SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NUMBER 1-14818
FEDERATED INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
25-1111467
PENNSYLVANIA
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
CLASS B COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the Class B Common Stock held by
non-affiliates of the registrant as of March 22, 1999 was approximately
$965,288,000, based on the last reported sales price of $16.375 as reported by
the New York Stock Exchange. For purposes of this calculation, the registrant
has deemed all of its executive officers and directors to be affiliates, but has
made no determination as to whether any other persons are "affiliates" within
the meaning of Rule 12b-2 under the Securities Exchange Act of 1934. The number
of shares of Class B Common Stock outstanding on March 22, 1999 was 85,990,250
shares.
Documents incorporated by reference:
Selected portions of the 1998 Annual Report to Shareholders - Part I,
Part II and Part IV of this Report. Selected portions of the 1999
Information Statement - Part III of this Report.
PART I
ITEM 1 - BUSINESS
OVERVIEW
Federated Investors, Inc. and its consolidated subsidiaries
(collectively, "Federated") is a leading provider of investment management and
related financial services. Federated sponsors, markets and provides investment
advisory, distribution and administrative services primarily to mutual funds.
Total assets under management at December 31, 1998 were $111.6 billion,
primarily in funds managed, distributed and administered by Federated and in
other non-fund products ("Managed Assets"), of which $2.6 billion were in
separately managed accounts. Managed Assets at December 31, 1998 increased $19.0
billion since December 31, 1997.
Federated provided investment advisory services to 126 funds at December
31, 1998. These funds are offered through banks, broker/dealers and other
financial intermediaries who use them to meet the needs of their customers;
these customers include retail investors, corporations, and retirement plans.
Federated also provides mutual fund administrative services to its managed funds
and to funds sponsored by third parties, where Federated also acts as fund
distributor. Federated provided these services for $28.2 billion of assets in
funds sponsored by third parties, primarily banks, ("Administered Assets") as of
December 31, 1998. In addition, Federated provides other services related to
mutual funds including trade execution and clearing and retirement plan
recordkeeping.
Total Managed Assets for each of the past three years are as follows:
MANAGED ASSETS Growth Rate
(DOLLARS IN MILLIONS) As of December 31, 3 Yr.
1998 1997 1996 CAGR* 1998
Money Market Funds/
Cash Equivalents $77,055 $63,622 $51,163 24% 21%
Fixed Income Funds 16,437 15,067 14,109 5% 9%
Equity Funds 15,503 11,710 7,594 43% 32%
Separate Accounts 2,558 2,141 1,976 20% 19%
Total Managed Assets $111,553 $92,540 $74,842 22% 21%
*Compound Annual Growth Rate
Average Managed Assets for the past three years were as follows:
AVERAGE MANAGED ASSETS Year ended December 31, Growth Rate
(DOLLARS IN MILLIONS) 1998 1997 1996 1998
Money Market Funds/
Cash Equivalent $69,074 $55,636 $44,223 24%
Fixed Income Funds 15,851 14,382 13,935 10%
Equity Funds 13,777 9,690 6,297 42%
Separate Accounts 2,334 1,872 1,683 25%
------------------------------------
Total Average Managed Assets $101,036 $81,580 $66,138 24%
====================================
Federated's revenues from investment advisory, related administrative
and other service fees provided under agreements with the funds and other
entities, and other income over the last three years were as follows:
REVENUE
Year ended December 31, Growth Rate
------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1998
------------------------------------ ------------
Investment Advisory Fees $277,331 $218,868 $179,221 27%
Administrative Service 97,234 85,429 72,923 14%
Fees
Other Service Fees 124,599 88,163 60,331 41%
Other Income 22,963 11,259 9,318 104%
------------------------------------
TOTAL REVENUE $522,127 $403,719 $321,793 29%
====================================
BUSINESS STRATEGY
Federated pursues a multi-faceted business strategy having three broad
objectives:
-To be widely recognized as a world class investment management
company that offers highly competitive performance and disciplined risk
management across a broad spectrum of products.
-To profitably expand market penetration by increasing its assets
under management in each market where it chooses to apply its substantial
distribution resources.
-To profitably expand its customer relationships by providing
superior services designed to support the growth of Managed and Administered
Assets.
Federated offers a wide range of products, including money market, fixed
income and equity investments designed to meet the needs of investors with
varying investment objectives. Federated has structured its investment process
to meet the requirements of fiduciaries and others who use Federated's products
to meet the needs of their customers. Fiduciaries typically have stringent
demands related to portfolio composition, risk and investment performance.
Historically, Federated's mix of Managed Assets has been dominated by
money market and other fixed income assets. More recently, in response to market
demand and to diversify its managed assets, Federated has emphasized growth of
its equity fund business and has broadened its range of equity products. In
1998, equity fund assets under management increased from $11.7 billion to $15.5
billion, an increase of $3.8 billion, or 32%. Equity assets are managed across a
wide range of styles including value ($6.0 billion), equity income ($4.5
billion), growth ($1.5 billion), and international ($950 million) investments.
Federated also manages assets in equity index funds ($2.4 billion) and asset
allocation funds ($1.0 billion). These asset allocation funds may include fixed
income assets.
Federated uses a team of portfolio managers led by a senior portfolio
manager for each fund. Federated's investment research process combines
disciplined quantitative screening along with rigorous fundamental analysis to
identify attractive securities. Portfolios are continually reevaluated with
respect to valuation, price and earnings estimate momentum, company
fundamentals, market factors, economic conditions and risk controls in order to
achieve specific investment objectives.
Federated's fixed income assets are managed in a wide range of sectors
including mortgage-backed ($5.4 billion), high yield ($4.4 billion), tax-free
($2.2 billion), corporate ($2.2 billion), government ($2.2 billion),
multi-sector ($1.4 billion) and international ($287 million). Federated's fixed
income funds offer fiduciaries and others a broad range of highly defined
products designed to meet many of their investment needs and requirements. Many
of these fixed income funds are constrained by narrowly defined effective
average maturity or duration bands within specific yield curves. These funds are
limited to investments in specific areas such as municipal,
government/government agency, corporate/asset-backed or mortgage-backed
securities.
In other funds, debt securities from various areas are combined to form
mixed category funds. In general, these funds are also constrained by an
effective average maturity or duration range applied to the portfolio. Through
these funds, Federated offers products that provide the benefit of
diversification across fixed income areas while maintaining the average
maturities and duration ranges that are particularly important to fiduciaries.
Federated is one of the largest U.S. managers of money market fund
assets, with $77.1 billion in assets under management at December 31, 1998.
Federated has developed expertise in managing cash for institutions, which
typically have stringent requirements for regulatory compliance, relative
safety, liquidity and competitive yields. Federated has managed money market
funds for over twenty years and created the first institutional money market
fund in 1976. Federated also manages retail money market fund products which are
typically distributed through broker/dealers. Federated manages money market
fund assets in a variety of asset classes including government ($41.6 billion),
prime ($22.8 billion), and tax-free ($12.6 billion).
Federated's distribution strategy is to provide products geared to
financial intermediaries, primarily banks, broker/dealers and investment
advisers, and directly to institutions such as corporations and government
entities. Through substantial investments in distribution over more than 20
years, Federated has developed selling relationships with more than 3,500
institutions and sells its products directly to another 500 corporations and
government entities. Federated uses its large trained sales force of more than
190 representatives and managers across the United States to add new customer
relationships and strengthen and expand existing relationships.
INVESTMENT PRODUCTS AND MARKETS
Federated's investment products are distributed in three principal
markets: the bank trust market, the broker/dealer market, and the institutional
market. The following chart shows Federated Managed Assets by market for the
dates indicated:
MANAGED ASSETS BY MARKET Growth Rate
(DOLLARS IN MILLIONS) As of December 31, 3 Yr.
1998 1997 1996 CAGR* 1998
Bank Trust Market $58,891 $49,662 $40,123 22% 19%
Broker/Dealer Market 35,232 28,256 22,098 21% 25%
Institutional Market 13,993 11,343 9,750 33% 23%
Other Markets 3,437 3,279 2,871 1% 5%
Total Managed Assets $111,553 $92,540 $74,842 22% 21%
*Compound Annual Growth Rate
BANK TRUST MARKET. Federated pioneered the concept of providing cash
management to bank trust departments through mutual funds over twenty years ago.
In addition, Federated initiated a strategy to provide a broad range of equity
and fixed-income funds, termed MultiTrust(TM), to meet the evolving needs of
bank trust departments. Federated's bank trust customers invest the assets
subject to their control, or upon direction from their customers, in one or more
funds managed by Federated. Federated employs a dedicated sales force backed by
a staff of support personnel to offer its products and services in the bank
trust market.
Money market funds contain the majority of Federated's Managed Assets in
the bank trust market. In allocating investments across various asset classes,
investors typically maintain a portion of their portfolios in cash or cash
equivalents, including money market funds, irrespective of trends in bond or
stock prices. Federated also offers an extensive menu of equity and fixed income
mutual funds structured for use in the bank trust market. As of December 31,
1998, Managed Assets in the bank trust market were comprised of $49.2 billion in
money market funds and cash equivalents, $5.1 billion in fixed income funds and
$4.6 billion in equity funds.
BROKER/DEALER MARKET. Federated distributes its products in this market
through a large diversified group of approximately 2,000 national, regional,
independent, and bank broker/dealers. Federated maintains a sales staff
dedicated to this market, with a separate group focused on the bank
broker/dealers. These sales representatives develop and maintain relationships
with both the management and registered representatives of the broker/dealer.
Broker/dealers use Federated's products to meet the needs of their customers,
who are typically retail investors. Federated offers products with a variety of
commission structures that enable brokers to offer their customers a choice of
pricing options. Federated also offers money market mutual funds as cash
management products designed for use in the broker/dealer market. As of December
31, 1998, Managed Assets in the broker/dealer market were comprised of $18.8
billion in money market funds, $8.8 billion in equity funds, and $7.6 billion in
fixed income funds.
INSTITUTIONAL MARKET. Federated maintains a dedicated sales staff to
focus on the distribution of its products to a wide variety of users: investment
advisors, corporations, corporate and public pension funds, insurance companies,
government entities, foundations, endowments, hospitals, and non-Federated
investment companies. As of December 31, 1998, Managed Assets in the
institutional market were comprised of $8.2 billion in money market funds, $2.2
billion in fixed income funds, $1.2 billion in equity funds and $2.4 billion in
separate accounts.
Federated also seeks to supplement its growth by selectively pursuing
acquisition and alliance opportunities. Through one such alliance, Federated is
taking steps to broaden distribution to areas outside of the U.S. On November
24, 1998, Federated announced the signing of a shareholders agreement with
LVM-Versicherungen, a large German insurance company, to create a joint venture
company to be named Federated Asset Management GmbH ("Federated GmbH"), which
will exclusively manage, distribute and market a family of mutual funds to
insurance clients of LVM, as well as pursuing institutional separate accounts.
Federated has also completed three acquisitions between November, 1996
and May, 1997, which together resulted in an increase of approximately $4.8
billion in Managed Assets. Federated will seek to identify additional
acquisitions and alliances that will enhance shareholder value by adding assets,
complementary investment management expertise or distribution capabilities.
Federated's principal source of revenue is investment advisory fees
earned by various subsidiaries and affiliates pursuant to investment advisory
contracts with the funds. These subsidiaries and affiliates are registered as
investment advisers under the Investment Advisers Act of 1940 (the "Advisers
Act"). Investment advisers are compensated for their services in the form of
investment advisory fees based upon the average daily net assets of the fund.
Federated provided investment advisory services to 126 funds as of
December 31, 1998. The funds sponsored by Federated are domiciled in the U.S.,
with the exception of Federated International Funds PLC which is domiciled in
Dublin, Ireland. Each of Federated's U.S.-domiciled funds (with the exception of
a collective investment trust) is registered under the Investment Company Act of
1940 ("Investment Company Act") and under applicable federal and state laws.
Each of the funds enters into an advisory agreement. The advisory agreements are
subject to annual approval by the fund directors or trustees, including a
majority of the directors who are not "interested persons" of the funds or
Federated as defined under the Investment Company Act. Advisory agreements are
subject to periodic review by the directors or trustees of the respective funds
and amendments to such agreements must be approved by the fund shareholders. A
significant portion of Federated's revenue is derived from these advisory
agreements which generally are terminable upon 60 days notice.
Of these 126 funds, Federated's investment advisory subsidiaries managed
52 money market funds (and cash equivalents) totaling $77.1 billion in assets,
41 fixed income funds with $16.4 billion in assets and 33 equity funds with
$15.5 billion in assets. Appendix "A" hereto lists all of these funds, including
asset levels and date of inception.
Federated also serves as investment advisor to pension and other
employee benefit plans, corporations, trusts, foundations, endowments, mutual
funds sponsored by third parties, and other investors. These separate accounts
totaled $2.6 billion in assets under management as of December 31, 1998. Fees
for separate accounts are typically based on the value of assets under
management pursuant to investment advisory agreements that may be terminated at
any time.
Federated also provides a broad range of services to support the
operation, administration, and distribution of Federated-sponsored funds. These
services, for which Federated receives fees pursuant to administrative
agreements with the funds, include legal support and regulatory compliance,
audit, fund financial services, transfer agency services, and shareholder
servicing and support. Federated also offers these services to institutions
seeking to outsource all or part of their mutual fund service and distribution
functions. Through various subsidiaries, Federated provides its experience and
expertise in these areas to expand its relationships with key financial
intermediaries, primarily banks, who sponsor proprietary mutual funds. Federated
receives fees from these bank-sponsored funds for providing fund services.
The following chart shows period-end and average Administered Assets
since 1996:
ADMINISTERED ASSETS As of and for the year ended
December 31, % Change
(DOLLARS IN MILLIONS) 1998 1997 1996 1998
Period End Administered Assets $28,165 $46,999 $35,574 -40%
Average Administered Assets 53,136 42,965 26,197 24%
The decrease in year-end 1998 Administered Assets was due primarily to
the termination of certain administration contracts due to internalization of
these functions by banks who developed the ability to provide mutual fund
services through acquisitions. These customers collectively accounted for less
than 2% of 1998 total revenue.
In addition, certain Funds sponsored by Federated have adopted
distribution plans which, subject to applicable law, provide for payment to
Federated for the reimbursement of marketing expenses, including sales
commissions paid to broker/dealers. These distribution plans are implemented
through a distribution agreement between Federated and the Fund. Although the
specific terms of each such agreement vary, the basic terms of the agreements
are similar. Pursuant to the agreements, Federated acts as underwriter for the
fund and distributes shares of the Fund through unaffiliated dealers. Each
distribution plan and agreement is initially approved by the directors or
trustees of the respective Funds and is reviewed for approval annually.
Federated also provides retirement plan recordkeeping services and trade
execution and settlement services through its various subsidiaries.
COMPETITION
The mutual fund industry is highly competitive. According to the
Investment Company Institute, at the end of 1998, there were over 7,300
registered open-end investment companies, of varying sizes and investment
policies, whose shares are currently being offered to the public both on a load
and no-load basis. In addition to competition from other mutual fund managers
and investment advisers, Federated and the mutual fund industry compete with
investment alternatives offered by insurance companies, commercial banks,
broker/dealers and other financial institutions.
Competition for sales of mutual fund shares is influenced by various
factors, including investment performance in terms of attaining the stated
objectives of the particular funds and in terms of fund yields and total
returns; advertising and sales promotional efforts; and type and quality of
services.
Changes in the mix of customers for mutual fund distribution and
administrative services are expected to continue. Competition for fund
administration services is extremely high. In addition to competing with other
service providers, banks sponsoring mutual funds may choose to internalize
certain service functions. Consolidation within the banking industry also
impacts the fund administration business as merging bank funds typically choose
a single fund administration provider. Due to the relatively lower revenues,
changes in the amount of Administered Assets generally have less impact on
Federated's results of operations than changes in the amount of Managed Assets.
REGULATORY MATTERS
Substantially all aspects of Federated's business are subject to federal
and state regulation which, depending upon the nature of any non-compliance,
could result in the suspension or revocation of licenses or registration,
including broker/dealer licenses and registrations and transfer agent
registrations, as well as the imposition of civil fines and penalties and in
certain limited circumstances prohibition from acting as an adviser to
registered investment companies. Federated's advisory companies are registered
with the Securities Exchange Commission (the "Commission") under the Advisers
Act and with certain states. All of the mutual funds managed, distributed, and
administered by Federated are registered with the Commission under the
Investment Company Act. Certain wholly owned subsidiaries of Federated are
registered as broker-dealers with the Commission under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and with various states and are
members of the National Association of Securities Dealers (the "NASD"). Their
activities are regulated by the Commission, the NASD, and the various states in
which they are registered. These subsidiaries are required to meet capital
requirements established by the Commission pursuant to the Exchange Act. Two
other subsidiaries are registered with the Commission as transfer agents.
Federated Investors Trust Company is regulated by the State of New Jersey.
Federated believes that it and its subsidiaries are in substantial compliance
with all applicable laws and regulations. Amendments to current laws and
regulations or newly-promulgated laws and regulations governing Federated's
operations could have a material adverse impact on Federated.
The federal and state laws and regulations applicable to most aspects of
Federated's business are primarily intended to benefit or protect Federated's
customers and the funds' shareholders and generally grant supervisory agencies
and bodies broad administrative powers, including the power to limit or restrict
Federated from carrying on its business in the event that it fails to comply
with such laws and regulations. In such event, the possible sanctions that may
be imposed include the suspension of individual employees, limitations on
engaging in certain lines of business for specified periods of time, revocation
of broker/dealer licenses and registrations and transfer agent registrations,
censure and fines.
EMPLOYEES
At December 31, 1998, Federated employed 1,891 persons. Federated
considers its relationships with its employees to be satisfactory.
FORWARD-LOOKING INFORMATION
THIS ANNUAL REPORT ON FORM 10-K AND THE 1998 ANNUAL REPORT TO
SHAREHOLDERS CONTAIN CERTAIN "FORWARD- LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS INVOLVE
CERTAIN UNKNOWN RISKS AND UNCERTAINTIES, INCLUDING, AMONG OTHERS THOSE DISCUSSED
UNDER THE CAPTION "RISK FACTORS AND CAUTIONARY STATEMENTS" BELOW, THAT COULD
CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, OR ACHIEVEMENTS OF
FEDERATED, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD LOOKING STATEMENTS. FEDERATED CAUTIONS READERS NOT TO PLACE
UNDUE RELIANCE ON ANY SUCH FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE MADE, AND SHOULD BE READ IN CONJUNCTION WITH THE RISK DISCLOSURE BELOW.
FEDERATED WILL NOT UNDERTAKE AND SPECIFICALLY DECLINES ANY OBLIGATION TO RELEASE
PUBLICLY THE RESULT OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS
OR REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS. AS A RESULT OF
THE FOREGOING, AND OTHER FACTORS, NO ASSURANCE CAN BE GIVEN AS TO FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, OR ACHIEVEMENTS OF FEDERATED, AND
NEITHER FEDERATED NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY
OR COMPLETENESS OF SUCH STATEMENTS.
RISK FACTORS AND CAUTIONARY STATEMENTS
POTENTIAL ADVERSE EFFECTS OF INCREASED COMPETITION IN THE INVESTMENT
MANAGEMENT BUSINESS. The investment management business is highly competitive.
Federated competes in the distribution of mutual funds with other independent
fund management companies, national and regional broker/dealers, commercial
banks, insurance companies, and other institutions. Many of these competitors
have substantially greater resources and brand recognition than Federated.
Competition is based on various factors, including business reputation; the
investment performance of funds managed or administered by Federated; quality of
service; the strength and continuity of management and selling relationships;
marketing and distribution services offered; the range of products offered; and
fees charged. See "Business--Competition."
Many of Federated's fund products are designed for use by institutions
such as banks, insurance companies and other corporations. A large portion of
Federated's Managed Assets, particularly money market and fixed income Managed
Assets, are held by institutional investors. Because most institutional mutual
funds are sold without sales commissions at either the time of purchase or the
time of redemption, institutional investors may be more inclined to move their
assets among various institutional funds than investors in retail mutual funds.
Of Federated's 126 managed funds, 91 are sold without sales commission.
Institutions are sensitive to fund investment performance, consistent adherence
to investment objectives, quality of service and pricing. Federated believes
that competitive pressures in the institutional fund market are increasing as a
result of (i) the entry of well known managers from the retail investment
industry and of low-fee investment managers, (ii) mergers and consolidation
occurring in the banking industry, (iii) increased offering of proprietary funds
by institutional investors such as banks, and (iv) regulatory changes affecting
banks and other financial service firms.
A significant portion of Federated's revenue is derived from providing
mutual funds to its bank trust market, comprising over 1,400 banks and other
financial institutions. Future profitability of Federated will be affected by
its ability to retain its share of this market, and could also be adversely
affected by the general consolidation which is occurring in the banking industry
as well as by proposed legislation and regulatory changes. In addition, bank
consolidation trends could not only cause changes in Federated's customer mix,
but could also affect the scope of services provided and fees received by
Federated, depending upon the degree to which banks internalize administrative
functions attendant to proprietary mutual funds.
POTENTIAL ADVERSE EFFECTS OF A DECLINE IN SECURITIES MARKETS. Changes in
economic or market conditions may adversely affect the profitability and
performance of and demand for Federated's investment products and services. The
ability of Federated to compete and grow is dependent, in part, on the relative
attractiveness of the types of investment products Federated offers and its
investment philosophies and market strategies under prevailing market
conditions. A significant portion of Federated's revenue is derived from
investment advisory fees, which are based on the value of Managed Assets and
vary with the type of asset being managed, with higher fees, for example,
generally earned on equity and fixed income funds than on money market funds.
Consequently, significant fluctuations in the prices of securities held by, or
the level of redemptions from, the funds advised by Federated may affect
materially the amount of Managed Assets and thus Federated's revenue,
profitability and ability to grow. Substantially all of Federated's Managed
Assets are in open end funds, which permit investors to redeem their investment
at any time.
POTENTIAL ADVERSE AFFECTS ON MONEY MARKET FUNDS RESULTING FROM INCREASES
IN INTEREST RATES. Approximately 35% of Federated's revenue in 1998 was from
managed money market funds. Assets in these funds are largely from institutional
investors. In a period of rapidly rising interest rates, institutional investors
may redeem shares in money market funds to invest directly in market issues
offering higher yields. These redemptions would reduce Managed Assets, thereby
reducing Federated's advisory fee revenue. Federated has been actively
diversifying its products to expand its Managed Assets in equity mutual funds
which may be less sensitive to interest rate increases. There can be no
assurance that Federated will continue to be successful in these diversification
efforts.
ADVERSE EFFECTS OF POOR FUND PERFORMANCE. Success in the investment
management and mutual fund business is largely dependent on the funds'
investment performance relative to market conditions and performance of
competing funds. Good performance generally stimulates sales of the funds'
shares and tends to keep redemptions low. Sales of funds generate higher
revenues (which are largely based on assets of the funds). Good performance also
attracts private institutional accounts to Federated. Conversely, relatively
poor performance tends to result in decreased sales, increased redemptions of
the funds' shares, and the loss of private institutional accounts, with
corresponding decreases in revenues to Federated. Failure of the funds to
perform well could, therefore, have a material adverse effect on Federated.
ADVERSE EFFECTS OF TERMINATION OR FAILURE TO RENEW FUND AGREEMENTS ON
FEDERATED'S REVENUES AND PROFITABILITY. A substantial majority of Federated's
revenues are derived from investment management agreements with the funds that,
as required by law, are terminable on 60 days' notice. In addition, each such
investment management agreement must be approved and renewed annually by each
fund's board, including disinterested members of the board, or its shareholders,
as required by law. Generally, Federated's administrative servicing agreements
with bank proprietary fund customers have an initial term of three years with a
provision for automatic renewal unless notice is otherwise given and provide for
termination for cause. Failure to renew or termination of a significant number
of these agreement could have a material adverse impact on Federated. In
addition, as required by the Investment Company Act, each investment advisory
agreement with a mutual fund automatically terminates upon its "assignment,"
although new investment advisory agreements may be approved by the mutual fund's
directors or trustees and shareholders. A sale of a sufficient number of shares
of Federated's voting securities to transfer control of Federated could be
deemed an "assignment" in certain circumstances. An assignment, actual or
constructive, will trigger these termination provisions and may adversely affect
Federated's ability to realize the value of these assets.
POTENTIAL ADVERSE EFFECTS OF CHANGES IN LAW AND REGULATIONS ON
FEDERATED'S INVESTMENT MANAGEMENT BUSINESS. Federated's investment management
business is subject to extensive regulation in the United States primarily at
the Federal level, including regulations by the Commission particularly, under
the Investment Company Act and the Advisers Act as well as the rules of the NASD
and all states. Federated is also affected by the regulations governing banks
and other financial institutions. Changes in laws or regulations or in
governmental policies could materially and adversely affect the business and
operations of Federated.
NO ASSURANCE OF SUCCESSFUL FUTURE ACQUISITIONS. Federated's business
strategy contemplates the acquisition of other investment management companies
as well as investment assets. There can be no assurance that Federated will find
suitable acquisition candidates at acceptable prices, have sufficient capital
resources to realize its acquisition strategy, be successful in entering into
definitive agreements for desired acquisitions, or successfully integrate
acquired companies into Federated, or that any such acquisitions, if
consummated, will prove to be advantageous to Federated.
YEAR 2000 RISKS. Federated utilizes software and related technologies
throughout its businesses including both proprietary systems as well as those
provided by outside vendors. As the century date change occurs, certain
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause systems to
process critical financial and operational information incorrectly. Federated's
assessment of internal systems is complete and Federated has also substantially
completed the renovation and unit testing of individual programs. In addition,
Federated and the funds have relationships with third parties that have computer
systems that may not be year 2000 compliant. Based on management's
identification of resource requirements for both plan implementation and overall
project management, it is anticipated that the year 2000 costs will be
approximately $10 million for internal systems but do not reflect the impact of
the failure of outside vendors to become year 2000 compliant. Accordingly, there
can be no assurance that potential system interruptions or the cost necessary to
update software would not have a material adverse effect on Federated's
business, financial condition, results of operations or business prospects.
ITEM 2 - PROPERTIES
Federated's facilities are concentrated in Pittsburgh, Pennsylvania
where it leases space sufficient to meet its operating needs. Federated's
headquarters is located in the Federated Investors Tower, where Federated
occupies approximately 345,000 square feet. Federated leases approximately
100,000 square feet at the Pittsburgh Office and Research Park and an aggregate
of 60,000 square feet at other locations in Pittsburgh. Federated maintains
office space for a portion of its servicing business in Rockland, Massachusetts;
in Dublin, Ireland, where administrative offices for offshore funds are
maintained; in New York, New York, where Federated Global Investment Management
Corp. conducts its business; and in Gibbsboro, New Jersey, where Federated
Investors Trust Company is located. Additional offices in Naples, Florida and
Wilmington, Delaware are subleased by Federated.
ITEM 3 - LEGAL PROCEEDINGS
There is currently no pending litigation of a material nature involving
Federated.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS
The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Notes to
Consolidated Financial Statements" and is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the caption "Selected Consolidated Financial
Data" and is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and is incorporated
herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and is incorporated
herein by reference.
ITEM 8 - FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the captions "Report of Ernst & Young LLP,
Independent Auditors," "Consolidated Balance Sheets," "Consolidated Statements
of Income," "Consolidated Statements of Changes in Shareholders' Equity,"
"Consolidated Statements of Cash Flows," and "Notes to Consolidated Financial
Statements" and is incorporated herein by reference.
ITEM 9 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this Item (other than the information set
forth below) will be contained in Federated's Information Statement for its 1998
Annual Meeting of Shareholders under the captions "Board of Directors and
Election of Directors" and "Security Ownership - Section 16(a) Beneficial
Ownership Reporting Compliance," and is incorporated herein by reference.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
executive officers of Federated as of March 22, 1999:
NAME POSITION AGE
John F. Donahue Chairman and Director 74
J. Christopher Donahue President, Chief Executive Officer and Director 49
Arthur L. Cherry President, Federated Services Company and Director 45
William D. Dawson III Executive Vice President and Chief Investment Officer - 50
Domestic Fixed Income of Federated Advisory Companies*
Thomas R. Donahue Vice President, Treasurer, Chief Financial Officer and 40
Director
John B. Fisher President -- Institutional Sales Division of Federated 42
Securities
Corp. and Director
Richard B. Fisher Executive Vice President 75
Henry A. Frantzen Executive Vice President and Chief Investment Officer - 56
Global
Equity and Fixed Income of Federated Advisory Companies*
James F. Getz President -- Retail Sales Division of Federated 52
Securities Corp.
and Director
J. Thomas Madden Executive Vice President and Chief Investment Officer - 51
Domestic Equity, High Yield and Asset Allocation of
Federated
Advisory Companies*
Eugene F. Maloney Executive Vice President, Federated Investors 54
Management
Company and Director
John W. McGonigle Executive Vice President, Chief Legal Officer, 60
Secretary and Director
*Federated Advisory Companies include the following subsidiaries of Federated:
Federated Advisers, Federated Global Investment Management Corp., Passport
Research Limited, Federated Management, Federated Investment Counseling,
Federated Research and Federated Research Corp.
Mr. John F. Donahue was a founder of the predecessor of Federated and was
Chairman and Chief Executive Officer of Federated and a trustee of Federated
Investors, a Delaware business trust (the "Trust"), prior to the May 1998 merger
of the Trust into Federated, its wholly-owned subsidiary (the "Merger"). Mr.
Donahue has continued to serve as Chairman following the consummation of the
Merger. He served as President from 1989 until 1993. Mr. Donahue is Chairman or
President and a director or trustee of the investment companies managed by
subsidiaries of Federated. Mr. Donahue was a member of the Board of Directors of
Aetna Life and Casualty Company until April 1995. Mr. Donahue is the father of
J. Christopher Donahue and Thomas R. Donahue, each of whom serves as an
executive officer and director of Federated.
Mr. J. Christopher Donahue was a trustee of the Trust from 1989 until the
consummation of the Merger and has been a director of Federated since the
consummation of the Merger. He served as President and Chief Operating Officer
from 1993 until April 1998, when he became President and Chief Executive
Officer. Prior to 1993, he served as Vice President. He is President or
Executive Vice President of the investment companies managed by subsidiaries of
Federated and a director, trustee or managing general partner of some of the
investment companies. Mr. Donahue is the son of John F. Donahue and the brother
of Thomas R. Donahue.
Mr. Arthur L. Cherry was a trustee of the Trust from 1997 until the
Merger and has been a director of Federated since the consummation of the
Merger. He is the President of Federated Services Company, a wholly-owned
subsidiary of Federated. Prior to joining Federated in January 1997, he was a
managing partner of AT&T Solutions and former president of Scudder Services
Corporation. He also served as a managing director of Scudder, Stevens and Clark
from 1984 to 1994. In addition, Mr. Cherry has worked in various capacities with
The Boston Company, Boston Financial Data Services and EDS Consulting.
Mr. William D. Dawson III serves as Executive Vice President and Chief
Investment Officer - Domestic Fixed Income of Federated Advisory Companies. He
has served as a portfolio manager and held various other positions in the
advisory companies. He is responsible for the investment policy and management
of domestic fixed income funds. Mr. Dawson is a Chartered Financial Analyst.
Mr. Thomas R. Donahue was a trustee of the Trust from 1995 until the
consummation of the Merger and has been a director of Federated since the
consummation of the Merger. He has been Vice President since 1993 and currently
serves as Vice President, Treasurer and Chief Financial Officer. Prior to
joining Federated, Mr. Donahue was in the venture capital business, and from
1983 to 1987 was employed by PNC Bank in its Investment Banking Division. Mr.
Donahue is the son of John F. Donahue and the brother of J. Christopher Donahue.
Mr. John B. Fisher has been a director of Federated since the consummation
of the Merger. He is President-Institutional Sales Division of Federated
Securities Corp., a wholly-owned subsidiary of Federated, and is responsible for
the distribution of Federated's products and services to investment advisors,
insurance companies, retirement plans and corporations. Mr. Fisher is the son of
Richard B. Fisher, Executive Vice President of Federated.
Mr. Richard B. Fisher was a founder of the predecessor of Federated and was
a trustee of the Trust. He currently serves as Executive Vice President and is
primarily responsible for developing and marketing fund products in the
broker/dealer market and for distributing some of the investment companies
managed by Federated. Mr. Fisher is President or Vice President of most of the
investment companies and a director or trustee of most of the investment
companies. Mr. Fisher is the father of John B. Fisher, an officer of Federated.
Mr. Henry A. Frantzen serves as Executive Vice President and Chief
Investment Officer - Global Equity and Fixed Income of Federated Advisory
Companies. Mr. Frantzen is primarily responsible for the management of global
equity and fixed income funds. Prior to joining Federated, Mr. Frantzen was
Managing Director of International Equities for Brown Brothers Harriman
Investment Management Ltd. and Manager and International Equity Chief Investment
Officer for Brown Brothers Harriman and Co. from 1992 to 1995. Prior thereto Mr.
Frantzen served in executive capacities for various investment management
companies, including Oppenheimer Management Corp., Yamaichi Capital Management
and CREF.
Mr. James F. Getz has been a director of Federated since the consummation
of the Merger. He serves as President - Retail Sales Division of Federated
Securities Corp., a wholly-owned subsidiary of Federated, and is responsible for
the marketing and sales efforts in the trust and broker/dealer markets. Mr. Getz
is a Chartered Financial Analyst.
Mr. J. Thomas Madden serves as Executive Vice President and Chief
Investment Officer - Domestic Equity, High Yield and Asset Allocation of
Federated Advisory Companies. Mr. Madden oversees the portfolio management in
the domestic equity, high yield and asset allocation areas. Mr. Madden is a
Chartered Financial Analyst.
Mr. Eugene F. Maloney was a trustee of the Trust from 1989 until the
consummation of the Merger and has continued as a director of Federated since
the consummation of the Merger. He serves as the Executive Vice President of
Federated Investors Management Company, a wholly-owned subsidiary of Federated,
and provides certain legal, technical and management expertise to Federated's
sales divisions, including regulatory and legal requirements relating to a
bank's use of mutual funds in both trust and commercial environments. Mr.
Maloney is an adjunct Professor of Law at Boston University School of Law.
Mr. John W. McGonigle was a trustee of the Trust from 1989 until the
consummation of the Merger and has been a director since the consummation of the
Merger. Mr. McGonigle has served as Secretary of Federated since 1989. He served
as Vice President of Federated from 1989 until August 1995, when he became
Executive Vice President. Mr. McGonigle acted as General Counsel until 1998 when
he became the Chief Legal Officer. Mr. McGonigle is Executive Vice President and
Secretary of the investment companies managed by subsidiaries of Federated.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item is contained in Federated's
Information Statement for the 1999 Annual Meeting of Shareholders under the
captions "Board of Directors and Election of Directors" and "Executive
Compensation" and is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is contained in Federated's
Information Statement for the 1999 Annual Meeting of Shareholders under the
caption "Security Ownership" and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS:
The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the captions "Report of Ernst & Young LLP,
Independent Auditors," "Consolidated Balance Sheets," "Consolidated Statements
of Income," "Consolidated Statements of Changes in Shareholders' Equity,"
"Consolidated Statements of Cash Flows," and "Notes to Consolidated Financial
Statements" and is incorporated herein by reference.
(A)(2) FINANCIAL STATEMENT SCHEDULES:
Schedules for which provision is made in the applicable accounting
regulations of the United States Securities and Exchange Commission have been
omitted because such schedules are not required under the related instructions
or are inapplicable or because the information required is included in the
Consolidated Financial Statements or notes thereto.
(A)(3) EXHIBITS:
The following exhibits are filed or incorporated as part of this report:
Exhibit
NUMBER DESCRIPTION
2.01 Agreement and Plan of Merger, dated as of February 20, 1998,
between Federated Investors and Federated (incorporated by
reference to Exhibit 2.01 to the Registration Statement on Form
S-1 (File No. 333-48405))
3.01 Restated Articles of Incorporation of Federated (incorporated by
reference to Exhibit 3.01 to the Registration Statement on Form
S-1 (File No. 333-48405))
3.02 Restated By-Laws of Federated (incorporated by reference to
Exhibit 3.02 to the Registration Statement on Form S-1
(File No. 333-48405))
4.01 Form of Class A Common Stock certificate (incorporated by
reference to Exhibit 4.01 to the Registration Statement on Form
S-1 (File No. 333-48405))
4.02 Form of Class B Common Stock certificate (incorporated by
reference to Exhibit 4.02 to the Registration Statement on
Form S-1 (File No. 333-48405))
4.03 Stock Purchase Agreement, dated August 1, 1989, between Federated
and Westinghouse Credit Corporation (incorporated by reference to
Exhibit 4.04 to the Registration Statement on Form S-1 (File No.
333-48405))
4.04 Intercompany Subordination Agreement, dated as of June 15, 1996,
by and among Federated Investors and its subsidiaries
(incorporated by reference to Exhibit 4.05 to the Registration
Statement on Form S-1 (File No. 333-48405))
4.05 Shareholder Rights Agreement, dated August 1, 1989, between
Federated and The Standard Fire Insurance Company, as amended
January 31, 1996 (incorporated by reference to Exhibit 4.06 to
the Registration Statement on Form S-1 (File No.
333-48405))
4.06 Senior Secured Credit Agreement, dated as of January 31, 1996, by
and among Federated and the Banks set forth therein and PNC Bank,
National Association (incorporated by reference to Exhibit 4.07
to the Registration Statement on Form S-1 (File No. 333-48405))
9.01 Voting Shares Irrevocable Trust dated May 31, 1989 (incorporated
by reference to Exhibit 9.01 to the Registration Statement on
Form S-1 (File No. 333-48405))
10.01 Amendment No. 4 to Credit Agreement, dated as of May 11, 1998, by
and among Federated Investors, Inc., the banks set forth therein
and PNC Bank, National Association. (incorporated by reference to
Exhibit 10.1 of the June 30, 1998 Quarterly Report on Form 10-Q
(File No. 001-14818))
10.02 Amendment No. 5 to Credit Agreement, dated as of May 11, 1998,
by and among Federated Investors, Inc., the banks set forth
therein and PNC Bank, National Association. (incorporated by
reference to Exhibit 10.2 of the June 30, 1998
Quarterly Report on Form 10-Q (File No. 001-14818))
10.03 Amendment No. 6 to Credit Agreement, dated as of
December 3, 1998, by and among Federated Investors, Inc., the
banks set forth therein and PNC Bank, National Association
(Filed herewith)
10.04 Federated Note Purchase Agreement, dated as of June 15, 1996
(incorporated by reference to Exhibit 4.08 to the Registration
Statement on Form S-1 (File No.
333-48405))
10.05 Federated Program Master Agreement, dated as of October 24, 1997,
among Federated, Federated Funding 1997-1, Inc., Federated
Management Company, Federated Securities Corp., Wilmington Trust
Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and
Bankers Trust Company (incorporated by reference to Exhibit 4.09
to the Registration Statement on Form S-1 (File No. 333-48405))
10.06 Federated Investors, Inc. Employee Stock Purchase Plan,
effective as of July 1, 1998 (incorporated by reference to
Exhibit 10.3 to the June 30, 1998 Quarterly Report on Form 10-Q
(File No. 001-14818))
10.07 Federated Investors Program Initial Purchase Agreement, dated as
of October 24, 1997, between Federated Funding 1997-1, Inc. and
Wilmington Trust Company, solely as Trustee of the PLT Finance
Trust 1997-1 (incorporated by reference to Exhibit 4.10 to the
Registration Statement on Form S-1 (File No. 333-48405))
10.08 Federated Investors Program Revolving Purchase Agreement, dated
as of October 24, 1997, between Federated Funding 1997-1, Inc.
and PLT Finance, L.P. (incorporated by reference to Exhibit 4.11
to the Registration Statement on Form S-1 (File No. 333-48405))
10.09 Federated Investors Program Fee Agreement, dated as October 24,
1997, between Federated Investors and PLT Finance, L.P.
(incorporated by reference to Exhibit 4.12 to the Registration
Statement on Form S-1 (File No. 333-48405))
10.10 Schedule X to Federated Program Master Agreement, dated as of
October 24, 1997, among Federated, Federated Funding 1997-1,
Inc., Federated Investors Management Company, Federated
Securities Corp., Wilmington Trust Company, PLT Finance, L.P.,
Putnam, Lovell & Thornton Inc. and Bankers Trust Company
(incorporated by reference to Exhibit 4.13 to the Registration
Statement on Form S-1 (File No.
333-48405))
10.11 Stock Incentive Plan, as amended as of August 26, 1998
(incorporated by reference to Exhibit 10 to the September 30,
1998 Quarterly Report on Form 10-Q (File No. 001-14818))
10.12 Executive Annual Incentive Plan (incorporated by reference to
Exhibit 10.02 to the Registration Statement on Form S-1
(File No. 333-48405))
10.13 Form of Bonus Stock Option Agreement (Filed herewith)
10.14 Federated Investors Tower Lease dated January 1, 1993
(incorporated by reference to Exhibit 10.03 to the Registration
Statement on Form S-1 (File No. 333-48405))
10.15 Federated Investors Tower Lease dated February 1, 1994
(incorporated by reference to Exhibit 10.04 to the Registration
Statement on Form S-1 (File No.
333-48405))
10.16 Centre City Tower Lease dated July 23, 1992, as amended
(incorporated by reference to Exhibit 10.05 to the Registration
Statement on Form S-1 (File No.
333-48405))
10.17 Employment Agreement, dated January 16, 1997, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.06 to the Registration Statement on Form S-1 (File No.
333-48405))
10.18 Employment Agreement, dated December 28, 1990, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.08 to the Registration Statement on Form S-1 (File No.
333-48405))
10.19 Employment Agreement, dated December 22, 1993, between Federated
Securities Corp. and an executive officer (incorporated by
reference to Exhibit 10.09 to the Registration Statement on
Form S-1 (File No. 333-48405))
10.20 Employment Agreement, dated March 17, 1995, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.07 to the Registration Statement on Form S-1 (File No.
333-48405))
13.01 Selected Portions of 1998 Annual Report to Shareholders
(Filed herewith)
21.01 Subsidiaries of the Registrant (Filed herewith)
23.01 Consent of Ernst & Young LLP (Filed herewith)
27.01 Financial Data Schedule (Filed herewith)
(B) REPORTS ON FORM 8-K:
No current reports on Form 8-K were filed for the quarter ended
December 31, 1998.
(C) EXHIBITS:
See (a)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES:
See (a)(2) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FEDERATED INVESTORS, INC.
By: /S/ J. CHRISTOPHER DONAHUE
J. Christopher Donahue
President and Chief Executive Officer
Date: March 26, 1999
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ John F. Donahue Chairman and Director March 26, 1999
- -----------------------------
John F. Donahue
/s/ J. Christopher Donahue President, Chief Executive Officer March 26, 1999
- -----------------------------
J. Christopher Donahue and Director (Principal Executive
Officer)
/s/ John W. McGonigle Director March 26, 1999
- -----------------------------
John W. McGonigle
/s/ Arthur L. Cherry Director March 26, 1999
- -----------------------------
Arthur L. Cherry
/s/ James F. Getz Director March 26, 1999
- -----------------------------
James F. Getz
/s/ John B. Fisher Director March 26, 1999
- -----------------------------
John B. Fisher
SIGNATURE TITLE DATE
/s/ Thomas R. Donahue Chief Financial Officer and March 26, 1999
Director
- -----------------------------
Thomas R. Donahue (Principal Accounting and
Financial Officer)
/s/ Eugene F. Maloney Director March 26, 1999
- -----------------------------
Eugene F. Maloney
/s/ Michael J. Farrell Director March 26, 1999
- -----------------------------
Michael J. Farrell
/s/ James L. Murdy Director March 26, 1999
- -----------------------------
James L. Murdy
EXHIBIT INDEX
Exhibit
NUMBER DESCRIPTION
10.03 Amendment No. 6 to Credit Agreement, dated as of
December 3, 1998, by and among Federated Investors, Inc., the
banks set forth therein and PNC Bank, National Association
10.13 Form of Bonus Stock Option Agreement
13.01 Selected Portions of 1998 Annual Report to Shareholders
23.01 Consent of Ernst & Young LLP
21.01 Subsidiaries of the Registrant
27.01 Financial Data Schedule
APPENDIX A
FEDERATED FUNDS
Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE
EQUITY FUNDS:
FEDERATED AGGRESSIVE 3 Equity Fund - Growth $38,349,125 Y 11/18/1996
GROWTH FUND
FEDERATED AMERICAN 4 Equity Fund - Growth and 3,470,848,033 Y 2/26/1969
LEADERS FUND INC. Income
FEDERATED AMERICAN 1 Equity Fund - Growth and 418,135,276 N 12/15/1993
LEADERS FUND II Income
FEDERATED ASIA PACIFIC 3 International/Global 11,747,428 Y 1/31/1996
GROWTH FUND
FEDERATED CAPITAL 3 Equity Fund - Growth 245,918,002 Y 11/14/1995
APPRECIATION FUND
FEDERATED EMERGING 1 International/Global 3,974,850 N 9/22/1997
MARKETS COMMINGLED
TRUST
FEDERATED EMERGING 3 International/Global 45,742,086 Y 1/31/1996
MARKETS FUND
FEDERATED EQUITY 4 Equity 2,470,603,863 Y 12/30/1986
INCOME FUND INC.
FEDERATED EQUITY 1 Equity 57,579,616 N 12/16/1996
INCOME FUND II
FEDERATED EUROPEAN 3 International/Global 60,345,414 Y 1/31/1996
GROWTH FUND
FEDERATED GLOBAL 3 International/Global 20,109,186 Y 3/8/1998
EQUITY INCOME FUND
FEDERATED GLOBAL 3 International/Global 7,285,517 Y 8/24/1998
FINANCIAL SERVICES FUND
FEDERATED GROWTH 3 Equity Fund - Growth 719,236,572 Y 8/23/1984
STRATEGIES FUND
FEDERATED GROWTH 1 Equity Fund - Growth 62,801,259 N 9/30/1995
STRATEGIES FUND II
FEDERATED 1 International Equity Fund 18,176,400 N 3/21/1997
INTERNATIONAL EQUITY
COMMINGLED TRUST
FEDERATED 3 International Equity Fund 245,729,083 Y 8/17/1984
INTERNATIONAL EQUITY
FUND
FEDERATED 1 International Equity Fund 52,313,331 N 4/4/1995
INTERNATIONAL EQUITY
FUND II
FEDERATED 3 International/Global 0 * Y 6/30/1997
INTERNATIONAL GROWTH
FUND
FEDERATED 3 International/Global 404,149,702 Y 1/31/1996
INTERNATIONAL SMALL
COMPANY FUND
FEDERATED LARGE CAP 3 Equity Fund - Growth 4,084,878 Y 12/23/1998
GROWTH FUND
FEDERATED LATIN 3 International/Global 9,708,922 Y 1/31/1996
AMERICAN GROWTH FUND
FEDERATED MANAGED 2 Asset Allocation Fund 153,997,511 N 3/11/1994
AGGRESSIVE GROWTH FUND
FEDERATED MANAGED 2 Asset Allocation Fund 242,609,359 N 3/11/1994
GROWTH AND INCOME FUND
FEDERATED MANAGED 2 Asset Allocation Fund 265,595,596 N 3/11/1994
GROWTH FUND
FEDERATED MAX-CAP FUND 3 Equity Fund - Growth and 2,178,129,058 N 7/2/1990
Income/Index
FEDERATED MID-CAP FUND 1 Equity Fund - Growth and 95,436,584 N 7/7/1992
Income/Index
FEDERATED MINI-CAP FUND 2 Equity Fund - Growth and 133,611,653 N 7/7/1992
Income/Index
Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE
FEDERATED SMALL CAP 3 Equity Fund - Growth 439,286,610 Y 9/13/1995
STRATEGIES FUND
FEDERATED STOCK AND 3 Balanced 242,195,636 N 10/31/1984
BOND FUND INC.
FEDERATED STOCK TRUST 1 Equity Fund - Growth and 1,531,791,196 N 3/31/1982
Income
FEDERATED UTILITY 4 Equity Fund - Domestic 1,621,363,503 Y 5/29/1987
FUND INC. Utility
FEDERATED UTILITY FUND 1 Equity Fund - Domestic 161,900,615 N 12/15/1993
II Utility
FEDERATED WORLD 4 International Equity Fund 70,591,085 Y 4/12/1994
UTILITY FUND
------------------
TOTAL EQUITY FUNDS $15,503,346,949
------------------
FIXED INCOME FUNDS:
CAPITAL PRESERVATION 1 Short-Term Corporate Bond $513,997,303 N 8/1/1988
FUND Fund - High Grade
FEDERATED ADJUSTABLE 1 Government Bond Fund 142,885,196 Y 3/2/1992
RATE U.S. GOVERNMENT
FUND INC
FEDERATED ARMS FUND 2 Adjustable Rate 432,438,701 N 12/3/1985
Mortgage-Backed Fund
FEDERATED BOND FUND 4 Long Corporate Bond Fund - 1,051,686,836 Y 6/27/1995
High Grade
FEDERATED CALIFORNIA 2 Municipal Bond Fund 48,839,123 Y 11/24/1992
MUNICIPAL INCOME FUND
FEDERATED FUND FOR 3 Mortgage Backed Fund 1,256,356,541 Y 10/6/1969
U.S. GOVERNMENT
SECURITIES INC
FEDERATED FUND FOR 1 Mortgage Backed Fund 111,116,583 N 12/15/1993
U.S. GOVERNMENT
SECURITIES II
FEDERATED GNMA TRUST 2 Mortgage Backed Fund 1,059,202,049 N 3/23/1982
FEDERATED GOVERNMENT 4 Mortgage Backed Fund 1,496,828,017 Y 8/2/1996
INCOME SECURITIES INC.
FEDERATED HIGH INCOME 1 High Yield Fund 82,361,177 Y 9/20/1993
ADVANTAGE FUND
FEDERATED HIGH INCOME 3 High Yield Fund 2,111,426,313 Y 11/30/1977
BOND FUND INC.
FEDERATED HIGH INCOME 1 High Yield Fund 210,659,839 N 12/15/1993
BOND FUND II
FEDERATED HIGH YIELD 1 High Yield Fund 1,095,107,374 N 8/23/1984
TRUST
FEDERATED INCOME TRUST 2 Mortgage Backed Fund 748,866,726 N 3/30/1982
FEDERATED 1 Government Bond Fund 138,254,493 N 9/13/1994
INSTITUTIONAL
SHORT-DURATION GOVT
FUND
FEDERATED INTERMEDIATE 2 General Investment Grade 214,298,740 N 12/8/1993
INCOME FUND
FEDERATED INTERMEDIATE 1 Municipal Bond Fund 237,388,712 N 12/26/1985
MUNICIPAL TRUST
FEDERATED 3 International Bond Fund 93,282,813 Y 9/9/1996
INTERNATIONAL HIGH
INCOME FUND
FEDERATED 3 International Bond Fund 157,053,708 Y 5/15/1991
INTERNATIONAL INCOME
FUND
FEDERATED LIMITED 2 Mortgage Backed Fund 42,364,174 N 9/16/1996
DURATION FUND
FEDERATED LIMITED TERM 2 Short-Term Corporate Bond 119,772,486 Y 12/24/1991
FUND Fund - High Grade
FEDERATED LIMITED TERM 2 Municipal Bond Fund 89,107,198 Y 8/31/1993
MUNICIPAL FUND
FEDERATED MANAGED 2 Asset Allocation Fund 127,201,737 N 3/11/1994
INCOME FUND
Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE
FEDERATED MICHIGAN 1 Municipal Bond Fund 80,419,987 Y 9/9/1991
INTERMEDIATE MUNICIPAL
TRUST
FEDERATED MORTGAGE FUND 2 US Government Int. Muni. Bond 5,427,018 N 6/30/1998
FEDERATED MUNICIPAL 4 Municipal Bond Fund 485,464,618 Y 5/3/1996
OPPORTUNITIES FUND
INC.
FEDERATED MUNICIPAL 3 Municipal Bond Fund 680,014,549 N 10/4/1976
SECURITIES FUND INC.
FEDERATED NEW YORK 1 Municipal Bond Fund 25,872,652 Y 11/24/1992
MUNICIPAL INCOME FUND
FEDERATED OHIO 1 Municipal Bond Fund 83,338,048 Y 10/10/1990
MUNICIPAL INCOME FUND
FEDERATED PENNSYLVANIA 2 Municipal Bond Fund 275,778,712 Y 10/10/1990
MUNICIPAL INCOME FUND
FEDERATED SHORT-TERM 2 Short-Term Corporate Bond 207,163,830 N 7/1/1986
INCOME FUND Fund - High Grade
FEDERATED SHORT-TERM 2 Municipal Bond Fund 210,654,632 N 8/20/1981
MUNICIPAL TRUST
FEDERATED STRATEGIC 4 Balanced 954,335,532 Y 4/5/1994
INCOME FUND
FEDERATED TOTAL RETURN 2 Mortgage Backed Fund 122,228,633 N 1/19/1994
BOND FUND
FEDERATED 1 Mortgage Backed Fund 123,910,378 N 12/2/1985
U.S.GOVERNMENT BOND
FUND
FEDERATED ULTRASHORT 1 US Government ST 7,715,615 N 10/27/1998
BOND FUND
FEDERATED US 2 Government Bond Fund 648,386,984 N 3/15/1984
GOVERNMENT SECURITIES
FUND: 1-3 YEARS
FEDERATED US 2 Government Bond Fund 773,872,367 N 2/18/1983
GOVERNMENT SECURITIES
FUND: 2-5 YEARS
FEDERATED US 2 Government Bond Fund 103,424,454 N 9/13/1995
GOVERNMENT SECURITIES
FUND: 5-10 YRS
HIGHLANDER INCOME FUND 1 High Yield Fund 29,422,985 N 6/30/1994
INC. (co-advised)
LIBERTY TERM TRUST 1 Mortgage Backed Fund 39,539,920 N 3/27/1992
INC. - 1999
------------------
TOTAL FIXED INCOME $16,437,466,753
FUNDS
------------------
------------------
TOTAL NON-MONEY MARKET $31,940,813,702
FUNDS
------------------
MONEY MARKET FUNDS:
ALABAMA MUNICIPAL CASH 1 Municipal Money Market $177,568,427 N 12/1/1993
TRUST
ARIZONA MUNICIPAL CASH 1 Municipal Money Market 30,938,927 N 5/30/1998
TRUST
AUTOMATED CASH 2 Prime Money Market Fund 2,340,177,446 N 9/19/1996
MANAGEMENT TRUST
AUTOMATED GOVERNMENT 1 Government Money Market Fund 957,114,935 N 2/2/1990
CASH RESERVES
AUTOMATED GOVERNMENT 1 Government Money Market Fund 2,386,331,956 N 6/1/1982
MONEY TRUST
AUTOMATED TREASURY 1 Government Money Market Fund 286,090,750 N 8/5/1991
CASH RESERVES
CALIFORNIA MUNICIPAL 2 Municipal Money Market 401,044,273 N 2/29/1996
CASH TRUST
CONNECTICUT MUNICIPAL 1 Municipal Money Market 359,308,898 N 11/1/1989
CASH TRUST
Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE
EDWARD D. JONES DAILY 1 Government Money Market Fund 7,067,968,429 N 5/9/1980
PASSPORT CASH TRUST
FEDERATED MASTER TRUST 1 Prime Money Market Fund 453,717,058 N 12/16/1977
FEDERATED PRIME MONEY 1 Prime Money Market Fund 101,889,493 N 12/15/1993
FUND II
FEDERATED SHORT-TERM 1 Government Money Market Fund 350,002,552 N 4/16/1987
U.S. GOVERNMENT TRUST
FEDERATED SHORT-TERM 1 Government Money Market Fund 588,846,899 N 9/20/1993
U.S. PRIME FUND
FEDERATED SHORT-TERM 3 Government Money Market Fund 1,124,775,514 N 1/18/1991
U.S.GOVT SECURITIES
FUND
FEDERATED SHORT-TERM 1 Government Money Market Fund 479,320,338 N 4/16/1992
U.S.TREASURY
SECURITIES FUND
FEDERATED TAX-FREE 1 Municipal Money Market 547,741,616 N 3/6/1979
TRUST
FLORIDA MUNICIPAL CASH 2 Municipal Money Market 804,195,214 N 11/16/1995
TRUST
GEORGIA MUNICIPAL CASH 1 Municipal Money Market 199,640,381 N 8/14/1995
TRUST
GOVERNMENT CASH SERIES 1 Government Money Market Fund 624,520,124 N 8/15/1989
GOVERNMENT OBLIGATIONS 2 Government Money Market Fund 5,817,681,530 N 12/11/1989
FUND
GOVERNMENT OBLIGATIONS 2 Government Money Market Fund 2,640,242,696 N 5/7/1995
TAX MANAGED FUND
LIBERTY U.S. 2 Government Money Market Fund 659,712,126 N 6/6/1980
GOVERNMENT MONEY
MARKET TRUST
LIQUID CASH TRUST 1 Government Money Market Fund 515,704,425 N 12/12/1980
MARYLAND MUNICIPAL 1 Municipal Money Market 73,107,018 N 5/4/1994
CASH TRUST
MASSACHUSETTS 2 Municipal Money Market 455,019,617 N 2/22/1993
MUNICIPAL CASH TRUST
MICHIGAN MUNICIPAL 2 Municipal Money Market 223,375,568 N 2/29/1996
CASH TRUST
MINNESOTA MUNICIPAL 2 Municipal Money Market 547,261,640 N 12/31/1990
CASH TRUST
MONEY MARKET 1 Prime Money Market Fund 83,474,933 N 2/25/1993
MANAGEMENT INC.
MONEY MARKET TRUST 1 Prime Money Market Fund 450,295,952 N 10/13/1978
MUNICIPAL CASH SERIES 1 Municipal Money Market 650,002,580 N 8/15/1989
MUNICIPAL CASH SERIES 1 Municipal Money Market 253,076,037 N 1/25/1991
II
MUNICIPAL OBLIGATIONS 3 Municipal Money Market 338,897,497 N 2/5/1993
FUND
NEW JERSEY MUNICIPAL 2 Municipal Money Market 183,236,724 N 12/10/1990
CASH TRUST
NEW YORK MUNICIPAL 2 Municipal Money Market 576,123,986 N 5/30/1994
CASH TRUST
NORTH CAROLINA 1 Municipal Money Market 202,746,572 N 12/1/1993
MUNICIPAL CASH TRUST
OHIO MUNICIPAL CASH 3 Municipal Money Market 588,942,030 N 3/26/1991
TRUST
PENNSYLVANIA MUNICIPAL 3 Municipal Money Market 494,300,480 N 12/21/1990
CASH TRUST
PRIME CASH OBLIGATIONS 3 Prime Money Market Fund 2,687,321,928 N 2/5/1993
FUND
PRIME CASH SERIES 1 Prime Money Market Fund 4,234,075,226 N 8/15/1989
PRIME OBLIGATIONS FUND 2 Prime Money Market Fund 9,947,252,170 N 7/5/1994
PRIME VALUE 3 Prime Money Market Fund 1,923,000,510 N 2/5/1993
OBLIGATIONS FUND
TAX-FREE INSTRUMENTS 2 Municipal Money Market 1,915,324,538 N 12/21/1982
TRUST
Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE
TAX-FREE OBLIGATIONS 2 Municipal Money Market 3,178,726,939 N 12/11/1989
FUND
TENNESSEE MUNICIPAL 2 Municipal Money Market 71,937,172 N 5/14/1996
CASH TRUST
TREASURY CASH SERIES 1 Government Money Market Fund 974,884,838 N 2/5/1990
TREASURY CASH SERIES II 1 Government Money Market Fund 196,300,140 N 1/25/1991
TREASURY OBLIGATIONS 3 Government Money Market Fund 11,912,327,008 N 4/14/1997
FUND
TRUST FOR GOVERNMENT 1 Government Money Market Fund 648,126,453 N 3/30/1989
CASH RESERVES
TRUST FOR SHORT-TERM 1 Government Money Market Fund 607,142,146 N 12/29/1975
U.S. GOVERNMENT
SECURITIES
TRUST FOR U.S. 1 Government Money Market Fund 1,697,813,635 N 11/8/1979
TREASURY OBLIGATIONS
U.S. TREASURY CASH 2 Government Money Market Fund 2,568,258,718 N 5/14/1991
RESERVES
VIRGINIA MUNICIPAL 2 Municipal Money Market 263,582,806 N 8/30/1993
CASH TRUST
------------------
TOTAL MONEY MARKET $76,860,468,868
FUNDS
------------------
----------- ------------------
MANAGED FUND TOTAL 244 $108,801,282,570
----------- ------------------
Other Managed Assets $2,752,643,881
------------------
==================
TOTAL MANAGED ASSETS $111,553,926,451
==================
Summary:
Total Number of Load
Funds: 35
Total Number of
No-Load Funds: 91
Total Number of
Funds: 126
* "fund-of-funds"
product which invests
principally in shares
of other Federated
managed funds