | % | 5.47 | % | 3.71 | % 5 | ||||
Supplemental Data: | ||||||||||||
Net assets, end of period (000 omitted) | $4,188 | $4,883 | $3,645 | $1,383 | ||||||||
Portfolio turnover | 260 | % | 183 | % | 154 | % | 182 | % |
1 MDT Tax Aware/All Cap Core Fund (the "Predecessor Fund") was reorganized into the Federated MDT Tax Aware/All Cap Core Fund (the "Fund") as of the close of business on December 8, 2006. Prior to the reorganization, the Fund had no investment operations. The Fund is the successor to the Predecessor Fund. The performance information and financial information presented incorporates the operations of the Predecessor Fund, which, as a result of the reorganization, are the Fund's operations.
2 Reflects operations for the period from September 15, 2005 (date of initial investment) to July 31, 2006.
3 Per share numbers have been calculated using the average shares method.
4 Based on net asset value, which does not reflect the sales charge, redemption fee or contingent deferred sales charge, if applicable. Total returns for periods of less than one year are not annualized.
5 Computed on an annualized basis.
6 This expense decrease is reflected in both the net expense and the net investment income (loss) ratios shown above.
See Notes which are an integral part of the Financial Statements
Shareholder Expense Example (unaudited)
As a shareholder of the Fund, you incur ongoing costs, including management fees and to the extent applicable, distribution (12b-1) fees and/or shareholder services fees and other Fund expenses. This Example is intended to help you to understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. It is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from February 1, 2009 to July 31, 2009.
ACTUAL EXPENSES
The first section of the table below provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you incurred over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled "Expenses Paid During Period" to estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second section of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. Thus, you should not use the hypothetical account values and expenses to estimate the actual ending account balance or your expenses for the period. Rather, these figures are required to be provided to enable you to compare the ongoing costs of investing in the Fund with other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.
| Beginning Account Value 2/1/2009 | | Ending Account Value 7/31/2009 | | Expenses Paid During Period 1 | |
Actual | $1,000 | $1,171.70 | $7.43 | |||
Hypothetical (assuming a 5% return before expenses) | $1,000 | $1,017.95 | $6.90 |
1 Expenses are equal to the Fund's annualized net expense ratio of 1.38%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half-year period).
Management's Discussion of Fund Performance (unaudited)
The fund's total return, based on net asset value, for the fiscal year ended July 31, 2009 was -28.41% for Institutional Shares. The total returns of the Russell 3000 ® Index 1 and the Lipper Multi-Cap Core Funds Index 2 were -20.21% and -19.00%, respectively, for the reporting period. The fund's total return for the fiscal year reflected actual cash flows, transaction costs and other expenses which were not reflected in the total return of the Russell index.
1 Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The index is unmanaged and investments cannot be made in an index.
2 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
MARKET OVERVIEW
Over the 12-month reporting period ended July 31, 2009, domestic equity markets performed poorly in response to a material decline in global economic conditions. The Russell 3000 ® Index, which represents the performance of the 3,000 largest U.S. companies by market capitalization, finished the period down 20.21%. Large cap stocks had the best relative results as demonstrated by the -19.38% return on the Russell Top 200 ® Index, 3 which exceeded the return of mid- and small-cap stocks as evidenced by the -20.72% and -22.23% results for the Russell 2000 ® Index 4 and the Russell Midcap ® Index, 5 respectively. Growth stocks outperformed value stocks during the year, with the Russell 3000 ® Growth Index 6 returning -17.81% as compared to -22.74% for the Russell 3000 Value ® Index. 7
The best performing sectors in the Russell 3000 ® Index during the period were Consumer Staples (-7.53%), Information Technology (-9.65%) and Consumer Discretionary (-10.68%). Underperforming sectors included Financials (-34.08%), Energy (-31.64%) and Industrials (-30.11%).
3 Russell Top 200® Index measures the performance of the 200 largest companies in the Russell 1000® Index, which represents approximately 65% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
4 Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 10% of the total market capitalization of the Russell 3000® Index. The index is unmanaged and investments cannot be made in an index.
5 Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 35% of the total market capitalization of the Russell 1000® Index. The index is unmanaged and investments cannot be made in an index.
6 Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000® Growth or the Russell 2000® Growth indexes. The index is unmanaged and investments cannot be made in an index.
7 Russell 3000® Value Index measures the performance of those Russell 3000® Index companies with lower price-to-book ratios and lower forecasted growth values. The stocks in this index are also members of either the Russell 1000® Value or the Russell 2000® Value indexes. The index is unmanaged and investments cannot be made in an index.
FUND PERFORMANCE
The most significant positive factor in the fund's performance relative to the Russell 3000 ® Index was stock selection in the Materials and Financials sectors. Additionally, an underweight in the Financials sector and an overweight in the Consumer Discretionary sector each contributed moderately to relative performance. Individual stocks contributing to the fund's performance relative to the Russell 3000 ® Index included: Freeport-McMoRan Copper & Gold Incorporated, General Electric Company, Bank of America Corporation and International Business Machines.
The most significant negative factor in the fund's performance relative to the Russell 3000 ® Index was stock selection in the Industrials, Consumer Discretionary, Health Care and Energy sectors. Additionally, an underweight in the Consumer Staples sector and an overweight in the Energy sector each detracted from relative performance. Individual stocks detracting from the fund's performance relative to the Russell 3000 ® Index included: United States Steel Corporation, Cummins Engine Incorporated, Monsanto Company and Occidental Petroleum Corporation.
GROWTH OF A $10,000 INVESTMENT - INSTITUTIONAL SHARES
The graph below illustrates the hypothetical investment of $10,000 1 in the Federated MDT Tax Aware/All Cap Core Fund 2 (Institutional Shares) (the "Fund") from September 15, 2005 (start of performance) to July 31, 2009, compared to the Russell 3000 Index (Russell 3000) 3 and the Lipper Multi-Cap Core Funds Index. 4
Average Annual Total Returns for the Period Ended 7/31/2009 | | ||
1 Year | - -28.41 | % | |
Start of Performance (9/15/2005) | - -6.20 | % |
![](https://capedge.com/proxy/N-CSR/0001318148-09-001348/fmtaacaris37321edg1.gif)
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400. Returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Mutual funds are not obligations of or guaranteed by any bank and are not federally insured.
1 The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 3000 and the Lipper Multi-Cap Core Funds Index have been adjusted to reflect reinvestment of dividends on securities in the indexes.
2 The Fund is the successor to the MDT Tax Aware/All Cap Core Fund pursuant to a reorganization that took place on December 8, 2006. Prior to that date, the fund had no investment operations. Accordingly, the performance information shown for periods prior to that date is that of the MDT Tax Aware/All Cap Core Fund.
3 The Russell 3000 is not adjusted to reflect sales charges, expenses or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. The index is unmanaged and, unlike the Fund, is not affected by cash flows. It is not possible to invest directly in an index.
4 Lipper indices are equally weighted indices of the largest mutual funds within their respective investment objectives. Returns are adjusted for the reinvestment of capital gains distributions and income dividends.
Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Mutual fund performance changes over time and current performance may be lower or higher than what is stated. For current to the most recent month-end performance and after-tax returns, visit FederatedInvestors.com or call 1-800-341-7400.
Portfolio of Investments Summary Table (unaudited)
At July 31, 2009, the Fund's industry composition 1 was as follows:
Industry Composition | | Percentage of Total Net Assets | |
Property Liability Insurance | 5.4 | % | |
Electric Utility | 5.0 | % | |
Crude Oil & Gas Production | 4.8 | % | |
Integrated International Oil | 4.6 | % | |
Copper | 4.5 | % | |
Computers - High End | 4.3 | % | |
Railroad | 4.3 | % | |
Biotechnology | 3.9 | % | |
Undesignated Consumer Cyclicals | 3.9 | % | |
Department Stores | 3.8 | % | |
Securities Brokerage | 2.9 | % | |
Miscellaneous Food Products | 2.8 | % | |
Defense Aerospace | 2.7 | % | |
Software Packaged/Custom | 2.4 | % | |
Services to Medical Professionals | 2.3 | % | |
Integrated Domestic Oil | 2.2 | % | |
Multi-Industry Capital Goods | 1.9 | % | |
Cable TV | 1.8 | % | |
Computers - Midrange | 1.8 | % | |
Gas Distributor | 1.8 | % | |
Diversified Leisure | 1.6 | % | |
Internet Services | 1.6 | % | |
Clothing Stores | 1.3 | % | |
Diversified Tobacco | 1.3 | % | |
Multi-Line Insurance | 1.3 | % | |
Industry Composition | | Percentage of Total Net Assets | |
Computer Peripherals | 1.2 | % | |
Ethical Drugs | 1.2 | % | |
Agricultural Chemicals | 1.1 | % | |
Defense Electronics | 1.1 | % | |
Grocery Chain | 1.0 | % | |
Offshore Driller | 1.0 | % | |
Other 2 | 18.3 | % | |
Cash Equivalents 3 | 2.0 | % | |
Other Assets and Liabilities - Net 4 | (1.1 | )% | |
TOTAL | 100.0 | % |
1 Except for Cash Equivalents and Other Assets and Liabilities, industry classifications are based upon, and individual portfolio securities are assigned to, the classifications of the Global Industry Classification Standard (GICS) except that the adviser assigns a classification to securities not classified by the GICS and to securities for which the adviser does not have access to the classification made by the GICS.
2 For purposes of this table, industry classifications which constitute less than 1.0% of the Fund's total net assets have been aggregated under the designation "Other."
3 Cash Equivalents include any investments in money market mutual funds and/or overnight repurchase agreements.
4 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Portfolio of Investments
July 31, 2009
Shares | | | Value | |||
COMMON STOCKS--99.1% | ||||||
Advertising--0.3% | ||||||
904 | Omnicom Group, Inc. | $ | 30,736 | |||
Agricultural Chemicals--1.1% | ||||||
200 | Bunge Ltd. | 13,994 | ||||
324 | FMC Corp. | 15,759 | ||||
1,792 | 1 | Mosaic Co. (The) | 93,453 | |||
TOTAL | 123,206 | |||||
Aluminum--0.1% | ||||||
305 | Kaiser Aluminum Corp. | 10,083 | ||||
Apparel--0.3% | ||||||
248 | V.F. Corp. | 16,043 | ||||
389 | 1 | Warnaco Group, Inc. | 14,132 | |||
TOTAL | 30,175 | |||||
AT&T Divestiture--0.9% | ||||||
4,044 | AT&T, Inc. | 106,074 | ||||
Auto Original Equipment Manufacturer-0.1% | ||||||
70 | 1 | AutoZone, Inc. | 10,750 | |||
75 | Superior Industries International, Inc. | 1,184 | ||||
TOTAL | 11,934 | |||||
Biotechnology--3.9% | ||||||
5,756 | 1 | Amgen, Inc. | 358,656 | |||
721 | 1 | Biogen Idec, Inc. | 34,284 | |||
408 | 1 | Cephalon, Inc. | 23,929 | |||
122 | 1 | Charles River Laboratories International, Inc. | 4,035 | |||
498 | 1 | Gilead Sciences, Inc. | 24,367 | |||
64 | 1 | Hospira, Inc. | 2,460 | |||
TOTAL | 447,731 | |||||
Broadcasting--0.3% | ||||||
661 | 1 | American Tower Systems Corp. | 22,533 | |||
773 | News Corp., Inc. | 7,985 | ||||
TOTAL | 30,518 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Building Materials--0.1% | ||||||
205 | Universal Forest Products, Inc. | $ | 9,151 | |||
Cable TV--1.8% | ||||||
414 | 1 | DISH Network Corp., Class A | 7,017 | |||
3,518 | 1 | Discovery Communications Inc. | 86,191 | |||
301 | Time Warner Cable, Inc. | 9,951 | ||||
2,575 | Time Warner, Inc. | 68,650 | ||||
1,428 | 1 | Viacom, Inc., Class B | 33,072 | |||
TOTAL | 204,881 | |||||
Cement--0.3% | ||||||
673 | Texas Industries, Inc. | 30,622 | ||||
Clothing Stores--1.3% | ||||||
500 | 1 | Aeropostale, Inc. | 18,200 | |||
644 | 1 | Children's Place Retail Stores, Inc. | 21,104 | |||
636 | 1 | Fossil, Inc. | 16,752 | |||
1,474 | Gap (The), Inc. | 24,056 | ||||
77 | 1 | J. Crew Group, Inc. | 2,168 | |||
1,000 | 1 | Jos A. Bank Clothiers, Inc. | 36,590 | |||
686 | Ross Stores, Inc. | 30,246 | ||||
TOTAL | 149,116 | |||||
Cogeneration--0.4% | ||||||
2,702 | 1 | Mirant Corp. | 48,798 | |||
Commodity Chemicals--0.8% | ||||||
2,086 | Du Pont (E.I.) de Nemours & Co. | 64,520 | ||||
271 | Eastman Chemical Co. | 13,458 | ||||
483 | Westlake Chemical Corp. | 12,070 | ||||
TOTAL | 90,048 | |||||
Computer Peripherals--1.2% | ||||||
482 | 1 | Lexmark International Group, Class A | 6,979 | |||
5,301 | 1 | Sandisk Corp. | 94,464 | |||
1,276 | 1 | Synaptics, Inc. | 30,586 | |||
161 | 1 | Western Digital Corp. | 4,870 | |||
TOTAL | 136,899 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Computer Services--0.2% | ||||||
166 | 1 | Affiliated Computer Services, Inc., Class A | $ | 7,870 | ||
179 | 1 | Synnex Corp. | 5,087 | |||
310 | Syntel, Inc. | 12,270 | ||||
TOTAL | 25,227 | |||||
Computer Stores--0.1% | ||||||
1,003 | 1 | Ingram Micro, Inc., Class A | 16,870 | |||
Computers - High End--4.3% | ||||||
4,186 | IBM Corp. | 493,655 | ||||
Computers - Low End--0.4% | ||||||
110 | 1 | Apple, Inc. | 17,973 | |||
2,555 | 1 | Dell, Inc. | 34,186 | |||
TOTAL | 52,159 | |||||
Computers - Midrange--1.8% | ||||||
4,712 | Hewlett-Packard Co. | 204,030 | ||||
Construction Machinery--0.1% | ||||||
198 | Joy Global, Inc. | 7,362 | ||||
Contracting--0.1% | ||||||
143 | Harsco Corp. | 3,934 | ||||
188 | 1 | IHS, Inc., Class A | 9,389 | |||
TOTAL | 13,323 | |||||
Copper--4.5% | ||||||
8,607 | Freeport-McMoRan Copper & Gold, Inc. | 519,002 | ||||
Crude Oil & Gas Production--4.8% | ||||||
4,060 | Apache Corp. | 340,837 | ||||
1,209 | Cimarex Energy Co. | 43,258 | ||||
132 | 1 | Encore Aquisition Co. | 4,699 | |||
2,588 | 1 | Newfield Exploration Co. | 101,786 | |||
1,738 | Pioneer Natural Resources, Inc. | 49,620 | ||||
555 | St. Mary Land & Exploration Co. | 13,248 | ||||
TOTAL | 553,448 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Defense Aerospace--2.7% | ||||||
147 | 1 | Alliant Techsystems, Inc. | $ | 11,572 | ||
838 | Boeing Co. | 35,959 | ||||
1,426 | General Dynamics Corp. | 78,986 | ||||
424 | Goodrich (B.F.) Co. | 21,777 | ||||
1,949 | Lockheed Martin Corp. | 145,707 | ||||
413 | 1 | TransDigm Group, Inc. | 15,814 | |||
TOTAL | 309,815 | |||||
Defense Electronics--1.1% | ||||||
535 | L-3 Communications Holdings, Inc. | 40,393 | ||||
365 | Northrop Grumman Corp. | 16,272 | ||||
1,181 | Raytheon Co. | 55,448 | ||||
363 | Rockwell Collins | 15,319 | ||||
TOTAL | 127,432 | |||||
Department Stores--3.8% | ||||||
6,367 | Penney (J.C.) Co., Inc. | 191,965 | ||||
3,759 | 1 | Sears Holdings Corp. | 249,372 | |||
TOTAL | 441,337 | |||||
Discount Department Stores--0.1% | ||||||
693 | 1 | 99 Cents Only Stores | 10,152 | |||
Diversified Leisure--1.6% | ||||||
5,729 | Carnival Corp. | 160,355 | ||||
81 | International Speedway Corp., Class A | 2,071 | ||||
611 | 1 | Life Time Fitness, Inc. | 15,550 | |||
756 | 1 | Pinnacle Entertainment, Inc. | 7,583 | |||
TOTAL | 185,559 | |||||
Diversified Oil--0.3% | ||||||
611 | Murphy Oil Corp. | 35,560 | ||||
Diversified Tobacco--1.3% | ||||||
3,002 | Altria Group, Inc. | 52,625 | ||||
1,273 | Philip Morris International, Inc. | 59,322 | ||||
824 | Reynolds American, Inc. | 35,852 | ||||
TOTAL | 147,799 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Electric & Electrical Original Equipment Manufacturers--0.3% | ||||||
162 | Cubic Corp. | $ | 6,344 | |||
1,587 | Molex, Inc. | 28,185 | ||||
TOTAL | 34,529 | |||||
Electric Utility--5.0% | ||||||
406 | 1 | AES Corp. | 5,193 | |||
374 | Alliant Energy Corp. | 9,784 | ||||
2,081 | Ameren Corp. | 52,920 | ||||
58 | CH Energy Group, Inc. | 2,870 | ||||
3,592 | CMS Energy Corp. | 46,480 | ||||
824 | 1 | Calpine Corp. | 10,613 | |||
198 | DPL, Inc. | 4,742 | ||||
1,198 | DTE Energy Co. | 41,283 | ||||
344 | Dominion Resources, Inc. | 11,627 | ||||
1,690 | Edison International | 54,621 | ||||
733 | Entergy Corp. | 58,882 | ||||
91 | ITC Holdings Corp. | 4,341 | ||||
252 | Idacorp, Inc. | 6,985 | ||||
420 | OGE Energy Corp. | 12,642 | ||||
330 | Pinnacle West Capital Corp. | 10,547 | ||||
2,570 | Public Service Enterprises Group, Inc. | 83,397 | ||||
2,935 | Sempra Energy | 153,882 | ||||
445 | UniSource Energy Corp. | 12,282 | ||||
TOTAL | 583,091 | |||||
Electrical - Radio & TV--0.3% | ||||||
1,406 | Harman International Industries, Inc. | 34,700 | ||||
Electrical Equipment--0.0% | ||||||
192 | Belden, Inc. | 3,368 | ||||
Electronic Instruments--0.0% | ||||||
110 | 1 | Thermo Fisher Scientific Inc. | 4,981 | |||
Electronic Testing/Measuring Equipment--0.0% | ||||||
155 | 1 | Multi-Fineline Electronix, Inc. | 3,532 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Ethical Drugs--1.2% | ||||||
4,539 | Bristol-Myers Squibb Co. | $ | 98,678 | |||
869 | Eli Lilly & Co. | 30,319 | ||||
834 | 1 | King Pharmaceuticals, Inc. | 7,564 | |||
135 | 1 | Valeant Pharmaceuticals International | 3,483 | |||
TOTAL | 140,044 | |||||
Food Wholesaling--0.0% | ||||||
201 | 1 | Winn-Dixie Stores, Inc. | 2,848 | |||
Furniture--0.0% | ||||||
333 | Leggett and Platt, Inc. | 5,778 | ||||
Gas Distributor--1.8% | ||||||
298 | AGL Resources, Inc. | 10,019 | ||||
2,945 | Energen Corp. | 121,687 | ||||
245 | ONEOK, Inc. | 8,110 | ||||
989 | Questar Corp. | 32,706 | ||||
2,027 | 1 | Southern Union Co. | 39,283 | |||
TOTAL | 211,805 | |||||
Generic Drugs--0.6% | ||||||
5,076 | 1 | Mylan Laboratories, Inc. | 66,952 | |||
Grocery Chain--1.0% | ||||||
1,815 | Kroger Co. | 38,805 | ||||
3,390 | Safeway Inc. | 64,173 | ||||
402 | 1 | Whole Foods Market, Inc. | 9,724 | |||
TOTAL | 112,702 | |||||
Home Building--0.4% | ||||||
739 | D.R. Horton, Inc. | 8,565 | ||||
1,793 | KB HOME | 29,925 | ||||
456 | Lennar Corp., Class A | 5,399 | ||||
172 | Ryland Group, Inc. | 3,435 | ||||
TOTAL | 47,324 | |||||
Home Health Care--0.1% | ||||||
459 | 1 | Amerigroup Corp. | 11,328 | |||
77 | 1 | Gentiva Health Services, Inc. | 1,639 | |||
TOTAL | 12,967 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Home Products--0.1% | ||||||
366 | Fortune Brands, Inc. | $ | 14,483 | |||
Hospitals--0.1% | ||||||
148 | Universal Health Services, Inc., Class B | 8,230 | ||||
Hotels and Motels--0.3% | ||||||
659 | 1 | Wynn Resorts Ltd. | 33,721 | |||
Household Appliances--0.2% | ||||||
475 | Whirlpool Corp. | 27,118 | ||||
Industrial Machinery--0.4% | ||||||
345 | Flowserve Corp. | 27,866 | ||||
1,055 | 1 | Terex Corp. | 16,015 | |||
TOTAL | 43,881 | |||||
Insurance Brokerage--0.1% | ||||||
196 | Aspen Insurance Holdings Ltd. | 4,875 | ||||
214 | Axis Capital Holdings Ltd. | 6,090 | ||||
TOTAL | 10,965 | |||||
Integrated Domestic Oil--2.2% | ||||||
5,721 | ConocoPhillips | 250,065 | ||||
Integrated International Oil--4.6% | ||||||
7,521 | Exxon Mobil Corp. | 529,403 | ||||
Internet Services--1.6% | ||||||
272 | 1 | Amazon.com, Inc. | 23,327 | |||
2,793 | 1 | NetFlix, Inc. | 122,724 | |||
88 | 1 | Priceline.com, Inc. | 11,407 | |||
1,316 | 1 | eBay, Inc. | 27,965 | |||
TOTAL | 185,423 | |||||
Leasing--0.0% | ||||||
49 | GATX Corp. | 1,236 | ||||
Life Insurance--0.9% | ||||||
655 | Old Republic International Corp. | 6,773 | ||||
2,354 | Torchmark Corp. | 91,947 | ||||
TOTAL | 98,720 | |||||
Long-Term Care Centers--0.1% | ||||||
588 | 1 | Kindred Healthcare, Inc. | 8,256 | |||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Maritime--0.1% | ||||||
237 | 1 | Kirby Corp. | $ | 8,771 | ||
248 | Overseas Shipholding Group, Inc. | 8,519 | ||||
TOTAL | 17,290 | |||||
Medical Supplies--0.5% | ||||||
572 | 1 | American Medical Systems Holdings, Inc. | 8,746 | |||
943 | McKesson HBOC, Inc. | 48,234 | ||||
TOTAL | 56,980 | |||||
Medical Technology--0.4% | ||||||
107 | 1 | Gen-Probe, Inc. | 3,972 | |||
706 | 1 | Thoratec Laboratories Corp. | 17,749 | |||
591 | 1 | Zimmer Holdings, Inc. | 27,541 | |||
TOTAL | 49,262 | |||||
Metal Containers--0.2% | ||||||
370 | Ball Corp. | 17,893 | ||||
301 | 1 | Crown Holdings, Inc. | 7,555 | |||
TOTAL | 25,448 | |||||
Miscellaneous Communications--0.1% | ||||||
533 | 1 | Leap Wireless International, Inc. | 12,765 | |||
Miscellaneous Components--0.7% | ||||||
748 | AVX Corp. | 8,221 | ||||
907 | 1 | Cree, Inc. | 29,078 | |||
1,596 | 1 | International Rectifier Corp. | 26,430 | |||
571 | 1 | Qlogic Corp. | 7,452 | |||
525 | 1 | Zoran Corp. | 6,048 | |||
TOTAL | 77,229 | |||||
Miscellaneous Food Products--2.8% | ||||||
10,869 | Archer-Daniels-Midland Co. | 327,374 | ||||
Miscellaneous Machinery--0.2% | ||||||
301 | Parker-Hannifin Corp. | 13,328 | ||||
119 | SPX Corp. | 6,286 | ||||
TOTAL | 19,614 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Money Center Bank--0.4% | ||||||
247 | Bank of New York Mellon Corp. | $ | 6,753 | |||
1,716 | U.S. Bancorp | 35,024 | ||||
TOTAL | 41,777 | |||||
Multi-Industry Capital Goods--1.9% | ||||||
2,886 | Honeywell International, Inc. | 100,144 | ||||
2,343 | KBR, Inc. | 49,648 | ||||
1,206 | United Technologies Corp. | 65,691 | ||||
TOTAL | 215,483 | |||||
Multi-Line Insurance--1.3% | ||||||
1,227 | AON Corp. | 48,405 | ||||
163 | 1 | Amerisafe, Inc. | 2,711 | |||
808 | CIGNA Corp. | 22,947 | ||||
458 | Cincinnati Financial Corp. | 11,061 | ||||
153 | Infinity Property & Casualty | 6,356 | ||||
654 | Montpelier Re Holdings Ltd. | 10,255 | ||||
2,806 | Unum Group | 52,669 | ||||
TOTAL | 154,404 | |||||
Mutual Fund Adviser--0.0% | ||||||
67 | 1 | Affiliated Managers Group | 4,423 | |||
Office Equipment--0.1% | ||||||
359 | Pitney Bowes, Inc. | 7,413 | ||||
Office Supplies--0.2% | ||||||
928 | Avery Dennison Corp. | 24,805 | ||||
Offshore Driller--1.0% | ||||||
1,436 | 1 | Transocean Ltd. | 114,435 | |||
Oil Refiner--0.2% | ||||||
668 | World Fuel Services Corp. | 29,298 | ||||
Oil Service, Explore & Drill--0.5% | ||||||
293 | 1 | McDermott International, Inc. | 5,725 | |||
3,151 | Patterson-UTI Energy, Inc. | 43,515 | ||||
178 | 1 | Seacor Holdings, Inc. | 14,147 | |||
TOTAL | 63,387 | |||||
Oil Well Supply--0.2% | ||||||
197 | 1 | Dresser-Rand Group, Inc. | 5,735 | |||
412 | 1 | Dril-Quip, Inc. | 17,423 | |||
TOTAL | 23,158 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Optical Reading Equipment--0.1% | ||||||
264 | 1 | Zebra Technologies Corp., Class A | $ | 6,452 | ||
Packaged Foods--0.2% | ||||||
447 | Campbell Soup Co. | 13,870 | ||||
212 | Kraft Foods, Inc., Class A | 6,008 | ||||
TOTAL | 19,878 | |||||
Paper Products--0.5% | ||||||
219 | Clearwater Paper Corp. | 8,775 | ||||
2,570 | MeadWestvaco Corp. | 50,089 | ||||
TOTAL | 58,864 | |||||
Personal Loans--0.1% | ||||||
286 | 1 | World Acceptance Corp. | 6,784 | |||
Personnel Agency--0.1% | ||||||
178 | 1 | Hewitt Associates, Inc. | 5,328 | |||
81 | Maximus, Inc. | 3,452 | ||||
TOTAL | 8,780 | |||||
Plastic Containers--0.2% | ||||||
544 | 1 | Owens-Illinois, Inc. | 18,463 | |||
Pollution Control--0.2% | ||||||
205 | 1 | Layne Christensen Co. | 4,865 | |||
297 | 1 | Stericycle, Inc. | 15,206 | |||
TOTAL | 20,071 | |||||
Property Liability Insurance--5.4% | ||||||
1,024 | Allied World Assurance Holdings Ltd. | 44,503 | ||||
2,427 | American Financial Group, Inc. | 59,194 | ||||
185 | 1 | Arch Capital Group Ltd. | 11,505 | |||
1,303 | Chubb Corp. | 60,173 | ||||
102 | Everest Re Group Ltd. | 8,182 | ||||
372 | HCC Insurance Holdings, Inc. | 9,337 | ||||
752 | Horace Mann Educators Corp. | 8,535 | ||||
59 | PartnerRe Ltd. | 4,047 | ||||
280 | Platinum Underwriters Holdings Ltd. | 9,450 | ||||
244 | RenaissanceRe Holdings Ltd. | 12,261 | ||||
8,882 | The Travelers Cos., Inc. | 382,548 | ||||
291 | Transatlantic Holdings, Inc. | 13,767 | ||||
TOTAL | 623,502 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Psychiatric Centers--0.0% | ||||||
141 | 1 | Magellan Health Services, Inc. | $ | 4,563 | ||
Railroad--4.3% | ||||||
2,260 | Burlington Northern Santa Fe Corp. | 177,613 | ||||
825 | CSX Corp. | 33,099 | ||||
5,021 | Union Pacific Corp. | 288,808 | ||||
TOTAL | 499,520 | |||||
Regional Bank--0.7% | ||||||
2,820 | Comerica, Inc. | 67,229 | ||||
432 | 1 | TFS Financial Corp. | 4,795 | |||
213 | United Bankshares, Inc. | 4,315 | ||||
TOTAL | 76,339 | |||||
Restaurant--0.4% | ||||||
136 | 1 | CEC Entertainment, Inc. | 3,967 | |||
454 | Darden Restaurants, Inc. | 14,705 | ||||
387 | 1 | Green Mountain Coffee, Inc. | 27,260 | |||
61 | 1 | P.F. Chang's China Bistro, Inc. | 2,069 | |||
51 | 1 | Panera Bread Co. | 2,803 | |||
TOTAL | 50,804 | |||||
Rubber--0.1% | ||||||
782 | Cooper Tire & Rubber Co. | 11,542 | ||||
Savings & Loan--0.1% | ||||||
492 | Hudson City Bancorp, Inc. | 6,918 | ||||
Securities Brokerage--2.9% | ||||||
1,954 | Goldman Sachs Group, Inc. | 319,088 | ||||
142 | 1 | Knight Capital Group, Inc., Class A | 2,637 | |||
184 | 1 | Piper Jaffray Cos., Inc. | 8,438 | |||
TOTAL | 330,163 | |||||
Semiconductor Distribution--0.4% | ||||||
1,460 | 1 | Avnet, Inc. | 35,624 | |||
285 | 1 | FormFactor, Inc. | 6,569 | |||
223 | 1 | Tyler Technologies, Inc. | 3,434 | |||
TOTAL | 45,627 | |||||
Semiconductor Manufacturing--0.3% | ||||||
502 | 1 | ATMI, Inc. | 9,131 | |||
257 | 1 | Silicon Laboratories, Inc. | 11,007 | |||
777 | Xilinx, Inc. | 16,853 | ||||
TOTAL | 36,991 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Semiconductor Manufacturing Equipment--0.1% | ||||||
720 | 1 | Novellus Systems, Inc. | $ | 14,090 | ||
Services to Medical Professionals--2.3% | ||||||
1,782 | 1 | Health Net, Inc. | 24,110 | |||
605 | 1 | Humana, Inc. | 19,874 | |||
1,670 | Omnicare, Inc. | 39,863 | ||||
654 | 1 | PharMerica Corp. | 13,708 | |||
167 | Quest Diagnostics, Inc. | 9,122 | ||||
2,171 | UnitedHealth Group, Inc. | 60,918 | ||||
1,894 | 1 | Wellpoint, Inc. | 99,700 | |||
TOTAL | 267,295 | |||||
Shoes--0.1% | ||||||
294 | 1 | Genesco, Inc. | 6,386 | |||
Soft Drinks--0.1% | ||||||
408 | 1 | Dr. Pepper Snapple Group, Inc. | 10,041 | |||
Software Packaged/Custom--2.4% | ||||||
184 | 1 | Advent Software, Inc. | 6,707 | |||
276 | 1 | ArcSight, Inc. | 5,236 | |||
1,164 | CA, Inc. | 24,607 | ||||
228 | 1 | Computer Sciences Corp. | 10,983 | |||
663 | 1 | DST Systems, Inc. | 29,391 | |||
721 | 1 | F5 Networks, Inc. | 26,764 | |||
172 | 1 | MSCI, Inc., Class A | 4,807 | |||
771 | Microsoft Corp. | 18,134 | ||||
215 | 1 | NetSuite, Inc. | 2,614 | |||
311 | 1 | Quest Software, Inc. | 4,584 | |||
4,841 | 1 | Red Hat, Inc. | 110,520 | |||
322 | Rovi Corp. | 8,424 | ||||
699 | 1 | Solera Holdings, Inc. | 18,824 | |||
242 | 1 | Symantec Corp. | 3,613 | |||
TOTAL | 275,208 | |||||
Specialty Chemicals--0.3% | ||||||
596 | Albemarle Corp. | 17,707 | ||||
95 | Lubrizol Corp. | 5,503 | ||||
186 | 1 | OM Group, Inc. | 6,261 | |||
TOTAL | 29,471 | |||||
Shares | | | Value | |||
COMMON STOCKS--continued | ||||||
Specialty Retailing--0.6% | ||||||
946 | 1 | Cabela's, Inc., Class A | $ | 15,335 | ||
1,477 | 1 | CarMax, Inc. | 23,824 | |||
15 | Monro Muffler Brake, Inc. | 399 | ||||
2,252 | Williams-Sonoma, Inc. | 31,663 | ||||
TOTAL | 71,221 | |||||
Stainless Steel Producer--0.8% | ||||||
3,261 | Allegheny Technologies, Inc. | 88,308 | ||||
240 | Carpenter Technology Corp. | 4,486 | ||||
TOTAL | 92,794 | |||||
Telecommunication Equipment & Services--0.3% | ||||||
252 | 1 | Amdocs Ltd. | 6,028 | |||
1,221 | 1 | Starent Networks Corp. | 29,280 | |||
TOTAL | 35,308 | |||||
Undesignated Consumer Cyclicals--3.9% | ||||||
1,760 | 1 | Apollo Group, Inc., Class A | 121,510 | |||
118 | 1 | Capella Education Co. | 7,594 | |||
1,579 | 1 | Corinthian Colleges, Inc. | 24,380 | |||
407 | DeVRY, Inc. | 20,244 | ||||
347 | 1 | FTI Consulting, Inc. | 18,887 | |||
1,868 | 1 | ITT Educational Services, Inc. | 181,850 | |||
2,165 | 1 | Iron Mountain, Inc. | 63,240 | |||
36 | Strayer Education, Inc. | 7,646 | ||||
TOTAL | 445,351 | |||||
Uniforms--0.0% | ||||||
80 | Unifirst Corp. | 3,114 | ||||
TOTAL COMMON STOCKS (IDENTIFIED COST $8,957,786) | 11,418,909 | |||||
Shares | | | Value | |||
MUTUAL FUND--2.0% | ||||||
231,630 | 2,3 | Prime Value Obligations Fund, Institutional Shares, 0.51% (AT NET ASSET VALUE) | $ | 231,630 | ||
TOTAL INVESTMENTS--101.1% (IDENTIFIED COST $9,189,416) 4 | 11,650,539 | |||||
OTHER ASSETS AND LIABILITIES - NET--(1.1)% 5 | (124,296 | ) | ||||
TOTAL NET ASSETS--100% | $ | 11,526,243 |
1 Non-income producing security.
2 Affiliated company.
3 7-Day net yield.
4 The cost of investments for federal tax purposes amounts to $9,227,921.
5 Assets, other than investments in securities, less liabilities. See Statement of Assets and Liabilities.
Note: The categories of investments are shown as a percentage of total net assets at July 31, 2009.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1--quoted prices in active markets for identical securities
Level 2--other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
Level 3--significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used, as of July 31, 2009, in valuing the Fund's assets carried at fair value:
Valuation Inputs | | | | | ||||
Level 1-- Quoted Prices and Investments in Mutual Funds | Level 2-- Other Significant Observable Inputs | Level 3-- Significant Unobservable Inputs | Total | |||||
Equity Securities: | ||||||||
Domestic | $11,032,951 | $-- | $-- | $11,032,951 | ||||
International | 385,958 | - -- | - -- | 385,958 | ||||
Mutual Fund | 231,630 | - -- | - -- | 231,630 | ||||
TOTAL SECURITIES | $11,650,539 | $-- | $-- | $11,650,539 |
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
July 31, 2009
Assets: | |||||||
Total investments in securities, at value including $231,630 of investments in an affiliated issuer (Note 5) (identified cost $9,189,416) | $ | 11,650,539 | |||||
Income receivable | 8,701 | ||||||
Receivable for investments sold | 48,075 | ||||||
Receivable for shares sold | 689 | ||||||
TOTAL ASSETS | 11,708,004 | ||||||
Liabilities: | |||||||
Payable for investments purchased | $ | 50,038 | |||||
Payable for shares redeemed | 68,406 | ||||||
Payable for custodian fees | 6,739 | ||||||
Payable for transfer and dividend disbursing agent fees and expenses | 9,644 | ||||||
Payable for auditing fees | 22,500 | ||||||
Payable for portfolio accounting fees | 13,625 | ||||||
Payable for distribution services fee (Note 5) | 1,385 | ||||||
Payable for shareholder services fee (Note 5) | 3,455 | ||||||
Accrued expenses | 5,969 | ||||||
TOTAL LIABILITIES | 181,761 | ||||||
Net assets for 1,494,768 shares outstanding | $ | 11,526,243 | |||||
Net Assets Consist of: | |||||||
Paid-in capital | $ | 17,514,318 | |||||
Net unrealized appreciation of investments | 2,461,123 | ||||||
Accumulated net realized loss on investments | (8,453,489 | ) | |||||
Undistributed net investment income | 4,291 | ||||||
TOTAL NET ASSETS | $ | 11,526,243 | |||||
Net Asset Value, Offering Price and Redemption Proceeds Per Share | |||||||
Institutional Shares: | |||||||
Net asset value per share ($4,188,090 ÷ 538,100 shares outstanding), no par value, unlimited shares authorized | $7.78 | ||||||
Offering price per share | $7.78 | ||||||
Redemption proceeds per share | $7.78 | ||||||
Class A Shares: | |||||||
Net asset value per share ($5,043,820 ÷ 651,359 shares outstanding), no par value, unlimited shares authorized | $7.74 | ||||||
Offering price per share (100/94.50 of $7.74) | $8.19 | ||||||
Redemption proceeds per share | $7.74 | ||||||
Class C Shares: | |||||||
Net asset value per share ($2,294,333 ÷ 305,309 shares outstanding), no par value, unlimited shares authorized | $7.51 | ||||||
Offering price per share | $7.51 | ||||||
Redemption proceeds per share (99.00/100 of $7.51) | $7.43 |
See Notes which are an integral part of the Financial Statements
Statement of Operations
Year Ended July 31, 2009
Investment Income: | ||||||||||||
Dividends (including $4,313 received from an affiliated issuer (Note 5) and net of foreign taxes withheld of $44) | $ | 233,297 | ||||||||||
Expenses: | ||||||||||||
Investment adviser fee (Note 5) | $ | 111,871 | ||||||||||
Administrative personnel and services fee (Note 5) | 230,000 | |||||||||||
Custodian fees | 36,081 | |||||||||||
Transfer and dividend disbursing agent fees and expenses | 59,939 | |||||||||||
Directors'/Trustees' fees | 1,325 | |||||||||||
Auditing fees | 22,500 | |||||||||||
Legal fees | 2,177 | |||||||||||
Portfolio accounting fees | 79,279 | |||||||||||
Distribution services fee--Class C Shares (Note 5) | 17,557 | |||||||||||
Shareholder services fee--Class A Shares (Note 5) | 15,344 | |||||||||||
Shareholder services fee--Class C Shares (Note 5) | 5,852 | |||||||||||
Share registration costs | 39,811 | |||||||||||
Printing and postage | 31,227 | |||||||||||
Insurance premiums | 4,375 | |||||||||||
Interest expense | 234 | |||||||||||
Miscellaneous | 2,363 | |||||||||||
TOTAL EXPENSES | 659,935 | |||||||||||
Waivers and Reimbursements (Note 5): | ||||||||||||
Waiver/reimbursement of investment adviser fee | $ | (111,871 | ) | |||||||||
Waiver of administrative personnel and services fee | (44,877 | ) | ||||||||||
Reimbursement of other operating expenses | (291,429 | ) | ||||||||||
TOTAL WAIVERS AND REIMBURSEMENTS | (448,177 | ) | ||||||||||
Net expenses | 211,758 | |||||||||||
Net investment income | 21,539 | |||||||||||
Realized and Unrealized Gain (Loss) on Investments: | ||||||||||||
Net realized loss on investments | (6,769,333 | ) | ||||||||||
Net change in unrealized appreciation of investments | 1,374,793 | |||||||||||
Net realized and unrealized loss on investments | (5,394,540 | ) | ||||||||||
Change in net assets resulting from operations | $ | (5,373,001 | ) |
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
Year Ended July 31 | | 2009 | | 2008 | ||||
Increase (Decrease) in Net Assets | ||||||||
Operations: | ||||||||
Net investment income (loss) | $ | 21,539 | $ | (10,751 | ) | |||
Net realized loss on investments | (6,769,333 | ) | (1,609,068 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 1,374,793 | 260,269 | ||||||
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS | (5,373,001 | ) | (1,359,550 | ) | ||||
Distributions to Shareholders: | ||||||||
Distributions from net investment income | ||||||||
Institutional Shares | (12,123 | ) | - -- | |||||
Class A Shares | (5,125 | ) | - -- | |||||
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS | (17,248 | ) | - -- | |||||
Share Transactions: | ||||||||
Proceeds from sale of shares | 11,864,848 | 11,846,604 | ||||||
Net asset value of shares issued to shareholders in payment of distributions declared | 11,952 | - -- | ||||||
Cost of shares redeemed | (10,292,351 | ) | (5,710,298 | ) | ||||
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS | 1,584,449 | 6,136,306 | ||||||
Change in net assets | (3,805,800 | ) | 4,776,756 | |||||
Net Assets: | ||||||||
Beginning of period | 15,332,043 | 10,555,287 | ||||||
End of period (including undistributed net investment income of $4,291 and $0, respectively) | $ | 11,526,243 | $ | 15,332,043 |
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
July 31, 2009
1. ORGANIZATION
Federated MDT Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of nine portfolios. The financial statements included herein are only those of Federated MDT Tax Aware/All Cap Core Fund (the "Fund"), a diversified portfolio. The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. Each portfolio pays its own expenses. The Fund offers three classes of shares: Institutional Shares, Class A Shares and Class C Shares. All shares of the Fund have equal rights with respect to voting, except on class-specific matters. The financial highlights of the Class A Shares and Class C Shares are presented separately. The investment objective of the Fund is to provide long-term capital appreciation while seeking to minimize the impact of taxes.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with U.S. generally accepted accounting principles (GAAP).
Investment Valuation
In calculating its net asset value (NAV), the Fund generally values investments as follows:
- Equity securities listed on an exchange or traded through a regulated market system are valued at their last reported sale price or official closing price in their principal exchange or market.
- Shares of other mutual funds are valued based upon their reported NAVs.
- Fixed-income securities acquired with remaining maturities greater than 60 days are fair valued using price evaluations provided by a pricing service approved by the Board of Trustees (the "Trustees").
- Fixed-income securities acquired with remaining maturities of 60 days or less are valued at their cost (adjusted for the accretion of any discount or amortization of any premium).
- Derivative contracts listed on exchanges are valued at their reported settlement or closing price.
- Over-the-counter (OTC) derivative contracts are fair valued using price evaluations provided by a pricing service approved by the Trustees.
If the Fund cannot obtain a price or price evaluation from a pricing service for an investment, the Fund may attempt to value the investment based upon the mean of bid and asked quotations or fair value the investment based on price evaluations, from one or more dealers. If any price, quotation, price evaluation or other pricing source is not readily available when the NAV is calculated, the Fund uses the fair value of the investment determined in accordance with the procedures described below. There can be no assurance that the Fund could purchase or sell an investment at the price used to calculate the Fund's NAV.
Fair Valuation and Significant Events Procedures
The Trustees have authorized the use of pricing services to provide evaluations of the current fair value of certain investments for purposes of calculating the NAV. Factors considered by pricing services in evaluating an investment include the yields or prices of investments of comparable quality, coupon, maturity, call rights and other potential prepayments, terms and type, reported transactions, indications as to values from dealers and general market conditions. Some pricing services provide a single price evaluation reflecting the bid-side of the market for an investment (a "bid" evaluation). Other pricing services offer both bid evaluations and price evaluations indicative of a price between the prices bid and asked for the investment (a "mid" evaluation). The Fund normally uses bid evaluations for U.S. Treasury and Agency securities, mortgage-backed securities and municipal securities. The Fund normally uses mid evaluations for other types of fixed-income securities and OTC derivative contracts. In the event that market quotations and price evaluations are not available for an investment, the fair value of the investment is determined in accordance with procedures adopted by the Trustees.
The Trustees also have adopted procedures requiring an investment to be priced at its fair value whenever the Adviser determines that a significant event affecting the value of the investment has occurred between the time as of which the price of the investment would otherwise be determined and the time as of which the NAV is computed. An event is considered significant if there is both an affirmative expectation that the investment's value will change in response to the event and a reasonable basis for quantifying the resulting change in value. Examples of significant events that may occur after the close of the principal market on which a security is traded, or after the time of a price evaluation provided by a pricing service or a dealer, include:
- With respect to securities traded in foreign markets, significant trends in U.S. equity markets or in the trading of foreign securities index futures or options contracts;
- With respect to price evaluations of fixed-income securities determined before the close of regular trading on the NYSE, actions by the Federal Reserve Open Market Committee and other significant trends in U.S. fixed-income markets;
- Political or other developments affecting the economy or markets in which an issuer conducts its operations or its securities are traded; and
- Announcements concerning matters such as acquisitions, recapitalizations, litigation developments, a natural disaster affecting the issuer's operations or regulatory changes or market developments affecting the issuer's industry.
The Trustees have approved the use of a pricing service to determine the fair value of equity securities traded principally in foreign markets when the Adviser determines that there has been a significant trend in the U.S. equity markets or in index futures trading. For other significant events, the Fund may seek to obtain more current quotations or price evaluations from alternative pricing sources. If a reliable alternative pricing source is not available, the Fund will determine the fair value of the investment using another method approved by the Trustees.
Repurchase Agreements
It is the policy of the Fund to require the other party to a repurchase agreement to transfer to the Fund's custodian or sub-custodian eligible securities or cash with a market value (after transaction costs) at least equal to the repurchase price to be paid under the repurchase agreement. The eligible securities are transferred to accounts with the custodian or sub-custodian in which the Fund holds a "securities entitlement" and exercises "control" as those terms are defined in the Uniform Commercial Code. The Fund has established procedures for monitoring the market value of the transferred securities and requiring the transfer of additional eligible securities if necessary to equal at least the repurchase price. These procedures also allow the other party to require securities to be transferred from the account to the extent that their market value exceeds the repurchase price or in exchange for other eligible securities of equivalent market value.
With respect to agreements to repurchase U.S. government securities and cash items, the Fund treats the repurchase agreement as an investment in the underlying securities and not as an obligation of the other party to the repurchase agreement. Other repurchase agreements are treated as obligations of the other party secured by the underlying securities. Nevertheless, the insolvency of the other party or other failure to repurchase the securities may delay the disposition of the underlying securities or cause the Fund to receive less than the full repurchase price. Under the terms of the repurchase agreement, any amounts received by the Fund in excess of the repurchase price and related transaction costs must be remitted to the other party.
The Fund may enter into repurchase agreements in which eligible securities are transferred into joint trading accounts maintained by the custodian or sub-custodian for investment companies and other clients advised by the Fund's Adviser and its affiliates. The Fund will participate on a pro rata basis with the other investment companies and clients in its share of the securities transferred under such repurchase agreements and in its share of proceeds from any repurchase or other disposition of such securities.
Investment Income, Gains and Losses, Expenses and Distributions
Investment transactions are accounted for on a trade-date basis. Realized gains and losses from investment transactions are recorded on an identified cost basis. Interest income and expenses are accrued daily. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Foreign dividends are recorded on the ex-dividend date or when the Fund is informed of the ex-dividend date. Distributions of net investment income are declared and paid annually. Non-cash dividends included in dividend income, if any, are recorded at fair value. Investment income, realized and unrealized gains and losses and certain fund-level expenses are allocated to each class based on relative average daily net assets, except that each class may bear certain expenses unique to that class such as distribution services and shareholder services fees. Dividends are declared separately for each class. No class has preferential dividend rights; differences in per share dividend rates are generally due to differences in separate class expenses.
Premium and Discount Amortization
All premiums and discounts on fixed-income securities are amortized/accreted for financial statement purposes.
Federal Taxes
It is the Fund's policy to comply with the Subchapter M provision of the Internal Revenue Code (the "Code") and to distribute to shareholders each year substantially all of its income. Accordingly, no provision for federal income tax is necessary. The Fund complies with the provisions of Financial Accounting Standards Board Interpretation No. 48, "Accounting for Uncertainty in Income Taxes." As of and during the year ended July 31, 2009, the Fund did not have a liability for any uncertain tax positions. The Fund recognizes interest and penalties, if any, related to tax liabilities as income tax expense in the Statement of Operations. As of July 31, 2009, tax years 2006 through 2009 remain subject to examination by the Fund's major tax jurisdictions, which include the United States of America and the Commonwealth of Massachusetts.
The Fund may be subject to taxes imposed by governments of countries in which it invests. Such taxes are generally based on either income or gains earned or repatriated. The Fund accrues and applies such taxes to net investment income, net realized gains and net unrealized gains as income and/or gains are earned.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
Other
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated.
3. SHARES OF BENEFICIAL INTEREST
The following tables summarize share activity:
Year Ended July 31 | 2009 | 2008 | ||||||||||||
Institutional Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 449,790 | $ | 3,194,130 | 549,863 | $ | 6,491,359 | ||||||||
Shares issued to shareholders in payment of distributions declared | 976 | 6,958 | - -- | - -- | ||||||||||
Shares redeemed | (360,647 | ) | (2,719,672 | ) | (413,746 | ) | (4,792,720 | ) | ||||||
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS | 90,119 | $ | 481,416 | 136,117 | $ | 1,698,639 | ||||||||
Year Ended July 31 | 2009 | 2008 | ||||||||||||
Class A Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 947,917 | $ | 7,814,906 | 353,832 | $ | 4,174,842 | ||||||||
Shares issued to shareholders in payment of distributions declared | 703 | 4,994 | - -- | - -- | ||||||||||
Shares redeemed | (930,303 | ) | (6,506,356 | ) | (55,720 | ) | (639,826 | ) | ||||||
NET CHANGE RESULTING FROM CLASS A SHARE TRANSACTIONS | 18,317 | $ | 1,313,544 | 298,112 | $ | 3,535,016 | ||||||||
Year Ended July 31 | 2009 | 2008 | ||||||||||||
Class C Shares: | | Shares | | Amount | | Shares | | Amount | ||||||
Shares sold | 118,890 | $ | 855,812 | 100,386 | $ | 1,180,403 | ||||||||
Shares redeemed | (152,072 | ) | (1,066,323 | ) | (23,958 | ) | (277,752 | ) | ||||||
NET CHANGE RESULTING FROM CLASS C SHARE TRANSACTIONS | (33,182 | ) | $ | (210,511 | ) | 76,428 | $ | 902,651 | ||||||
NET CHANGE RESULTING FROM FUND SHARE TRANSACTIONS | 75,254 | $ | 1,584,449 | 510,657 | $ | 6,136,306 |
4. FEDERAL TAX INFORMATION
The tax character of distributions as reported on the Statement of Changes in Net Assets for the years ended July 31, 2009 and 2008, was as follows:
| 2009 | | 2008 | |
Ordinary income | $17,248 | $-- |
As of July 31, 2009, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | | $ | 4,291 | |
Net unrealized appreciation | $ | 2,422,618 | ||
Capital loss carryforwards and deferrals | $ | (8,414,984 | ) |
The difference between book-basis and tax-basis net unrealized appreciation/depreciation is attributable to differing treatments for the deferral of losses on wash sales.
At July 31, 2009, the cost of investments for federal tax purposes was $9,227,921. The net unrealized appreciation of investments for federal tax purposes was $2,422,618. This consists of net unrealized appreciation from investments for those securities having an excess of value over cost of $2,429,275 and net unrealized depreciation from investments for those securities having an excess of cost over value of $6,657.
At July 31, 2009, the Fund had a capital loss carryforward of $3,191,091 which will reduce the Fund's taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus will reduce the amount of distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal income tax. Pursuant to the Code, such capital loss carryforward will expire as follows:
Expiration Year | | Expiration Amount |
2015 | $ 10,826 | |
2017 | $3,180,265 |
Under current tax regulations, capital losses on securities transactions realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of July 31, 2009, for federal income tax purposes, post October losses of $5,223,893 were deferred to August 1, 2009.
5. INVESTMENT ADVISER FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Adviser Fee
Federated MDTA LLC is the Fund's investment adviser (the "Adviser"). The advisory agreement between the Fund and the Adviser provides for an annual fee equal to 0.90% of the Fund's average daily net assets. Prior to December 8, 2008, the Adviser agreed to waive all or a portion of the advisory fee and/or reimburse certain operating expenses (excluding interest, taxes and brokerage commissions) in order to contractually limit the Fund's aggregate annual operating expenses to no more than the following annual percentages for each class of the Fund based on average daily net assets:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Institutional Shares | 1.80% | |
Class A Shares | 2.05% | |
Class C Shares | 2.80% |
In addition, subject to the terms described in the Expense Limitation note, the Adviser may voluntarily choose to waive any additional portion of its fee and/or reimburse certain operating expenses of the Fund. The Adviser can modify or terminate this voluntary waiver and/or reimbursement at any time at its sole discretion. For the year ended July 31, 2009, the Adviser waived $111,668 of its fee and reimbursed $291,429 of other operating expenses.
Administrative Fee
Federated Administrative Services (FAS), under the Administrative Services Agreement, provides the Fund with administrative personnel and services. The fee paid to FAS is based on the average aggregate daily net assets of certain Federated funds as specified below:
Administrative Fee | | Average Aggregate Daily Net Assets of the Federated Funds |
0.150% | on the first $5 billion | |
0.125% | on the next $5 billion | |
0.100% | on the next $10 billion | |
0.075% | on assets in excess of $20 billion |
The administrative fee received during any fiscal year shall be at least $150,000 per portfolio and $40,000 per each additional class of Shares. Subject to the terms described in the Expense Limitation note, FAS may voluntarily choose to waive any portion of its fee. FAS can modify or terminate this voluntary waiver at any time at its sole discretion. For the year ended July 31, 2009, FAS waived $44,877 of its fee. The net fee paid to FAS was 1.489% of average daily net assets of the Fund. The Fund is currently being charged the minimum administrative fee; therefore, the fee as a percentage of average daily net assets is greater than the amounts presented in the chart above.
Distribution Services Fee
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will compensate Federated Securities Corp. (FSC), the principal distributor, from the daily net assets of the Fund's Class A Shares and Class C Shares to finance activities intended to result in the sale of these shares. The Plan provides that the Fund may incur distribution expenses at the following percentages of average daily net assets annually, to compensate FSC:
Share Class Name | | Percentage of Average Daily Net Assets of Class |
Class A Shares | 0.05% | |
Class C Shares | 0.75% |
Subject to the terms described in the Expense Limitation note, FSC may voluntarily choose to waive any portion of its fee. FSC can modify or terminate this voluntary waiver at any time at its sole discretion. When FSC receives fees, it may pay some or all of them to financial intermediaries whose customers purchase shares. For the year ended July 31, 2009, FSC retained $4,406 of fees paid by the Fund. For the year ended July 31, 2009, the Fund's Class A Shares did not incur a distribution services fee; however, it may begin to incur this fee upon approval of the Trustees.
Sales Charges
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. For the year ended July 31, 2009, FSC retained $391 in sales charges from the sale of Class A Shares. FSC also retained $190 of CDSC relating to redemptions of Class C Shares.
Shareholder Services Fee
The Fund may pay fees (Service Fees) up to 0.25% of the average daily net assets of the Fund's Class A Shares and Class C Shares to financial intermediaries or to Federated Shareholder Services Company (FSSC) for providing services to shareholders and maintaining shareholder accounts. Subject to the terms described in the Expense Limitation note, FSSC may voluntarily reimburse the Fund for shareholder services fees. This voluntary reimbursement can be modified or terminated at any time. For the year ended July 31, 2009, FSSC received $339 of fees paid by the Fund.
Expense Limitation
The Adviser and its affiliates (which may include FSC, FAS and FSSC) have voluntarily agreed to waive their fees and/or reimburse expenses so that the total operating expenses (as shown in the financial highlights) paid by the Fund's Institutional Shares, Class A Shares and Class C Shares (after the voluntary waivers and reimbursements) will not exceed 1.40%, 1.65% and 2.40%, respectively, for the fiscal year ending July 31, 2010. Although these actions are voluntary, the Adviser and its affiliates have agreed to continue these waivers and/or reimbursements at least through September 30, 2010.
General
Certain Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies.
Transactions with Affiliated Companies
Affiliated holdings are mutual funds which are managed by the Adviser or an affiliate of the Adviser. The Adviser has agreed to reimburse the Fund for certain investment adviser fees as a result of transactions in other affiliated mutual funds. For the year ended July 31, 2009, the Adviser reimbursed $203. Transactions with the affiliated company during the year ended July 31, 2009 were as follows:
Affiliate | | Balance of Shares Held 7/31/2008 | | Purchases/ Additions | | Sales/ Reductions | | Balance of Shares Held 7/31/2009 | | Value | | Dividend Income |
Prime Value Obligations Fund, Institutional Shares | 240,412 | 8,446,529 | 8,455,311 | 231,630 | $231,630 | $4,313 |
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding long-term U.S. government securities and short-term obligations, for the year ended July 31, 2009, were as follows:
Purchases | | $ | 33,956,928 |
Sales | $ | 32,409,742 |
7. LINE OF CREDIT
The Fund participates in a $100,000,000 unsecured, uncommitted revolving line of credit (LOC) agreement with PNC Bank. The LOC was made available for extraordinary or emergency purposes, primarily for financing redemption payments. Borrowings are charged interest at a rate offered to the Fund by PNC Bank at the time of the borrowing. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the Fund did not utilize the LOC.
8. INTERFUND LENDING
Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (SEC), the Fund, along with other funds advised by subsidiaries of Federated Investors, Inc., may participate in an interfund lending program. This program provides an alternative credit facility allowing the funds to borrow from other participating affiliated funds. As of July 31, 2009, there were no outstanding loans. During the year ended July 31, 2009, the program was not utilized.
9. LEGAL PROCEEDINGS
Since October 2003, Federated Investors, Inc. and related entities (collectively, "Federated") and various Federated funds ("Federated Funds") have been named as defendants in several class action lawsuits now pending in the United States District Court for the District of Maryland. The lawsuits were purportedly filed on behalf of people who purchased, owned and/or redeemed shares of Federated-sponsored mutual funds during specified periods beginning November 1, 1998. The suits are generally similar in alleging that Federated engaged in illegal and improper trading practices including market timing and late trading in concert with certain institutional traders, which allegedly caused financial injury to the mutual fund shareholders. These lawsuits began to be filed shortly after Federated's first public announcement that it had received requests for information on shareholder trading activities in the Federated Funds from the SEC, the Office of the New York State Attorney General ("NYAG") and other authorities. In that regard, on November 28, 2005, Federated announced that it had reached final settlements with the SEC and the NYAG with respect to those matters. As Federated previously reported in 2004, it has already paid approximately $8.0 million to certain funds as determined by an independent consultant. As part of these settlements, Federated agreed to pay for the benefit of fund shareholders additional disgorgement and a civil money penalty in the aggregate amount of an additional $72 million. Federated entities have also been named as defendants in several additional lawsuits that are now pending in the United States District Court for the Western District of Pennsylvania, alleging, among other things, excessive advisory and Rule 12b-1 fees. The Board of the Federated Funds retained the law firm of Dickstein Shapiro LLP to represent the Federated Funds in these lawsuits. Federated and the Federated Funds and their respective counsel have been defending this litigation, and none of the Federated Funds remains a defendant in any of the lawsuits (though some could potentially receive any recoveries as nominal defendants). Additional lawsuits based upon similar allegations may be filed in the future. The potential impact of these lawsuits, all of which seek unquantified damages, attorneys' fees and expenses, and future potential similar suits is uncertain. Although we do not believe that these lawsuits will have a material adverse effect on the Federated Funds, there can be no assurance that these suits, the ongoing adverse publicity and/or other developments resulting from the regulatory investigations will not result in increased Federated Fund redemptions, reduced sales of Federated Fund shares or other adverse consequences for the Federated Funds.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through September 21, 2009 and determined that no events have occurred that require disclosure.
11. FEDERAL TAX INFORMATION (UNAUDITED)
For the fiscal year ended July 31, 2009, 100% of total ordinary dividends (including short-term capital gain) distributions made by the Fund are qualifying dividends which may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Act of 2003. Complete information is reported in conjunction with the reporting of your distributions on Form 1099-DIV.
Of the ordinary income (including short-term capital gain) distributions made by the Fund during the year ended July 31, 2009, 100% qualify for the dividend received deduction available to corporate shareholders.
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES OF FEDERATED MDT SERIES AND SHAREHOLDERS OF FEDERATED MDT TAX AWARE/ALL CAP CORE FUND:
We have audited the accompanying statement of assets and liabilities of Federated MDT Tax Aware/All Cap Core Fund (the "Fund") (one of the portfolios constituting Federated MDT Series), including the portfolio of investments, as of July 31, 2009, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Federated MDT Tax Aware/All Cap Core Fund, a portfolio of Federated MDT Series, at July 31, 2009, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
September 21, 2009
Board of Trustees and Trust Officers
The Board is responsible for managing the Trust's business affairs and for exercising all the Trust's powers except those reserved for the shareholders. The following tables give information about each Board member and the senior officers of the Fund. Where required, the tables separately list Board members who are "interested persons" of the Fund (i.e., "Interested" Board members) and those who are not (i.e., "Independent" Board members). Unless otherwise noted, the address of each person listed is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222. The address of all Independent Board members listed is 4000 Ericsson Drive, Warrendale, PA 15086-7561; Attention: Mutual Fund Board. As of December 31, 2008, the Trust comprised 9 portfolios, and the Federated Fund Complex consisted of 40 investment companies (comprising 148 portfolios). Unless otherwise noted, each Officer is elected annually. Unless otherwise noted, each Board member oversees all portfolios in the Federated Fund Complex and serves for an indefinite term. The Fund's Statement of Additional Information includes additional information about Trust Trustees and is available, without charge and upon request, by calling 1-800-341-7400.
INTERESTED TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John F. Donahue* Birth Date: July 28, 1924 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman of the Federated Fund Complex's Executive Committee. Previous Positions: Chairman of the Federated Fund Complex; Trustee, Federated Investment Management Company; Chairman and Director, Federated Investment Counseling. | |
J. Christopher Donahue* Birth Date: April 11, 1949 PRESIDENT AND TRUSTEE Began serving: August 2006 | Principal Occupations: Principal Executive Officer and President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; Chairman and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; Chairman and Director, Federated Global Investment Management Corp.; Chairman, Federated Equity Management Company of Pennsylvania and Passport Research, Ltd. (investment advisory subsidiary of Federated); Trustee, Federated Shareholder Services Company; Director, Federated Services Company. Previous Positions: President, Federated Investment Counseling; President and Chief Executive Officer, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd. | |
* Family relationships and reasons for "interested" status: John F. Donahue is the father of J. Christopher Donahue; both are "interested" due to their beneficial ownership of shares of Federated Investors, Inc. and the positions they hold with Federated and its subsidiaries.
INDEPENDENT TRUSTEES BACKGROUND
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John T. Conroy, Jr. Birth Date: June 23, 1937 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Board, Investment Properties Corporation; Partner or Trustee in private real estate ventures in Southwest Florida; Assistant Professor of Theology, Blessed Edmund Rice School for Pastoral Ministry. Previous Positions: President, Investment Properties Corporation; Senior Vice President, John R. Wood and Associates, Inc., Realtors; President, Naples Property Management, Inc. and Northgate Village Development Corporation. | |
Nicholas P. Constantakis Birth Date: September 3, 1939 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Director and Chairman of the Audit Committee, Michael Baker Corporation (engineering and energy services worldwide). Previous Position: Partner, Andersen Worldwide SC. | |
John F. Cunningham Birth Date: March 5, 1943 TRUSTEE Began serving: August 2006 | Principal Occupation: Director or Trustee of the Federated Fund Complex. Other Directorships Held: Chairman, President and Chief Executive Officer, Cunningham & Co., Inc. (strategic business consulting); Trustee Associate, Boston College. Previous Positions: Director, QSGI, Inc. (technology services company); Director, Redgate Communications and EMC Corporation (computer storage systems); Chairman of the Board and Chief Executive Officer, Computer Consoles, Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First National Bank of Boston; Director, Apollo Computer, Inc. | |
Maureen Lally-Green Birth Date: July 5, 1949 TRUSTEE Began serving: August 2009 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Director, Office of Church Relations, Diocese of Pittsburgh; Adjunct Professor of Law, Duquesne University School of Law. Other Directorships Held: Director, Auberle; Trustee, St. Francis University; Director, Ireland Institute of Pittsburgh; Director, UPMC Mercy Hospital; Regent, St. Vincent Seminary; Director, Epilepsy Foundation of Western and Central Pennsylvania; Director, Saint Thomas More Society, Allegheny County. Previous Position: Pennsylvania Superior Court Judge. | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
Peter E. Madden Birth Date: March 16, 1942 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee, and Chairman of the Board of Directors or Trustees of the Federated Fund Complex. Other Directorships Held: Board of Overseers, Babson College. Previous Positions: Representative, Commonwealth of Massachusetts General Court; President, State Street Bank and Trust Company and State Street Corporation (retired); Director, VISA USA and VISA International; Chairman and Director, Massachusetts Bankers Association; Director, Depository Trust Corporation; Director, The Boston Stock Exchange. | |
Charles F. Mansfield, Jr. Birth Date: April 10, 1945 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Chairman of the Audit Committee of the Federated Fund Board of Directors or Trustees; Management Consultant. Previous Positions: Chief Executive Officer, PBTC International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP); Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior Vice President, HSBC Bank USA (formerly, Marine Midland Bank); Vice President, Citibank; Assistant Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra University; Executive Vice President DVC Group, Inc. (marketing, communications and technology). | |
R. James Nicholson Birth Date: February 4, 1938 TRUSTEE Began serving: January 2008 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Senior Counsel, Brownstein Hyatt Farber Schrek, P.C.; Former Secretary of the U.S. Dept. of Veterans Affairs; Former U.S. Ambassador to the Holy See; Former Chairman of the Republican National Committee. Other Directorships Held: Director, Horatio Alger Association; Director, The Daniels Fund. Previous Positions: Colonel, U.S. Army Reserve; Partner, Calkins, Kramer, Grimshaw and Harring, P.C.; General Counsel, Colorado Association of Housing and Building; Chairman and CEO, Nicholson Enterprises, Inc.; (real estate holding company); Chairman and CEO, Renaissance Homes of Colorado. | |
Thomas M. O'Neill Birth Date: June 14, 1951 TRUSTEE Began serving: October 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; Managing Director and Partner, Navigator Management Company, L.P. (investment and strategic consulting). Other Directorships Held: Board of Overseers, Children's Hospital of Boston; Visiting Committee on Athletics, Harvard College. Previous Positions: Chief Executive Officer and President, Managing Director and Chief Investment Officer, Fleet Investment Advisors; President and Chief Executive Officer, Aeltus Investment Management, Inc.; General Partner, Hellman, Jordan Management Co., Boston, MA; Chief Investment Officer, The Putnam Companies, Boston, MA; Credit Analyst and Lending Officer, Fleet Bank; Director and Consultant, EZE Castle Software (investment order management software); and Director, Midway Pacific (lumber). | |
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years, Other Directorships Held and Previous Position(s) |
John S. Walsh Birth Date: November 28, 1957 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc. Previous Position: Vice President, Walsh & Kelly, Inc. | |
James F. Will Birth Date: October 12, 1938 TRUSTEE Began serving: August 2006 | Principal Occupations: Director or Trustee of the Federated Fund Complex; formerly, Vice Chancellor and President, Saint Vincent College. Other Directorships Held: Trustee, Saint Vincent College; Alleghany Corporation. Previous Positions: Chairman, President and Chief Executive Officer, Armco, Inc.; President and Chief Executive Officer, Cyclops Industries; President and Chief Operating Officer, Kaiser Steel Corporation. | |
OFFICERS
Name Birth Date Positions Held with Trust Date Service Began | | Principal Occupation(s) for Past Five Years and Previous Position(s) |
John W. McGonigle Birth Date: October 26, 1938 SECRETARY Began serving: August 2006 | Principal Occupations: Executive Vice President and Secretary of the Federated Fund Complex; Vice Chairman, Executive Vice President, Secretary and Director, Federated Investors, Inc. Previous Positions: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. | |
Richard A. Novak Birth Date: December 25, 1963 TREASURER Began serving: August 2006 | Principal Occupations: Principal Financial Officer and Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; Financial and Operations Principal for Federated Securities Corp., Edgewood Services, Inc. and Southpointe Distribution Services, Inc. Previous Positions: Controller of Federated Investors, Inc.; Vice President, Finance of Federated Services Company; held various financial management positions within The Mercy Hospital of Pittsburgh; Auditor, Arthur Andersen & Co. | |
Brian P. Bouda Birth Date: February 28, 1947 SENIOR VICE PRESIDENT AND CHIEF COMPLIANCE OFFICER Began serving: August 2006 | Principal Occupations: Senior Vice President and Chief Compliance Officer of the Federated Fund Complex; Vice President and Chief Compliance Officer of Federated Investors, Inc.; and Chief Compliance Officer of its subsidiaries. Mr. Bouda joined Federated in 1999 and is a member of the American Bar Association and the State Bar Association of Wisconsin. | |
Evaluation and Approval of Advisory Contract - May 2009
FEDERATED MDT TAX AWARE/ALL CAP CORE FUND (THE "FUND")
The Fund's Board reviewed the Fund's investment advisory contract at meetings held in May 2009. The Board's decision regarding the contract reflects the exercise of its business judgment on whether to continue the existing arrangements.
In this connection, the Federated funds' Board had previously appointed a Senior Officer, whose duties include specified responsibilities relating to the process by which advisory fees are to be charged to a Federated fund. The Senior Officer has the authority to retain consultants, experts, or staff as may be reasonably necessary to assist in the performance of his duties, reports directly to the Board, and may be terminated only with the approval of a majority of the independent members of the Board. The Senior Officer prepared and furnished to the Board an independent, written evaluation that covered topics discussed below. The Board considered that evaluation, along with other information, in deciding to approve the advisory contract.
During its review of the contract, the Board considered compensation and benefits received by the Adviser. This included the fees received for services provided to the Fund by other entities in the Federated organization and research services received by the Adviser from brokers that execute Federated fund trades, as well as advisory fees. The Board is also familiar with and considered judicial decisions concerning allegedly excessive investment advisory fees, which have indicated that the following factors may be relevant to an Adviser's fiduciary duty with respect to its receipt of compensation from a fund: the nature and quality of the services provided by the Adviser, including the performance of the fund; the Adviser's cost of providing the services; the extent to which the Adviser may realize "economies of scale" as a fund grows larger; any indirect benefits that may accrue to the Adviser and its affiliates as a result of the Adviser's relationship with a fund; performance and expenses of comparable funds; and the extent to which the independent Board members are fully informed about all facts the Board deems relevant bearing on the Adviser's services and fees. The Board further considered management fees (including any components thereof) charged to institutional and other clients of the Adviser for what might be viewed as like services, and the cost to the Adviser and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit and profit margins of the Adviser and its affiliates for supplying such services. The Board was aware of these factors and was guided by them in its review of the Fund's advisory contract to the extent it considered them to be appropriate and relevant, as discussed further below.
The Board considered and weighed these circumstances in light of its substantial accumulated experience in governing the Fund and working with Federated on matters relating to the Federated funds, and was assisted in its deliberations by independent legal counsel. Throughout the year, the Board has requested and received substantial and detailed information about the Fund and the Federated organization that was in addition to the extensive materials that comprise and accompany the Senior Officer's evaluation. Federated provided much of this information at each regular meeting of the Board, and furnished additional reports in connection with the particular meeting at which the Board's formal review of the advisory contract occurred. Between regularly scheduled meetings, the Board also received information on particular matters as the need arose. Thus, the Board's consideration of the advisory contract included review of the Senior Officer's evaluation, accompanying data and additional reports covering such matters as: the Adviser's investment philosophy, revenue, profitability, personnel and processes; investment and operating strategies; the Fund's short- and long-term performance (in absolute terms, both on a gross basis and net of expenses, as well as in relationship to its particular investment program and certain competitor or "peer group" funds and/or other benchmarks, as appropriate), and comments on the reasons for performance; the Fund's investment objectives; the Fund's expenses (including the advisory fee itself and the overall expense structure of the Fund, both in absolute terms and relative to similar and/or competing funds, with due regard for contractual or voluntary expense limitations); the use and allocation of brokerage commissions derived from trading the Fund's portfolio securities (if any); and the nature, quality and extent of the advisory and other services provided to the Fund by the Adviser and its affiliates. The Board also considered the preferences and expectations of Fund shareholders and their relative sophistication; the continuing state of competition in the mutual fund industry and market practices; the range of comparable fees for similar funds in the mutual fund industry; the Fund's relationship to the Federated family of funds which include a comprehensive array of funds with different investment objectives, policies and strategies which are available for exchange without the incurrence of additional sales charges; compliance and audit reports concerning the Federated funds and the Federated companies that service them (including communications from regulatory agencies), as well as Federated's responses to any issues raised therein; and relevant developments in the mutual fund industry and how the Federated funds and/or Federated are responding to them. The Board's evaluation process is evolutionary. The criteria considered and the emphasis placed on relevant criteria change in recognition of changing circumstances in the mutual fund marketplace.
With respect to the Fund's performance and expenses in particular, the Board has found the use of comparisons to other mutual funds with comparable investment programs to be particularly useful, given the high degree of competition in the mutual fund business. The Board focused on comparisons with other similar mutual funds more heavily than non-mutual fund products or services because it is believed that they are more relevant. For example, other mutual funds are the products most like the Fund, they are readily available to Fund shareholders as alternative investment vehicles, and they are the type of investment vehicle in fact chosen and maintained by the Fund's investors. The range of their fees and expenses therefore appears to be a generally reliable indication of what consumers have found to be reasonable in the precise marketplace in which the Fund competes. The Fund's ability to deliver competitive performance when compared to its peer group was a useful indicator of how the Adviser is executing the Fund's investment program, which in turn assisted the Board in reaching a conclusion that the nature, extent, and quality of the Adviser's investment management services were such as to warrant continuation of the advisory contract. In this regard, the Senior Officer has reviewed Federated's fees for providing advisory services to products outside the Federated family of funds (e.g., institutional and separate accounts). He concluded that mutual funds and institutional accounts are inherently different products. Those differences include, but are not limited to, different types of targeted investors; being subject to different laws and regulations; different legal structures; different average account sizes; different associated costs; different portfolio management techniques made necessary by different cash flows; and portfolio manager time spent in review of securities pricing. The Senior Officer did not consider these fee schedules to be determinative in judging the appropriateness of mutual fund advisory contracts.
The Senior Officer reviewed reports compiled by Federated, using data supplied by independent fund ranking organizations, regarding the performance of, and fees charged by, other mutual funds, noting his view that comparisons to fund peer groups are highly important in judging the reasonableness of proposed fees. He also observed that certain funds may exhibit important differences in their objectives and management techniques when compared to other funds placed in the same peer group by ranking organizations, noting in this connection that the Fund's quantitative investment program is of such a type.
The Fund's performance fell below the median of the relevant peer group for both the one- and three-year periods covered by the report. In addition, the Board was informed by the Adviser that, for the same periods, the Fund underperformed its benchmark index for the one-year period and underperformed its benchmark index for the three-year period. The Board discussed the Fund's performance with the Adviser and recognized the efforts being undertaken by the Adviser. The Board will continue to monitor these efforts and the performance of the Fund.
The Board also received financial information about Federated, including reports on the compensation and benefits Federated derived from its relationships with the Federated funds. These reports covered not only the fees under the advisory contracts, but also fees received by Federated's subsidiaries for providing other services to the Federated funds under separate contracts (e.g., for serving as the Federated funds' administrator). The reports also discussed any indirect benefit Federated may derive from its receipt of research services from brokers who execute Federated fund trades. In addition, the Board considered the fact that, in order for a fund to be competitive in the marketplace, Federated and its affiliates frequently waived fees and/or reimbursed expenses and have disclosed to fund investors and/or indicated to the Board their intention to do so in the future, where appropriate. Moreover, the Board receives regular reports regarding the institution or elimination of these voluntary waivers.
Federated furnished reports, requested by the Senior Officer, that reported revenues on a fund-by-fund basis and made estimates of the allocation of expenses on a fund-by-fund basis, using allocation methodologies specified by the Senior Officer. The Senior Officer noted that, although they may apply consistent allocation processes, the inherent difficulties in allocating costs (and the unavoidable arbitrary aspects of that exercise) and the lack of consensus on how to allocate those costs may render such allocation reports unreliable. The allocation reports were considered in the analysis by the Board but were determined to be of limited use.
The Board and the Senior Officer also reviewed a report compiled by Federated comparing profitability information for Federated to other publicly held fund management companies. In this regard, the Senior Officer noted the limited availability of such information, but nonetheless concluded that Federated's profit margins did not appear to be excessive and the Board agreed.
The Senior Officer's evaluation also discussed the notion of possible realization of "economies of scale" as a fund grows larger. The Board considered in this regard that the Adviser has made significant and long-term investments in areas that support all of the Federated funds, such as personnel and processes for the portfolio management, compliance, and risk management functions; and systems technology; and that the benefits of these efforts (as well as any economies, should they exist) were likely to be enjoyed by the fund complex as a whole. Finally, the Board also noted the absence of any applicable regulatory or industry guidelines on this subject, which (as discussed in the Senior Officer's evaluation) is compounded by the lack of any common industry practice or general pattern with respect to structuring fund advisory fees with "breakpoints" that serve to reduce the fee as the fund attains a certain size. The Senior Officer did not recommend institution of breakpoints in pricing Federated's fund advisory services at this time.
It was noted in the materials for the Board meeting that for the period covered by the report, the Fund's investment advisory fee was waived in its entirety. The Board reviewed the contractual fee rate and other expenses of the Fund with the Adviser and was satisfied that the overall expense structure of the Fund remained competitive.
The Senior Officer's evaluation noted his belief that the information and observations contained in his evaluation supported a finding that the proposed management fees are reasonable, and that Federated appeared to provide appropriate administrative services to the Fund for the fees paid. Under these circumstances, no changes were recommended to, and no objection was raised to, the continuation of the Fund's advisory contract. The Board concluded that the nature, quality and scope of services provided the Fund by the Adviser and its affiliates were satisfactory.
In its decision to continue an existing investment advisory contract, the Board was mindful of the potential disruptions of the Fund's operations and various risks, uncertainties and other effects that could occur as a result of a decision to terminate or not renew an advisory contract. In particular, the Board recognized that many shareholders have invested in the Fund on the strength of the Adviser's industry standing and reputation and with the expectation that the Adviser will have a continuing role in providing advisory services to the Fund. Thus, the Board's approval of the advisory contract reflected the fact that it is the shareholders who have effectively selected the Adviser by virtue of having invested in the Fund.
The Board based its decision to approve the advisory contract on the totality of the circumstances and relevant factors and with a view to past and future long-term considerations. Not all of the factors and considerations identified above were necessarily relevant to the Fund, nor did the Board consider any one of them to be determinative. With respect to the factors that were relevant, the Board's decision to approve the contract reflects its determination that Federated's performance and actions provided a satisfactory basis to support the decision to continue the existing arrangements.
Voting Proxies on Fund Portfolio Securities
A description of the policies and procedures that the Fund uses to determine how to vote proxies, if any, relating to securities held in the Fund's portfolio is available, without charge and upon request, by calling 1-800-341-7400. A report on "Form N-PX" of how the Fund voted any such proxies during the most recent 12-month period ended June 30 is available from Federated's website at FederatedInvestors.com. To access this information from the "Products" section of the website, click on the "Prospectuses and Regulatory Reports" link under "Related Information," then select the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Prospectuses and Regulatory Reports" link. Form N-PX filings are also available at the SEC's website at www.sec.gov.
Quarterly Portfolio Schedule
The Fund files with the SEC a complete schedule of its portfolio holdings, as of the close of the first and third quarters of its fiscal year, on "Form N-Q." These filings are available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. (Call 1-800-SEC-0330 for information on the operation of the Public Reference Room.) You may also access this information from the "Products" section of Federated's website at FederatedInvestors.com by clicking on "Portfolio Holdings" under "Related Information," then selecting the appropriate link opposite the name of the Fund; or select the name of the Fund and from the Fund's page, click on the "Portfolio Holdings" link.
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency. Investment in mutual funds involves investment risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's Prospectus, which contains facts concerning its objective and policies, management fees, expenses and other information.
Federated
World-Class Investment Manager
Federated MDT Tax Aware/All Cap Core Fund
Federated Investors Funds
4000 Ericsson Drive
Warrendale, PA 15086-7561
Contact us at FederatedInvestors.com
or call 1-800-341-7400.
Federated Securities Corp., Distributor
Cusip 31421R601
37321 (9/09)
Federated is a registered mark of Federated Investors, Inc. 2009 (c)Federated Investors, Inc.
(1) | The aggregate amount of all such services provided constitutes no more than five percent of the total amount of revenues paid by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant to its accountant during the fiscal year in which the services are provided; |
(2) | Such services were not recognized by the registrant, the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant at the time of the engagement to be non-audit services; and |
(3) | Such services are promptly brought to the attention of the Audit Committee of the issuer and approved prior to the completion of the audit by the Audit Committee or by one or more members of the Audit Committee who are members of the board of directors to whom authority to grant such approvals has been delegated by the Audit Committee. |
(f) | NA |
(g) | Non-Audit Fees billed to the registrant, the registrant’s investment adviser, and certain entities controlling, controlled by or under common control with the investment adviser: |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies |
Not Applicable |
Item 8. | Portfolio Managers of Closed-End Management Investment Companies |
Not Applicable |
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers |
Not Applicable |
Registrant | Federated MDT Series |
By | /S/ Richard A. Novak |
Richard A. Novak | |
Principal Financial Officer | |
Date | September 21, 2009 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. | |
By | /S/ J. Christopher Donahue |
J. Christopher Donahue | |
Principal Executive Officer | |
Date | September 21, 2009 |
By | /S/ Richard A. Novak |
Richard A. Novak | |
Principal Financial Officer | |
Date | September 21, 2009 |