FEDERATED INVESTORS INC /PA/, 424B3, 1998-05-01

FEDERATED INVESTORS INC /PA/
424B3, 1998-05-01
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<PAGE>

Filed Pursuant to Rule 424B3
Registration No. 333-48361

FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

April 30, 1998

Dear Federated Investors Shareholder:

You are cordially invited to attend a Special Meeting of the shareholders of
Federated Investors ("Federated") to be held on May 15, 1998, at Federated
Investors Tower, 27th Floor, Pittsburgh, Pennsylvania commencing at 10:00
a.m., local time.

At the Special Meeting, you will be asked to approve and adopt an Agreement
and Plan of Merger and the transactions contemplated thereby providing for the
merger of Federated, a Delaware business trust, with and into its wholly-owned
subsidiary, Federated Investors, Inc., a Pennsylvania corporation (the
"Company"). Pursuant to the Agreement and Plan of Merger, each outstanding
Class A Common Share and Class B Common Share of Federated will be converted
into the right to receive one share of Class A Common Stock and Class B Common
Stock, respectively, of the Company and will have the relative rights and
terms set forth in the Restated Articles of Incorporation of the Company. The
consummation of the Merger is subject to several conditions, including the
completion of a concurrent public offering by the Company of Class B Common
Stock on terms satisfactory to the Company and Federated and the absence of
written demands for appraisal rights by dissenting shareholders holding at
least 2/3 of the total outstanding Class B Common Shares of Federated held by
all holders entitled to such appraisal rights under the Restated Declaration
of Trust. If these conditions are not satisfied or waived by the Trust and the
Company, the Merger will not occur. Under the terms of the Agreement and Plan
of Merger, the Trust is not required to resolicit shareholders if conditions
to the Merger are waived by the Trust and the Company. However, under certain
circumstances, the Company may determine to resolicit shareholders.

The purpose of the Merger is to convert the organization of Federated from a
Delaware business trust into a Pennsylvania corporation in order to streamline
the organizational structure by eliminating the parent holding company and by
utilizing a corporate entity, where the rights and liabilities of equity
holders are well established and where corporate equity securities may be used
in connection with possible future acquisitions. Federated was organized as a
Delaware business trust in 1989 in order to facilitate the acquisition of all
of the outstanding stock of the Company and the assets of the Federated
Research Division from an affiliate of Aetna Life and Casualty Company
("Aetna"). Aetna retained approximately a 27% interest in Federated until
1996, at which time all of the outstanding shares of Federated held by Aetna
were repurchased. As a consequence of this repurchase, the Board of Trustees
has determined that the continuation of the business trust as the parent of
the Company serves no essential business purpose.

More importantly, the Board of Trustees of the Trust believes that as a
result of the Merger the Company will be able to pursue more effectively
opportunities for growth through acquisitions. As a corporate entity, the
Company's equity securities, including "blank check" preferred stock and Class
B Common Stock, can be used in connection with possible future acquisitions
and in capital raising activities to promote growth. Moreover, the new
provisions in the Restated Articles of the Company to permit the holders of
Class B Common Stock to vote in the election of a majority of the Board of
Directors, in the event the Company enters into a definitive agreement with
respect to a business combination in which Class B Common Stock would be
issued in a transaction to be treated as a "pooling of interests" for
accounting purposes, are intended to facilitate growth by acquisition. In
other respects, holders of Class A Common Stock and Class B Common Stock of
the Company will have substantially the same rights as holders of the Class A
Common Shares and the Class B Common Shares in respect of dividends and
distributions and voting rights.

The Merger is conditioned upon the consummation of an initial public
offering. As a result of the public offering, the Company's Class B Common
Stock will be publicly traded and is expected to be listed on a national
securities exchange. This will provide access to public equity and debt
capital markets for the Company as well as provide a trading market and
liquidity for the Company's shareholders.

<PAGE>

The Board of Trustees of Federated has unanimously determined that the
Merger is in the best interests of Federated and its shareholders and
recommends that you vote FOR the proposal to approve and adopt the Agreement
and Plan of Merger and the transactions contemplated thereby. The accompanying
Proxy Statement/Prospectus more fully describes the proposal to be considered
at the Special Meeting. You are urged to give it your careful attention.

The executive officers and Board of Trustees of the Trust have advised that
they intend to vote in favor of the proposal to approve and adopt the
Agreement and Plan of Merger. The executive officers and trustees of the Trust
as a group beneficially own approximately 43.7% of the outstanding Class B
Common Shares of the Trust. In addition, the trustees of the Voting Trust have
advised that the Voting Trust intends to vote all the Class A Common Shares in
favor of the proposal to approve and adopt the Agreement and Plan of Merger.

APPROVAL OF THE PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF
MERGER BY FEDERATED SHAREHOLDERS WILL REQUIRE THE AFFIRMATIVE VOTE OF THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING CLASS A COMMON SHARES AND CLASS B
COMMON SHARES OF FEDERATED, EACH VOTING SEPARATELY AS A CLASS. IT IS VERY
IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING WHETHER OR
NOT YOU PERSONALLY ARE ABLE TO ATTEND. IN ORDER TO INSURE THAT YOU WILL BE
REPRESENTED, WE ASK YOU TO COMPLETE AND RETURN THE ENCLOSED PROXY CARD
PROMPTLY. A POSTAGE-PAID RETURN ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.

You should not send in certificates representing Class A Common Shares and
Class B Common Shares of Federated at this time. Following consummation of the
Merger, information will be sent to you regarding the procedure for
surrendering your stock certificates and receiving certificates for the shares
of Class A Common Stock and Class B Common Stock of the Company issued in
exchange for your Federated shares.

Sincerely,

/s/ J. Christopher Donahue
J. Christopher Donahue
President and Chief Executive Officer
<PAGE>

FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

----------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 15, 1998

NOTICE IS HEREBY GIVEN that a Special Meeting of shareholders (the "Special
Meeting") of Federated Investors, a Delaware business trust ("Federated" or
the "Trust"), will be held on May 15, 1998, at Federated Investors Tower, 27th
Floor, Pittsburgh, Pennsylvania, commencing at 10:00 a.m., local time, to
consider and vote upon the following matters described in the accompanying
Proxy Statement/Prospectus.

1. Approval and adoption of the Agreement and Plan of Merger, dated as of
February 20, 1998 and exhibits thereto (the "Merger Agreement"), between
Federated Investors, Inc. (the "Company"), a Pennsylvania corporation and
wholly owned subsidiary of the Trust, and the Trust, and the transactions
contemplated thereby, including the merger of the Trust with and into the
Company (the "Merger"), pursuant to which, among other things, each
outstanding Class A Common Share, stated value $1.00 per share, of the
Trust ("Trust Class A Common Shares") will be converted into the right to
receive one share of Class A Common Stock, no par value per share, of the
Company and each outstanding Class B Common Share, stated value $.01 per
share, of the Trust ("Trust Class B Common Shares") (other than any shares
held in the Trust's treasury immediately prior to the Effective Time of the
Merger as defined in the Merger Agreement) will be converted into the right
to receive one share of Class B Common Stock, no par value per share, of
the Company. A copy of the Merger Agreement and exhibits thereto is
attached as Appendix A to the accompanying Proxy Statement/Prospectus,
including a copy of the Restated Articles of Incorporation of the Company
and the Restated Bylaws of the Company, which are separately attached
hereto as Appendices B and C, respectively.

2. The transaction of such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.

Only the holder of record of Trust Class A Common Shares and the holders of
record of Trust Class B Common Shares at the close of business on April 21,
1998 will be entitled to notice of, and to vote at, the Special Meeting and
any adjournment or postponement thereof. A list of such shareholders will be
open to examination by any shareholder at the Special Meeting and for a period
of ten days prior to the date of the Special Meeting during ordinary business
hours at the principal executive offices of the Trust, Federated Investors
Tower, Pittsburgh, Pennsylvania 15222-3779.

Whether or not you plan to attend the Special Meeting, please complete,
date, sign and return the enclosed proxy card promptly. A return envelope is
enclosed for your convenience and requires no postage for mailing in the
United States.

By Order of the Board of Trustees,

/s/ John W. McGonigle
John W. McGonigle
Executive Vice President and Secretary

Pittsburgh, Pennsylvania
April 30, 1998

YOUR VOTE IS VERY IMPORTANT
TO VOTE YOUR SHARES, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.

<PAGE>

PROXY STATEMENT
OF FEDERATED INVESTORS
(A DELAWARE BUSINESS TRUST)

PROSPECTUS OF
FEDERATED INVESTORS, INC.
(A PENNSYLVANIA CORPORATION)
6,000 SHARES OF CLASS A COMMON STOCK
83,427,000 SHARES OF CLASS B COMMON STOCK

This Proxy Statement/Prospectus is being furnished to holders of Class A
Common Shares, stated value $1.00 per share ("Trust Class A Common Shares"),
and holders of Class B Common Shares, stated value $.01 per share ("Trust
Class B Common Shares"), of Federated Investors, a Delaware business trust
("Federated" or the "Trust"), in connection with the solicitation of proxies
by the Board of Trustees of the Trust for use at the Special Meeting (the
"Special Meeting") to be held on May 15, 1998, at Federated Investors Tower,
27th Floor, Pittsburgh, Pennsylvania, commencing at 10:00 a.m., local time,
and at any adjournment or postponement thereof.

This Proxy Statement/Prospectus also constitutes the Prospectus of Federated
Investors, Inc., a Pennsylvania corporation and wholly-owned subsidiary of the
Trust (the "Company"), with respect to 6,000 shares of Class A Common Stock,
no par value per share ("Class A Common Stock") and 83,427,000 shares of Class
B Common Stock, no par value per share ("Class B Common Stock" and together
with Class A Common Stock, "Common Stock"), to be issued in the Merger (as
defined herein) in exchange for the outstanding Trust Class A Common Shares
and Trust Class B Common Shares. Upon consummation of the Merger, the Trust
will be merged with and into the Company (the "Merger"), with the Company
continuing as the surviving corporation under the name "Federated Investors,
Inc." The holders of Trust Class A Common Shares and Trust Class B Common
Shares will become holders of Class A Common Stock and Class B Common Stock of
the Company, having the relative rights and other provisions set forth in the
Restated Articles of the Company, and will hold the same proportionate
beneficial ownership interest in the Company as such holders held in the
Trust.

The Merger is conditioned upon, among other matters, the consummation by the
Company of an underwritten public offering of shares of Class B Common Stock
of the Company, including certain shares held by existing shareholders of the
Trust. The number of shares of Class B Common Stock to be offered by the
Company and the selling shareholders and the timing of the Offering have not
yet been determined.
----------------

THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------------

This Proxy Statement/Prospectus and accompanying proxy card are first being
mailed to shareholders of the Trust on or about April 30, 1998.

THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS APRIL 30, 1998.
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Class A Common Stock and Class B Common
Stock offered hereby. This Prospectus, which is a part of the Registration
Statement, is complete in material respects but does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
shares of Class A Common Stock and Class B Common Stock, reference is hereby
made to such Registration Statement and the exhibits and schedules thereto,
copies of which may be inspected without charge at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and at
the Northwest Atrium Center, 500 Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such materials can be obtained from the public reference
section of the Commission upon payment of the fees prescribed by the
Commission. In addition, registration statements and certain other documents
filed with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's
site on the World Wide Web, located at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, has been
filed with the Commission through EDGAR. The summaries in this Prospectus of
additional information included in the Registration Statement or any exhibit
thereto are qualified in their entirety by reference to such information or
exhibit. In addition, the Company has filed with the Commission a Registration
Statement on Form S-1 under the Securities Act with respect to shares of Class
B Common Stock to be offered thereby. Subsequent to the date of this Proxy
Statement/Prospectus, the Company intends to file an amendment or amendments
as appropriate to such Registration Statement.

As a result of the Merger and the consummation of the related public
offering of the Company contemplated thereby, the Company will become subject
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith will file periodic reports, proxy statements and other
information with the Commission. Subject to the consummation of the Merger,
the Company intends to furnish its shareholders with annual reports containing
audited consolidated financial statements and an opinion thereon expressed by
independent public accountants and with quarterly reports containing unaudited
consolidated financial information for the first three quarters of each fiscal
year.

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements under "Summary;" "Risk Factors;" "Management's Discussion
and Analysis of Financial Condition and Results of Operations;" "Business;"
and elsewhere in this Proxy Statement/Prospectus constitute forward-looking
statements, which involve known and unknown risks, uncertainties, and other
factors that may cause the actual results, levels of activity, performance, or
achievements of the Company, 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. Such factors include,
among others, those listed under "Risk Factors" and elsewhere in this Proxy
Statement/Prospectus. As a result of the foregoing and other factors, no
assurance can be given as to future results, levels of activity, or
achievements, and neither the Company nor any other person assumes
responsibility for the accuracy and completeness of such statements.

2
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TABLE OF CONTENTS

<TABLE>
<S> <C>
ADDITIONAL INFORMATION....................................................... 2
SUMMARY...................................................................... 5
RISK FACTORS................................................................. 17
THE SPECIAL MEETING.......................................................... 19
General.................................................................... 19
Matters to be Considered at the Meeting.................................... 19
Voting at the Meeting; Record Date......................................... 19
Proxies.................................................................... 20
THE MERGER................................................................... 21
Reasons for the Merger; Recommendation of the Board of Trustees............ 21
Interests of Certain Persons in the Merger................................. 22
Directors and Executive Officers of the Company After the Merger........... 22
Security Ownership of the Company After the Merger......................... 22
Stock Option and Benefit Plans............................................. 22
Accounting Treatment....................................................... 22
Federal Income Tax Consequences............................................ 22
Resale Restrictions........................................................ 23
Appraisal Rights........................................................... 24
THE MERGER AGREEMENT......................................................... 28
The Merger................................................................. 28
Conversion of Securities................................................... 28
Representations and Warranties............................................. 29
Additional Agreements...................................................... 29
Stock Option and Benefit Plans............................................. 29
Conditions................................................................. 29
Termination; Expenses...................................................... 30
Amendment and Waiver....................................................... 30
FEDERATED.................................................................... 31
DIVIDEND POLICY.............................................................. 33
CAPITALIZATION............................................................... 34
SELECTED CONSOLIDATED FINANCIAL DATA......................................... 35
RECENT DEVELOPMENTS.......................................................... 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................... 38
Overview................................................................... 38
Profitability Trend Summary................................................ 39
Results of Operations...................................................... 41
Capital Resources and Liquidity............................................ 46
Year 2000 Disclosure....................................................... 49
Interest Rate Sensitivity.................................................. 49
Economic and Market Conditions............................................. 49
Impact of Inflation........................................................ 50
Recent Accounting Pronouncements........................................... 50
BUSINESS..................................................................... 51
Overview................................................................... 51
Business Strategy.......................................................... 53
Organization and Markets................................................... 54
Competition................................................................ 64
Regulatory Matters......................................................... 64
Employees.................................................................. 65
</TABLE>

3
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<TABLE>
<S> <C>
Facilities................................................................ 65
Legal Proceedings......................................................... 65
MANAGEMENT.................................................................. 66
Directors and Executive Officers.......................................... 66
Election of Directors..................................................... 68
Audit Committee........................................................... 68
Compensation Committee.................................................... 68
Executive Compensation.................................................... 69
Compensation Pursuant to Plans............................................ 70
CERTAIN TRANSACTIONS........................................................ 77
Relationship with Aetna and Westinghouse Pension Plan..................... 77
Other Transactions........................................................ 77
PRINCIPAL SHAREHOLDERS...................................................... 78
DESCRIPTION OF SECURITIES................................................... 80
COMPARISON OF SHAREHOLDER RIGHTS............................................ 84
LEGAL MATTERS............................................................... 93
EXPERTS..................................................................... 93
INDEX TO FINANCIAL STATEMENTS............................................... F-1
</TABLE>

<TABLE>
<C> <S>
Appendix A Agreement and Plan of Merger dated as of February 20, 1998 between
Federated Investors and Federated Investors, Inc.
Appendix B Restated Articles of Incorporation of Federated Investors, Inc.
Appendix C Restated By-laws of Federated Investors, Inc.
Appendix D Section 8.7 of the Restated Declaration of Trust of Federated
Investors and Section 262 of the Delaware General Corporation Law
</TABLE>

4
<PAGE>

SUMMARY

The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. Reference is made to, and this summary is qualified
in its entirety by the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Proxy
Statement/Prospectus and the Appendices hereto. All share references reflect
the one for one stock dividend paid in December 1996 and the one for one stock
dividend paid on April 15, 1998 and the one for two stock dividend declared on
April 16, 1998 to be paid on April 30, 1998 to shareholders of record on April
21, 1998. Shareholders are urged to read this Proxy Statement/Prospectus and
the Appendices hereto in their entirety. Unless the context otherwise requires,
Federated, a Delaware business trust which owns all the outstanding stock of
Federated Investors, Inc., is hereinafter referred to as the "Trust" or, prior
to the consummation of the Merger, "Federated", and Federated Investors, Inc.,
a Pennsylvania corporation and currently a wholly owned subsidiary of the
Trust, is hereinafter referred to as the "Company" or, after consummation of
the Merger, "Federated."

FEDERATED

Federated is a leading provider of investment management products and related
financial services. Federated sponsors, markets and provides investment
advisory, distribution and administrative services primarily to mutual funds.
Federated has been in the mutual fund business for over 40 years and is one of
the ten largest mutual fund managers in the United States based on assets under
management. Federated's assets under management at December 31, 1997 were $92.5
billion, primarily in funds managed, distributed and administered by Federated
and in other non-fund products ("Managed Assets"), of which $2.1 billion were
in separately managed accounts. In addition, at year end 1997 Federated
provided administrative services to mutual funds sponsored by third parties,
primarily banks, having $47.0 billion in assets ("Administered Assets").

Federated manages assets across a wide spectrum of asset categories including
substantial participation in fast-growing areas such as equity and
international investments. Many of Federated's products are ranked highly by
recognized industry sources based on investment performance relative to peer
funds. At December 31, 1997, Federated had 80 managed funds eligible for
Morningstar, Inc. ratings. Of these funds, 73 (or 91%) are rated "three,"
"four" or "five" stars, and 39 (or 49%) are rated "four" or "five" stars,
placing Federated among the leaders in the mutual fund industry for percentage
of top-rated funds.

Federated has built a national reputation as a high quality provider of a
broad range of investment management products and related financial services.
Federated distributes its products through a diversified network of financial
intermediaries such as banks, brokers and other investment advisers who use
them to meet the needs of their customers; these customers include retail
investors, corporations, and retirement plans. Federated employs one of the
largest sales forces directed to financial intermediaries and institutions in
the industry with more than 175 sales representatives and managers across the
United States. Through substantial investments in distribution over the last 20
years, Federated has developed an extensive network of over 3,500 financial
institutions which sell Federated's products to their customers. Federated also
directly sells its products to more than 500 institutions such as corporations
and government entities.

Federated believes that the diversification in its products and distribution
channels allows it to accumulate assets in different market cycles, thereby
reducing earnings volatility. Federated's mix of products is designed to
include products that serve individuals at different stages of their life and
earnings cycle and to include products that will be in demand under a variety
of economic and market conditions. Similarly, Federated reaches customers
through a variety of distribution channels which allow it access to many
segments of the marketplace and lessen the dependence on any one source of
assets.

5
<PAGE>

Historically, Federated's mix of Managed Assets has been dominated by money
market and other fixed income assets where Federated continues to be among the
leading mutual fund managers based on assets under management. 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 to include international, aggressive growth, and small
capitalization equity products. Federated established a New York-based
investment management unit to develop global and international investment
products. Within Federated's Managed Asset categories, equity fund assets have
been the fastest growing class. In 1997, Federated's equity fund assets
increased by 54% compared to 37% for the overall industry according to
Investment Company Institute ("ICI") data. Equity fund assets have grown at a
49% compound annual rate over the past two years versus 38% for the overall
industry according to ICI data.

In late 1996, Federated initiated a comprehensive review and reengineering of
its products, markets and operations ("Federated First"). Federated First
generated major initiatives to improve profitability, accelerate growth in
assets under management and enhance customer service. These initiatives include
(1) refocusing Federated's service activities to emphasize the growth of
Managed Assets and Administered Assets rather than selling individual services
such as transfer agency, portfolio accounting, and technology solutions as
stand-alone products, (2) standardizing retirement plan record keeping
products, (3) reengineering various shareholder servicing activities, (4)
entering into an agreement in the fourth quarter of 1997 with State Street
Corporation ("State Street") to provide portfolio accounting services to both
Federated and third party administered funds and (5) accelerating Federated's
investment in the development of an improved management information system and
decision support resources. The financial results of the initiatives undertaken
by management during this period have been positive. In 1997, operating income
increased $58.0 million and net income increased $38.0 million over 1996, and
in the first quarter of 1998 operating income increased $17.0 million and net
income increased $12.0 million over the first quarter of 1997. See "Recent
Developments."

BUSINESS STRATEGY

Federated pursues a multi-faceted business strategy to expand assets under
management and increase profitability:

. BROADEN RECOGNITION AS A WORLD CLASS INVESTMENT MANAGEMENT COMPANY.
Throughout its history, Federated has generated highly competitive
investment performance across various asset classes. However, Federated
believes that as a result of its historical concentration on fixed income
and money market funds and its emphasis on the bank trust distribution
channel, it does not enjoy the level of name recognition of companies
historically focused on equity products sold to retail investors. Federated
has undertaken a national advertising campaign designated to promote brand
awareness and enhance its ability to take full advantage of its broad
product line and competitive historical investment performance. More
importantly, Federated intends to continue to invest in its investment
management operation in order to seek to continue its record of highly-
ranked investment performance.

. USE ITS EXTENSIVE DISTRIBUTION NETWORK TO EXPAND MARKET PENETRATION,
PARTICULARLY OF THE EQUITY AND INTERNATIONAL FUND BUSINESS. Equity and
international investments, which generally produce higher fee revenue than
money market and fixed income investments, have experienced substantial
growth. Federated believes that its substantial money market fund business,
which provides a revenue base that is generally stable and recurring, will
provide a platform from which to achieve this expansion. Federated believes
that its investment performance combined with the size and quality of its
distribution network will enable it to continue to expand its business in
these key areas.

. PROFITABLY EXPAND ITS CUSTOMER RELATIONSHIPS THROUGH SUPERIOR CUSTOMER
SERVICES. Federated intends to use its experience and expertise to expand
its relationships with financial intermediaries by offering value-added
services designed to support the growth of Managed Assets and Administered
Assets. Federated

6
<PAGE>

believes that the quality of its services activities, as evidenced by
various awards from Dalbar, Inc. based on its widely recognized surveys of
financial intermediaries, differentiates Federated from many of its
competitors.

. CONTINUE THE IMPLEMENTATION OF FEDERATED FIRST INITIATIVES. Federated
believes that the continued implementation of Federated First will provide
ongoing opportunities to improve its profitability and accelerate earnings
growth.

. ACTIVELY PURSUE ACQUISITIONS AND ALLIANCES. Federated will seek to identify
acquisitions and alliances that will enhance shareholder value by adding
assets and new or complementary investment management and distribution
capabilities. Federated has completed three acquisitions since November
1996 which together resulted in an increase of approximately $4.8 billion
in Managed Assets. Federated believes its disciplined investment management
style, broad product line, competitive fund performance, strong customer
support and proven operational capabilities offer a compelling package that
addresses key concerns of sellers. Federated also believes that its
substantial distribution capabilities appeal to sellers who have developed
attractive products but have been unable to make the ongoing investments
necessary for successful product distribution.

Federated believes that its broad product line, highly competitive
investment performance, distribution strength and strategy will position it to
take advantage of favorable economic and demographic trends affecting the
asset management industry. These trends include the need for the aging baby
boom generation to increase savings and investment, lower public confidence in
the adequacy of government and employee sponsored retirement benefits, longer
life expectancies and rising health care costs. According to U.S. Census
Bureau projections, the number of Americans between the ages of 45 and 65 will
grow from 53.7 million in 1996 to 71.1 million in 2005, making this pre-
retirement age group the fastest growing segment of the U.S. population. The
Company also believes that it benefits from a developing industry trend toward
"intermediary assisted sales"--sales of mutual fund products through a
financial intermediary--driven by the array of options now available to
investors and the need for financial planning advice that has resulted from
the recent increase in the average household's financial assets. According to
the ICI, intermediary assisted sales for the year ended December 31, 1997
constituted 61.9% of the total dollar value of mutual fund sales, a figure
that has grown from 54.9% in 1994.

CONCURRENT MERGER AND OFFERING

After consummation of the Merger of the Trust, a Delaware business trust,
into the Company, a Pennsylvania corporation and currently a wholly owned
subsidiary of the Trust, the Company as the surviving corporation, through its
subsidiaries and affiliates, will continue to provide the same investment
management products and related financial services. The Merger is conditioned
upon, among other matters, the consummation by the Company of an underwritten
public offering of shares of Class B Common Stock of the Company, including
certain shares held by existing shareholders of the Trust (the "Offering").
See "The Merger Agreement--Conditions." There is currently no trading market
for Trust Class A Common Shares or Trust Class B Common Shares or the
Company's Common Stock. A registration statement with respect to the Offering
was filed with the Commission on March 20, 1998. The number of shares of Class
B Common Stock to be sold by the Company and the selling shareholders is
currently expected to be 16,290,235 (without giving effect to the
Underwriters' exercise of the over-allotment options) million in the
aggregate, although the timing and the terms of the Offering have not yet been
determined. As a result of the Merger and the Offering, the Company will
become subject to the informational requirements of the Exchange Act, and,
subject to certain restrictions in sales by existing shareholders of
Federated, shares of Class B Common Stock will be eligible for sale in the
public market. See "The Merger--Resale Restrictions."

7
<PAGE>

Upon the consummation of the Merger, the executive officers and directors of
the Company will own approximately 35.3% of the outstanding Class B Common
Stock of the Company, without giving effect to the Offering. All of the issued
and outstanding shares of Class A Common Stock will be owned by a trust (the
"Voting Trust"), the trustees of which are John F. Donahue, Chairman of the
Trust, his wife, and his son, J. Christopher Donahue, President and Chief
Executive Officer of the Trust. See "Principal Shareholders." The entire voting
power of the Company's capital stock shall be vested in the holders of Class A
Common Stock, except as provided in the Restated Articles of Incorporation of
the Company ("Restated Articles") or as otherwise required by applicable law.

The Trust is a Delaware business trust with its principal executive offices
located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and
its telephone number is (412) 288-1900. The Trust owns all of the issued and
outstanding capital stock of the Company. The Company is a Pennsylvania
corporation, also with its principal executive offices located at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and its telephone number
is (412) 288-1900.

ORGANIZATIONAL STRUCTURE

Set forth below is an organizational chart which illustrates, as of the
consummation of the Merger of the Trust into the Company (its wholly-owned
subsidiary) and the Offering, the ownership of the Company and its directly and
indirectly owned subsidiaries and affiliates:

LOGO
This Proxy Statement/Prospectus includes an organizational chart of the
Company. The chart shows that (1) the Company is a wholly-owned subsidiary of
the Trust, (2) the Trust is merging with and into the Company, (3) the stock of
the Company, upon consummation of the Merger and the Offering, will be owned as
follows: Class A Common Stock by the Voting Trust and Class B Common Stock by
the existing and public shareholders, (4) the Company owns various wholly-owned
investment management subsidiaries, distribution subsidiaries, services
subsidiaries, and other subsidiaries, and (5) the Company owns a 50.5% interest
in a limited partnership, which is one of the Company's investment management
subsidiaries.

- --------
*All direct and indirect subsidiaries of the Company are wholly-owned, except
for one 50.5% owned limited partnership with a broker/dealer which shares
income and expenses from two funds. See "Business--Distribution--Broker/Dealer
Market."

8
<PAGE>

THE SPECIAL MEETING

DATE, PLACE AND TIME

The Special Meeting of the Trust is scheduled to be held on Friday, May 15,
1998 at Federated Investors Tower, 27th Floor, Pittsburgh, Pennsylvania
commencing at 10:00 a.m., local time.

RECORD DATE; SHARES ENTITLED TO VOTE

Only holders of record of Trust Class A Common Shares and holders of record
of Trust Class B Common Shares at the close of business on April 21, 1998 are
entitled to notice of and to vote at the Special Meeting. As of April 21, 1998
(after giving effect to the stock dividend paid on April 15, 1998 and the stock
dividend declared on April 16, 1998 to be paid on April 30, 1998 to
shareholders of record), there were 6,000 Trust Class A Common Shares
outstanding, held by one holder of record and 83,427,000 Trust Class B Common
Shares outstanding held by approximately 243 holders of record. The holder of
record of Trust Class A Common Shares on the record date is entitled to cast
one vote per share on each matter to be acted upon or which may properly come
before the Special Meeting. Each holder of record of Trust Class B Common
Shares on the record date is entitled to cast one vote per share on each matter
to be acted upon or which may properly come before the Special Meeting.

PURPOSE OF THE SPECIAL MEETING

The purpose of the Special Meeting is to consider and vote upon a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby and to consider and vote upon such other matters as may properly be
brought before the Special Meeting.

VOTE REQUIRED

Pursuant to the Restated Declaration of Trust, as amended, of Federated (the
"Restated Declaration of Trust"), the approval and adoption by the Trust of the
Merger Agreement and the transactions contemplated thereby will require the
affirmative vote of the holders of a majority of the Trust Class A Common
Shares then outstanding and the holders of a majority of the Trust Class B
Common Shares then outstanding, each voting separately as a class. As of April
21, 1998, the Voting Trust was the beneficial owner of all of the outstanding
Trust Class A Common Shares. As of such date, the trustees and executive
officers of the Trust were the beneficial owners of Trust Class B Common Shares
representing approximately 43.7% of the outstanding Trust Class B Common Shares
which are entitled to vote upon the Merger Agreement. They have advised that
they intend to vote in favor of the proposal to approve and adopt the Merger
Agreement. In addition, the trustees of the Voting Trust have advised that the
Voting Trust intends to vote all the Class A Common Shares in favor of the
proposal to approve and adopt the Merger Agreement. See "The Special Meeting"
and "The Merger--Security Ownership of the Company After the Merger."

THE MERGER

EFFECTS OF THE MERGER

Pursuant to the Merger Agreement, at the Effective Time (as defined in the
Merger Agreement) (i) the Trust will be merged with and into the Company, which
will continue as the surviving corporation after the Merger, and (ii) each
issued and outstanding Trust Class A Common Share will be converted into the
right to receive one share of Class A Common Stock, and each issued and
outstanding Trust Class B Common Share (other than shares held in the Trust's
treasury immediately prior to the Effective Time) will be converted into the
right to receive one share of Class B Common Stock.

9
<PAGE>

Upon consummation of the Merger, the holders of Common Shares of the Trust
will become shareholders of the Company holding the same proportionate
beneficial interest in the Company as such holders held in the Trust. Presently
there is no trading market for the capital stock of either the Trust or the
Company.

As provided in the Merger Agreement, at the Effective Time the Company will
assume the rights and obligations of the Trust regarding the Trust's existing
Restricted Stock Plan, Stock Appreciation Rights Plan and Stock Incentive Plan
(the "Prior Stock Plans"). The Company will treat as having been issued under
its Stock Incentive Plan all shares of restricted stock, stock appreciation
rights ("SARs") and stock options issued under Prior Stock Plans. As of April
21, 1998 (after giving effect to the stock dividend paid on April 15, 1998 and
the stock dividend declared on April 16, 1998 to be paid on April 30, 1998 to
shareholders of record on April 21, 1998), there were outstanding 4,233,000
restricted shares of Trust Class B Common Shares and 3,975,600 shares of Trust
Class B Common Shares issuable primarily under outstanding stock options.

Pursuant to the Merger Agreement, the directors and officers of the Company
immediately prior to the Effective Time shall be the directors and officers of
the Company following the Merger. At the Effective Time the Board of Directors
of the Company will be comprised of certain members of the Board of Trustees of
the Trust and the executive officers of the Company will be certain executive
officers of the Trust, in each case as set forth under "The Merger" and
"Management."

REASONS FOR THE MERGER; RECOMMENDATIONS

The Trust was organized as a Delaware business trust in order to facilitate
the acquisition of all of the outstanding stock of the Company and the assets
of the Federated Research Division from an affiliate of Aetna Life and Casualty
Company ("Aetna"). In 1996 all the outstanding shares of Federated held by
Aetna were repurchased. The Board of Trustees has determined that the
continuation of the business trust as the parent of the Company serves no
essential business purpose. The purpose of the Merger is to convert the
organization of Federated from a Delaware business trust into a Pennsylvania
corporation in order to streamline the organizational structure by eliminating
the parent holding company and by utilizing a corporate entity, where the
rights and liabilities of the equity holders are well established and where
corporate equity securities may be used in connection with possible future
acquisitions. As a result of the Offering contemplated by the Merger Agreement,
the Company's Class B Common Stock will be publicly traded and is expected to
be listed on a national securities exchange. This will provide access to public
equity and debt capital markets for the Company as well as provide a trading
market and liquidity for the Company's shareholders. For a discussion of the
factors considered by the Board of Trustees of the Trust in reaching their
decisions with respect to the Merger, the Merger Agreement and the transactions
contemplated thereby, see "The Merger--Reasons for the Merger; Recommendation
of the Board of Trustees."

The Board of Trustees of the Trust, by unanimous vote, has determined that
the Merger is in the best interests of the Trust and its shareholders, has
approved the Merger Agreement and recommends a vote FOR approval and adoption
of the Merger Agreement and the transactions contemplated thereby.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Upon consummation of the Merger, certain of the executive officers and
trustees of the Trust will continue as executive officers and directors of the
Company, as set forth under "Management." Under the terms of the Merger, all
existing holders of Common Shares of the Trust will hold the same proportionate
interest in the Common Stock of the Company, without giving effect to the
concurrent Offering, the consummation of which is a condition to the Merger.
The Company currently intends to sell approximately 2,610,000 shares of Class B
Common Stock and is advised that selling shareholders currently intend to sell
an aggregate of approximately 13,680,235 shares of Class B Common Stock (in
each case without giving effect to the Underwriters' exercise of the over-
allotment options).

10
<PAGE>

EFFECTIVE TIME OF THE MERGER

It is anticipated that the Merger will become effective after the requisite
Trust shareholder approval has been obtained and after all conditions to the
Merger have been satisfied or waived, including (i) the consummation of the
Offering on terms satisfactory to the Company and the Trust and (ii) the
absence of written demands for appraisal rights by dissenting shareholders
holding at least 2/3 of the total outstanding Trust Class B Common Shares held
by all holders entitled to seek appraisal rights under Section 8.7 of the
Restated Declaration of Trust. See "The Merger Agreement--Conditions."

CONDITIONS TO THE MERGER; TERMINATION OF THE MERGER AGREEMENT

The obligations of the Company and the Trust to consummate the Merger are
subject to the satisfaction of certain conditions, including obtaining
requisite Trust shareholder approval; the absence of written demands for
appraisal rights by dissenting shareholders holding at least 2/3 of the total
outstanding Trust B Common Shares held by all holders who are entitled to seek
appraisal rights under Section 8.7 of the Restated Declaration of Trust; the
consummation of the Offering on terms satisfactory to the Company and the
Trust; the receipt of any material third party and governmental consents; and
the absence of an injunction, order or other legal restraint preventing the
consummation of the Merger.

The Merger Agreement is subject to termination at any time prior to the
Effective Time by mutual consent of the Company and the Trust or by either
party if the requisite shareholder approval has not been obtained or if the
Offering shall have been abandoned or not otherwise consummated. See "The
Merger Agreement--Conditions" and "The Merger Agreement--Termination;
Expenses."

EXCHANGE OF STOCK CERTIFICATES

Upon consummation of the Merger, each holder of a certificate or certificates
representing Trust Class A Common Shares or Trust Class B Common Shares
outstanding immediately prior to the Merger, upon the surrender thereof (duly
endorsed, if required) to Boston EquiServe, an agent designated by the Company
(the "Exchange Agent"), will be entitled to receive a certificate or
certificates representing the number of shares of Class A Common Stock or Class
B Common Stock into which such Trust Class A Common Shares or Trust Class B
Common Shares will have been automatically converted as a result of the Merger.
The Exchange Agent will mail a letter of transmittal with instructions to all
holders of record of Trust Class A Common Shares or Trust Class B Common Shares
as of the Effective Time for use in surrendering their stock certificates in
exchange for certificates representing shares of Class A Common Stock or Class
B Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. The holder of an unexchanged
certificate will not be entitled to receive any dividends or other
distributions payable by the Company or to vote the shares represented by such
certificate until such certificate has been surrendered for exchange. See "The
Merger Agreement--Conversion of Securities."

APPRAISAL RIGHTS

11
<PAGE>

Section 8.7 of the Restated Declaration of Trust provides that in
implementing this provision Section 262 of the Delaware General Corporation Law
(the "DGCL") shall apply. Under Section 262 of the DGCL, a holder of Trust
Class B Common Shares (i) who delivers to the Trust a written demand for
appraisal prior to the Special Meeting, (ii) whose shares are not voted in
favor of the Merger, and (iii) who follows certain other procedural
requirements, would be entitled to appraisal rights under Section 262 of the
DGCL. Failure of at least 2/3 of the total Trust Class B Common Shares held by
such holders entitled to request appraisal rights will result in the inability
of such stockholders to perfect dissenters' appraisal rights with respect to
Trust Class B Common Shares owned by them. See "The Merger--Appraisal Rights."

The position of the Trust is that Section 8.7 of the Restated Declaration of
Trust should not be construed to apply to the Merger because these provisions
were originally intended to provide protection to the original holder of the
Trust Series A Preferred Shares which were subsequently converted into Trust
Class B Common Shares and repurchased by Federated in 1996. If dissenters'
appraisal rights are perfected as required under Section 8.7 of the Restated
Declaration of Trust and Section 262 of the DGCL, the Merger will not be
consummated unless the Trust and the Company waive this condition. See "The
Merger--Conditions."

FEDERAL INCOME TAX CONSEQUENCES

The Trust has received an opinion of Kirkpatrick & Lockhart, LLP that the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that no gain or
loss will be recognized by the Trust and no gain or loss will be recognized by
Trust Stockholders on the exchange of shares of Trust Class A Common Shares or
Trust Class B Common Shares pursuant to the Merger Agreement. A holder of Trust
Class B Common Shares who perfects appraisal rights in accordance with Section
8.7 of the Restated Declaration of Trust and applicable law and who receives a
cash payment of the fair value of such dissenting shares will be treated as
having received such payment in redemption of such dissenting shares, subject
to the conditions and limitations of Section 302 of the Code. For a further
discussion of federal income tax consequences of the Merger, see "The Merger--
Federal Income Tax Consequences."

ACCOUNTING TREATMENT

The Merger will be accounted for on an "as-if pooling of interests" basis for
accounting and financial reporting purposes. See "The Merger--Accounting
Treatment."

COMPARISON OF SHAREHOLDER RIGHTS

Upon consummation of the Merger, the holders of Common Shares of the Trust
will become holders of Common Stock of the Company. Holders of Class A Common
Stock and Class B Common Stock of the Company to be received in the Merger will
have substantially the same rights as holders of Class A Common Shares and
Class B Common Shares of Federated in respect to dividends and distribution and
voting rights. However, the provisions in the Restated Articles permit the
holders of Class B Common Stock to vote in the election of a majority of the
Board of Directors in the event the Company enters into a definitive agreement
with respect to a business combination in which Class B Common Stock would be
issued in a transaction to be treated as a "pooling of interests" for
accounting purposes.

For a discussion of certain differences between the Restated Declaration of
Trust, the Bylaws of the Trust as amended (the "Trust Bylaws") and the Delaware
Business Trust Act, and the Restated Articles of Incorporation of the Company
in the form attached hereto as Appendix B (the "Restated Articles"), the
Restated Bylaws of the Company in the form attached hereto as Appendix C (the
"Company Bylaws") and the Pennsylvania Business Corporation Law of 1988, as
amended, to be in effect at the Effective Time of the Merger, see "Comparison
of Shareholder Rights." Included in this discussion are differences with
respect to directors duties, limitation of directors' liability, directors'
indemnification, dividends and distributions, appraisal rights,

12
<PAGE>

voting rights, shareholder approval of merger or consolidation, anti-takeover
provisions, right to call special meeting, action by shareholder consent,
amendments to charter, amendments to bylaws, preemptive rights, and
restrictions on transfer.

RISK FACTORS

For a discussion of certain risk factors that Trust shareholders should take
into account in determining whether to approve and adopt the Merger Agreement
and the transactions contemplated thereby, including the Offering, see "Risk
Factors."

13
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenue..................... $265,977 $271,190 $279,831 $321,793 $403,719
-------- -------- -------- -------- --------
Operating Expenses:
Compensation and related......... 81,542 90,003 101,534 126,966 139,373
Other operating.................. 91,936 115,077 104,885 134,308 141,004
Amortization and revaluation of
intangible assets............... 30,823 105,868 10,445 8,886 13,715
-------- -------- -------- -------- --------
Total Operating Expenses........ 204,301 310,948 216,864 270,160 294,092
-------- -------- -------- -------- --------
Operating income (loss)........... $ 61,676 $(39,758) $ 62,967 $ 51,633 $109,627
======== ======== ======== ======== ========
Net income (loss)................. $ 31,216 $(39,336) $ 28,531 $ 12,619 $ 50,577
Dividends on preferred shares(1).. 8,176 6,108 6,000 3,025 0
-------- -------- -------- -------- --------
Net income (loss) applicable to
Common Shares.................... $ 23,040 $(45,444) $ 22,531 $ 9,594 $ 50,577
======== ======== ======== ======== ========
Cash dividends per Common
Share(2)......................... $ 0.00 $ 0.00 $ 0.1667 $ 0.0417 $ 0.0583
======== ======== ======== ======== ========
Earnings (loss) per Common Share--
basic Income before extraordinary
item(2).......................... $ 0.27 $ (0.53) $ 0.25 $ 0.13 $ 0.62
======== ======== ======== ======== ========
Earnings (loss) per Common Share--
assuming dilution Income before
extraordinary item(2)............ $ 0.27 $ (0.53) $ 0.24 $ 0.13 $ 0.61
======== ======== ======== ======== ========
BALANCE SHEET DATA AT PERIOD END:
Intangible assets, net........... $165,560 $ 74,413 $ 63,703 $ 69,105 $ 67,880
Total assets..................... 286,304 178,150 185,402 247,377 337,156
Long-term debt--Recourse......... 135,394 88,690 68,062 244,125 98,950
Long-term debt--Nonrecourse(3)... 0 0 0 0 185,388
Total liabilities................ 222,251 156,284 155,883 333,485 377,800
Shareholders' equity............. 63,700 20,733 28,692 (86,922) (41,110)
MANAGED AND ADMINISTERED ASSETS
AT PERIOD END (IN MILLIONS):
Money Market Funds............... $ 31,856 $ 31,528 $ 40,610 $ 51,163 $ 63,622
Fixed Income Funds............... 19,967 14,106 14,330 14,109 15,067
Equity Funds..................... 4,244 3,927 5,287 7,594 11,710
Separate Accounts................ 1,137 1,257 1,486 1,976 2,141
-------- -------- -------- -------- --------
Total Managed Assets........... $ 57,204 $ 50,818 $ 61,713 $ 74,842 $ 92,540
======== ======== ======== ======== ========
Total Administered Assets...... $ 19,505 $ 21,304 $ 22,089 $ 35,574 $ 46,999
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Termination dividend paid in January 1996 in connection with the conversion
of all outstanding Trust Series A Preferred Shares into Trust Class B
Common Shares and the repurchase of the converted shares by the Trust. See
Note 10 to the Consolidated Financial Statements.
(2) Reflects the one for one stock dividend paid in 1996, the one for one stock
dividend paid on April 15, 1998 and the one for two stock dividend declared
on April 16, 1998 to be paid on April 30, 1998.
(3) See Note 6 to the Consolidated Financial Statements for information
concerning nonrecourse debt.

14
<PAGE>

RECENT DEVELOPMENTS

Results for the First Quarter Ended March 31, 1998. Federated's consolidated
net income increased to $20.8 million ($0.25 per diluted Common Share) for the
first quarter of 1998, up $12.0 million ($0.14 per diluted Common Share) or
135.6% from the first quarter of 1997 results of $8.8 million ($0.11 per
diluted Common Share).

Consolidated revenues for the first quarter 1998 totaled $119.0 million, up
$27.4 million or 29.9% from the $91.6 million for the same period of 1997.
Average Managed Asset increases include a 56.2% increase in equity products, a
22.6% increase in money market products, a 9.2% increase in fixed income
products and a 10.9% increase in separate account assets. Revenues also
increased as a result of a one time payment of $2.5 million resulting from a
buyout of a servicing contract for a bank sponsored mutual fund complex. The
reduction to future revenue as a result of the loss of this bank client is
approximately $0.5 million per quarter.

Consolidated operating expenses for the first quarter of 1998 totaled $80.5
million, an increase of $10.4 million or 14.8% over the first quarter of 1997
operating expenses of $70.1 million. The increase in operating expenses was due
principally to increases in variable based compensation of $4.0 million as a
result of increased sales and profitability, a $2.7 million increase in
advertising and promotional expenses attributable to increased Managed Assets
and a $0.8 million increase in amortization of intangible assets as a result of
an acquisition occurring in the second quarter of 1997.

The tables below compare summary unaudited financial and statistical results:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
----------------------
SELECTED OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE
DATA) 1997 1998
- ------------------------------------------------------- ---------- -----------
<S> <C> <C>
Total Revenue............................................ $ 91,628 $ 118,987
Operating Expenses....................................... 70,137 80,486
---------- -----------
Operating Income......................................... 21,491 38,501
Nonoperating Expenses and Minority Interest.............. 6,983 6,756
---------- -----------
Income Before Income Taxes............................... 14,508 31,745
Income Tax Provision..................................... 5,664 10,908
---------- -----------
Net Income............................................... $ 8,844 $ 20,837
========== ===========
Earnings per Basic Common Share.......................... $0.11 $0.25
Earnings per Diluted Common Share........................ $0.11 $0.25
<CAPTION>
MARCH 31,
----------------------
MANAGED AND ADMINISTERED ASSETS (IN MILLIONS) 1997 1998
- --------------------------------------------- ---------- -----------
<S> <C> <C>
Money Market Funds....................................... $ 53,086 $ 64,215
Fixed Income Funds....................................... 13,788 15,601
Equity Funds............................................. 8,000 13,843
Separate Accounts........................................ 2,069 2,389
---------- -----------
Total Managed Assets................................... $ 76,943 $ 96,048
========== ===========
Total Administered Assets.............................. $ 38,860 $ 51,651
========== ===========
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
----------------------
AVERAGE MANAGED AND ADMINISTERED ASSETS (IN MILLIONS) 1997 1998
- ----------------------------------------------------- ---------- -----------
<S> <C> <C>
Managed Assets........................................... $77,087 $ 95,102
Administered Assets...................................... 39,228 49,946
</TABLE>

Assets Under Management. Federated's Managed Assets were $96.0 billion at
March 31, 1998, an increase of $3.5 billion from December 31, 1997. Managed
Assets increased in each class. International and global Managed Assets
increased approximately $240 million from $1.2 billion to $1.4 billion.
Administered Assets were $51.7 billion at March 31, 1998, an increase of $4.7
billion from December 31, 1997.

15
<PAGE>

Sales and net sales of both equity and fixed income managed funds contributed
positively to these asset changes in the first quarter of 1998. Sales of equity
funds totaled $1.4 billion and net sales (sales minus redemptions) were $759
million. Sales of fixed income funds totaled $1.6 billion and net sales were
$514 million. Most of the remaining asset increase was due to the impact of
favorable securities market conditions in the first quarter of 1998. The S&P
500 index rose nearly 14% in the first quarter of 1998, and most other
investment indices showed substantial increases. In addition to creating
favorable sales conditions, market appreciation increased the value of Managed
Assets. Under different market conditions, the Company's performance could
differ substantially. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Economic and Market Conditions."

The tables below compare Federated's Managed and Administered Assets by
Market as of:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1997 1998
--------- ------------ ---------
<S> <C> <C> <C>
(IN MILLIONS)
MANAGED ASSETS BY MARKET
- ------------------------
Bank Trust Market............................ $40,982 $49,662 $49,741
Broker/Dealer Market......................... 23,368 28,256 31,662
Institutional Market......................... 9,755 11,343 11,266
Other Markets................................ 2,838 3,279 3,379
------- ------- -------
Total Managed Assets by Market............ $76,943 $92,540 $96,048
======= ======= =======
MANAGED ASSETS BY BANK TRUST MARKET
- -----------------------------------
Money Market Funds/Cash Equivalent........... $32,933 $40,897 $40,391
Fixed Income Funds........................... 5,163 5,070 5,047
Equity Funds................................. 2,886 3,695 4,303
------- ------- -------
Total Managed Assets by Bank Trust Market. $40,982 $49,662 $49,741
======= ======= =======
MANAGED ASSETS BY BROKER/DEALER MARKET
- --------------------------------------
Money Market Funds/Cash Equivalent........... $13,608 $15,293 $17,103
Fixed Income Funds........................... 5,614 6,566 6,956
Equity Funds................................. 4,128 6,376 7,582
Separate Accounts............................ 18 21 21
------- ------- -------
Total Managed Assets by Broker/Dealer
Market................................... $23,368 $28,256 $31,662
======= ======= =======
MANAGED ASSETS BY INSTITUTIONAL MARKET
- --------------------------------------
Money Market Funds/Cash Equivalent........... $ 5,744 $ 6,698 $ 5,973
Fixed Income Funds........................... 1,474 1,825 2,018
Equity Funds................................. 501 749 964
Separate Accounts............................ 2,036 2,071 2,311
------- ------- -------
Total Managed Assets by Institutional
Market................................... $ 9,755 $11,343 $11,266
======= ======= =======
</TABLE>

COMPARATIVE PER COMMON SHARE DATA

The Merger will have no effect on the consolidated financial position, net
income or cash flows of the Company or earnings or cash dividends per share.
Net income, cash dividends declared and book value per common share data of the
Company and the Trust on both an historical and unaudited pro forma combined
basis and on a per share equivalent unaudited pro forma basis are identical.

16
<PAGE>

RISK FACTORS

The following factors should be taken into account by holders of Trust Class
A and Class B Common Shares in evaluating whether to approve and adopt the
Merger Agreement and the transactions contemplated thereby, including the
Offering, which approval and adoption will, if the other conditions to the
Merger are satisfied, result in their becoming holders of the Company's Class
A and Class B Common Stock. These factors should be taken into account in
conjunction with the other information included or incorporated by reference
in this Proxy Statement/Prospectus.

CONTROL OF THE COMPANY

After the Merger, all of the issued and outstanding shares of Class A Common
Stock will continue to be owned by the Voting Trust, the trustees of which are
John F. Donahue, Chairman of the Company, his wife, and his son, J.
Christopher Donahue, President and Chief Executive Officer of the Company.
Except under certain circumstances more fully described in "Description of
Securities," the entire voting power of the Company's capital will continue to
be vested in the holders of Class A Common Stock. As a result, the trustees of
the Voting Trust will be able to exercise control over the affairs of the
Company. In the event that the Company enters into a definitive agreement with
respect to a business combination in which the Class B Common Stock would be
issued in a transaction intended to be treated as a "pooling of interests" for
accounting purposes, the holders of the Class B Common Stock will be permitted
to vote in the election of a majority of the Board of Directors, together with
the holders of the Class A Common Stock voting as a single class. The holders
of the Class A Common Stock will be entitled to elect at least 40% of the
directors. See "Principal Shareholders."

POTENTIAL ANTI-TAKEOVER PROVISIONS

After the Merger, certain provisions of the Restated Articles and the Bylaws
of the Company ("Company Bylaws") and Pennsylvania law could, together or
separately, discourage potential acquisition proposals, delay or prevent a
change in control of the Company, hinder the removal of incumbent directors,
and limit the price that certain investors might be willing to pay in the
future for shares of the Common Stock, all of which may be beneficial to the
interests of the shareholders under certain circumstances. These provisions
include the issuance, without further shareholder approval, of preferred stock
with rights and privileges which could be senior to the Common Stock. The
Company also is subject to "anti-takover" provisions in the Pennsylvania
Business Corporation Law ("PBCL") which, among other things, prohibit a
Pennsylvania corporation from engaging in certain business combinations with
an "interested person" unless certain conditions are satisfied or an exemption
is applicable. See "Description of Securities--Anti-Takeover Provisions."

ABSENCE OF A PRIOR PUBLIC MARKET

Prior to the Merger and the concurrent Offering there has been no public
market for the Class B Common Stock since 1982. Application has been made to
list the Class B Common Stock on the New York Stock Exchange. However, there
can be no assurance that a significant public market for the Company's Class B
Common Stock will develop or be sustained after the Offering. The offering
price will be determined through negotiations among the Company, the selling
shareholders and the representatives of the underwriters and may not be
indicative of the market price of the Class B Common Stock after the Offering.
After the Offering, the market price of the Class B Common Stock may be more
or less than the initial offering price.

VOLATILITY OF STOCK PRICE

After the Offering, the market price for the Class B Common Stock may be
highly volatile. The Company believes that factors such as announcements by
the Company, or by its competitors, of quarterly variances in financial
results could cause the market price of the Class B Common Stock to fluctuate
substantially. In addition, the stock market may experience extreme price and
volume fluctuations, which often are unrelated to the

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operating performance of specific companies which could have a direct adverse
effect on the market price of the Class B Common Stock and which could also
adversely affect the Company's Managed Assets and, therefore, the result of
the Company's operations. Market fluctuations or perceptions regarding the
Company's industry, as well as general economic or political conditions, may
adversely affect the market price of the Class B Common Stock.

RESTRICTIONS ON FUTURE SALE OR DISTRIBUTION OF SHARES OF COMMON STOCK

Upon completion of the Offering, certain shares of Class B Common Stock will
not be permitted to be sold in the absence of registration under the
Securities Act, unless sold pursuant to an exemption from the Securities Act,
such as that provided by Rule 144. The sale of any substantial number of
shares could have a material adverse impact on the market price of the Class B
Common Stock. In connection with the Offering, the Company, its officers and
directors and certain other shareholders will be required to enter into
customary "lock-up" agreements pursuant to which they will agree, during the
period of 180 days from the date of the Offering, without the prior written
consent of the designated representatives of the underwriters, not to offer,
pledge, sell or otherwise, transfer or dispose of any Class B Common Stock or
any securities convertible into or exercisable or exchangeable for Common
Stock, subject to certain agreed exceptions. In addition, all shareholders
will be subject to Company Bylaw restrictions on transfer in connection with
the Offering pursuant to which no shareholders, during the period of seven
days prior to and 180 days after the date when the Registration Statement
becomes effective, shall sell, transfer or otherwise dispose of shares of
Common Stock.

CHANGES IN SHAREHOLDER RIGHTS

Upon consummation of the Merger, the holders of Common Shares of the Trust
will become holders of Common Stock of the Company. Differences between the
Restated Declaration of Trust, the Bylaws of the Trust, as amended (the "Trust
Bylaws"), and the Delaware Business Trust Act, and the Restated Articles of
Incorporation of the Company in the form attached hereto as Appendix B (the
"Restated Articles"), the Restated Bylaws of the Company in the form attached
hereto as Appendix C (the "Company Bylaws") and the Pennsylvania Business
Corporation Law of 1988, as amended, will result in changes to the rights of
holders of Common Shares of the Trust when they become holders of Common Stock
of the Company. See "Comparison of Shareholder Rights."

DILUTION

As a result of the Offering, the existing holders of Common Shares of the
Trust will experience a proportionate dilution of their ownership interest
based on the number of shares of Class B Common Stock to be sold by the
Company in the Offering. The Company currently intends to sell 2,610,000
million shares of Class B Common Stock (3,000,000 shares after giving effect
to the Underwriters' exercise of the over-allotment options), which would
cause approximately a 3.1% dilution in their respective ownership interests.
Purchasers of Class B Common Stock offered by the Company and the selling
shareholders will experience immediate and substantial dilution in the net
tangible book value per share of Class B Common Stock from the initial
offering price in the Offering.

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THE SPECIAL MEETING

GENERAL

This Proxy Statement/Prospectus is being furnished to holders of Trust Class
A Common Shares and Trust Class B Common Shares in connection with the
solicitation of proxies by the Board of Trustees of the Trust for use at the
Special Meeting to be held on Friday, May 15, 1998, commencing at 10:00 a.m.,
local time, and at any adjournment or postponement thereof.

MATTERS TO BE CONSIDERED AT THE MEETING

At the Special Meeting, holders of Trust Class A Common Shares and Trust
Class B Common Shares will consider and vote separately upon a proposal to
approve and adopt the Merger Agreement and the transactions contemplated
thereby and consider and vote upon such other matters as may properly be
brought before the Special Meeting.

The Board of Trustees of the Trust have determined that the Merger is in the
best interests of the Trust and its shareholders, has approved the Merger
Agreement and recommends that shareholders of the Trust vote FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby.

VOTING AT THE MEETING; RECORD DATE

The Board of Trustees of the Trust has fixed April 21, 1998 as the record
date for the determination of Trust shareholders entitled to notice of and to
vote at the Special Meeting. Accordingly, only holders of record of Trust
Class A Common Shares and Trust Class B Common Shares on that record date will
be entitled to notice of and to vote at the Special Meeting. As of April 21,
1998 (after giving effect to the stock dividend paid on April 15, 1998 and the
stock dividend declared on April 16, 1998 to be paid on April 30, 1998 to
shareholders of record on April 21, 1998), there were 6,000 Trust Class A
Common Shares outstanding held by one holder of record and 83,427,000 Trust
Class B Common Shares outstanding held by approximately 243 holders of record.
Each holder of record of shares of Trust Class A Common Shares and Trust Class
B Common Shares on the record date is entitled to cast one vote per share on
the proposal to approve and adopt the Merger Agreement and the transactions
contemplated thereby and on any other matters properly submitted for the vote
of Trust shareholders, exercisable in person or by properly executed proxy, at
the Special Meeting. The presence, in person or by properly executed proxy, of
the holders of a majority of the voting power represented by outstanding Trust
Class A Common Shares and Trust Class B Common Shares entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting.
Shares represented by duly completed proxies submitted by nominee holders on
behalf of beneficial owners will be counted as present for purposes of
determining the existence of a quorum for all purposes (even if some such
proxies reflect broker non-votes). In addition, abstentions will be counted as
present for purposes of determining the existence of a quorum.

The approval and adoption by shareholders of the Trust of the Merger
Agreement and the transactions contemplated thereby will require the
affirmative vote of the holders of a majority of the outstanding Trust Class A
Common Shares and Trust Class B Common Shares voting thereon, each voting
separately as a class. Abstentions will be counted as shares present at the
Special Meeting for purposes of determining the existence of a quorum, but
will not be recorded as votes cast on the proposal. Broker non-votes with
respect to the proposal will be treated as shares not capable of being voted
on the proposal. Accordingly, abstentions and broker non-votes will have no
effect either on the minimum number of affirmative votes necessary to approve
the proposal or on the outcome of voting on the proposal.

As of April 21, 1998, the Voting Trust was the beneficial owner of all
outstanding Trust Class A Common Shares. As of such date, the trustees and
executive officers of the Trust were the beneficial owners of Trust Class B
Common Shares representing approximately 43.7% of the outstanding Trust Class
B Common Shares which are entitled to vote upon the Merger Agreement.

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PROXIES

All Trust Class A Common Shares and Trust Class B Common Shares that are
entitled to vote and are represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, and not revoked,
will be voted in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such proxies will in each case be voted FOR
approval and adoption of the Merger Agreement and the transactions
contemplated thereby.

If any other matters are properly presented at the Special Meeting for
consideration, including, among other things, a motion to adjourn the meeting
to another time and/or place (including, without limitation, for the purpose
of soliciting additional proxies), the persons named in the enclosed form of
proxy and acting thereunder will have discretion to vote on such matters in
accordance with their best judgment. However, proxies voting AGAINST the
approval and adoption of the Merger Agreement may not be used by management of
the Trust to vote for adjournment or postponement in order to permit further
solicitation.

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of the Trust, at or before the taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy, (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Trust, before the taking of the vote at
the Special Meeting, or (iii) attending the Special Meeting and voting in
person (although attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent so as to be delivered to Federated Investors,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, Attention:
Secretary, or hand delivered to the foregoing representative of the Trust, at
or before the taking of the vote at the Special Meeting.

All expenses of this solicitation, excluding the cost of mailing this Proxy
Statement/Prospectus and the filing fee paid to the Commission in connection
with filing the Registration Statement, will be paid by the Company. See "The
Merger Agreement--Termination; Expenses." In addition to solicitation by use
of the mails, proxies may be solicited by directors, officers and employees of
the Trust in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated,
but may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. Arrangements will also be made with custodians, nominees
and fiduciaries for forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such custodians, nominees and fiduciaries,
and the Trust will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.

HOLDERS OF COMMON SHARES OF THE TRUST SHOULD NOT SEND ANY SHARE CERTIFICATES
WITH THEIR PROXY CARD.

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THE MERGER

REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF TRUSTEES

The Trust is organized as a Delaware business trust. The purpose of the
Merger is to convert the organization of Federated from a Delaware business
trust into a Pennsylvania corporation in order to streamline the
organizational structure by eliminating the parent holding company and by
utilizing a corporate entity, where the rights and liabilities of the equity
holders are well established and where corporate equity securities may be used
in connection with possible future acquisitions. Federated was organized as a
Delaware business trust in 1989 in order to facilitate the acquisition of all
of the outstanding stock of the Company and the assets of the Federated
Research Division from an affiliate of Aetna. Aetna retained approximately a
27% interest in Federated until 1996, at which time all of the outstanding
shares of Federated held by Aetna were repurchased. As a consequence of this
repurchase, the Board of Trustees has determined that the continuation of the
business trust as the parent of the Company serves no essential business
purpose.

Management determined that (i) the continuation of the Trust as the parent
of the Company no longer serves an essential business purpose, (ii) the
utilization of a corporate entity, such as the Company, would be desirable for
the reasons summarized above, and (iii) a merger of the Trust into the
Company, its wholly-owned subsidiary which owns directly or indirectly the
operating subsidiaries and affiliates of the Trust, was the most efficient
means of accomplishing these objectives. No other alternatives to the proposed
structure were seriously considered.

The provisions in the Restated Articles to permit the holders of Class B
Common Stock to vote in the election of a majority of the Board of Directors
in the event the Company enters into a definitive agreement with respect to a
business combination in which Class B Common Stock would be issued in a
transaction to be treated as a "pooling of interests" for accounting purposes,
are also intended to facilitate growth by acquisition. In other respects,
holders of Class A Common Stock and Class B Common Stock of the Company to be
received in the Merger will have substantially the same rights as holders of
Class A Common Shares and Class B Common Shares of Federated in respect of
dividends and distribution and voting rights. See "Description of Securities"
and "Comparison of Shareholder Rights."

The Merger is conditioned upon the consummation of the Offering. While there
is no minimum number of shares of Class B Common Stock that is required to be
sold in the Offering, the Offering will be made on terms and conditions
(including size and price) satisfactory to the Company and the Trust. The
Company currently intends to sell approximately 2,610,000 shares of Class B
Common Stock (3,000,000 shares after giving effect to the Underwriters'
exercise of the over-allotment options) and is advised that selling
shareholders currently intend to sell an aggregate of approximately 13,680,235
shares of Class B Common Stock (15,733,770 shares after giving effect to the
Underwriters' exercise of the over-allotment options). As a result of the
Offering, the Company's Class B Common Stock will be publicly traded and is
expected to be listed on the New York Stock Exchange. This will provide access
to public equity and debt capital markets for the Company as well as provide a
trading market and liquidity for the Company's shareholders. However, there
can be no assurance that a significant public market for the Company's Class B
Common Stock will develop or be sustained after the Offering. After the
Offering, the market price of the Class B Common Stock may be more or less
than the initial offering price.

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<PAGE>

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Upon consummation of the Merger, certain of the executive officers and
trustees of the Trust will continue as executive officers and directors of the
Company, as set forth under "Management." Under the terms of the Merger, all
existing holders of Common Shares of the Trust will hold the same
proportionate interest in the Common Stock of the Company, without giving
effect to the concurrent Offering, the consummation of which is a condition to
the Merger. The number of shares to be sold by the Company and the selling
shareholders has not yet been determined.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AFTER THE MERGER

Pursuant to the Merger Agreement, the directors and officers of the Company
immediately prior to the Effective Time shall be the directors and officers of
the Company following the Merger. At the Effective Time the Board of Directors
of the Company will be comprised of certain persons who are members of the
Board of Trustees of the Trust, and the executive officers of the Company will
be comprised of certain executive officers of the Trust as set forth under
"Management."

SECURITY OWNERSHIP OF THE COMPANY AFTER THE MERGER

Upon consummation of the Merger, the shareholders of the Trust will become
shareholders of the Company, with each shareholder holding the same
proportionate beneficial interest in the Company as held in the Trust, without
giving effect to the concurrent Offering. The Voting Trust will beneficially
own all of the outstanding Class A Common Stock of the Company.

STOCK OPTION AND BENEFIT PLANS

As provided in the Merger Agreement, at the Effective Time the Company will
assume the rights and obligations of the Trust regarding the Prior Stock
Plans. The Company will treat as having been issued under its Stock Incentive
Plan all shares of restricted stock, SARs and stock options issued under Prior
Stock Plans. As of April 21, 1998 (after giving effect to the stock dividend
paid on April 15, 1998 and the stock dividend declared on April 16, 1998 to be
paid on April 30, 1998 to shareholders of record on April 21, 1998), there
were outstanding 4,233,000 restricted shares of Trust Class B Common Shares
and 3,975,600 shares of Trust Class B Common Shares issuable primarily under
outstanding stock options.

ACCOUNTING TREATMENT

The Merger will be accounted for by the Company on an "as-if pooling of
interests" basis, as such term is used under generally accepted accounting
principles.

FEDERAL INCOME TAX CONSEQUENCES

Following is a summary of material federal income tax consequences of the
Merger based on current law. Future legislative, judicial or administrative
changes or interpretations, which may be retroactive, could alter or modify
the statements set forth herein. This summary may not apply to certain classes
of taxpayers, including, without limitation, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, non-resident
aliens, foreign corporations, persons who acquired Trust Class A or Class B
Common Shares pursuant to the exercise of employee stock options or rights or
otherwise as compensation and persons who hold shares of either Trust Class A
or Class B Common Shares in a hedging transaction or as part of a straddle or
conversion transaction. Also, the summary does not address state, local or
foreign tax consequences of the Merger. EACH HOLDER OF TRUST CLASS A OR CLASS
B COMMON SHARES (A "HOLDER") IS URGED TO CONSULT WITH SUCH HOLDER'S OWN TAX
ADVISOR AS TO THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO
SUCH HOLDER.

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<PAGE>

This summary is based upon an opinion of counsel delivered by Kirkpatrick &
Lockhart LLP, counsel to the Trust and the Company, which is attached as an
exhibit to the Registration Statement (the "Tax Opinion"). See "Available
Information." Counsel is of the opinion that the Merger will be treated as a
reorganization within the meaning of Section 368(a) of the Code. Accordingly,
for federal income tax purposes, no gain or loss will be recognized by the
Trust as a result of the Merger and Holders who exchange shares of Trust Class
A or Class B Common Shares for shares of Company Common Stock pursuant to the
Merger will generally be treated as follows:

(i) no gain or loss will be recognized by a Holder with respect to the
receipt of Company Common Stock;

(ii) the aggregate adjusted tax basis of shares of Company Common Stock
received by a Holder will be the same as the aggregate adjusted tax basis
of the shares of Trust Class A or Class B Common Shares, as the case may
be, exchanged therefor;

(iii) the holding period of shares of Class A or Class B Company Common
Stock received by a Holder will include the holding period of the Trust
Class A or Class B Common Shares, as the case may be, exchanged therefor,
provided that such shares of Trust Class A or Class B Common Shares are
held by the Holder as capital assets; and

(iv) a Holder who perfects appraisal rights in accordance with Section
8.7 of the Restated Declaration of Trust and applicable law and who
receives a cash payment of the fair value of such dissenting shares will be
treated as having received such payment in redemption of such dissenting
shares. Such redemption will be subject to the conditions and limitations
of Section 302 of the Code. In general, if the dissenting shares are held
by the dissenting stockholder as a capital asset, such dissenting
stockholder will recognize capital gain or loss measured by the difference
between the amount of cash received by such dissenting stockholder and the
adjusted tax basis for such dissenting shares. However, if such dissenting
stockholder owns, either actually or constructively under the provisions of
Section 318 of the Code, any shares of Trust Class A or Class B Common
Shares that are exchanged in the Merger for Company Common Stock, the cash
payment made to such dissenting stockholder could be treated as dividend
income. In general, under Section 318 of the Code, a Holder may be
considered to own stock that is owned, and in some cases constructively
owned, by certain related individuals or entities, and stock that such
stockholder, or related individuals or entities, have the right to acquire
by exercising an option. Each Holder of Trust Class A or Class B Common
Shares who contemplates exercising dissenters' appraisal rights should
consult such Holder's own tax advisor as to the possibility that any
payment to such Holder will be treated as dividend income.

Other than as set forth above, counsel expresses no opinion as to the
federal, state, local, foreign or other tax consequences of the Merger that
may be applicable to a particular stockholder of Trust.

No ruling has been or will be obtained from the Internal Revenue Service
(the "IRS") in connection with the Merger. Each Holder should be aware that
the Tax Opinion does not bind the IRS, and the IRS is, therefore, not
precluded from successfully asserting a contrary opinion. The Tax Opinion is
subject to certain assumptions, and are subject to the truth and accuracy of
certain representations made by the Trust and the Company.

RESALE RESTRICTIONS

All shares of Class A Common Stock and Class B Common Stock issued in
connection with the Merger will be freely transferable, except for certain
contractual restrictions on shares held by certain shareholders and except
that shares of Class A Common Stock and Class B Common Stock held by persons
who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of the Trust prior to the Merger may be resold by them
pursuant to the Offering or in transactions permitted by the resale provisions
of Rule 145 promulgated under the Securities Act (or Rule 144 in case of such
persons who become affiliates of the Company) or as otherwise permitted under
the Securities Act. Executive officers and directors of the Company will hold
approximately 35.3% of the Class B Common Stock outstanding upon the
consummation of the Merger, without giving effect to the Offering.

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In addition, under the Company Bylaws, in connection with the Offering, an
existing shareholder of the Trust that will own shares of Common Stock of the
Company received in the Merger is not permitted to sell, transfer or otherwise
dispose of the shares owned by such shareholder, directly or indirectly, in
any public sale or distribution, including a sale under Rule 144 during the
period seven days prior to and 180 days after the date of the Offering. The
Board of Directors of the Company may waive any such Bylaw restrictions as may
apply to any shareholder at any time or from time to time.

APPRAISAL RIGHTS

Holders of Trust Class A Common Shares or Trust Class B Common Shares are
not entitled to appraisal rights in connection with the Merger as a matter of
law. However, under Section 8.7 of the Restated Declaration of Trust, a
conditional right of appraisal may be found to exist for certain holders of
Trust Class B Common Shares in connection with the Merger, provided that at
least 2/3 of the total Trust Class B Common Shares held by such holders have
properly requested such rights. The position of the Trust is that Section 8.7
of the Restated Declaration of Trust should not be construed to apply to the
Merger. However, if and to the extent that Section 8.7 is declared by a court
of competent jurisdiction to be applicable to the Merger, holders of a total
of 13,145,628 outstanding Trust Class B Common Shares (as of April 21, 1998,
after giving effect to the stock dividend paid on April 15, 1998 and the stock
dividend declared on April 16, 1998 to be paid on April 30, 1998 to
shareholders of record on April 21, 1998) could be eligible to demand
appraisal rights. Among such holders are Westinghouse Pension Plan, the Jones
Financial Companies (including Edward D. Jones & Co.), and certain affiliates
of Merrill Lynch & Co., which together own an aggregate 12,900,000 Trust Class
B Common Shares.

Section 8.7 of the Restated Declaration of Trust provides that if there has
been a conversion of Trust Series A Preferred Shares into Trust Class B Common
Shares, any holder of Trust Class B Common Shares (other than any member of
the Trust's "management circle", as defined in the Shareholders Rights
Agreement dated August 1, 1989, as amended ("Shareholders Rights Agreement"),
or any employee of the Trust or any of its subsidiaries) who has not voted in
favor of a merger or consolidation of the Trust with or into another entity
shall have the right to obtain an appraisal of the fair value of such shares
(exclusive of any element of value arising from the accomplishment or
expectation of such merger or consolidation) together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value;
provided, that the right to obtain an appraisal of fair value shall apply only
if such holders holding at least 2/3 of the total Trust Class B Common Shares
held by such holders have requested such rights. Such a holder shall be
entitled to receive out of the assets of the Trust, in exchange for such Trust
Class B Shares, the fair value of such shares determined pursuant to such
appraisal. Section 8.7 of the Restated Declaration of Trust further provides
that in determining such fair value and in otherwise implementing Section 8.7,
Section 262 of the DGCL shall apply. The term "management circle" as used in
the Shareholders Rights Agreement means the original members of the management
group of Federated at August 1, 1989 and any replacement managers, as more
fully set forth in Appendix D hereto.

It is the Trust's position that Section 8.7 of the Restated Declaration of
Trust was intended to provide protection only to the original holder of the
Series A Preferred Shares in the event such shares were converted into Trust
Class B Common Shares and thereafter held by such holder. In January 1996
Federated entered into an agreement with Aetna, the sole holder of the Trust
Series A Preferred Shares, to convert all 1,000 outstanding Trust Series A
Preferred Shares into Trust B Common Shares and to sell the converted shares
back to Federated at a mutually agreed upon price. Further, it is arguable
that the Merger, which involves the merger of the Trust into its wholly owned
subsidiary, was a transaction that was contemplated by Section 8.7 of the
Declaration. Under Delaware corporation law, a merger of a parent corporation
into its subsidiary does not give rise to appraisal rights except as
specifically provided by agreement.

In view of the requirements of Section 8.7 of the Restated Declaration of
Trust, unless holders of at least 2/3 of the Class B Common Shares held by all
those who are entitled to appraisal rights thereunder properly request
appraisal rights, no Dissenting Shareholder will be entitled to appraisal
rights. Furthermore, the Merger Agreement provides, as a condition to the
consummation of the Merger, that there shall not be written demands

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<PAGE>

or objections made and not withdrawn or otherwise lost by Dissenting
Shareholders who in the aggregate hold at least 2/3 of the total outstanding
Trust B Common Shares held by all holders entitled to request appraisal rights
under Section 8.7 of the Restated Declaration of Trust. Therefore, if
appraisal rights are requested by the requisite minimum number of dissenting
holders of Trust Class B Common Shares, the Merger will not be consummated
unless the Trust and the Company waive this condition. See "The Merger
Agreement--Conditions."

For the purposes of Section 8.7 of the Restated Declaration of Trust, in
determining "fair value" of the Dissenting Shares (as defined in the Merger
Agreement) and in otherwise implementing Section 8.7 of the Restated
Declaration of Trust, Section 262 of the DGCL shall apply. Section 262 of the
DGCL entitles any holder of record of shares of Trust Series B Common Shares
who makes a written demand prior to the taking of the vote at the Special
Meeting and who follows the procedures prescribed by Section 262, to an
appraisal of the "fair value" of all, but not less than all, of such shares by
the Delaware Court of Chancery (the "Court"), and to the payment of such fair
value by the Company, in lieu of receiving the consideration provided under
the Merger Agreement.

Set forth below is a summary of the procedures relating to the exercise of
appraisal rights as provided in Section 262 of the DGCL. Failure to comply
with any of the required steps may result in termination of any appraisal
rights Dissenting Shareholders may otherwise have under Section 8.7 of the
Restated Declaration of Trust.

Subject to the provisions of Section 8.7 of the Restated Declaration of
Trust and the Merger Agreement, all eligible Dissenting Shareholders who
follow the procedures set forth in Section 262 of the DGCL may receive a cash
payment from the Company equal to the fair value of their Dissenting Shares,
determined exclusive of any element of value arising from the accomplishment
or expectation of the Merger in the event the Merger is consummated. Unless
the conditions of Section 8.7 of the Restated Declaration of Trust and all the
procedures set forth in Section 262 are followed by a shareholder who wishes
to exercise appraisal rights, such shareholder will be bound by the terms of
the Merger.

A VOTE AGAINST THE ADOPTION OF THE MERGER AGREEMENT WILL NOT SATISFY THE
REQUIREMENT FOR A WRITTEN DEMAND FOR APPRAISAL.

Each shareholder electing to demand the appraisal of his or her shares must
(i) deliver to the Trust, prior to the Special Meeting, a written demand for
appraisal of the shareholder's shares, setting forth the shareholder's intent
to demand an appraisal and giving the stockholder's identity, (ii) not vote
such shareholder's shares in favor of the approval and adoption of the Merger
Agreement, and (iii) comply with certain other procedural requirements set
forth below.

Assuming that the Merger has been consummated, within 10 days after the
Effective Time, the Company shall notify each shareholder who has complied
with these requirements that the Merger has become effective. Within 120 days
after the Effective Time, a Dissenting Shareholder, upon written request,
shall be entitled to receive a statement from the Company, setting forth the
aggregate number of shares which were not voted in favor of the Merger and
with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. The Company shall then mail such
written statement to the Dissenting Shareholder as set forth in Section 262 of
the DGCL. Within 120 days after the Effective Time, a Dissenting Shareholder
who has perfected rights of appraisal as set forth in Section 262 of the DGCL
and who is otherwise entitled to appraisal rights may file a petition in the
Court demanding a determination of the value of all of such Dissenting Shares.
Upon the filing of any such petition by a Dissenting Shareholder, such
Dissenting Shareholder is required to serve a copy thereof upon the Company.
At the hearing on such petition, the Court shall determine the Dissenting
Shareholders that have complied with the provisions of Section 262 of the DGCL
and have become entitled to appraisal rights. The Court may require the
shareholders who have demanded an appraisal for their shares and who hold
stock represented by certificates to submit their certificates of stock to the
Delaware Register in Chancery for notation thereon of the pendency of the
appraisal proceedings. Failure to comply with such a demand by the Court could
result in dismissal of the proceedings as to such shareholder. The Delaware

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Register in Chancery, if so ordered, shall give notice of the time and place
fixed for the hearing of the petition by registered or certified mail to the
Company and to the shareholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the Company. Notice shall also be given by one or more publications at least
one week before the day of the hearing in a newspaper of general circulation
published in the City of Wilmington, Delaware or such publication as the Court
deems advisable. The forms of the notices by mail and by publication shall be
approved by the Court, and the costs thereof shall be borne by the Company.

After determining the Dissenting Shareholders entitled to an appraisal, the
Court shall appraise the Dissenting Shares by determining their fair value
exclusive of any element of value arising from the accomplishment or
expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining fair
value, the Court is to take into account all relevant factors. The Delaware
Supreme Court has stated that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered in the appraisal
proceedings and that "fair price obviously requires consideration of all
relevant factors involving the value of a company." The Delaware Supreme Court
has stated that, in making this determination of fair value, the Court must
consider "market value, asset value, dividends, earnings prospects, the nature
of the enterprise and any other facts which were known or which could be
ascertained as of the date of the merger which throw any light on future
prospects of the merger corporation." The Delaware Supreme Court has also held
that "elements of future value, including the nature of the enterprise, which
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." The Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon
the appraisal before a final determination of all shareholders entitled to an
appraisal.

The Court shall direct the payment of the fair value of the shares, together
with interest thereon, if any, by the Company to the stockholders entitled to
payment. Payment shall be made to the holders of Dissenting Shares only upon
the surrender to the Trust of the certificates representing such Dissenting
Shares. The costs of the proceedings shall be allocated between the parties in
the manner that the Court deems equitable in the circumstances. Upon
application of a Dissenting Shareholder, the Court may order all or a portion
of the expenses incurred in connection with the appraisal proceeding,
including reasonable attorney's fees and the fees and expenses of experts, to
be charged pro rata against the value of all of the shares entitled to an
appraisal.

From and after the Effective Time, no Dissenting Shareholder shall be
entitled to vote or to receive payment of dividends or other distributions on
his or her Dissenting Shares (except for dividends or other distributions
payable to stockholders of record as of a date prior to the Effective Time).

Any Dissenting Shareholder may, within 60 days after the Effective Time,
withdraw such demand and accept the terms of the Merger. No such demand may be
withdrawn after the expiration of the 60 day period, however, unless the
Company shall consent thereto. If no petition for an appraisal of such
Dissenting Shares by the Court shall have been filed within the time provided
in Section 262(e) of the DGCL, or if the Dissenting Shareholder delivers a
written withdrawal of his or her demand for an appraisal and an acceptance of
the Merger, either within 60 days after the Effective Time or thereafter with
the written approval of the Company, the right of such Dissenting Shareholder
to an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court shall be dismissed as to any Dissenting Shareholder
without the approval of the Court, which may be conditioned upon such terms as
the Court deems just.

Exercise of the right to an appraisal under Section 8.7 of the Restated
Declaration of Trust and Section 262 of the DGCL may result in a judicial
determination that the "fair value" of Dissenting Shares is higher or lower
than the value of the shares of Class B Common Stock to be received in respect
thereof pursuant to the Merger Agreement. If the Trust complies with the
requirements of the DGCL, any shareholder who fails to comply with the
requirements of the DGCL will be without a statutory remedy for the recovery
of the value of his or her shares or for money damages to the shareholder with
respect to the Merger.

26
<PAGE>

Reference is made to Appendix D attached hereto for the complete text of the
provisions of Section 8.7 of the Restated Declaration of Trust and Section 262
of the DGCL relating to the rights of Dissenting Shareholders. Statements made
in this Proxy Statement/Prospectus summarizing those provisions are qualified
in their entirety by reference to Appendix D. The provisions are technical in
nature and complex. It is suggested that any shareholder who desires to
exercise rights to an appraisal of shares of Trust Class B Common Shares
consult counsel. Failure to comply strictly with the provisions of the statute
may defeat a shareholder's right to an appraisal even if Section 8.7 of the
Restated Declaration would otherwise be deemed to apply and the Merger shall
have been consummated by the Trust and the Company. See "The Merger
Agreement--Conditions," "--Termination; Expenses."

27
<PAGE>

THE MERGER AGREEMENT

Following is a summary of the material terms of the Merger Agreement, a copy
of which is attached as Appendix A to this Proxy Statement/Prospectus and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement. Shareholders of the Trust are urged to read
the Merger Agreement in its entirety for a more complete description of the
Merger and the Restated Articles of the Company and the Company Bylaws in
their entirety for a more complete description of their rights as shareholders
of the Company.

THE MERGER

The Merger Agreement provides that, following the approval and adoption of
the Merger Agreement and the transactions contemplated thereby by the
shareholders of the Trust and the satisfaction or waiver of the other
conditions to the Merger, including the consummation of the Offering, the
Trust will be merged with and into the Company.

If all such conditions to the Merger are satisfied or waived, the Merger
will become effective upon the filing of a duly executed Certificate of Merger
with the Secretary of State of the State of Delaware and duly executed
Articles of Merger with the Secretary of State of the Commonwealth of
Pennsylvania, or at such time thereafter as is provided therein.

At the Effective Time, the Restated Articles of Incorporation and the
Company Bylaws set forth in Appendices B and C attached hereto, respectively,
will become effective.

CONVERSION OF SECURITIES

Upon consummation of the Merger, pursuant to the Merger Agreement, each
issued and outstanding Trust Class A Common Share will be converted into the
right to receive one share of Class A Common Stock, and each Trust Class B
Common Share (other than shares held in the Trust's treasury immediately prior
to the Effective Time, all of which will be canceled) will be converted into
the right to receive one share of Class B Common Stock. The shares of Class A
Common Stock and Class B Common Stock to be issued in the Merger will have the
relative rights and provisions set forth in the Restated Articles of the
Company.

As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail transmittal forms and exchange instructions to the holder of
record of Trust Class A Common Shares and each holder of record of Trust Class
B Common Shares to be used to surrender and exchange certificates evidencing
shares of Trust Class A Common Shares and Trust Class B Common Shares for
certificates evidencing the shares of Class A Common Stock or Class B Common
Stock of the Company to which such holder has become entitled. After receipt
of such transmittal forms, each holder of certificates formerly representing
Trust Class A Common Shares and Trust Class B Common Shares will be able to
surrender such certificates to the Exchange Agent, and each such holder will
receive in exchange certificates evidencing the number of shares of Class A
Common Stock or Class B Common Stock of the Company to which such holder is
entitled. Such transmittal forms will be accompanied by instructions
specifying other details of the exchange. HOLDERS OF COMMON SHARES OF THE
TRUST SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL
FORM.

After the Effective Time, each certificate evidencing Trust Class A Common
Shares or Trust Class B Common Shares, until so surrendered and exchanged,
will be deemed, for all purposes, to evidence only the right to receive the
number of shares of Class A Common Stock or Class B Common Stock of the
Company which the holder of such certificate is entitled to receive, without
interest. The holder of such unexchanged certificate will not be entitled to
receive any dividends or other distributions payable by the Company or to vote
the shares represented by such certificate until the certificate has been
exchanged. Following such exchange, such dividends or other distributions will
be paid to the holder entitled thereto, without interest.

28
<PAGE>

REPRESENTATIONS AND WARRANTIES

Because of the nature of this parent-subsidiary transaction, the Merger
Agreement contains only limited representations and warranties of the Company
and the Trust (which representations and warranties will terminate upon
consummation of the Merger) relating to, among other things, (a) the corporate
organization and qualification of each of the Company and the Trust and
certain similar organizational matters; (b) the capital structure of each of
the Company and the Trust; (c) the authorization, execution, delivery and
enforceability of the Merger Agreement and the consummation of the
transactions contemplated thereby and related matters; and (d) required
governmental filings and absence of violations under charters, bylaws,
material agreements, certain instruments and laws.

ADDITIONAL AGREEMENTS

As soon as practicable following the date of the Merger Agreement, the
Company and the Trust agree to prepare and file with the Securities and
Exchange Commission (the "Commission") this Proxy Statement/Prospectus and, as
soon as practicable following the effectiveness of the Registration Statement
(on Form S-4), duly call and hold a special meeting of the shareholders for
the purpose of approving the Merger Agreement and the transactions
contemplated hereby.

In addition, the Company, with the cooperation of the Trust, agreed to
prepare and file with the Commission a registration statement on Form S-1 with
respect to the Offering. The timing and size of the Offering will be subject
to prevailing market conditions and other conditions as may be taken into
account by the Board of Directors of the Company. Neither the Trust nor the
Company shall be obligated to cause the registration statement relating to the
Offering to be declared effective by the Commission if in either party's
judgment the Offering should not proceed.

STOCK OPTION AND BENEFIT PLANS

At the Effective Time, the Company shall assume the rights and obligations
of the Trust under the Trust's Prior Stock Plans. The Company shall treat as
having been issued under its Stock Incentive Plan all shares of restricted
stock, stock appreciation rights and stock options under the Prior Stock
Plans. At the Effective Time, each share of restricted stock, stock
appreciation right and stock option issued or granted under the Prior Stock
Plans shall be converted automatically into a share of restricted stock, stock
appreciation right or stock option, as the case may be, or with respect to
Class B Common Stock of the Company. The Company shall, as soon as practicable
following the Effective Time, register on Form S-8 or other appropriate form
the securities to be issued by the Company in connection with the assumption
of the Trust's obligations under the Prior Stock Plans.

CONDITIONS

The respective obligations of the Company and the Trust to effect the Merger
are subject to the following conditions, among others: (a) the approval and
adoption of the Merger Agreement and the transactions contemplated thereby by
the holder of the outstanding Trust Class A Common Shares and a majority of
the outstanding Trust Class B Common Shares, each voting separately as a
class, and by the Trust as the sole shareholder of the Company; (b) the
absence of written demands for appraisal rights (or objections made and not
withdrawn or otherwise lost) by Dissenting Shareholders (as defined in the
Merger Agreement) who in the aggregate hold at least 2/3 of the total
outstanding Trust Class B Common Shares held by all holders who are entitled
to seek appraisal rights under Section 8.7 of the Restated Declaration of
Trust; (c) the absence of injunctions, orders or other legal restraint
preventing the consummation of the Merger; (d) the receipt of all material
governmental authorizations, consents, orders or approvals; (e) the
effectiveness of the Registration Statement relating to the Merger, which
shall not be the subject of a stop order or proceedings seeking a stop order;
and (f) the consummation of the Offering on terms and conditions (including
size and price) satisfactory to the Company and the Trust.

29
<PAGE>

TERMINATION; EXPENSES

The Merger Agreement may be terminated at any time prior to the Effective
Time:

(a) by mutual consent of the Company and the Trust;

(b) by either the Company or the Trust if a court of competent jurisdiction
or other governmental entity shall have issued a nonappealable final order,
decree or ruling or taken any other action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger;

(c) by either the Company or the Trust, if at the Special Meeting (including
any adjournment or postponement), the requisite vote of the holders of the
Trust Class A Common Shares and Trust Class B Common Shares in favor of the
Merger Agreement and the Merger shall not have been obtained; or

(d) by either the Company or the Trust, if the registration statement
relating to the Offering shall not have become effective under the Securities
Act of 1933, as amended, or the Offering shall have been abandoned or not
otherwise consummated.

In the event of any termination of the Merger Agreement by either the
Company or the Trust as provided above, the Merger Agreement will become void
and there will be no liability or obligation on the part of the Company, the
Trust, or their respective officers, directors, trustees, shareholders or
affiliates.

All fees, costs and expenses incurred by the Trust and the Company in
connection with the Merger Agreement and the transactions contemplated thereby
shall be paid by the Trust if the Merger does not occur and by the Company if
the Merger does occur.

AMENDMENT AND WAIVER

The Merger Agreement may be amended at any time by action taken or
authorized by the Board of Trustees of the Trust and the Board of Directors of
the Company, but after approval by the holders of the Common Shares of the
Trust of the Merger Agreement and the transactions contemplated thereby, no
amendment shall be made which by law requires further approval by such holders
without such further approval. The Company and the Trust, by action taken or
authorized by the Board of Directors or the Board of Trustees, respectively,
may extend the time for performance of the obligations or other acts of the
other parties to the Merger Agreement, may waive inaccuracies in the
representations or warranties contained in the Merger Agreement and may waive
compliance with any agreements or conditions contained in the Merger
Agreement.

30
<PAGE>

FEDERATED

Overview. Federated is a leading provider of investment management products
and related financial services. Federated sponsors, markets and provides
investment advisory, distribution and administrative services primarily to
mutual funds. Federated has been in the mutual fund business for over 40 years
and is one of the ten largest mutual fund managers in the United States based
on assets under management. Federated assets under management at December 31,
1997 were $92.5 billion, primarily in funds managed, distributed and
administered by Federated and in other non-fund products ("Managed Assets"),
of which $2.1 billion were in separately managed accounts. In addition, at
year end 1997 Federated provided administrative services to mutual funds
sponsored by third parties, primarily banks.

Federated manages assets across a wide spectrum of asset categories
including substantial participation in fast-growing areas such as equity and
international investments. Many of Federated's products are ranked highly by
recognized industry sources based on investment performance relative to peer
funds. As of December 31, 1997, Federated had 80 managed funds eligible for
Morningstar, Inc. ratings. Of these funds, 73 (or 91%) are rated "three,"
"four" or "five" stars, and 39 (or 49%) are rated "four" or "five" stars,
placing Federated among the leaders in the mutual fund industry for percentage
of top-rated funds.

Federated has built a national reputation as a high quality provider of a
broad range of investment management products and related financial services.
Federated distributes its products through a diversified network of financial
intermediaries such as banks, brokers and other investment advisers who use
them to meet the needs of their customers; these customers include retail
investors, corporations, and retirement plans. Federated employs one of the
largest sales forces directed to financial intermediaries and institutions in
the industry with more than 175 sales representatives and managers across the
United States. Through substantial investments in distribution over the last
20 years, Federated has developed an extensive network of over 3,500 financial
institutions which sell Federated's products to their customers. Federated
also directly sells its products to more than 500 institutions such as
corporations and government entities.

Historically, Federated's mix of Managed Assets has been dominated by money
market and other fixed income assets where Federated continues to be among the
leading mutual fund managers based on assets under management. 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 to include international, aggressive growth, and small
capitalization equity products. Federated established a New York-based
investment management unit to develop global and international investment
products. Within Federated's Managed Asset categories, equity fund assets have
been the fastest growing class. In 1997, Federated's equity fund assets
increased by 54% compared to 37% for the overall industry according to
Investment Company Institute ("ICI") data. Equity fund assets have grown at a
49% compound annual rate over the past two years versus 38% for the overall
industry according to ICI data.

31
<PAGE>

projections, the number of Americans between the ages of 45 and 65 will grow
from 53.7 million in 1996 to 71.1 million in 2005, making this pre-retirement
age group the fastest growing segment of the U.S. population. The Company also
believes that it benefits from a developing industry trend toward
"intermediary assisted sales"--sales of mutual fund products through a
financial intermediary--driven by the array of options now available to
investors and the need for financial planning advice that has resulted from
the recent increase in the average household's financial assets. According to
the ICI, intermediary assisted sales for the year ended December 31, 1997
constituted 61.9% of the total dollar value of mutual fund sales, a figure
that has grown from 54.9% in 1994.

Background. Federated and its predecessors, founded by John F. Donahue and
Richard B. Fisher, have engaged in the mutual fund business since 1955. The
Company was a publicly-traded company until 1982, when an affiliate of Aetna
Life & Casualty Company ("Aetna") acquired the Company. In 1989 the Trust was
formed as a Delaware business trust and acquired the business of the Company
from Aetna for cash and 1,000 Series A Preferred Shares of the Trust. In
January 1996 Federated entered into an agreement with Aetna to convert all
1,000 Series A Preferred Shares into Trust Class B Common Shares and to sell
the converted shares back to Federated at a mutually agreed upon price. These
share repurchases were financed with borrowings under the Trust's current
credit facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 10 to the Consolidated Financial
Statements.

On February 20, 1998, the Board of Trustees of the Trust unanimously
determined that the Merger is in the best interests of the Trust and its
holders and approved the Merger Agreement and recommended approval and
adoption of the Merger Agreement and the transactions contemplated thereby to
the holders of the Trust. The purpose of the Merger is to convert the
organization of Federated from a Delaware business trust into a Pennsylvania
corporation in order to streamline the organizational structure by eliminating
the parent holding company and by utilizing a corporate entity, where the
rights and liabilities of the equity holders are well established and where
corporate equity securities may be used in connection with possible future
acquisitions. See "The Merger--Reasons for the Merger; Recommendation of the
Board of Trustees." Federated was organized as a Delaware business trust in
1989 in order to facilitate the acquisition of all of the outstanding stock of
the Company and the assets of the Federated Research Division from an
affiliate of Aetna. Aetna retained approximately a 27% interest in Federated
until 1996, at which time all of the outstanding shares of Federated held by
Aetna were repurchased. As a consequence of this repurchase, the Board of
Trustees has determined that the continuation of the business trust as the
parent of the Company no longer serves an essential business purpose.

The Board of Trustees of the Trust also believes that, as a result of the
Merger, the Company will be able to pursue more effectively opportunities for
growth through acquisitions. As a corporate entity, the Company's equity
securities, including "blank check" preferred stock and Class B Common Stock,
can be used in connection with possible future acquisitions and in capital
raising activities to promote growth. The provisions in the Restated Articles
to permit the holders of Class B Common Stock to vote in the election of a
majority of the Board of Directors in the event the Company enters into a
definitive agreement with respect to a business combination in which Class B
Common Stock would be issued in a transaction to be treated as a "pooling of
interests" for accounting purposes are also intended to facilitate growth by
acquisition. See "Description of Securities."

Upon the consummation of the Merger, the executive officers and directors of
the Company will own approximately 35.3% of the outstanding Class B Common
Stock of the Company, without giving effect to the Offering. After the
consummation of the Merger, all of the outstanding shares of Class A Common
Stock of the Company will continue to be owned by the Voting Trust, the
trustees of which are John F. Donahue, his wife and his son, J. Christopher
Donahue, for the benefit of the members of the family of John F. Donahue. The
entire voting power of the Company will be vested in the holders of the
outstanding shares of Class A Common Stock, except as otherwise provided in
the Restated Articles or required by applicable law. See "Principal
Shareholders."

32
<PAGE>

Federated is a Delaware business trust with its principal executive offices
located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and
its telephone number is (412) 288-1900. Federated owns all of the issued and
outstanding capital stock of the Company. The Company is a Pennsylvania
corporation, also with its principal executive offices located at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779, and its telephone number
is (412) 288-1900.

DIVIDEND POLICY

Since 1989, the ability of Federated to pay common and preferred share
dividends has been restricted by provisions of its debt agreements, which
provided that such distributions could be made only if certain conditions and
financial ratios were maintained. In 1995 Federated amended the debt
agreements to allow for the payment of the preferred share dividend and common
share dividend. A special cash dividend of $0.1667 per share was paid in 1995
to holders of Common Shares; a cash dividend of $0.417 per share was paid in
1996 to holders of Common Shares; and a cash dividend of $0.0583 per share was
paid in 1997 to holders of Trust Class A and Class B Common Shares. In
addition, a one for one stock dividend was paid in 1996 to record holders of
Trust Class A and Class B Common Shares, a one for one stock dividend was paid
on April 15, 1998 to record holders of Trust Class A and Class B Common
Shares, and a one for two stock dividend was declared on April 16, 1998 to be
paid on April 30, 1998 to holders of record of Trust Class A and Class B
Common Shares on April 21, 1998. All cash dividend per share amounts reflect
the effects of the 1996 and the 1998 stock dividends. For further information
regarding dividends, see Note 10 to the Consolidated Financial Statements.

Beginning in 1998 the Trust adopted a policy to declare and pay cash
dividends on a quarterly basis. A cash dividend of $.0208 per share was paid
on January 31, 1998, and a cash dividend of $.038 per share was declared on
April 14, 1998 to shareholders of record on April 20, 1998 for payment on
April 30, 1998. After the Merger, the declaration and payment by the Company
of dividends on its Common Stock and the amount thereof will depend upon the
Company's results of operations, financial condition, cash requirements,
restrictions imposed by lenders, future prospects and other factors deemed
relevant by the Company's Board of Directors. The Company is a holding company
and, as such, its ability to pay dividends is subject to the ability of
subsidiaries of the Company to provide cash to the Company. Under the Trust's
existing debt agreements which will be assumed by the Company under the terms
of the Merger, the Company will have no additional dividend paying capacity
for the year 1998 after making the cash dividend payments on April 30, 1998,
unless such restriction is modified or waived by the lenders. The Company will
seek to amend these provisions to permit the payment of regular quarterly cash
dividends at a level comparable to that paid in the second quarter of 1998.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Capital Resources and Liquidity--Debt Facilities" and Note 10
to the Consolidated Financial Statements.

33
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the Trust
and the Company as adjusted to give effect to the Merger as of December 31,
1997. The table does not give effect to the issuance by the Company of
authorized but unissued shares of its Class B Common Stock in the Offering,
which is a condition to the consummation of the Merger.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
COMPANY AFTER
FEDERATED MERGER
ACTUAL AS ADJUSTED
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt-recourse........... $ 280 $ 280
--------- --------
Long-term debt (less current portion):(1)
Recourse debt
Bank loans(2)....................................... 0 0
7.96% Notes......................................... 98,000 98,000
Other debt.......................................... 950 950
--------- --------
Total long-term debt-recourse...................... 98,950 98,950
--------- --------
Non-recourse debt(1)................................. 185,388 185,388
--------- --------
Total long-term debt............................... 284,338 284,338
--------- --------
Minority Interest..................................... 466 466
--------- --------
Shareholders' equity:
TRUST
PREFERRED SHARES:
Series A Cumulative Convertible, $1.00 stated value, 0 --
1,000 shares authorized, no shares issued and
outstanding........................................
Series B Cumulative, no par value, 125,000 shares 0 --
authorized, no shares issued and outstanding.......
Series C, no par value, 75,000 shares authorized, no 0 --
shares issued and outstanding......................
COMMON SHARES:
Class A (voting), $1.00 stated value, 99,000 shares 6 --
authorized, 6,000 shares issued and outstanding....
Class B (non-voting), $.01 stated value, 149,700,000 901 --
shares authorized, 83,427,000 shares issued and
outstanding(3)(4)..................................
COMPANY
PREFERRED STOCK: none authorized prior to the -- 0
Merger; as adjusted for the Merger, no par value
per share, 100,000,000 shares authorized, no shares
issued and outstanding.............................
COMMON STOCK:
Common Stock, $.05 par value per share, 10,000,000
shares authorized and 5,095,512 shares issued and
outstanding prior to the Merger; as adjusted for
the Merger, no par value per share, 900,020,000
shares authorized, 83,433,000 shares issued and
outstanding (divided into Class A and Class B
Common Stock)
Class A (voting), no par value per share, 20,000 -- 195
shares authorized, 6,000 shares issued and
outstanding........................................
Class B (non-voting), no par value per share, -- 29,286
900,000,000 shares authorized, 83,427,000 shares
issued and outstanding(3)..........................
Additional paid-in capital.......................... 28,574 --
Retained earnings................................... 55,139 (68,234)
Treasury stock...................................... (123,373) --
Other equity adjustments(5)......................... (2,357) (2,357)
--------- --------
Total shareholders' equity......................... (41,110) (41,110)
--------- --------
Total capitalization............................... $ 243,974 $243,974
========= ========
</TABLE>
- --------
(1) See Notes 5 and 6 to the Consolidated Financial Statements for additional
information concerning long-term debt and information concerning
restructuring of debt as a result of the B share financing in October 1997
under which Federated entered into a transaction with a third party to
market the rights to the future revenue stream associated with the 12b-1,
shareholder service and contingent deferred sales charge ("CDSC") fees of
the B shares of various mutual funds managed by Federated.
(2) No amounts are currently outstanding; approximately $148,961,000 is
available to be borrowed.
(3) Excludes Class B Common Shares issuable under the Trust's existing
Restricted Stock Plan, Stock Appreciation Rights Plan and Stock Incentive
Plan and any such shares that may be subject to issuance pursuant to the
Company's Stock Incentive Plan described under "Management--Compensation
Pursuant to Plans."
(4) Adjusted for the one for one stock dividend paid on April 15, 1998 and the
one for two stock dividend declared on April 16, 1998 to be paid on April
30, 1998.
(5) Includes equity adjustments for unrealized gain on marketable securities
net of tax, employee restricted stock plan, and equity adjustment for
foreign currency translation.

34
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction
with Federated's Consolidated Financial Statements and notes thereto. The
selected consolidated financial data (except Managed and Administered Assets)
of Federated for the five years ended December 31, 1997 have been derived from
the audited Consolidated Financial Statements of Federated. See "Consolidated
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Revenue.................. $265,977 $271,190 $279,831 $321,793 $403,719
-------- -------- -------- -------- --------
Operating Expenses:
Compensation and related...... 81,542 90,003 101,534 126,966 139,373
Other operating............... 91,936 115,077 104,885 134,308 141,004
Amortization and revaluation
of intangible assets......... 30,823 105,868 10,445 8,886 13,715
-------- -------- -------- -------- --------
Total Operating Expenses.... 204,301 310,948 216,864 270,160 294,092
-------- -------- -------- -------- --------
Operating income (loss)........ 61,676 (39,758) 62,967 51,633 109,627
Non-operating expenses......... 11,441 10,116 9,826 20,287 20,060
Minority interest.............. 4,656 4,070 5,801 6,811 7,584
Income tax provision (benefit). 14,363 (14,608) 18,809 10,930 30,957
-------- -------- -------- -------- --------
Income (loss) before
extraordinary item............ 31,216 (39,336) 28,531 13,605 51,026
Extraordinary item, net of tax. 0 0 0 986 449
-------- -------- -------- -------- --------
Net income (loss).............. 31,216 (39,336) 28,531 12,619 50,577
Dividends on Preferred
Shares(1)..................... 8,176 6,108 6,000 3,025 0
-------- -------- -------- -------- --------
Net income (loss) applicable to
Common Shares................. $ 23,040 $(45,444) $ 22,531 $ 9,594 $ 50,577
======== ======== ======== ======== ========
Cash dividends per Common
Share(2)...................... $ 0.00 $ 0.00 $ 0.1667 $ 0.0417 $ 0.0583
======== ======== ======== ======== ========
Earnings (loss) per Common
Share--basic
Income before extraordinary
item(2)....................... $ 0.27 $ (0.53) $ 0.25 $ 0.13 $ 0.62
======== ======== ======== ======== ========
Earnings (loss) per Common
Share--assuming dilution
Income before extraordinary
item(2)....................... $ 0.27 $ (0.53) $ 0.24 $ 0.13 $ 0.61
======== ======== ======== ======== ========
BALANCE SHEET DATA AT PERIOD
END:
Intangible assets, net........ $165,560 $ 74,413 $ 63,703 $ 69,105 $ 67,880
Total assets.................. 286,304 178,150 185,402 247,377 337,156
Long-term debt--Recourse...... 135,394 88,690 68,062 244,125 98,950
Long-term debt--
Nonrecourse(3)............... 0 0 0 0 185,388
Total liabilities............. 222,251 156,284 155,883 333,485 377,800
Shareholders' equity.......... 63,700 20,733 28,692 (86,922) (41,110)
BOOK VALUE PER COMMON SHARE.... $ 0.73 $ 0.23 $ 0.32 $ (1.04) $ (0.49)
======== ======== ======== ======== ========
MANAGED AND ADMINISTERED ASSETS
AT PERIOD END
(IN MILLIONS):
Money Market Funds............ $ 31,856 $ 31,528 $ 40,610 $ 51,163 $ 63,622
Fixed Income Funds............ 19,967 14,106 14,330 14,109 15,067
Equity Funds.................. 4,244 3,927 5,287 7,594 11,710
Separate Accounts............. 1,137 1,257 1,486 1,976 2,141
-------- -------- -------- -------- --------
Total Managed Assets......... $ 57,204 $ 50,818 $ 61,713 $ 74,842 $ 92,540
======== ======== ======== ======== ========
Total Administered Assets.... $ 19,505 $ 21,304 $ 22,089 $ 35,574 $ 46,999
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Termination dividend paid in January 1996 in connection with the
conversion of all outstanding Trust Series A Preferred Shares into Trust
Class B Common Shares and the repurchase of the converted shares by the
Trust. See Note 10 to Consolidated Financial Statements.
(2) Reflects the one for one stock dividend paid in 1996 and the one for one
stock dividend paid on April 15, 1998 and the one for two stock dividend
declared on April 16, 1998 to be paid on April 30, 1998.
(3) See Note 6 to the Consolidated Financial Statements for information
concerning nonrecourse debt.

35
<PAGE>

RECENT DEVELOPMENTS

Consolidated operating expenses for the first quarter of 1998 totaled $80.5
million, an increase of $10.4 million or 14.8% over the first quarter of 1997
operating expenses of $70.1 million. The increase in operating expenses was
due principally to increases in variable based compensation of $4.0 million as
a result of increased sales and profitability, a $2.7 million increase in
advertising and promotional expenses attributable to increased Managed Assets
and a $0.8 million increase in amortization of intangible assets as a result
of an acquisition occurring in the second quarter of 1997.

The tables below compare the summary unaudited financial and statistical
results:

<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
----------------------
SELECTED OPERATING DATA (IN THOUSANDS, EXCEPT PER SHARE
DATA) 1997 1998
- ------------------------------------------------------- ---------- -----------
<S> <C> <C>
Total Revenue............................................ $ 91,628 $ 118,987
Operating Expenses....................................... 70,137 80,486
---------- -----------
Operating Income......................................... 21,491 38,501
Nonoperating Expenses and Minority Interest.............. 6,983 6,756
---------- -----------
Income Before Income Taxes............................... 14,508 31,745
Income Tax Provision..................................... 5,664 10,908
---------- -----------
Net Income............................................... $ 8,844 $ 20,837
========== ===========
Earnings per Basic Common Share.......................... $0.11 $0.25
Earnings per Diluted Common Share........................ $0.11 $0.25
<CAPTION>
MARCH 31,
----------------------
MANAGED AND ADMINISTERED ASSETS (IN MILLIONS) 1997 1998
- --------------------------------------------- ---------- -----------
<S> <C> <C>
Money Market Funds....................................... $ 53,086 $ 64,215
Fixed Income Funds....................................... 13,788 15,601
Equity Funds............................................. 8,000 13,843
Separate Accounts........................................ 2,069 2,389
---------- -----------
Total Managed Assets................................... $ 76,943 $ 96,048
========== ===========
Total Administered Assets.............................. $ 38,860 $ 51,651
========== ===========
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
----------------------
AVERAGE MANAGED AND ADMINISTERED ASSETS (IN MILLIONS) 1997 1998
- ----------------------------------------------------- ---------- -----------
<S> <C> <C>
Managed Assets........................................... $77,087 $ 95,102
Administered Assets...................................... 39,228 49,946
</TABLE>

36
<PAGE>

Assets Under Management. Federated's Managed Assets were $96.0 billion at
March 31, 1998, an increase of $3.5 billion from December 31, 1997. Managed
Assets increased in each asset class. International and global Managed Assets
increased approximately $240 million from $1.2 billion to $1.4 billion.
Administered Assets were $51.7 billion at March 31, 1998, an increase of $4.7
billion from December 31, 1997.

Sales and net sales of both equity and fixed income managed funds
contributed positively to these asset changes in the first quarter of 1998.
Sales of equity funds totaled $1.4 billion and net sales (sales minus
redemptions) were $759 million. Sales of fixed income funds totaled $1.6
billion and net sales were $514 million. Most of the remaining asset increase
was due to the impact of favorable securities market conditions in the first
quarter of 1998. The S&P 500 index rose nearly 14% in the first quarter of
1998, and most other investment indices showed substantial increases. In
addition to creating favorable sales conditions, market appreciation increased
the value of Managed Assets. Under different market conditions, the Company's
performance could differ substantially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Economic and Market
Conditions."

The tables below compare Federated's Managed and Administered Assets by
Market as of:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1997 1998
--------- ------------ ---------
(IN MILLIONS)
<S> <C> <C> <C>
MANAGED ASSETS BY MARKET
- ------------------------
Bank Trust Market............................. $40,982 $49,662 $49,741
Broker/Dealer Market.......................... 23,368 28,256 31,662
Institutional Market.......................... 9,755 11,343 11,266
Other Markets................................. 2,838 3,279 3,379
------- ------- -------
Total Managed Assets by Market.............. $76,943 $92,540 $96,048
======= ======= =======
MANAGED ASSETS BY BANK TRUST MARKET
- -----------------------------------
Money Market Funds/Cash Equivalent............ $32,933 $40,897 $40,391
Fixed Income Funds............................ 5,163 5,070 5,047
Equity Funds.................................. 2,886 3,695 4,303
------- ------- -------
Total Managed Assets by Bank Trust Market... $40,982 $49,662 $49,741
======= ======= =======
MANAGED ASSETS BY BROKER/DEALER MARKET
- --------------------------------------
Money Market Funds/Cash Equivalent............ $13,608 $15,293 $17,103
Fixed Income Funds............................ 5,614 6,566 6,956
Equity Funds.................................. 4,128 6,376 7,582
Separate Accounts............................. 18 21 21
------- ------- -------
Total Managed Assets by Broker/Dealer
Market..................................... $23,368 $28,256 $31,662
======= ======= =======
MANAGED ASSETS BY INSTITUTIONAL MARKET
- --------------------------------------
Money Market Funds/Cash Equivalent............ $ 5,744 $ 6,698 $ 5,973
Fixed Income Funds............................ 1,474 1,825 2,018
Equity Funds.................................. 501 749 964
Separate Accounts............................. 2,036 2,071 2,311
------- ------- -------
Total Managed Assets by Institutional
Market..................................... $ 9,755 $11,343 $11,266
======= ======= =======
</TABLE>

37
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of Federated and the related notes thereto
included in this Proxy Statement/Prospectus.

OVERVIEW

Federated, through its direct and indirect subsidiaries, is a leading
provider of investment management products and related financial services.
Federated sponsors, markets and provides investment advisory, distribution and
administrative services primarily to mutual funds.

Managed Assets at December 31, 1997 were $92.5 billion, primarily in funds
managed, distributed and administered by Federated and in other non-fund
products, of which $2.1 billion were in separately managed accounts. Federated
provided investment advisory services to 61 pooled investment entities,
primarily registered investment companies with 124 funds and 238 share
classes. In addition, at year end 1997 Federated provided administration
services to mutual funds sponsored by third parties, primarily banks, having
$47.0 billion of assets. These Administered Assets were held in 59 registered
investment companies with 206 funds and 267 share classes.

FEDERATED FIRST

In late 1996, Federated initiated a comprehensive review of its business
strategies in order to position itself for increased profitability, long term
sustainable growth and enhanced shareholder value ("Federated First"). This
review includes the products, markets and operations of Federated. The
financial results of the initiatives undertaken by management during this
period have been positive. Net income increased by $38.0 million or 300.8%
when comparing 1997 results to 1996 in substantial part as a result of these
initiatives. Managed Assets have increased from $74.8 billion at the end of
1996 to $92.5 billion at the end of 1997, an increase of 23.6%. Administered
Assets increased by $11.4 billion in this same period, an increase of 32.1%.
However, 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.

The business review generated major initiatives to more rapidly grow assets
under management while maintaining or further enhancing the service levels to
customers in a manner which increases the profitability of Federated and
reaffirmed Federated's commitment to its equity and international fund
strategy. These major initiatives include (1) refocusing the marketing of
Federated's service capabilities to emphasize fund administration and
strategic marketing which support the growth of Administered Assets rather
than selling individual services such as transfer agent and fund accounting as
stand alone products, (2) an increase in the fee structure coupled with
improved efficiency as a result of a more standardized product offering
related to the retirement plan recordkeeping unit, (3) a reengineering of the
shareholder servicing activities to provide more effective, efficient and
seamless service to fund shareholders, (4) an agreement commencing in the
fourth quarter of 1997 with State Street Corporation ("State Street") to
provide portfolio accounting services to both Federated and third party
administered funds, (5) a continued emphasis on equity and international fund
management including the further development of its international management
unit in New York City and expanding marketing efforts including an advertising
campaign to enhance the awareness of the "Federated" brand name, (6)
increasing assets under management through acquisitions, (7) acceleration of
Federated's investment in the development of an improved management
information system and support resources to improve its ability to analyze
customer, product and market profitability, and (8) utilizing the capital
markets as a means to fund advance commissions paid to broker/dealers on the B
share class of funds, increasing liquidity as well as removing the risks and
uncertainties associated with the recapture of these commission assets.

38
<PAGE>

PROFITABILITY TREND SUMMARY

This discussion on "Profitability Trend Summary" should be read in
conjunction with the tables presented below.

MANAGED AND ADMINISTERED ASSETS, PERCENTAGE OF REVENUE AND KEY RATIOS

MANAGED AND ADMINISTERED ASSETS (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Money Market Funds..................... $31,856 $31,528 $40,610 $51,163 $63,622
Fixed Income Funds..................... 19,967 14,106 14,330 14,109 15,067
Equity Funds........................... 4,244 3,927 5,287 7,594 11,710
Separate Accounts...................... 1,137 1,257 1,486 1,976 2,141
------- ------- ------- ------- -------
Total Managed Assets................. $57,204 $50,818 $61,713 $74,842 $92,540
======= ======= ======= ======= =======
Total Administered Assets............ $19,505 $21,304 $22,089 $35,574 $46,999
======= ======= ======= ======= =======
</TABLE>

AVERAGE MANAGED AND ADMINISTERED ASSETS (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Managed Assets.......................... $55,513 $54,011 $55,847 $66,138 $81,580
Administered Assets..................... 16,104 20,405 23,284 26,197 42,965
</TABLE>

MANAGED ASSETS (PERCENTAGE OF TOTAL)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Money Market Funds........................... 55.7% 62.0% 65.8% 68.4% 68.8%
Fixed Income Funds........................... 34.9 27.8 23.2 18.9 16.3
Equity Funds................................. 7.4 7.7 8.6 10.1 12.6
Separate Accounts............................ 2.0 2.5 2.4 2.6 2.3
------ ------ ------ ------ ------
Total Managed Assets....................... 100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>

39
<PAGE>

PERCENTAGE OF REVENUE

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Managed Assets....................................... 90% 84% 82% 86% 86%
Administered Assets.................................. 9 13 15 11 12
Other Income......................................... 1 3 3 3 2
--- --- --- --- ---
Total Revenue...................................... 100 100 100 100 100
--- --- --- --- ---
Compensation and Related Expenses.................... 31 33 36 39 35
Amortization of Deferred Sales Commissions........... 5 6 3 4 5
Amortization and Revaluation of Intangible Assets.... 11 39 4 3 3
Other Operating Expenses............................. 30 37 34 38 30
--- --- --- --- ---
Total Operating Expenses........................... 77 115 77 84 73
--- --- --- --- ---
Operating Income (Loss).......................... 23% (15)% 23% 16% 27%
=== === === === ===
</TABLE>

KEY RATIOS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Federated Managed Product Fees as a
Percentage of
Average Managed Assets......................... 0.43% 0.42% 0.41% 0.42% 0.43%
Non-Federated Fund Administrative and Other
Service Fees as a
Percentage of Average Administered Assets...... 0.15% 0.17% 0.18% 0.14% 0.11%
</TABLE>

Managed Assets. For the period from December 31, 1993 through December 31,
1997, total Managed Assets increased $35.3 billion, or 61.8%. The increase in
Managed Assets is attributed primarily to the $31.8 billion (99.7%) increase
in money market funds and a $7.5 billion (175.9%) increase in equity funds
offset by a $4.9 billion (24.5%) decrease in fixed income funds.

The increase in money market assets is largely due to Federated's expansion
of its distribution of cash management products for both institutional and
retail applications. The changes in the equity and fixed income managed asset
mix are primarily due to changes in market demand for mutual funds, market
conditions, and Federated's investment management and distribution efforts.

Market demand for mutual fund products has shifted, reflecting a strong
preference for equity funds. At the end of 1993, total industry assets
(excluding money market funds) were approximately 50% equity and 50% fixed
income. By the end of 1997, this mix had shifted to 71% equity and 29% fixed
income. Market conditions contributed to this shift as relatively higher
returns in the equity markets created a favorable sales environment and led to
net asset value appreciation in equity funds. Conversely, in 1994 rapidly
rising interest rates led to reduced returns and reduced net asset values of
most fixed income mutual funds.

Driven by these patterns, Federated has increased its efforts to raise
equity fund Managed Assets by developing new products, increasing investments
in distribution, and by expanding its investment management capabilities, most
notably by forming a New York-based global investment management group in
1995.

Federated's managed product fees per dollar of average Managed Assets during
this period reflect these trends. These fees decreased from 0.43% of average
Managed Assets in 1993 to 0.41% in 1995 due largely to the decrease in fixed
income fund Managed Assets. Since 1995, these fees have increased back to
0.43% due principally to the growth of equity fund Managed Assets.

Administered Assets. For the period from December 31, 1993 through December
31, 1997, total Administered Assets increased $27.5 billion, or 141.0%. During
this period, Federated developed its service

40
<PAGE>

businesses to provide administration, transfer agency, portfolio accounting,
retirement plan recordkeeping and administration, and other services to third
party funds, retirement plans and other customers. While the level of assets
has increased over the period discussed, competition has forced the fees
realized from these service lines downward over the past few years. In
addition, some third-party mutual fund sponsors have developed the ability to
internalize fund administration functions. Internalization of certain of these
services has resulted in reductions in the level of services provided by
Federated to certain customers. The combination of price competition and
reduced service levels has resulted in overall lower fees per dollar
administered. Recently, Federated has received notice from a client for which
it provides limited administrative services that the client has decided to
internalize such services and therefore will end its service arrangement with
Federated in mid-1998. This client had administered assets of $17.4 billion as
of December 31, 1997; however, due to the limited administrative services
provided, revenues associated with such assets represented less than 0.5% of
Federated's 1997 total revenue.

RESULTS OF OPERATIONS

General

Federated derives nearly all of its revenue through advising, distributing
and servicing of proprietary and third party mutual funds, separately managed
accounts and other related products. Investment advisory fees are the largest
source of revenue and are derived by providing investment advice to the
various proprietary funds and other products. Distribution related fees are
earned as a result of marketing the funds through Federated's bank trust
department, broker/dealer, institutional and other sales channels. Servicing
fees include administration services, portfolio accounting and shareholder
servicing of the funds. In addition to services provided for the funds and
separate accounts, Federated also provides recordkeeping and administration to
retirement plans as well as clearing services to bank trust departments for
their investments in registered investment companies.

Investment advisory, distribution and the majority of the servicing fees are
based on the net asset value of the investment portfolios managed or
administered by Federated. As such, these revenues are dependent upon factors
including market conditions and the ability to attract and maintain assets.
Accordingly, revenues will fluctuate with changes in the total value and
composition of the assets under management or administration. Investment
advisory and administration related service fees are generally paid daily,
while distribution fees are paid to Federated on a monthly basis. Portfolio
accounting related service fees are also generally asset based, however they
incorporate certain flat fees for additional share classes. Transfer agency
related service fees are based principally on the level of shareholder
accounts maintained by each of the funds. Both portfolio accounting and
transfer agency fees are paid on a monthly basis.

Federated's expenses are largely centered around employee and related office
support expenditures, marketing related costs, the amortization of deferred
sales commissions and the amortization of intangible assets. Federated's
largest operating expenses are employee related. These expenses include
employee salaries, incentives, benefits, travel and related entertainment,
office space, and office related services and supplies. These expenses
generally rise and fall in relative proportion to the number of employees
retained by Federated. Marketing costs generally vary based on the type and
level of marketing or sales programs in operation. Amortization of deferred
sales commissions will fluctuate based on the overall level of sales of
certain shares of funds in which Federated advances a commission to brokers,
while amortization of intangible assets will vary based on the overall level
of intangible assets recorded and their estimated useful life.

Over the past five years, investments have been made in new products and
services which have resulted in a steady increase in the number of Federated
employees. These investments include new fund offerings, in particular equity
and international funds, the expansion of sales efforts in the broker/dealer
and institutional markets, the increased investment in advisory personnel, and
the expansion or introduction of transfer agency, portfolio accounting,
retirement plan recordkeeping and administration, and clearing services.

As part of management's review of the business strategies and resulting
initiatives, in November 1997, Federated entered into an agreement with State
Street, the largest provider of portfolio accounting services to the

41
<PAGE>

mutual fund industry, to provide portfolio accounting and financial
information analysis services for both the Federated sponsored and third party
funds on a sub-contracted basis. Federated will continue to directly provide
tax and certain treasury functions to the funds. This agreement is part of
Federated's strategy to focus resources on its core business of asset
management and enables Federated to (1) benefit by partnering with a firm that
is committed to the future investments required to continue providing
outstanding portfolio accounting services, (2) reduce the risk associated with
providing portfolio accounting services, and (3) improve cost management. This
alliance is not anticipated to materially alter Federated's revenues or
expenses; however, Federated has significantly reduced the number of its
employees engaged in these services.

The amortization of deferred sales commissions to brokers is a result of a
marketing program in which Federated pays a commission to unaffiliated
securities broker/dealers at the time they generate a sale into certain
classes of funds managed by Federated. The upfront payment to the broker is
based on a percentage of the original purchase into the mutual fund. These
payments are capitalized and recorded as deferred sales commissions and are
amortized on a straight line basis over estimated periods of benefit not to
exceed contingent deferred sales charge periods. If shares are redeemed before
a certain time period, the shareholder is normally required to pay to
Federated a contingent deferred sales charge ("CDSC") based on a percentage of
assets at the time of redemption, which diminishes over a recovery schedule
not to exceed six years. Upon receipt, CDSCs are treated as a reduction of the
related deferred sales commissions asset. In the fourth quarter of 1997,
Federated sold its rights to certain future revenue streams associated with
its existing B share advance commissions. Federated received $191.3 million
which was utilized to repay the outstanding balance of a revolving line of
credit and bank term debt, providing an increase in liquidity in the form of
credit availability from approximately $44 million prior to the transaction to
approximately $149 million. The agreement also provides for Federated to sell,
in regular intervals, the rights to such future revenue streams during a three
year contract period.

Amortization of intangible assets is primarily the result of Federated's
acquiring 100% of the outstanding stock of the Company and certain assets from
Aetna in August 1989 as well as the acquisition of customer relationships from
other fund companies in 1996 and 1997.

Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996

Net Income. Federated's consolidated net income applicable to Common Stock
for the year ended December 31, 1997 was $50.6 million ($0.60 per diluted
Common Share) as compared to 1996 of $9.6 million ($0.12 per diluted Common
Share), an increase of $41.0 million ($0.48 per diluted Common Share) or
427.2%. The improved performance was the result of revenue growth of $81.9
million, largely generated from higher levels of managed and administered
assets, coupled with expense management.

Revenue. Federated's consolidated revenue for the year ended December 31,
1997 was $403.7 million as compared to the year ended December 31, 1996 of
$321.8 million, an increase of $81.9 million or 25.5%. The primary reason
behind the overall increase in revenue was the enhanced revenue generated by
the management and servicing of the Federated funds and other products which
accounted for $71.9 million, or 87.7% of the total increase. This was
principally the result of an increase in average managed assets of $15.5
billion (23.3%) from $66.1 billion for the year ended December 31, 1996 to
$81.6 billion for 1997. In addition, asset composition changed from 18.9%
fixed income funds and 10.1% equity funds at December 31, 1996 to 16.3% fixed
income funds and 12.6% equity funds at December 31, 1997. Generally equity
funds produce higher revenues as a percentage of assets than fixed income
funds. An increase in average administered assets of $16.8 billion (64.0%)
accounted for the additional servicing revenue of $9.0 million, or 10.9% of
the total increase in revenue. Managed assets increased due principally to new
assets from customers and increases in the market value of existing assets
under management. The increase in average administered assets was due
principally to the full year impact of Federated's obtaining in late 1996
administration, sub-administration and distribution agreements and increases
in the assets of existing customers.

42
<PAGE>

Operating Expenses. Total operating expenses increased from $270.2 million
for the year ended December 31, 1996 to $294.1 million for 1997, an increase
of $23.9 million or 8.9%.

Compensation and related expenses for the year ended December 31, 1997 were
$139.4 million as compared to 1996 of $127.0 million, an increase of $12.4
million or 9.8%. This increase was primarily due to the average number of
employees increasing between these two periods by 141 or 7.4%, as well as an
increase in incentive compensation expense as a result of increased sales and
favorable investment performance as compared to benchmarks and improved
financial performance of Federated. This change does not reflect the reduction
in the number of employees due to the strategic alliance with State Street.
Staff growth was experienced in the areas of investment research, with
continued emphasis in domestic and global portfolio management, and in various
service areas.

Amortization of deferred sales commissions was $20.9 million for the year
ended December 31, 1997, an increase of $8.6 million (69.1%) over the 1996
amount of $12.3 million. This increase was due to the continued sale of shares
of funds which require Federated to advance a commission to the broker/dealer
and the related growth in the deferred sales commissions which totaled $164.6
million and $85.9 million as of December 31, 1997 and 1996, respectively.

Office and occupancy expense was $28.6 million for the year ended December
31, 1997, a decrease of $1.3 million or 4.2% as compared to the $29.9 million
recorded for the year ended December 31, 1996. This decrease was primarily due
to the reduction of rent expense as the result of the early termination of
leased space, a reduction in leasehold improvement depreciation and a
reduction in other office expenses.

Systems and communications expense increased from $22.3 million for the year
ended December 31, 1996 to $23.4 million for 1997, an increase of $1.1 million
or 4.9%. This was principally due to an increase in costs related to third
party system vendors.

Advertising and promotional expenses were $35.0 million for the year ended
December 31, 1997 as compared to $31.0 million for 1996, an increase of $4.0
million or 12.9%. The primary reason for this increase was an increase in the
level of assets of various funds, resulting in higher levels of marketing
allowances being paid to brokers and bank clients for retail marketing
efforts.

Travel and related expenses decreased by $1.1 million or 6.9% from $15.9
million for the year ended December 31, 1996 to $14.8 million for the year
ended December 31, 1997. The reduction in cost was principally the result of
management's initiative to reduce discretionary spending in this expense
category by negotiating more favorable discount arrangements with travel
related vendors and improved overall expense management.

Other expense consists of corporate insurance, professional service fees
such as auditing, legal and consulting expenditures, bad debt expense and
other miscellaneous expenditures. This category experienced a decrease of $4.6
million or 20.0% from $22.9 million for the year ended December 31, 1996 to
$18.3 million for 1997. This reduction was principally the result of the
decreased utilization of professional services, the reduction of taxes other
than income taxes and the reduction of reserves for errors related to the
various service businesses.

Amortization of intangible assets increased by $4.8 million (54.3%) to $13.7
million for the year ended December 31, 1997 as compared to $8.9 million for
1996. This expense increased as a result of the purchase of several customer
relationships in late 1996 and throughout 1997 and the resulting allocation of
a portion of the purchase price to intangible assets on Federated's balance
sheet.

43
<PAGE>

Nonoperating Expenses. Nonoperating expenses decreased by $227 thousand or
1.1% to $20.1 million for the year ended December 31, 1997 as compared to
$20.3 million for 1996. Interest expense increased by $299 thousand or 1.6%
from $18.6 million for the year ended December 31, 1996 to $18.9 million for
1997. Other debt expense was $1.2 million for the year ended December 31,
1997, a decrease of $526 thousand (30.5%) from the $1.7 million recorded for
the year ended December 31, 1996. The decrease was due to the early prepayment
of term debt as a result of a debt restructuring in mid-1996 as well as the
prepayment of the remaining term debt in October 1997. In both instances, the
allocable unamortized portions of the debt issuance costs related to the term
debt which was prepaid was recorded as an extraordinary item, net of tax.

Minority Interest. The minority interest increased from $6.8 million for the
year ended December 31, 1996 to $7.6 million for 1997, an increase of $773
thousand or 11.3%. This increase was a result of a higher level of net income
of the subsidiary for which Federated acts as the general partner with a
majority interest of 50.5%.

Income Taxes. The income tax provision for the year ended December 31, 1997
was $30.9 million, an increase of $20.0 million or 183.2% as compared to the
$10.9 million recorded in 1996. This increase was due principally to the $57.4
million or 234.1% increase in the level of income before income taxes and
extraordinary item recorded for the year ended December 31, 1997 as compared
to 1996. The effective tax rate for Federated was 37.8% and 44.5% for the
years ended December 31, 1997 and 1996, respectively. The increased rate above
the statutory rate of 35% for both periods was primarily the result of the
nondeductible amortization of goodwill and the statutory limitation on the
deductibility of meals and entertainment.

Dividends on Preferred Shares. There were no dividends on preferred shares
for the year ended December 31, 1997 as compared to $3.0 million for the year
ended December 31, 1996 as a result of the purchase of Federated's preferred
shares from the shareholder in 1996.

Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995

Net Income. Federated's consolidated net income applicable to common stock
for the year ended December 31, 1996 was $9.6 million ($0.12 per diluted
Common Share) as compared to the year ended December 31, 1995 of $22.5 million
($0.24 per diluted Common Share), a decrease of $12.9 million ($0.12 per
diluted Common Share) or 57.4%. The decrease in net income was due principally
to reduced fees generated per administered asset by the servicing lines of
business as well as increased expense levels as described below.

Revenue. Federated's consolidated revenue for the year ended December 31,
1996 was $321.8 million as compared to the year ended December 31, 1995 of
$279.8 million, an increase of $42.0 million or 15.0%. The net increase in
revenue was due to the enhanced revenue generated by the management and
servicing of the Federated funds and other products which accounted for $45.1
million, or 107.4% of the total increase. This was principally the result of
an increase in average managed assets of $10.3 billion (18.4%) from $55.8
billion for the year ended December 31, 1995 to $66.1 billion for 1996. While
Federated experienced an increase in average administered assets of $2.9
billion or 12.5% for the year ended 1996 versus 1995, the combination of the
composition of customers, the relatively lower level of services provided to
these customers and market forces reducing fees within the servicing lines of
business resulted in a net decrease in servicing revenue to administered
assets of $3.9 million, or 9.5%. In addition, asset composition changed from
23.2% fixed income funds, 65.8% money market funds and 8.6% equity funds at
December 31, 1995 to 18.9% fixed income funds, 68.4% money market funds and
10.1% equity funds at the end of 1996. Federated product asset increases
resulted from new assets from customers, increases in the market value of
existing assets under management, and the purchase of certain customer
relationships. The increase in average administered assets was due principally
to increases in the assets of existing customers.

Operating Expenses. Total operating expenses experienced an increase from
$216.9 million for the year ended December 31, 1995 to $270.2 million for
1996, an increase of $53.3 million or 24.6%.

Compensation and related expenses for the year ended December 31, 1996 were
$126.9 million as compared to the year ended December 31, 1995 of $101.5
million, an increase of $25.4 million or 25.0%. This increase

44
<PAGE>

was primarily due to the average number of employees increasing between these
two periods by 197 or 11.1% as well as an increase in the average salary per
employee of 11.9%. Increases in employment levels were experienced across the
organization, with emphasis in investment research and various service areas.
The average salary per employee increased principally as a result of increases
in compensation levels of certain employees for competitive purposes.

Amortization of deferred sales commissions was $12.3 million for the year
ended December 31, 1996, an increase of $2.8 million (29.3%) over the year
ended December 31, 1995 amount of $9.5 million. This increase was due to the
continued sale of shares of funds which require Federated to advance a
commission to the broker/dealer and the related growth in the deferred sales
commissions which totaled $85.9 million and $36.8 million as of December 31,
1996 and 1995, respectively.

Office and occupancy expense was $29.9 million for the year ended December
31, 1996, an increase of $6.6 million or 28.3% over the $23.3 million recorded
for the year ended December 31, 1995. This increase was primarily due to
increased rental costs and depreciation of leasehold improvements related to
the addition of rental property in January 1996 to accommodate the growing
retirement plan services division, depreciation expense on computer related
hardware and software purchased throughout 1995 and 1996 and the overall
increase in general office expenses related to the higher level of employment.

Systems and communications expense decreased from $22.8 million for the year
ended December 31, 1995 to $22.3 million for the year ended December 31, 1996,
a decrease of $0.5 million or 2.4%.

Advertising and promotional expenses were $31.0 million for the year ended
December 31, 1996 as compared to $21.5 million for the year ended December 31,
1995, an increase of $9.5 million or 44.3%. The primary reason for this
increase was an increase in the level of assets of various funds, resulting in
higher levels of marketing allowances being paid to brokers and bank clients
for retailing efforts of marketing these funds. Additionally, in 1996
Federated launched a nationwide campaign to increase brand recognition of the
Federated funds.

Travel and related expenses increased by $3.1 million or 24.2% from $12.8
million for the year ended December 31, 1995 to $15.9 million for the year
ended December 31, 1996. The increase was due principally to increased travel
related to the marketing and sales efforts of the various products.

Other expense experienced an increase of $8.0 million or 53.4% from $14.9
million for the year ended December 31, 1995 to $22.9 million for the year
ended December 31, 1996. This increase was principally the result of the
increased utilization of professional services in 1996, specifically in
relation to the consulting expenditures related to management's review of its
business strategies, an increase in taxes other than income taxes, the
expensing of obsolete marketing related material and an increase in bad debt
expense and the impairment of assets related to the retirement plan unit.

Amortization of intangible assets decreased by $1.5 million or 14.9% to $8.9
million for the year ended December 31, 1996 as compared to $10.4 million for
1995 as a result of certain intangible assets being fully amortized.

Nonoperating Expenses. Nonoperating expenses increased by $10.5 million or
106.5% to $20.3 million for the year ended December 31, 1996 as compared to
$9.8 million for the year ended December 31, 1995. Interest expense increased
by $9.2 million or 97.2% as a result of an increase in the average debt
outstanding from $115 million in 1995 to $249 million in 1996. This increase
was primarily due to the issuance of long term debt to fund the purchase of
Federated's stock from major shareholders and the use of a line of credit to
fund the higher levels of deferred sales commissions specifically related to
the B share class of funds. Other debt expense was $1.7 million for the year
ended December 31, 1996, an increase of $1.3 million or 317.4% from the $0.4
million recorded in 1995 due principally to the increased amortization related
to the issuance costs of the long term debt acquired in 1996.

45
<PAGE>

Minority Interest. The minority interest increased from $5.8 million for the
year ended December 31, 1995 to $6.8 million for the year ended December 31,
1996, an increase of $1.0 million or 17.4%. This increase was a result of a
higher level of net income of the subsidiary for which Federated acts as the
general partner with a majority interest of 50.5%.

Income Taxes. The income tax provision for the year ended December 31, 1996
was $10.9 million, a decrease of $7.9 million or 41.9% as compared to the
$18.8 million recorded for 1995 primarily due to the $22.8 million or 48.2%
decrease in the level of income before income taxes and extraordinary item
recorded for the year ended December 31, 1996 as compared to the year ended
December 31, 1995. The effective tax rate for Federated was 44.5% and 39.7%
for the years ended December 31, 1996 and 1995, respectively. The increased
rate above the statutory rate of 35% for both periods was primarily the result
of the nondeductible amortization of goodwill and the statutory limitation on
the deductibility of meals and entertainment.

Dividends on Preferred Shares. Dividends on preferred shares were $3.0
million for the year ended December 31, 1996 compared to $6.0 million for the
year ended December 31, 1995, a decrease of $3.0 million or 49.6% as a result
of the purchase of Federated's preferred shares from the shareholder in 1996.

CAPITAL RESOURCES AND LIQUIDITY

Cash Flow. Historically, Federated generally financed its business from the
cash flow generated from operating activities and through a bank line of
credit. Cash provided by operating activities totaled $15.1 million, $27.5
million and $23.7 million for the years ended December 31, 1997, 1996 and
1995, respectively. The cash flow from operating activities along with a
revolving line of credit is primarily utilized for the financing of deferred
commissions to brokers, purchases of equipment, acquisitions, dividend
payments, as well as payments on long term debt.

The recourse debt held by Federated decreased $160.6 million and increased
$129.0 million and $21.0 million for the years ended December 31, 1997, 1996
and 1995, respectively. In 1997, proceeds from the sale of certain future cash
streams related to the B shares was utilized to reduce recourse debt by $159.6
million. Federated utilized debt in 1996 to purchase a portion of its stock
from major shareholders for $123.7 million as well as to fund the growth in
deferred sales commissions.

The deferred sales commissions paid to broker/dealers on certain shares of
funds totaled $111.6 million, $69.6 million and $40.1 million for 1997, 1996
and 1995, respectively. In October 1997, Federated sold for $110.2 million the
rights to certain future revenue streams associated with the B share advance
commissions as of March 31, 1997. An agreement was entered into with a special
purpose entity whose sole purpose was to purchase Federated's future rights to
the 12b-1, CDSC and shareholder service fees of the B shares of certain funds
from the inception of the B share program through sales incurred through March
31, 1997. In order to fund this purchase from Federated, the special purpose
entity issued two debt securities, Class A and Class B, for $104.4 million and
$9.7 million, respectively. These debt securities will be repaid solely from
the 12b-1, CDSC and shareholder service fee cash flows generated by these B
share assets and there is no recourse to Federated. The Class A debt carries a
fixed interest rate of 7.44% while the Class B debt has a fixed interest rate
of 9.80%. The transaction has been accounted for as a financing and the
nonrecourse debt has been reflected in the consolidated balance sheet. Also in
the fourth quarter of 1997, Federated sold for $81.1 million the rights to
certain future revenue streams associated with the B share advance commissions
for sales from April 1, 1997 through December 15, 1997. For accounting
purposes, these transactions were treated as financings and nonrecourse debt
has been recorded with an imputed interest rate of 7.6%. Additionally,
Federated continues to sell future revenue streams associated with the B share
advance commissions ("Revenue Streams") pursuant to a Revolving Purchase
Agreement ("Revolving Purchase Agreement"), dated as of October 24, 1997,
among Federated Funding 1997-1, Inc., a special purpose entity established by
Federated (the "Seller"), and PLT Finance, L.P. (the "Revolving Purchaser"),
an entity in which Federated holds no interest. Under the Revolving Purchase
Agreement, the Seller agrees to sell Revenue Streams, and the Revolving
Purchaser agrees to purchase such Revenue Streams, twice each month until the
Agreement terminates on October 24, 2000, or such later date as agreed to in
writing by the

46
<PAGE>

parties. The purchase price with respect to any future sale of Revenue Streams
will be calculated as a percentage of the value of the B share fund sales. In
addition, if the Revolving Purchaser realizes revenues in excess of a certain
threshold (as computed in accordance with the terms of the Revolving Purchase
Agreement), the Revolving Purchaser, under certain circumstances, is obligated
to remit a portion of such excess revenues to Federated. Payments made by the
special purpose entity and other payments made with respect to related
nonrecourse debt totaled $9.8 million in 1997.

The October 1997 sales of certain future cash flows related to the advanced
commissions made by Federated through September 1997 was utilized to eliminate
bank debt held within a revolving line of credit and term debt. Under the debt
agreement with the bank, the term debt is considered prepaid and cannot be
reborrowed. The revolving line of credit will provide an increase in liquidity
for Federated in the form of credit availability of $149.0 million and is in
place through January 31, 2001.

Capital Expenditures. Capital expenditures totaled $3.1 million, $12.4
million and $7.4 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Capital expenditures include the investment in technology,
furniture and equipment, and leasehold improvements. Management expects
capital expenditures in 1998 to exceed $10 million, exclusive of Year 2000
project costs described under "Year 2000 Disclosure".

Dividends. Federated is a holding company and, as such, its ability to pay
dividends is subject to the ability of its subsidiaries to provide cash to the
holding company. After the Merger, the declaration and payment by Federated of
dividends on its Common Stock and the amount thereof will depend upon its
results of operations, financial condition, cash requirements, restrictions
imposed by lenders, future prospects and other factors deemed relevant by the
Board of Directors. Beginning in 1998 Federated adopted a policy to declare
and pay cash dividends on a quarterly basis. Under the Senior Secured Credit
Agreement, the most restrictive of the Federated's debt facilities, at March
31, 1998, $3,260,000 was available for payment of dividends. On April 30,
1998, cash dividends in the amount of $3,170,000 will be paid. Federated is
seeking to amend the provisions of the Senior Secured Credit Agreement
regarding dividends and other distributions to permit the payment of regular
quarterly cash dividends at a level comparable to that paid in the second
quarter of 1998 and to amend certain other covenants and provisions.

Under the Note Purchase Agreement the Trust is restricted from making
certain payments, including the payment of dividends, unless (1) such payments
do not exceed the sum of $5,000,000 plus 50% of the Trust's net income during
the period from January 1, 1996 to and including the date of payment and (2)
after giving effect to the payment, the Trust is not in default or potentially
in default of the Note Purchase Agreement. At March 31, 1998, $36,913,000 was
available for the payment of dividends under the provisions of the Note
Purchase Agreement. See Note 10 to the Consolidated Financial Statements.

Debt Facilities. Federated has the following recourse debt facilities:
Senior Secured Credit Agreement and Note Purchase Agreement.

Senior Credit Facility. The Senior Secured Credit Agreement dated January
31, 1996, as amended, consists of two separate facilities, the term loan and
the revolving credit facility, with a maturity date of January 31, 2001. The
outstanding balance and amount available to borrow under the Senior Secured
Credit Agreement at March 2, 1998 was zero and $149.0 million, respectively.
The term loan facility was prepaid and eliminated in October 1997 as part of
the transaction related to the B share financing. Federated continues to
maintain a $150 million line of credit which may be utilized for working
capital purposes and to fund possible acquisitions.

Any funds advanced under the Revolving Facility will bear interest at a
variable rate, based on one of three interest rate options. The Trust may
choose to pay interest on the outstanding unpaid principal at (a) the Base
Rate Option; (b) the Euro-Rate Option; or (c) the PNC Quoted Rate Option.
Funds which accrue interest on the basis of the Base Rate Option will accrue
interest at a rate equal to the greater of (a) the interest rate per annum
announced from time to time by PNC as its then prime rate, or (b) the Federal
Funds Effective Rate plus one-half percent (.05%) per annum. Funds which
accrue interest on the basis of the Euro-Rate Option will accrue interest at a
rate derived from the average of the Euro-Rates set forth on the "LIBO" page
of Reuters Monitor Monthly

47
<PAGE>

Rate Service plus the Euro-Rate Margin. The Euro-Rate Margin varies according
to the ratio of the Trust's debt to cash flow from operations. Funds which
accrue interest on the basis of the PNC Quoted Rate Option will accrue
interest at the interest rate offered by PNC on each business day. Except as
specifically allowed in the Senior Secured Credit Agreement or waived by the
Lenders, the Trust covenants that neither it nor any of its subsidiaries will:
(1) pay front-end marketing fees to broker-dealers with respect to any mutual
fund for which the Trust or any of its subsidiaries serves as an advisor, an
administrator, a distributor, a transfer agent, a portfolio or fund
accountant, or a clearing servicer; (2) execute guaranties or make other loans
and investments; (3) sell, convey, assign, lease, abandon or otherwise dispose
of any assets; (4) enter into or carry out any transaction except upon arm's-
length terms; (5) fail to satisfy the requirements of or take any action
required under ERISA or the Code; (6) rent or lease real or personal property
other than office space except under the usual and customary terms and in the
ordinary course of business, provided that aggregate rent under such leases
shall not exceed $10,000,000 in any fiscal year; (7) make capital expenditures
exceeding $15,000,000 in any fiscal year; or (8) make any material change in
the conduct or operation of business or make any change in its fiscal year.
Federated was in compliance with all such covenants at December 31, 1997 and
at March 31, 1998.

In addition, the Senior Secured Credit Agreement prohibits the Trust and its
subsidiaries from dissolving, liquidating, winding-up, acquiring substantially
all of the assets or capital stock of any other person, or entering into a
merger or consolidation except under specified circumstances. The Merger of
the Trust into the Company is a permitted transaction. The Senior Secured
Credit Agreement also stipulates that the Trust shall not permit any change in
ownership except as explicitly allowed under the Senior Secured Credit
Agreement; the Senior Secured Credit Agreement allows a change in ownership in
a number of scenarios, including the issuance of Class B Common Stock in the
Offering. The consent of the lenders will be required to permit the
consummation of the Merger and the Offering.

The Senior Secured Credit Agreement also prohibits the Trust from allowing
certain financial ratios to fall below minimum thresholds established in the
Senior Secured Credit Agreement and restricts the Trust from incurring
additional debt or liens on its property or assets. The Senior Secured Credit
Agreement also restricts the Trust from making any dividend payment unless (1)
the Trust is not in default or potentially in default, as defined by the
Senior Secured Credit Agreement; (2) certain minimum financial ratios are
maintained after giving effect to the dividend payment; and (3) such dividend
payments with respect to Common Shares do not exceed $5,000,000 in any fiscal
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Resources and Liquidity--Debt Facilities" and
Note 10 to the Consolidated Financial Statements.

Senior Secured Notes. Pursuant to the Note Purchase Agreement dated June 15,
1996, the Trust issued 7.96% Senior Secured Notes due June 27, 2006 to the
various Note Purchasers party to that agreement in the aggregate principal
amount of $98,000,000. The Senior Secured Note Purchase Agreement debt totaled
$98.0 million as of December 31, 1997 and is due in seven annual $14.0 million
installments beginning June 27, 2000, and maturing June 27, 2006.

Under the terms of the Note Purchase Agreement, the Trust may not (1) allow
certain indebtedness described in the Note Purchase Agreement to exceed the
greater of 50% of consolidated cash flow or $25,000,000; (2) incur or allow
any subsidiary to incur any lien other than those explicitly allowed under the
Note Purchase Agreement; (3) fail to maintain certain financial ratios; (4)
make any sale, transfer, lease, loan or other distribution of assets, except
as allowed under the Note Purchase Agreement; (5) permit any material change
in management; or (6) engage in any transactions with any affiliate except in
the ordinary course of business. In addition, the Note Purchase Agreement
prohibits the consolidation or merger of the Trust or any of its subsidiaries
into any other entity, except that (1) a subsidiary of the Trust may merge
into the Trust, or (2) the Trust may merge into another entity if the Trust is
not the surviving company, the surviving company assumes the obligations of
the Trust under the Note, and after giving effect to the merger, no event of
default shall have occurred under the Note Purchase Agreement.

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<PAGE>

Capitalized Lease Obligations. At December 31, 1997, Federated had
capitalized lease obligations totaling $1.2 million related to certain
telephone equipment. The scheduled principal payments approximate $0.2 million
per year for 1998 through 2002.

Nonrecourse Debt. Federated also has nonrecourse debt obligations,
aggregating $185.4 million at December 31, 1997, incurred in connection with
the sale of rights to certain future revenue streams associated with the B
share advance commissions. This debt will be repaid or amortized based solely
on certain cash flows related to the B-share assets. See Note 6 to the
Consolidated Financial Statements.

Concurrent Public Offering. As a condition to the consummation of the
Merger, Federated is required to complete an underwritten public offering of
shares of Class B Common Stock of the Company, including shares held by
certain existing shareholders of the Trust. The Company currently intends to
sell approximately 2,610,000 shares of Class B Common Stock (3,000,000 shares
if the Underwriters' over-allotment options are exercised in full). The net
proceeds to be received by the Company will be used for working capital and
other general corporate purposes and will serve to enhance Federated's
liquidity by providing increased capital resources.

YEAR 2000 DISCLOSURE

Federated utilizes software and related technologies throughout its
businesses including both proprietary systems as well as those provided by
outside vendors. Significant functions such as portfolio
accounting/recordkeeping and shareholder services rely on systems provided by
outside vendors. It is anticipated that these systems will be affected by the
date change in the year 2000. The year 2000 issue exists because many computer
systems and applications currently use two-digit date fields to designate a
year. 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, like many other companies,
is expected to incur expenditures over the next two years to address this
issue.

Federated formed a team of employees in 1997 to determine the full scope and
related costs to ensure both proprietary and third party vendor systems will
be year 2000 compliant, meeting both internal needs and those of our
customers. Federated's assessment of internal systems is substantially
complete and plans are in place for all proprietary applications within
Federated to be renovated or replaced. Completion of renovation or replacement
and the subsequent testing and implementation are scheduled for 1998, with
1999 being reserved for industry-wide, cooperative testing. The assessment
process is in progress for the related infrastructure and third party desktop
software products. Based on management's identification of resource
requirements for both plan implementation and overall project management, it
is anticipated that the Year 2000 costs, which are being expensed as incurred,
will be, at a minimum, $10 million for internal systems and do not reflect the
impact of outside vendors to become year 2000 compliant. Accordingly, a final
cost estimate cannot be determined at this time.

INTEREST RATE SENSITIVITY

Federated's revenues are derived almost exclusively from fees which are
based on the values of assets managed or administered. Such values are
affected by changes in the broader financial markets which are, in part,
affected by changing interest rates. In a period of rapidly rising interest
rates, Federated's investment advisory fee revenue from fixed income funds may
be negatively impacted by reduced asset values and redemptions in those funds,
and 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 and certain
other revenue.

ECONOMIC AND MARKET CONDITIONS

The financial markets and the investment management industry in general have
experienced record performance and record growth in recent years. For example,
between January 1, 1995 and December 31, 1997,

49
<PAGE>

the S&P 500 Index appreciated at a compound annual rate in excess of 25%
while, according to the Investment Company Institute, equity mutual fund
assets under management grew at a compound annual rate of approximately 40%
for the same period. The financial markets and businesses operating in the
securities industry, however, are highly volatile and are directly affected
by, among other factors, domestic and foreign economic conditions and general
trends in business and finance, all of which are beyond the control of
Federated. There can be no assurance that broader market performance will be
favorable in the future. Any decline in the financial markets or a lack of
sustained growth may result in a corresponding decline in performance by
Federated and may adversely affect Managed and Administered Assets and related
fees.

IMPACT OF INFLATION

The major sources of revenue for Federated are based on the value of Managed
and Administered Assets. There is no predictable relationship between the rate
of inflation and the value of assets managed or administered by Federated,
except as inflation may affect interest rates. Inflation has affected the cost
of operations in the past and could continue to do so in the future. See
"Interest Rate Sensitivity".

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 130, "Reporting Comprehensive Income," is effective for fiscal
years beginning after December 15, 1997. This statement establishes standards
for reporting and display of comprehensive income and its components.
Comprehensive income includes net income and all other changes in
shareholders' equity except those resulting from investments and distributions
to owners.

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning
after December 15, 1997. This statement requires financial and descriptive
information about an entity's operating segments to be included in the annual
financial statements.

Federated believes that the impact of the adoptions of SFAS No. 130 and SFAS
No. 131 will not have a material impact on its Consolidated Financial
Statements.

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<PAGE>

BUSINESS

OVERVIEW

Federated manages assets across a wide spectrum of asset categories
including substantial participation in fast-growing areas such as equity and
international investments. Federated ranks among the industry leaders for
money market and fixed income funds, based on assets under management and
offers one of the most comprehensive product lines in the industry. Many of
Federated's products are ranked highly by recognized industry sources based on
investment performance relative to peer funds.

Federated has built a national reputation as a high quality provider of a
broad range of investment management products and related financial services.
Federated distributes its products through financial intermediaries such as
banks, brokers and other investment advisers who use them to meet the needs of
their customers; these customers include retail investors, corporations, and
retirement plans. Federated employs one of the largest sales forces directed
to financial intermediaries and institutions in the industry with more than
175 sales representatives and managers across the United States. Through
substantial investments in distribution over the last 20 years, Federated has
developed an extensive network of over 3,500 financial institutions which sell
Federated's products to their customers. Federated also directly sells its
products to more than 500 institutions such as corporations and government
entities.

Federated pioneered the use of money market funds by institutions for cash
management purposes and ranks in the top one percent of money fund managers.
Federated believes that its substantial money market fund business provides a
revenue base that is generally stable and recurring. From this base, Federated
intends to continue to expand its Managed Assets in areas such as equities and
international investments which generally produce higher fee revenue and have
experienced substantial growth. Federated believes that its history as a
leading investment manager combined with the size and quality of the
distribution network it has developed will enable it to continue to expand its
business in these key areas. Federated also continues to actively seek
acquisitions which fit within its long range growth strategy by expanding
assets under management.

The following table shows Federated's Managed Asset composition for the past
three years:

MANAGED ASSETS
(Dollars in Millions)

<TABLE>
<CAPTION>
DECEMBER 31, GROWTH RATES
----------------------- ---------------
3 YR.
1995 1996 1997 CAGR* 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Money Market Funds/Cash Equivalents.. $40,610 $51,163 $63,622 26% 24%
Fixed Income Funds................... 14,330 14,109 15,067 2% 7%
Equity Funds......................... 5,287 7,594 11,710 44% 54%
Separate Accounts.................... 1,486 1,976 2,141 19% 8%
------- ------- -------
Total Managed Assets............... $61,713 $74,842 $92,540 22% 24%
======= ======= =======
International/Global Managed Assets
(included above).................... $ 404 $ 694 $ 1,172 35% 69%
======= ======= =======
</TABLE>
- --------
* Compound Annual Growth Rate.

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<PAGE>

The components of the changes in equity and fixed income fund managed assets
are shown in the following table:

COMPONENTS OF CHANGES IN EQUITY AND FIXED INCOME FUND MANAGED ASSETS
(Dollars in Millions)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
EQUITY FUNDS
Beginning Assets.................................... $ 3,927 $ 5,287 $ 7,594
------- ------- -------
Sales.............................................. 1,636 2,755 4,017
Redemptions........................................ (1,310) (1,672) (2,196)
------- ------- -------
Net Sales......................................... 326 1,083 1,821
------- ------- -------
Net Exchanges/Transfers............................ 38 197 481
Acquisition Related................................ 0 123 353
Other*............................................. 996 904 1,461
------- ------- -------
Ending Assets....................................... $ 5,287 $ 7,594 $11,710
======= ======= =======
FIXED INCOME FUNDS
Beginning Assets.................................... $14,106 $14,330 $14,109
------- ------- -------
Sales.............................................. 3,256 3,856 4,584
Redemptions........................................ (4,312) (4,243) (4,416)
------- ------- -------
Net Sales (Redemptions)........................... (1,056) (387) 168
------- ------- -------
Net Exchanges/Transfers............................ (6) (25) 103
Acquisition Related................................ 0 111 175
Other*............................................. 1,286 80 512
------- ------- -------
Ending Assets....................................... $14,330 $14,109 $15,067
======= ======= =======
</TABLE>
- --------
* Primarily reinvested dividends and distributions, net investment income and
changes in the value of securities held by the funds.

Federated is also a leading provider of mutual fund administrative services
such as legal support and regulatory compliance, audit, fund accounting and
other financial services and transfer agency services. Federated provides
these services, for which it receives administration and other service fees,
to its managed funds and to funds sponsored by third parties, primarily banks
where typically the services are part of a broad customer relationship which
includes asset management. Federated has refocused its service activities to
emphasize the growth of Managed Assets and Administered Assets rather than
marketing individual services such as transfer agency, portfolio accounting
and technology solutions as stand-alone products. Federated believes that this
refocus will better support the efforts of its fund administration customers
to increase their assets, resulting in an increase in Federated's
administrative fee revenue.

ADMINISTERED ASSETS
(Dollars in Millions)

52
<PAGE>

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 while consistently adhering to its investment objectives
across a broad spectrum of investment management products.

. To profitably expand Federated's market penetration by increasing its
assets under management in each market where it chooses to apply its
substantial distribution resources.

. To use its substantial experience and expertise to profitably expand its
customer relationships by providing superior services designed to support
the growth of Managed Assets and Administered Assets.

Investment Management. To achieve its investment management objectives,
Federated seeks above average returns with below average risk in multiple
asset classes across the investment spectrum and strives to consistently
follow its style disciplines. Federated has structured its investment process
to meet the requirements of fiduciaries and others who use Federated's
products to meet the needs of their customers. Fiduciaries typically have
stringent demands related to portfolio composition, risk and investment
performance. Federated follows a disciplined investment process consistent
with these requirements. Many of Federated's fund products have been ranked
among the leaders in their respective categories by recognized industry
sources.

Historically, Federated's mix of Managed Assets has been dominated by money
market and other fixed income assets where Federated continues to be among the
leading mutual fund managers based on assets under management. 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 to include international, aggressive growth, and small
capitalization equity products. Within Federated's managed asset categories,
equity fund assets have been the fastest growing asset class. Federated has
increased its market share of equity fund managed assets by growing at a
faster rate than the overall industry as measured by growth rates over the
last three years, according to ICI data.

EQUITY FUND GROWTH RATES THROUGH YEAR END 1997

<TABLE>
<CAPTION>
3 YR. 2 YR.
CAGR CAGR 1997
----- ----- ----
<S> <C> <C> <C>
Federated................................................ 44% 49% 54%
Industry................................................. 40% 38% 37%
</TABLE>

Distribution. 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 the
last 20 years, Federated has developed selling relationships with more than
3,500 institutions, including large and small banks, national and regional
broker/dealers and other financial advisors. Federated sells its product
directly to another 500 corporations and government entities. Federated
believes that these relationships in total form one of its most important
assets.

Federated seeks to expand its market penetration by committing extensive
resources to maintaining and expanding its customer relationships and to
developing mutual fund products which are responsive to market demands.
Through its large trained sales force of more than 175 sales representatives
and managers across the United States, Federated believes that it can continue
to broaden its distribution capacity both by adding new relationships and
strengthening existing relationships. Federated offers the sales
representatives of its client firms an extensive product line with attractive
pricing and compensation options, strong customer service, and

53
<PAGE>

marketing support. Distribution resources are employed in areas determined by
Federated to offer the highest potential for profitable asset growth.
Federated has formed teams of dedicated sales representatives to focus on key
financial intermediaries who have demonstrated substantial growth in sales of
Federated's products. Federated has also increased its commitment to
advertising and media relations in order to better position Federated within
its various distribution channels. To supplement its distribution channel
growth, Federated has also developed an active acquisitions effort, resulting
in the completion of three transactions since November, 1996 that added
approximately $4.9 billion in Managed Assets. See "Recent Acquisitions."

Services. Federated has long been the provider of a broad range of services
to support the operation, administration and distribution of Federated-
sponsored mutual funds. These services, for which Federated receives a fee
from the funds, include legal support and regulatory compliance, audit,
portfolio accounting and other funds financial services, transfer agency
services, and shareholder servicing and support. In 1988, in response to
demand from its important bank customer base, Federated began to offer these
services to institutions seeking to outsource all or part of their mutual fund
service and distribution functions. Through various subsidiaries, Federated
provides its depth, experience, and expertise in these areas to expand its
relationships with key financial intermediaries--primarily banks who sponsor
proprietary mutual funds.

Federated's business strategy is to use the knowledge base, service
expertise, distribution capability and products it has developed to help its
customers grow their mutual fund businesses, thereby positioning Federated as
a key partner in the mutual fund operation of the financial intermediary.
Federated receives fees from these bank-sponsored funds for providing fund
services. Typically, the services offered are part of a broad relationship
with the bank. Federated has over $7.2 billion in assets under management from
its bank services customers as of December 31, 1997. Over 90% of Federated's
bank services customers include Federated-sponsored mutual funds on the menu
of funds offered to their customers.

Recent Acquisitions. Federated has completed three acquisitions since
November, 1996 which together resulted in an increase of approximately $4.9
billion in Managed Assets. In November, 1996, Federated assumed the investment
management and distribution responsibilities from Lehman Brothers Holdings,
Inc. for nine mutual funds with approximately $4.1 billion in assets which
previously carried the Lehman Brothers brand name. Also in November 1996,
Federated assumed the investment management and distribution responsibilities
from ARM Financial Group for six mutual funds with approximately $237 million
of assets which previously carried the State Bond brand name. In May, 1997,
Federated assumed the investment management and distribution responsibilities
from the William Penn Company for seven mutual funds with approximately $548
million in assets which previously carried the William Penn brand name.

Federated believes that its disciplined investment management style, broad
product line, competitive fund performance, strong customer support and proven
operational capabilities offer an attractive package that addresses key
concerns of sellers. Federated also offers its substantial distribution
capacity to sellers who have developed attractive products but have been
unable to make the large ongoing investments necessary for successful product
distribution on a broad scale.

ORGANIZATION AND MARKETS

Federated organizes its operations into three principal functions:
investment management, distribution and services.

INVESTMENT MANAGEMENT

At December 31, 1997, Federated was ranked by Strategic Insight, a
recognized industry source, in the top one percent of money market fund
managers, in the top five percent of fixed income fund managers and in the top
six percent of equity fund managers among U.S. mutual fund managers ranked
according to fund assets managed. Federated was ranked in the top two percent
of all mutual fund managers based on total fund assets managed. Federated was
the ninth largest U.S. mutual fund manager based on fund assets as of December
31, 1997.

54
<PAGE>

Federated manages assets across a wide spectrum of asset categories
including substantial participation in fast-growing areas such as equity and
international investments. Many of Federated's products are ranked highly by
recognized industry sources based on investment performance relative to peer
funds. As of December 31, 1997, Federated had 80 managed funds eligible for
Morningstar, Inc. ratings. Of these funds, 73 (or 91%) are rated "three,"
"four" or "five" stars, and 39 (or 49%) are rated "four" or "five" stars,
placing Federated among the leaders in the mutual fund industry for percentage
of top-rated funds.

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 Advisers Act. Investment advisers are
compensated for their services in the form of investment advisory fees. Each
fund has a contractual gross maximum investment advisory fee. In order to meet
the funds' expense cap, the adviser may waive a portion or all of its
investment advisory fee.

Federated provided investment advisory services to 124 funds as of December
31, 1997. Each of Federated's funds (with the exception of a collective
investment trust) is registered under the Investment Company Act and under
other applicable federal and state laws. Each of the funds enters into an
advisory agreement subject to periodic review by the directors or trustees of
the respective funds. A significant portion of Federated's revenue is derived
from advisory agreements with mutual funds that are terminable generally upon
60 days' notice.

Of these 124 funds, Federated's investment advisory subsidiaries managed 51
money market funds (and cash equivalents) totaling $63.6 billion in assets, 43
fixed income funds with $15.1 billion in assets and 30 equity funds with $11.7
billion in assets.

Due to the importance of investment performance to the mutual fund investor,
and to support its sophisticated and systematic research process, Federated
seeks to identify and retain high quality, experienced portfolio managers. The
portfolio management staff of more than 80 professionals includes more than 35
Chartered Financial Analysts. Federated's fund portfolio managers have an
average of 10 years of experience in investment management. The Company has
structured its salary and incentive compensation programs to be competitive
with market pay programs as measured by recognized industry sources. In 1995,
Federated made a major commitment to expanding its investment management
capability by establishing a New York-based global investment management unit
to focus, in particular, on the development of new global and international
equity and fixed income investment products. As of December 31, 1997, this
unit employed 19 investment professionals and managed approximately $1.2
billion in assets as compared to approximately $400 million at the inception
of the group in 1995.

Equity. Historically, Federated's mix of Managed Assets has been dominated
by money market and other fixed income assets where the Company continues to
be among the leading mutual fund managers based on assets under management.
More recently, in response to market demand and to diversify its managed
assets, Federated has emphasized growth of its equity fund business. Equity
fund assets comprised 44% of Federated's non-money market fund Managed Assets
at the end of 1997, as compared to 18% at year end 1993.

Federated has broadened its range of equity products to include
international, aggressive growth, and small capitalization funds. The number
of equity funds managed by Federated has increased from 18 at year end 1993 to
30 at year end 1997. Federated has made significant investments to increase
the size of its portfolio management staff, in particular by forming its
Global Research Division.

Within Federated's Managed Asset categories, equity fund assets have been
the fastest growing asset class. In 1997, Federated's equity fund assets
increased 54% compared to an industry growth rate of 37%, based on ICI data.
Since 1994, Federated's equity fund compound annual growth rate has been 44%,
compared to industry growth rate of 40%. In this period, Federated's equity
fund assets nearly tripled, increasing from $3.9 billion to $11.7 billion.
Approximately 42% of this increase was from net new sales (sales minus
redemptions), and 9% was from net fund exchanges and an acquisition while
market appreciation accounted for most of the remaining increase. The
composition of Federated's growth in this period includes a greater percentage
of net sales (42%)

55
<PAGE>

than the industry composition (36%). In 1997, 44% of Federated's managed
equity fund asset growth was from net new sales compared to an overall
industry average of 34%. Federated believes that the quality and consistency
of its equity fund management style, its expanded menu of equity fund
products, and its substantial distribution capabilities have enabled it to
gain market share of equity fund managed assets.

In the equity management area, Federated's core style can be characterized
as a value style. Federated has also developed expertise in other sectors such
as growth, small-capitalization, and equity income. Federated combines first-
hand market knowledge with a highly structured, computer-assisted composite
equity selection and modeling system. 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.

As of December 31, 1997, Federated managed approximately $4.6 billion in
value-based securities, $3.8 billion in equity income/utility portfolios, $1.1
billion in growth products, $727 million in international equity portfolios,
$677 million in asset allocation funds, and $1.7 billion in indexed products
that target key sectors of the stock market through max-cap, mid-cap, and
mini-cap strategies.

International. Assets invested in international and global funds have
increased substantially in recent years. According to the ICI, assets of
international and global equity and bond funds totaled $388 billion at the end
of 1997, up 69% from 1995. Federated believes that these investments will
continue to increase as investors continue to diversify portions of their
portfolios into non-U.S. securities. International products have become
increasingly important products for financial intermediaries to employ in
meeting the needs of their customers.

To address these trends, in 1995 Federated made a substantial commitment to
developing international investment products by starting its New York-based
unit to manage international equity and fixed-income assets. Prior to the
inception of this unit, Federated employed a subadvisor to assist in the
management of approximately $400 million in assets in two international funds.
Since the inception of this unit, as of December 31, 1997, international and
global Managed Assets have increased to approximately $1.2 billion; of this
amount international equities totaled approximately $725 million while
international and global fixed income assets were approximately $430 million.

Federated's international equity fund offerings cover the spectrum of
investments from developed to emerging markets and from large to small
capitalization stocks. Federated's international equity management style can
be characterized as a combination of growth and value. In the international
fixed income area, Federated manages both yield-oriented and total return
oriented funds. Federated's portfolio managers make extensive use of
quantitative techniques in the management of these funds and they travel
extensively around the world in both developed and emerging nations. These
portfolio managers average over 13 years of investment management experience.

Risk is managed through a combination of diversification across markets,
industries and currencies. Portfolios are actively managed through security
and country selection. Although currency hedging may be used on an occasional
basis, currency risk is not hedged under normal market conditions, and hedging
techniques are not used for speculative purposes.

Money Market Funds. Federated is the third largest U.S. manager of money
market funds with over $63 billion in assets under management as of December
31, 1997. The Company 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.

56
<PAGE>

Federated manages money market fund assets in a variety of asset classes
including government ($35.5 billion), prime ($16.7 billion), and tax-free
($10.9 billion). Federated offers 16 state specific tax-free money market
funds, the largest number in the industry.

Money market funds have grown steadily over the past three years. For the
three years 1995 through 1997, industry money market fund assets as measured
by the ICI have increased from $611 billion to $1.1 trillion, a compound
annual growth rate of approximately 20%. In this period, Federated's money
market fund managed assets have grown faster than the industry rate,
increasing at more than 26% compounded annually. Federated's managed money
market fund assets more than doubled in this period, increasing from $31.5
billion to $63.6 billion.

Federated attributes its growth to multiple factors, including growth in the
number of customers, asset growth from existing customers, the acquisition of
money market fund assets, and an increase in retail money market fund assets
due largely to Federated's success at incorporating its retail money market
funds into the product line of many of its broker/dealer distributors.

Federated believes that its substantial money market fund business provides
a revenue base that is generally stable and recurring. In allocating
investments across various asset classes, institutional investors typically
maintain a portion of their portfolios in cash or cash equivalents, including
money market funds, irrespective of trends in stock or bond markets.
Therefore, Federated believes that money market funds are generally less
vulnerable to volatility in the capital markets than are equity and fixed
income funds.

Management of large scale money market assets has become highly concentrated
and is subject to intense fee competition. Federated has developed its money
market fund operations and infrastructure over many years and believes that
its structure will enable it to continue to compete effectively for this
business.

Fixed Income. Federated managed over $15 billion in fixed income funds as of
December 31, 1997. These assets are managed in a wide range of sectors across
the fixed income investment spectrum including mortgage-backed ($5.9 billion),
high yield ($3.1 billion), tax-free ($2.1 billion), general investment grade
($1.8 billion), government ($1.5 billion) and international ($250 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. Fiduciaries typically have stringent requirements related to
portfolio composition, risk and investment performance. Federated follows a
disciplined investment process to produce highly defined products consistent
with these requirements. Many of the fixed income funds managed by Federated
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. For example, the
Federated U.S. Government Securities Fund: 1-3 Years is constrained to direct
government and certain government agency debt issues with an average portfolio
maturity of 1.5-2 years.

In other funds, debt securities from various areas are combined to form
mixed category funds. For example, the Federated Bond Fund and Federated
Strategic Income Fund combines debt securities from the mortgage-backed,
domestic high quality, U.S. high yield corporate, and international bonds from
both emerging and developed countries. In general, these funds are also
constrained by an effective average maturity or duration range applied to the
blended 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.

In the fixed income fund area, the mutual fund industry has experienced a
shift in demand for products. According to the ICI, at the end of 1993, total
industry assets in fixed income funds was $761 billion, as compared to $749
billion in equity funds. Through 1997, equity fund assets have increased by
220% to $2.4 trillion while fixed income bond and income funds have increased
35% to $1.0 trillion. Within the broad category

57
<PAGE>

of fixed income funds, certain asset categories have experienced substantial
asset decreases while others have grown. Generally, funds invested in
government bonds and mortgage-backed securities decreased in assets while high
yield, corporate, and mixed-category funds increased. In 1993, Federated asset
mix within fixed-income was weighted towards the government and mortgage
categories, which together comprised nearly 77% of managed fixed income fund
assets.

In response to these substantial changes in demand driven by unprecedented
bond market conditions, Federated diversified its fixed income offerings by
adding new mixed category products such as the Federated Strategic Income Fund
(rated "four" stars by Morningstar, Inc.), and by emphasizing its high yield
products such as Federated High Yield Trust and Federated High Income Bond
(each rated "five" stars by Morningstar, Inc.) where Federated has built a
long-term record of competitive returns since 1977. Federated has
substantially increased its assets under management in these areas, thereby
diversifying its fixed income fund Managed Assets. Since 1993, Federated's
Managed Assets in high yield, mixed and other fixed income fund categories
have increased 155% from $2.2 billion to $5.6 billion, while Managed Assets in
government and mortgage-backed fixed income fund products decreased 53% from
$15.4 billion to $7.2 billion.

Fund Performance. Although past performance is not necessarily indicative of
future results, among the most important factors affecting the marketability
of a mutual fund is its past performance. While consistently strong investment
performance may not be sufficient by itself to achieve marketing success in
the mutual fund industry, consistently poor performance would make it
difficult to increase or maintain market share.

Federated's managed funds have attained many favorable rankings by
independent evaluators of mutual fund performance. Funds in the growth and
income, equity income, high yield, international, mixed bond, municipal,
government and corporate bond areas have been ranked among the top performing
funds in their respective categories by recognized industry sources. Many of
Federated's institutional money market and fixed income funds have received
the highest ratings given by national rating agencies. As of December 31,
1997, Federated had 80 managed funds eligible for Morningstar, Inc. ratings.
Of these funds, 73 (or 91%) are rated "three," "four" or "five" stars, and 39
(or 49%) are rated "four" or "five" stars, placing Federated among the leaders
in the mutual fund industry for percentage of top-rated funds.

DISTRIBUTION

Federated's distribution strategy is to provide products geared to financial
intermediaries, primarily banks, brokers/dealers and other investment
advisers, and directly to institutions such as corporations and government
entities. Through substantial investments in distribution over the last twenty
years, Federated has developed selling relationships with more than 3,500
institutions, including large and small banks, national and regional
brokers/dealers and other financial advisors. Federated sells its products
directly to another 500 corporations and government entities. Federated
believes that these relationships in total form one of its most important
assets.

Federated seeks to expand its market penetration by committing extensive
resources to maintaining and expanding its institutional customer
relationships and to developing mutual fund products which are responsive to
market demands. Through its large trained sales force of more than 175 sales
representatives and managers throughout the United States, Federated believes
that it can continue to increase its distribution capacity by both adding new
relationships and strengthening existing relationships. Federated offers the
sales representatives of its client firms an extensive product line with
attractive pricing and compensation options, strong customer service, and
marketing support. Distribution resources are employed in areas determined by
Federated to offer the highest potential for profitable asset growth.

Shares of the portfolios or classes of shares under management (or
administration) by Federated and its subsidiaries are distributed principally
by Federated Securities Corporation ("FSC"), a wholly-owned subsidiary of
Federated, which is registered as a broker/dealer under the Exchange Act and
under applicable state laws.

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<PAGE>

Federated's investment products are distributed within three principal
markets: the bank trust market, the broker/dealer market, and the
institutional market. The following chart shows Federated's Managed Assets by
market for the dates indicated:

MANAGED ASSETS BY MARKET
(Dollars in Millions)
<TABLE>
<CAPTION>
DECEMBER 31, GROWTH RATES
----------------------- ---------------
3 YR.
1995 1996 1997 CAGR 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Bank Trust Market..................... $32,430 $40,123 $49,662 20% 24%
Broker/Dealer Market.................. 19,992 22,098 28,256 24% 28%
Institutional Market.................. 5,910 9,750 11,343 44% 16%
Other Markets......................... 3,381 2,871 3,279 0% 14%
------- ------- -------
Total Managed Assets by Market...... $61,713 $74,842 $92,540 22% 24%
======= ======= =======
</TABLE>

BANK TRUST MARKET. As of December 31, 1997, Federated managed nearly $50.0
billion in assets for over 1,400 bank trust customers. Although primarily
composed of bank trust departments, Federated includes its savings and loan
and credit union customers in this market. The following table shows the
amount of Managed Assets by type of fund in the bank trust market for the
dates indicated:

BANK TRUST MARKET
(Dollars in Millions)
<TABLE>
<CAPTION>
DECEMBER 31, GROWTH RATES
----------------------- ----------------
3 YR.
1995 1996 1997 CAGR 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Money Market Funds/Cash
Equivalent............. $24,717 $31,944 $40,897 25% 28%
Fixed Income Funds...... 5,748 5,336 5,070 (6%) (5%)
Equity Funds............ 1,965 2,843 3,695 33% 30%
------- ------- -------
Total Bank Trust
Market................. $32,430 $40,123 $49,662 20% 24%
======= ======= =======
</TABLE>

Federated pioneered the concept of providing cash management to bank trust
departments through mutual funds. In 1982, Federated initiated a strategy of
providing a broad range of non-money market 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's subsidiaries. These funds are invested in securities that broadly
cover the investment spectrum. The bank trust department can make asset
allocation decisions among equity, fixed income and money market funds. In
addition to personal trust assets, bank trust departments control significant
pension-related assets enabling Federated's products to be applied in this
important area.

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. Therefore, Federated believes that money market funds are
generally less vulnerable to volatility in the capital markets than are fixed
income and equity funds. However, management of large scale money market
assets has become highly concentrated and is subject to intense fee
competition. Federated also offers an extensive menu of equity and fixed
income mutual funds structured for use in the bank trust market. Assets in
these funds totaled over $8.7 billion as of December 31, 1997.

Federated's nationwide customer base includes nearly all of the largest bank
trust companies in the United States. Federated maintains a national sales
staff and regional administrative teams which work together to assist bank
trust departments in establishing and maintaining the administrative, legal
and computer systems required to utilize fully Federated's complete line of
services.

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<PAGE>

In addition to a broad menu of competitive mutual fund products suitable for
use by fiduciaries, Federated believes that providing value-added services in
key areas such as sales and marketing, operational, and legal support
differentiates Federated from many of its competitors in this market and is a
significant competitive advantage.

Sales and Marketing. Federated employs a dedicated sales force backed by a
staff of support personnel to facilitate the sales efforts of its bank trust
customers through services such as providing sales literature and product
comparisons, conducting seminars, offering mutual fund sales training and by
providing access to portfolio managers.

Systems and Technology. Federated has a long history of employing technology
to facilitate trust department operations. To facilitate the flow of account
information between Federated and its customers, Federated has developed its
EDGE(TM) computer system. The system, originally developed in 1982, enables
customers to conduct all trading and obtain current information on all
accounts and funds. Customers use the EDGE(TM) network to engage in over $2.5
billion in daily transactions with Federated.

In addition to the EDGE(TM) system, Federated has recently developed its
TrustConnect(TM) trade execution and clearing system through its wholly-owned
subsidiary Edgewood Services Company. This product provides highly automated
trade execution and settlement services ("clearing") for bank trust
departments through electronic links from bank trust recordkeeping systems to
the National Securities Settlement Corporation's FundServ and Networking
Services. By utilizing this system, the bank trust department can conduct
mutual fund trading activity on an automated basis with over 135 fund
companies and have access to over 4,000 mutual funds. The system is linked to
most of the major trust accounting systems used by banks, thereby automating
the process of recording trade information to the bank's customer accounts.
This process results in significant efficiencies for the bank trust department
through automation of a complex manual process. Depending on the fund chosen
by the trust department, Federated receives either a transaction fee or an
asset-based fee for providing these services.

Legal. Federated has assisted bank trust departments in complying with the
complex regulations that govern trust departments. Federated played a
significant role in causing legislation to be enacted on a state-by-state
basis that deemed mutual funds to be equivalent to their underlying securities
from the perspective of the bank trust fiduciary.

Federated believes that these types of operational and legal solutions
differentiate Federated from its competitors by offering value-added services
in addition to its fund products and that these services are a competitive
advantage that enable Federated to strengthen and protect its customer
relationships.

Consolidation in the banking industry has affected the bank trust market in
recent years. Federated believes that it will be able to continue to increase
its Managed Assets in this market as consolidation continues because of the
composition of its customer base which includes nearly all of the largest U.S.
bank trust institutions, the strength of its reputation as a long standing
provider of excellent products and services, and the strength of its long-
standing customer relationships in this market. However, there can be no
assurance that future bank consolidation activity will not negatively impact
Federated.

BROKER/DEALER MARKET. Growth of assets in the broker/dealer market has been
and continues to be a major strategic initiative for Federated. 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. These sales
representatives develop and maintain relationships with both the management
and registered representatives of the broker/dealer. Over 30,000 of these
registered representatives have sold shares to investors in one or more of
Federated's managed funds in 1997. Brokers/dealers use Federated's products to
meet the needs of their customers, who are typically retail investors. Brokers
also may place fund products into retirement plan applications, including
defined contribution programs such as 401(k) plans. To meet these needs,
Federated offers a broad range of equity, fixed income and money market fund
products in this market.

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<PAGE>

The following table shows the amount of Managed Assets by type of fund in
the broker/dealer market for the dates indicated:

BROKER/DEALER MARKET
(Dollars in Millions)

<TABLE>
<CAPTION>
DECEMBER 31, GROWTH RATES
----------------------- ---------------
3 YR.
1995 1996 1997 CAGR 1997
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Money Market Funds/Cash Equivalent.... $11,700 $12,618 $15,293 26% 21%
Fixed Income Funds.................... 5,727 5,628 6,566 7% 17%
Equity Funds.......................... 2,565 3,834 6,376 51% 66%
Separate Accounts..................... 0 18 21 -- 17%
------- ------- -------
Total Broker/Dealer Market.......... $19,992 $22,098 $28,256 24% 28%
======= ======= =======
</TABLE>

Within the broker/dealer market, Federated maintains a dedicated sales staff
for bank broker/dealers. Managed Assets from bank broker/dealers totalled
approximately $6.7 billion at December 31, 1997.

Although Federated has developed an extensive broker/dealer distribution
network, certain relationships are of particular significance. Federated has
had a long standing relationship with Edward Jones and maintains a dedicated
sales and broker support team to service brokers from Edward Jones.
Approximately 29% of the assets in this market are from retail customers of
Edward Jones. In addition, Federated participates in a limited partnership
(sharing income and expenses from two funds) with Edward Jones. Approximately
7% of the assets in this market are from retail customers of Merrill Lynch &
Co. through another long standing relationship. Federated employs dedicated
sales and broker support resources to service brokers from Merrill Lynch & Co.
Both of these firms, along with most other large broker/dealer firms, have
established or have the capability to establish their own proprietary mutual
funds.

Federated believes that brokers and other financial intermediaries choose
mutual fund products and providers for their customers based on certain key
criteria including fund performance, consistency of management style,
compensation structures offered, and brand image and quality of the fund
company, including level and quality of support services. Federated has
developed successful relationships with broker/dealers by offering funds with
competitive performance, attractive pricing and broker compensation features
and extensive sales and marketing support and allowances. Federated made a
substantial commitment to advertising and media relations in 1997 and plans to
continue this program. The purpose of this program is to better position
Federated in its various distribution channels. Federated has won numerous
awards from recognized industry sources for the quality of the sales and
support services it provides to financial intermediaries.

Federated offers products with a variety of commission structures that
enable brokers to offer their customers a choice of pricing options. During
August 1994, Federated added a new broker/dealer B shares product to its
mutual fund product line. In order to provide an incentive to the retail
brokers to sell Federated's funds, while at the same time minimizing the
front-end load to the broker's customers, Federated pays an advance commission
to the broker and will receive a back-end fee from the proceeds if such shares
are redeemed prior to six years from the date of investment (contingent
deferred sales charge or "CDSC"). Initially added as new share classes to
three funds, B shares have been expanded to 28 funds as of December 31, 1997.
Assets in these share classes were $4.1 billion at December 31, 1997. See Note
6 to the Consolidated Financial Statements for a description of the financing
arrangement related to B-share sales.

INSTITUTIONAL MARKET. In 1993, Federated established a dedicated sales force
to expand its presence in the direct institutional market. Federated's
strategy is to focus on the distribution of its mutual fund and separate
account management expertise to a wide variety of users: corporations,
corporate and public pension funds, insurance companies, government entities,
foundations, endowments, hospitals, investment advisors, and non-

61
<PAGE>

Federated investment companies. Federated seeks to leverage its customer
relationships and reputation in the market for short-term asset management
products to expand its share of both separate accounts and longer-term equity
and fixed income mutual fund products.

At the inception of this effort in 1993, Federated managed $2.6 billion in
assets from existing customers in that market. Assets have risen to over $11.3
billion at December 31, 1997. The following table shows Managed Assets by type
of fund in the institutional market for the dates indicated.

INSTITUTIONAL MARKET
(Dollars in Millions)

<TABLE>
<CAPTION>
DECEMBER 31, GROWTH RATES
--------------------- ---------------
3 YR.
1995 1996 1997 CAGR 1997
------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Money Market Funds/Cash Equivalent...... $2,968 $5,807 $ 6,698 67% 15%
Fixed Income Funds...................... 1,094 1,545 1,825 28% 18%
Equity Funds............................ 387 455 749 53% 65%
Separate Accounts....................... 1,461 1,943 2,071 18% 7%
------ ------ -------
Total Institutional Market............ $5,910 $9,750 $11,343 44% 16%
====== ====== =======
</TABLE>

Within this market, Federated maintains a dedicated sales staff to focus on
independent investment advisers. Independent investment advisers use
Federated's products to meet the needs of their customers who are typically
retail investors. Federated has developed successful relationships with
investment advisers by offering funds with competitive performance, by
providing sales and marketing support, and by making its funds available in
the major "supermarket" mutual fund marketplaces used by investment advisers.
Assets from investment advisers nearly doubled, increasing from approximately
$1.4 billion in at December 31, 1995 to $2.8 billion at December 31, 1997.

A separate sales staff focuses on providing short-term cash management and
separate account management for general account assets, and sub-advisory
services for multi-manager variable annuity products. Federated maintains a
sales staff dedicated to this segment. Assets under management within this
segment were approximately $2.9 billion at December 31, 1997, up from
approximately $1.2 billion at year end 1995.

Short-term fixed income investment management services are also marketed to
corporations and government entities through a dedicated sales force in this
market. These services include money market funds and other low duration fixed
income products for the management of operating funds. Assets managed in this
segment totaled over $4.0 billion at December 31, 1997.

As part of Federated's overall retirement asset management strategy, pension
plan assets are the focus of a dedicated unit within the institutional
distribution channel. While retirement plan assets are pursued through
intermediaries in the bank trust and broker/dealer markets, the pension plan
group in this channel sells investment advisory services directly to
corporations and other sponsors of defined contribution and defined benefit
pension plans. Federated markets bundled and unbundled pension plan services
including investment products and recordkeeping services to corporate and
public pension plan sponsors. Investment advisory services in these
applications may be in the form of separate accounts or mutual fund or other
pooled products, depending upon the specific requirements of the plan sponsor.
Managed Assets in this segment totaled $1.7 billion at December 31, 1997.

OTHER MARKETS. Other markets includes primarily affinity group assets from
an historical arrangement with a large affinity group to provide a money
market fund for its members and miscellaneous assets which resulted from
marketing efforts earlier from Federated's history or from acquisitions which
resulted in the management of retail assets. Assets in these categories were
approximately $3.3 billion at December 31, 1997.

62
<PAGE>

SERVICES

Federated has long been the provider of a broad range of services to support
the operation, administration and distribution of Federated-sponsored mutual
funds. These services, for which Federated receives a fee from the funds,
include legal support and regulatory compliance, audit, fund accounting and
other funds financial services, transfer agency services, and shareholder
servicing and support. In 1988, in response to demand from its important bank
customer base, Federated began to offer these services to institutions seeking
to outsource all or part of their mutual fund service and distribution
functions. In 1997, Federated refocused its service capabilities to emphasize
the growth of Managed Assets and Administered Assets, rather than selling
individual services such as transfer agency, portfolio accounting and
technology solutions as stand-alone products.

Federated's business strategy is to use the knowledge base, service
expertise, distribution capability, and products it has developed to help its
customers grow their mutual fund businesses, thereby positioning Federated as
a key partner in the mutual fund operation of the financial intermediary.
Federated receives fees from these third party-sponsored funds for providing
fund services. Typically, the services offered are part of a broad customer
relationship. Federated has over $7.2 billion in assets under management from
its mutual fund services customers as of December 31, 1997. Over 90% of
Federated's fund services customers include Federated-sponsored mutual funds
on the menu of funds offered to their customers.

Service revenues are generated primarily from providing fund administration,
shareholder servicing, trade execution and settlement, retirement plan
services, and information technology support.

Fund Administration Services. Federated offers a complete menu of services
necessary to operate and conduct the day-to-day business operation of a mutual
fund complex. The services include legal administration and compliance,
internal audit, marketing support, information management, product development
and business administration. Federated provides portfolio accounting services
under an agreement with State Street, the industry leader in this area.
Historically, most of Federated's customers have contracted for the complete
administrative services package offered by Federated. Some banks have chosen
to internalize certain fund administration services or purchase individual
service pieces from different vendors, thereby reducing or eliminating the
need to purchase those services from Federated.

Shareholder Services. Through its subsidiary which is a registered transfer
agent, Federated provides mutual fund shareholder recordkeeping and customer
service, including the processing of purchase and redemption orders, entering
trades into the shareholder recordkeeping system, providing trade information
to the portfolio managers and fund accountants, and issuing shareholder
statements and tax forms. These services are provided to investment companies,
retirement plan sponsors, brokers, registered investment advisers, and retail
shareholders.

Trade Execution and Settlement. Federated provides highly automated trade
execution and settlement services ("clearing") for bank trust departments.
Utilizing Federated's TrustConnect(TM) system, bank trust departments can link
their recordkeeping systems to the National Securities Settlement
Corporation's FundSERV(TM) and NETWORKING(TM) systems. This process
facilitates automated mutual funds trading and settlement, trade confirmation
and account position reconciliation.

Retirement Plan Services. Federated provides customers with a full range of
retirement plan services, including integrated recordkeeping and
administrative services and access to Federated's broad menu of funds suitable
for use in retirement plans. As of December 31, 1997, Federated provided
retirement plan services to more than 600 plans and more than 120,000
participants. In 1997, Federated restructured its retirement plan
recordkeeping product for greater efficiency by developing a more standardized
product offering and by focusing on plans where funds managed by Federated are
used.

63
<PAGE>

Federated believes that it has adopted a prudent approach in the areas of
risk management and technological infrastructure related to its provision of
mutual fund services. For example, in the portfolio accounting area Federated
has entered into an agreement with State Street to provide these services for
both the Federated-sponsored funds and third party funds administered by
Federated, which has allowed Federated to reduce the number of employees
required to provide such services. Federated believes that this model provides
for quality service delivery while minimizing potential liability and exposure
to the funds. For transfer agency services and systems, Federated has
positioned itself to provide value added services while leveraging the
capabilities of the DST recordkeeping system. This model enables Federated to
focus its resources on providing customer services without the significant
burden and cost of developing and maintaining a proprietary recordkeeping
system.

Other. Federated Bank & Trust, a state-chartered bank and a wholly-owned
subsidiary of Federated, acts as trustee for a collective investment fund and
for certain plans that use Federated's retirement plan services.

COMPETITION

The mutual fund industry is highly competitive. According to the ICI, at the
end of 1997, there were over 6,800 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. Competition is especially strong for cash management products.

Changes in the mix of proprietary fund customers and the array of services
provided to them 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

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, may
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
instances prohibition from acting as an advisor to registered investment
companies. Federated's advisory companies are registered with 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
Exchange Act and with various states and are members of 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 Bank & Trust 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.

64
<PAGE>

Substantially all aspects of Federated's business are subject to various
federal and state laws and regulations. These laws and regulations 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, 1997, Federated employed approximately 2,037 persons, which
number has since been reduced as a result of an agreement with State Street.
Federated considers its relationships with its employees to be satisfactory.

FACILITIES

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 368,000 square feet. Federated leases approximately 110,000
square feet at Centre City Tower, 60,000 square feet at the Pittsburgh Office
and Research Park and an aggregate of 50,000 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 Research Corp. conducts its business; and in Gibbsboro, New
Jersey, where Federated Bank and Trust is located. Additional offices in
Naples, Florida and Wilmington, Delaware are subleased by Federated.

LEGAL PROCEEDINGS

There is currently no pending litigation of a material nature involving
Federated or its subsidiaries.

65
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The names, ages and positions of the directors and executive officers of the
Company as of the Effective Time of the Merger are set forth below. All such
persons currently serve in similar positions with the Trust. After the Merger
and the Offering, the Board of Directors of the Company also intends to select
at least two persons to serve as independent directors of the Company.

<TABLE>
<CAPTION>
YEARS OF
COMPANY
NAME POSITION AGE SERVICE
---- -------- --- --------
<C> <S> <C> <C>
John F. Donahue Chairman and Director 73 42
J. Christopher Donahue President, Chief Executive Officer and 49 25
Director
John W. McGonigle Executive Vice President, Secretary and 59 31
Director
Arthur L. Cherry President, Federated Services Company 44 1
and Director
James F. Getz President--Retail Sales Division of 51 13
Federated Securities Corp. and Director
William D. Dawson III Executive Vice President and Chief 49 22
Investment Officer--Fixed Income of
Federated Advisory Companies*
Thomas R. Donahue Vice President, Chief Financial Officer 39 5
and Director
John B. Fisher President--Institutional Sales Division 41 18
of Federated Securities Corp. and
Director
Richard B. Fisher Executive Vice President 74 42
Henry A. Frantzen Executive Vice President and Chief 55 3
Investment Officer--Global Equity and
Fixed Income of Federated Advisory
Companies*
J. Thomas Madden Executive Vice President and Chief 51 20
Investment Officer--Equity, High Yield
and Asset Allocation of Federated
Advisory Companies*
Eugene F. Maloney Executive Vice President, Federated 53 25
Investors Management Company and
Director
</TABLE>
- --------
* Federated Advisory Companies include the following subsidiaries of the
Company: Federated Advisers, Federated Global Research Corp., Passport
Research Limited, Federated Management, Federated Research, and Federated
Research Corp.

Mr. John F. Donahue has been Chairman and Chief Executive Officer of
Federated and a trustee of the Trust since 1989 and will continue as Chairman
after the consummation of the Merger. He served as President of Federated from
1989 until 1993 and was a founder of the predecessor to Federated. Mr. Donahue
is chief executive officer and a director or trustee of the investment
companies managed by subsidiaries of the Company. Mr. Donahue was a member of
the Board of Directors of Aetna until April 1995. He is the father of J.
Christopher Donahue and Thomas R. Donahue, each of whom serves as an executive
officer and director of the Company. Mr. Donahue is a graduate of the U.S.
Military Academy, West Point, New York.

Mr. J. Christopher Donahue has been President and Chief Operating Officer of
Federated since 1993 and was previously Vice President. He became President
and Chief Executive Officer on April 20, 1998 and will continue in such
capacities with the Company after the consummation of the Merger. Mr. Donahue
has been a trustee of the Trust since 1989. He is President or Executive Vice
President of the funds and a director, trustee, or managing general partner of
some of the funds. Mr. Donahue is the son of John F. Donahue and the brother
of Thomas R. Donahue. Mr. Donahue is a graduate of Princeton University and
the University of Pittsburgh School of Law.

66
<PAGE>

Mr. John W. McGonigle has been Executive Vice President of Federated since
August 1995. He has served as Vice President, Secretary and General Counsel of
Federated and has been a trustee of the Trust since 1989. He is Executive Vice
President and Secretary of the funds. Mr. McGonigle is a graduate of Duquesne
University and Duquesne University School of Law.

Mr. Arthur L. Cherry is President of Federated Services Company. He has been
a trustee of the Trust since 1997. 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 managing director of Scudder, Stevens
and Clark from 1984 to 1994. In addition, he has worked in various capacities
with The Boston Company, Boston Financial Data Services and EDS Consulting.
Mr. Cherry is a graduate of Northeastern University.

Mr. James F. Getz serves as President--Retail Sales Division of Federated
Securities Corp. and is responsible for the marketing and sales efforts in the
trust and broker/dealer markets. Mr. Getz is a graduate of King's College and
received his M.A. from Villanova University and his doctorate from Temple
University. Mr. Getz is also a Chartered Financial Analyst.

Mr. William D. Dawson, III serves as an Executive Vice President and Chief
Investment Officer--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 graduate of Union College with a
Masters in Business Administration from the University of Pittsburgh. He is
also a Chartered Financial Analyst.

Mr. Thomas R. Donahue has been Vice President of Federated since 1993 and a
trustee of the Trust since 1995. He currently serves as Vice President and
Chief Financial Officer of Federated. 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. Donahue is a graduate
of Boston University and the J.L. Kellogg Graduate School of Management at
Northwestern University.

Mr. John B. Fisher is President--Institutional Sales Division of Federated
Securities Corp. and is responsible for the distribution of the Company's
products and services to investment advisors, insurance companies, retirement
plans and corporations. He is the son of Richard B. Fisher, Executive Vice
President of Federated. Mr. Fisher is a graduate of the College of the Holy
Cross.

Mr. Richard B. Fisher has been Executive Vice President of Federated and a
trustee of the Trust since 1989 and was a founder of the predecessor to
Federated. Mr. Fisher is primarily responsible for developing and marketing
fund products in the broker/dealer market and for distributing some of the
funds. Mr. Fisher is President or Vice President of the funds and director or
trustee of some of the funds. Mr. Fisher is the father of John B. Fisher, an
officer of the Company. Mr. Fisher is a graduate of the College of the Holy
Cross.

Mr. Henry A. Frantzen serves as Executive Vice President and Chief
Investment Officer--Global Equity and Fixed Income of Federated Advisory
Companies and the institutional management division of Federated Investment
Counseling. 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 of Brown Brothers Harriman and Co., from 1992 to 1995.
Prior thereto he served in executive capacities for various investment
management companies, including Oppenheimer Management Corp., Yamaichi Capital
Management and CREF. Mr. Frantzen is a graduate of the University of North
Dakota.

Mr. J. Thomas Madden serves as Executive Vice President and Chief Investment
Officer--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 holds a B.A. from
Columbia

67
<PAGE>

University and an M.B.A. from Colgate Darden School of Business
Administration, University of Virginia. He is also a Chartered Financial
Analyst.

Mr. Eugene F. Maloney serves as the Executive Vice President of Federated
Investors Management Company and has been a trustee of the Trust since 1989.
He 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.
Maloney is a graduate of Holy Cross College and Fordham Law School.

ELECTION OF DIRECTORS

Each director of the Company serves a term from the date of such director's
election until the next annual meeting of the shareholders. Officers of the
Company are elected by, and serve at the discretion of, the Board of
Directors. After the Merger and the Offering, the Company will have 10
directors.

No director currently receives compensation for serving as a director of the
Company or as trustee of the Trust. Directors who are not employees of the
Company will receive options to purchase shares of Class B Common Stock under
the Stock Incentive Plan described below. Under the terms of the Merger, the
Company will assume the rights and obligations of the Trust regarding the
Trust's existing Restricted Stock Plan, Stock Appreciation Rights Plan and
Stock Incentive Plan. See "Compensation Pursuant to Plans--Stock Incentive
Plan" below.

The Company Bylaws provides for indemnification of officers and directors
consistent with the provisions of the Pennsylvania Business Corporation Law.
The Company is also authorized under the Company Bylaws to purchase and
maintain insurance for purposes of providing indemnification to officers,
directors, employees and agents of the Company, whether or not such
indemnification is provided for by the Pennsylvania Business Corporation Law.
The Company believes that these provisions are necessary for the Company to
continue to attract and retain qualified persons as directors and officers.

AUDIT COMMITTEE

After the Merger and the Offering, an Audit Committee will be formed and
consist of at least two directors, who will not be employees or officers (or
former employees or officers) of the Company or its subsidiaries. The Audit
Committee's duties will include reviewing internal financial information,
monitoring cash flow, budget variances and credit arrangements, reviewing the
audit program of the Company, reviewing with the Company's accountants the
results of all audits upon their completion, annually selecting and
recommending independent public accountants, overseeing the quarterly
unaudited reporting process and taking such other action as may be necessary
to assure the adequacy and integrity of all financial information distributed
by the Company.

COMPENSATION COMMITTEE

After the Merger and the Offering, a Compensation Committee will be formed
and consist of at least three directors, a majority of whom will not be
officers or employees (or former officers or employees) of the Company. The
Committee will recommend compensation levels of senior management, work with
senior management on benefit and compensation programs for Company employees
and monitor local and national compensation trends to ensure the Company's
compensation program is competitive within the mutual fund industry.

68
<PAGE>

EXECUTIVE COMPENSATION

Summary Compensation Table

Prior to the Merger, the executive officers of the Company did not receive
cash compensation in respect of their services to the Company alone but rather
received compensation for services rendered to the Trust and its subsidiaries,
including the Company. The following table sets forth the cash compensation
paid to the Chief Executive Officer and each of the other four most highly
compensated executive officers of the Trust, as of December 31, 1997, whose
cash compensation exceeded $100,000, for services rendered to the Trust and
its subsidiaries during the fiscal year ended December 31, 1997.

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
ANNUAL COMPENSATION AWARDS
------------------------------------- ------------------------------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(1) STOCK AWARD($) OPTIONS/SARS(#) COMPENSATION($)(2)
- ------------------ --------- -------- ------------------ -------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
John F. Donahue, 1,600,000 800,000 83,894 -- -- 9,760
Chairman and Chief
Executive Officer
J. Christopher Donahue, 830,000 415,000 53,695 -- -- 13,432
President and Chief
Operating Officer
John W. McGonigle, 750,000 250,000 -- -- -- 15,102
Executive Vice
President and Secretary
Arthur L. Cherry, 600,000 300,000 73,924 197,500(3) 240,000(4) 1,350
President, Federated
Services Company
James F. Getz,
President, 350,000 550,000 -- --(3) 40,000(4) 8,920
Retail Sales Division
of Federated Securities
Corp.
</TABLE>
- --------
(1) In accordance with the applicable rules, the amounts set forth in this
column do not include perquisites and other personal benefits received by
the named executive officer unless the aggregate value thereof exceeded
the lesser of $50,000 or 10% of the base salary and bonus reported for
such officer. Included in Mr. John F. Donahue's annual compensation are
perquisites and other personal benefits in fiscal year 1997, including
$36,885 for the use of Federated's corporate aircraft valued on the basis
of incremental cost to Federated. Included in Mr. J. Christopher Donahue's
annual compensation are perquisites and other personal benefits in fiscal
year 1997, including $23,435 for the use of Federated's corporate aircraft
valued on the basis of incremental cost to Federated. Included in Mr.
Cherry's annual compensation are perquisites and other personal benefits
in fiscal year 1997, including $72,924 in relocation expenses.

(2) Includes matching contributions under Federated's 401(k) Plan of $6,400
for Mr. John F. Donahue, $6,400 for Mr. J. Christopher Donahue, $6,400 for
Mr. McGonigle and $6,400 for Mr. Getz; and the present value of the
economic benefit to the executive of the corporate premiums paid to
purchase split dollar life insurance contracts of $1,212 for Mr. J.
Christopher Donahue, and $2,882 for Mr. McGonigle. In addition, Federated
paid annual premiums for life insurance with respect to Mr. John F.
Donahue of $3,360, Mr. J. Christopher Donahue of $5,820, Mr. McGonigle of
$5,820, Mr. Cherry of $1,350 and Mr. Getz of $2,520 in 1997. The split
dollar life insurance contract for Mr. John F. Donahue is fully paid and
the Company is entitled to recover all of the premiums paid by it through
the cash surrender value of such policy.

69
<PAGE>

(3) Based on the latest available independent valuation on the date of grant
in the case of Mr. Cherry with respect to the grant of 75,000 Trust Class
B Common Shares (after giving effect to the 1998 stock dividends), which
was fully vested in January 1998. No other restricted shares were held by
any of the named executive officers as of December 31, 1997, except for
an aggregate of 450,000 Trust Class B Common Shares (after giving effect
to the two 1998 stock dividends) awarded to Mr. Getz in 1990 and 1993.
All restricted shares held by Messrs. Cherry and Getz had an aggregate
value of $3,150,000 as of the latest independent valuation.

(4) In the case of each of Mr. Cherry and Mr. Getz, includes 60,000 Trust
Class B Common Shares (after giving effect to the 1998 stock dividend)
subject to options which are not currently exercisable.

COMPENSATION PURSUANT TO PLANS

Employees' Profit Sharing Plan. The Trust has adopted a Profit Sharing Plan,
qualified under Section 401(a) of the Internal Revenue Code, for its employees
and employees of related entities who have completed four months of service.
The Profit Sharing Plan consists of a discretionary profit sharing plan
feature, and a cash or deferred feature qualified under Section 401(k) of the
Internal Revenue Code ("401(k) Plan") with an employer matching contribution
feature. The Plan is administered by a committee of employees. Distributions
are made upon termination of employment in the form of a lump sum cash
distribution. If a participant dies before termination of employment, the
entire value of the participant's account is paid to the beneficiary
designated by the participant.

The Trust may contribute to the Profit Sharing Plan in any year an amount up
to 15% of the eligible compensation of plan participants. The Trust has not
made discretionary Profit Sharing Plan contributions since 1990. Employees
become fully vested in their separate benefits after completing seven
consecutive years of service with the Trust or related entity, by a graduated
partial vesting in 20% increments, beginning on completion of three years of
service and continuing until completion of seven years of service. Profit
Sharing Plan assets are collectively invested by the Trustee, an officer of
the Company. Among other assets, as of the date of this Proxy
Statement/Prospectus, the Profit Sharing Plan owned 2,700,000 shares of Class
B Common Stock, after giving effect to the Merger. Benefits are provided at
death, disability, and termination of employment (including retirement).
Participants' benefits are equal to the total contributions for the
participant, plus the participant's share of any forfeitures and plus or minus
associated investment gains or losses, multiplied by the participant's vesting
percentage.

A Participant in the 401(k) Plan may elect to reduce his compensation from
the Company by any whole percentage from 1% to and including 15% and have that
amount contributed to the 401(k) Plan before deduction of federal income tax
("Salary Reduction Contributions"). The Trust will contribute on behalf of
each Participant an amount defined by the Company from time to time.
Currently, the matching contribution is equal to the first 2% contributed by
the Participant plus 50% of the next 4% contributed by the Participant
("Matching Contributions"). The maximum amount that a Participant may
contribute by salary reduction is limited by the Internal Revenue Code. For
1997 the maximum amount was $9,800. Participants are always 100% vested in
their Salary Reduction Contributions. Matching Contributions become fully
vested in accordance with the same schedule as the Profit Sharing
Contribution. Each Participant may choose the investments for his Salary
Reduction Contributions and Matching Contributions. The available investment
options are various mutual funds from Federated funds, chosen to provide a
range of investment alternatives with materially different risk and return
characteristics.

Stock Incentive Plan. Long-term incentive compensation for executives has
been provided under the Company's Stock Incentive Plan (the "Stock Incentive
Plan"), adopted as of February 20, 1998. All key employees of the Company and
its affiliates are eligible to participate in the Stock Incentive Plan. The
Stock Incentive Plan will continue in effect until terminated by its terms or
until terminated by the Board of Directors of the Company.

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<PAGE>

The Stock Incentive Plan permits the granting of any or all of the following
types of awards: (1) performance shares conditioned upon meeting performance
criteria; (2) restricted stock; (3) stock options, including nonqualified
stock options ("NSOs") and incentive stock options ("ISOs"); (4) stock
appreciation rights ("SARs"), in tandem with stock options or freestanding;
and (5) other awards valued in whole or in part by reference to, or otherwise
based on, Class B Common Shares. In connection with any award, payment
representing dividends or interest or their equivalent may be made to Stock
Incentive Plan participants. In addition, the Stock Incentive Plan provides
for automatic grants of stock options to trustees of the Trust who are not
employees of the Company or its subsidiaries.

Shares Subject to Stock Incentive Plan

A total of 13,500,000 shares of Class B Common Stock may be issued under the
Stock Incentive Plan. All of the shares are available for the grant of ISOs.
No participant shall receive awards in respect of more than 600,000 shares of
Class B Common Stock in any calendar year. The aggregate fair market value
(determined on the date of the grant) of shares of Class B Common Stock with
respect to which ISOs granted to a participant become exercisable for the
first time in any single calendar year will not exceed $100,000. In addition,
shares issued by the Company as a result of the assumption or substitution of
outstanding grants of an acquired company or entity (other than as a result of
the Merger, as described below) will not reduce the shares available for grant
under the Stock Incentive Plan. The shares of stock deliverable under the
Stock Incentive Plan may consist in whole or in part of authorized and
unissued shares, treasury shares, or any combination thereof. If any shares
subject to any award are forfeited, or the award is terminated without
issuance of shares or other consideration, the shares subject to such awards
will again be available for grant under the Stock Incentive Plan.

Under the terms of the Merger, the Company will assume the rights and
obligations of the Trust regarding the Trust's existing Restricted Stock Plan,
Stock Appreciation Rights Plan and Stock Incentive Plan (the "Prior Stock
Plans"). The Company will treat as having been issued under its Stock
Incentive Plan all shares of restricted stock, SARs and stock options issued
under the Prior Stock Plans. This will include, based on the number of
restricted shares, SARs and stock options outstanding under the Prior Stock
Plans on April 21, 1998 (after giving effect to the stock dividend paid on
April 15, 1998 and the stock dividend declared on April 16, 1998 to be paid on
April 30, 1998 to shareholders of record on April 21, 1998), 4,233,000
restricted shares of Class B Common Stock and SARs and stock options relating
to 3,975,600 shares of Class B Common Stock.

After giving effect to the assumption of the Prior Stock Plans, as of April
16, 1998 (after giving effect to the stock dividend paid on April 15, 1998 and
the stock dividend declared on April 16, 1998 to be paid on April 30, 1998 to
shareholders of record on April 21, 1998), the Company had 5,291,400 shares of
Class B Common Stock reserved for future issuance under its Stock Incentive
Plan.

Option Grants

The following table sets forth as to persons named in the Summary
Compensation Table additional information with respect to stock options
granted during 1997:

OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO PRICE PER GRANT DATE
OPTIONS EMPLOYEES SHARE EXPIRATION PRESENT
NAME GRANTED(1) IN 1997 ($/SHARE)(2) DATE VALUE($)(3)
- ---- ---------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Arthur L. Cherry........ 300,000 17.8% 3.10 03/01/07 254,000
60,000 3.6% 6.00 12/01/07 113,600
James F. Getz........... 60,000 3.6% 6.00 12/01/07 113,600
</TABLE>
- --------
(1) Reflects the one for one stock dividend declared on February 20, 1998 and
paid on April 15, 1998 and the one for two stock dividend declared on
April 16, 1998 to be paid on April 30, 1998.

71
<PAGE>

(2) The exercise price per share, as adjusted for the 1998 stock dividend, was
based on the latest available independent valuation on the date of grant.

(3) The Minimum Value option pricing model was used to determine the grant
date present value. The information in the table is provided in accordance
with the rules of the Securities and Exchange Commission regarding the
disclosure of compensation of executive officers, and is not intended to
forecast possible future stock price appreciation, if any. See Note 8(e)
to the Consolidated Financial Statements for further information.

Administration

The Stock Incentive Plan is administered by a committee of the Board of
Directors (the "Board Committee"). The Board Committee is constituted such
that awards under the Stock Incentive Plan will, to the extent practicable,
qualify for exemption under Rule 16b-3 of the Commission and as performance-
based compensation under Section 162(m) of the Internal Revenue Code. The
Board Committee may delegate some or all of its authority and responsibility
under the Stock Incentive Plan with respect to awards to participants who are
not subject to Section 16(b) of the Exchange Act to the Chief Executive
Officer of the Company. The Board Committee has the authority to select
employees to whom awards are granted, to determine the types of awards and the
number of shares subject thereto, and to set the terms, conditions and
provisions of such awards. The Board Committee is authorized to interpret the
Stock Incentive Plan, to establish, amend and rescind any rules and
regulations relating to the Stock Incentive Plan, to determine the terms and
provisions of any agreements entered into under the Stock Incentive Plan, and
to make all other determinations which may be necessary or advisable for the
administration of the Stock Incentive Plan.

Performance Awards

Performance awards are grants of shares of Class B Common Stock subject to
the attainment of performance goals established by the Board Committee in
connection with such grants and such other terms and conditions as the Board
Committee shall determine. Except as otherwise determined by the Board
Committee, recipients of performance awards will not be required to provide
consideration other than the rendering of services. Subject to the provisions
of the applicable award agreement, during the performance period dividends and
other distributions with respect to shares covered by a performance award
shall, in the discretion of the Board Committee, either be paid to the
recipient or held in escrow by the Company and paid when the performance award
is earned.

Restricted Stock

Restricted stock may not be disposed of by the recipient until the lapse of
certain restrictions established by the Board Committee. Upon termination of
employment of the participant during the restriction period, all restricted
stock not then vested will be forfeited, subject to such exceptions, if any,
authorized by the Board Committee. Except as otherwise determined by the Board
Committee, recipients of restricted stock are not required to provide
consideration other than the rendering of services. Recipients will have, with
respect to restricted stock, all of the rights of a shareholder of the Company
including the right to receive any dividends to the extent permitted by
applicable law, unless the Board Committee determines otherwise.

Stock Options

The exercise price per share of Class B Common Stock of stock options
granted to a participant is determined by the Board Committee as of the date
of grant; provided, however, that (i) in the case of ISOs granted to a
participant who on the grant date is not a more than 10% stockholder of the
Company ("Ten Percent Holder"), such price shall not be less than 100% of the
fair market value of a share of a Class B Common Share on the grant date, (ii)
in the case of an ISO granted to a participant who on the grant date is a Ten
Percent Holder, such price shall be not less than 110% of the fair market
value of a share of Class B Common Stock on the grant

72
<PAGE>

date, and (iii) in the case of NSOs such price shall be not less than 85% of
the fair market value of a share of Class B Common Stock on the grant date.
The term of each such option, the time or times when it may be exercised, and
the other applicable terms and conditions will be fixed by the Board
Committee. Options may be exercised by payment of the purchase price in cash
or, at the discretion of the Board Committee, in shares of Class B Common
Stock having a fair market value on the date the option is exercised equal to
the option exercise price or in such other manner as the Board Committee may
approve.

Stock Appreciation Rights

An SAR may be granted in connection with an option or independent of an
option. Upon exercise of an SAR, the holder thereof is entitled to receive the
excess of the fair market value of the shares for which the right will be
exercised over the grant price of the SAR. The grant price (which will not be
less than 100% of the fair market value of the shares on the date of grant)
and other terms of the SAR will be determined by the Board Committee. Payment
by the Company upon such exercise will be in cash.

Other Stock-Based Awards

In order to enable the Company to respond quickly to significant legislative
and regulatory developments and to trends in executive compensation practices,
the Board Committee will also be authorized to grant to participants, either
alone or in addition to other awards granted under the Stock Incentive Plan,
awards of stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, shares of Class B Common Stock
("other stock-based awards"). Other stock-based awards may be paid in shares
of Class B Common Stock or other securities of the Company, cash or any other
form of property as determined by the Board Committee.

The Board Committee will determine the employees to whom other stock-based
awards are to be made, the times at which such awards are to be made, the
number of shares to be granted pursuant to such awards and all other
conditions of such awards. The provisions of such awards need not be the same
with respect to each recipient. Securities granted pursuant to other stock-
based awards may be issued for no cash consideration or for such minimum
consideration as may be required by applicable law. If purchase rights are
granted pursuant to other stock-based awards, the Board Committee will
determine the purchase price of stock, which price will not be less than the
fair market value of such stock on the date of grant.

Directors' Stock Options

The Stock Incentive Plan provides that directors of the Company who are not
employees of the Company shall receive options to purchase shares of Class B
Common Stock. Such directors will receive options with respect to 4,500 shares
upon their initial election to the Board of Directors and with respect to
1,500 shares annually thereafter.

All such options will be NSOs and will have a term of 10 years and an
exercise price equal to 100% of the fair market value of the underlying shares
on the date of grant. The initial grants of options to a director vest in
equal installments over a three year period. The annual grants are fully
vested as of the date of grant. In the event of a director's death, the
options which are exercisable at the date of death will be exercisable for the
next succeeding twelve months. Except as set forth below under "Adjustments,"
neither the Board of Directors of the Company nor the Board Committee will
have any discretion with respect to options granted to such directors pursuant
to the Stock Incentive Plan.

Nonassignability of Awards

The Stock Incentive Plan provides that no award granted under the Stock
Incentive Plan may be sold, assigned, transferred, pledged or otherwise
encumbered by a participant, otherwise than by will or by the laws of

73
<PAGE>

descent and distribution or, if authorized by the Board Committee in limited
circumstances, by gift. Each award will be exercisable, during the
participant's lifetime, only by the participant, or if permissible under
applicable law, by the participant's agent, guardian or attorney-in-fact.

Adjustments

The Stock Incentive Plan provides that, in the event of any change affecting
the Class B Common Stock by reason of any stock dividend or split,
recapitalization, reorganization, merger, consolidation, combination or
exchange of shares, spin-off or any other change in corporate structure such
that Class B Common Stock are changed into or exchangeable for a larger or
smaller number of shares, the Board Committee will make such substitution or
adjustment in the aggregate number or class of shares which may be distributed
under the Stock Incentive Plan and in the number, class and option price or
other price of shares subject to the outstanding awards granted under the
Stock Incentive Plan as it deems to be appropriate in order to maintain the
purpose of the original grant.

The Board Committee will be authorized to make adjustments in performance
award criteria or in the terms and conditions of other awards in recognition
of unusual or non-recurring events affecting the Company or its financial
statements or changes in applicable laws, regulations or accounting
principles, provided no such adjustment shall impair the rights of any
participant without his consent. The Board Committee will be able to correct
any defect, supply any omission or reconcile any inconsistency in the Stock
Incentive Plan or any award in the manner and to the extent it shall deem
desirable to carry it into effect.

Federal Income Tax Aspects of the Stock Incentive Plan

The following is a summary of the federal tax consequences generally arising
with respect to awards to be granted under the Stock Incentive Plan.

The grant of an ISO has no tax consequences to the Company or to the
participant. In addition, the participant recognizes no taxable income at the
time of exercise of an ISO. However, upon exercise, the difference between the
fair market value of the shares of Class B Common Stock and the exercise price
of the ISO is includable in the participant's income for alternative minimum
tax purposes. If the participant holds the shares acquired upon exercise of an
ISO for at least two years from the date of the grant of the ISO and at least
one year from the date of exercise, he or she will recognize taxable long-term
capital gain or long-term capital loss upon a subsequent sale of the shares at
a price different from the option exercise price. In either of these events,
no deduction would be allowed to the Company for federal income tax purposes.

If the participant disposes of the shares acquired upon exercise of an ISO
within either of the holding periods described above (i) the participant will
recognize taxable ordinary income in the year of such disposition in an amount
equal to the fair market value of the shares on the exercise date minus the
exercise price of the ISO, provided that if the disposition is a sale or
exchange with an unrelated party, then the ordinary income will be limited to
the excess of the amount realized upon the sale or exchange of the shares over
the exercise price; (ii) the Company will be entitled to a deduction for such
year equal to the amount of taxable ordinary income recognized by the
participant; (iii) the participant will recognize capital gain or loss, short-
term or long-term, as the case may be, in an amount equal to the difference
between (a) the amount realized by the participant upon such sale or exchange
of the shares and (b) the option exercise price paid by the participant
increased by the amount of ordinary income, if any, recognized by the
participant upon such disposition.

The grant of an NSO has no tax consequences to the Company or to the
participant. Upon exercise of an NSO, however, the participant will recognize
taxable ordinary income in the amount of the excess of the fair market value
on the date of exercise of the shares of the Class B Common Stock acquired
over the exercise price of the NSO, and such amount will be deductible for
federal income tax purposes by the Company. The holder of such shares will,
upon a subsequent disposition of the shares, recognize short-term or long-term
capital gain or loss, depending on the holding period of the shares.

74
<PAGE>

In general, a grant of restricted stock has no tax consequences to the
Company or the participant. Except as discussed below, the then fair market
value of the shares of Class B Common Stock issued as restricted stock will be
taxed as ordinary income to the participant as the restrictions on the stock
lapse. The Company will receive a corresponding tax deduction at the same
time. Dividends received by the participant during the restriction period are
treated as compensation income and therefore are taxed as ordinary income to
the participant and are deductible by the Company. Any gain realized upon a
taxable sale or exchange of the stock will be recognized as short-term or
long-term capital gain or loss, depending on the holding period of the shares
after the restrictions lapse. The Company receives no additional deduction at
the time of disposition of the stock by the participant.

The participant may, under Section 83(b) of the Internal Revenue Code, elect
to report the current fair market value of restricted stock as ordinary income
in the year the award is made, even though the stock is subject to
restrictions. In such a case, the Company will receive an immediate tax
deduction for such fair market value of the shares in the year of grant, but
will receive no deduction for any subsequent appreciation during or after the
restriction period. In addition, dividends paid during or after the
restriction period would be treated as dividends rather than compensation
income to the participant and, therefore, would not be deductible by the
Company. If a Section 83(b) election is made, any appreciation in the value of
the stock after the date of grant will not be recognized as capital gain by
the participant until such time as the participant disposes of the stock in a
taxable transaction. Any capital gain then realized will be long-term capital
gain provided that the required holding period, measured from the date of
grant, is met. If the participant forfeits the stock (i.e., because he or she
has not met the requirements for lapse of restrictions), the participant will
receive no refund or deduction on account of taxes paid in the year of grant
as a result of the Section 83(b) election.

The grant of an SAR has no tax consequences to the Company or the
participant. To the extent that an SAR is exercised, the amount paid to the
participant will be taxed to him or her as ordinary income, and the Company
will receive a corresponding deduction at the same time.

With respect to other stock-based awards granted under the Stock Incentive
Plan that are settled either in cash or in stock or other property that is
either transferable or not subject to substantial risk of forfeiture, the
participant must recognize ordinary income equal to the cash or the fair
market value of shares or other property received, and the Company will be
entitled to a deduction for the same amount. With respect to awards that are
settled in stock or other property that is restricted as to transferability
and subject to substantial risk of forfeiture, the participant must recognize
ordinary income equal to the fair market value of the shares or other property
received, at the first time the shares or other property become transferable
or not subject to substantial risk of forfeiture, whichever occurs earlier.
The Company will be entitled to a deduction for the same amount. A participant
who makes an election under Section 83(b) of the Internal Revenue Code will be
taxed on the excess of the fair market value of the stock or other property at
exercise over the purchase price. Special tax rules may apply to officers and
directors who are subject to Section 16 of the Exchange Act.

Executive Annual Incentive Plan. The Company adopted an Executive Annual
Incentive Compensation Plan (the "Incentive Compensation Plan"). Under this
Plan, a pool equal to 7.5% of the Company's consolidated operating profits (as
defined in the Plan) may be set aside each year for the payment of cash awards
to the five most highly compensated executive officers of the Company
(including the Chief Executive Officer and such other officers as the Chief
Executive Officer may designate). Shares of the pool will be allocated to
participants designated by the Chief Executive Officer. Such allocations are
intended to be made before the 90th day of the fiscal year to which the
incentive pool relates. No more than 40% of the pool will be allocated to any
participant. At any time before or after the close of the fiscal year and
prior to the payment of cash awards for the fiscal year, the Chief Executive
Officer may reduce or eliminate the incentive pool or the amount thereof
granted to any participant. Upon the death of a participant, the award will be
paid to his or her estate or beneficiary. Awards will be forfeited upon
termination of employment unless the Chief Executive Officer determines
otherwise.

75
<PAGE>

The Incentive Compensation Plan may be terminated or amended at any time by
action of the Company's Board of Directors. The Incentive Compensation Plan is
intended to be an unfunded plan and as such the participants shall have no
rights with respect to amount payable under the Plan that are greater than
those of a general creditor of the Company.

For Federal income tax purposes, cash awards will be taxable to participants
as ordinary compensation income as of the date of payment of such awards, and
the Company will be entitled to a corresponding tax deduction in the year
accrued.

76
<PAGE>

CERTAIN TRANSACTIONS

RELATIONSHIP WITH AETNA AND WESTINGHOUSE PENSION PLAN

Aetna. In January 1996, Federated entered into an agreement with Aetna to
convert 1,000 shares of Trust Series A Preferred Shares into Trust Class B
Common Shares and to sell the converted shares back to the Trust at a mutually
agreed upon price. Each Series A Preferred Share was converted into
approximately 5,303 Class B Common Shares (without adjusting for subsequent
stock dividends). Immediately thereafter, these shares were repurchased from
Aetna for $101,233,000. Aetna has no continuing equity interest in Federated.
See Note 10 to Consolidated Financial Statements.

Westinghouse Pension Plan. Under the Stock Purchase Agreement dated as of
August 1, 1989 (the "Stock Purchase Agreement") between the Company and
Westinghouse Credit Corporation ("Westinghouse"), Westinghouse originally
acquired 1,200,000 Trust Class B Common Shares (4,800,000 shares after giving
effect to subsequent stock dividends). On September 14, 1993, Westinghouse
transferred these shares to Mellon Bank N.A., as Trustee. Pursuant to the
terms of the Stock Purchase Agreement, the Westinghouse Pension Plan is
entitled to participate in any public offering pro rata with all other
existing holders of Class A Common Shares and Class B Common Shares to the
extent any such holders are entitled to participate in any such public
offering. See "Principal Shareholders." In addition, if the Company offers to
issue any Class A Common Shares or Class B Common Shares to specified senior
executives of the Company, Westinghouse Pension Plan is entitled to purchase
its pro rata share at the same price as such executive. This right does not
extend to shares issued under the Profit Sharing Plan or other employee stock
arrangements. Westinghouse Pension Plan's percentage ownership of Federated is
to be diluted on the same basis as the percentage ownership of all other
holders of Class A Common Shares and Class B Common Shares in the event
Federated issues any such shares to an unrelated third party or pursuant to a
public offering. Under the terms of the Stock Purchase Agreement, Westinghouse
Pension Plan cannot transfer any of its Class B Common Shares to any direct
competitor of the Company or a person owning 50% or more of a competitor.
Pursuant to the Merger, the obligations of Federated under the Stock Purchase
Agreement will be assumed by the Company.

OTHER TRANSACTIONS

Following the repurchase of Trust Class B Common Shares from Aetna described
above, in February 1996 Federated also purchased 1,180,000 (without adjusting
for subsequent stock dividends) Trust Class B Common Shares from other
existing shareholders at a comparable per share price to that paid to Aetna,
for a total purchase price of $22,420,000. See Note 10 to Consolidated
Financial Statements. Among the Trust Class B Common Shares repurchased
(without adjusting for subsequent stock dividends) were shares beneficially
owned by certain directors and executive officers of the Company, as follows:
22,000 shares ($418,000) owned by Comax Company, a limited partnership of
which Comax, Inc. is the general partner in which Mr. John F. Donahue is the
sole shareholder as to which shares Mr. Donahue disclaims beneficial
ownership; 23,000 shares ($437,000) owned by Mr. Eugene F. Maloney; and 50,500
shares ($959,500) owned by Fairview Partners, a limited partnership of which
Mr. John W. McGonigle is the sole general partner. In addition, the Federated
Profit Sharing Plan sold 150,000 shares ($2,850,000) to Federated.

Investment advisory, administrative, distribution and shareholder services
are provided to the Federated group of funds pursuant to various contracts
among subsidiaries of Federated. Terms of the contracts, including fees, are
approved by the directors and trustees of the funds, including independent
directors and trustees of the funds, none of whom are officers, trustees or
employees of Federated.

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<PAGE>

PRINCIPAL SHAREHOLDERS

The beneficial ownership of the Common Shares of the Trust at the time of
the Merger and the Common Stock of the Company immediately after the
consummation of the Merger will be the same, without giving effect to the
Offering, because each shareholder of the Trust will receive one share of
Class A Common Stock or Class B Common Stock of the Company in exchange for
each Trust Class A Common Share or Trust Class B Common Share, as the case may
be. Accordingly, the following table sets forth certain information regarding
the beneficial ownership of the Company's Class A and Class B Common Stock as
of April 21, 1998 (after giving effect to the stock dividend paid on April 15,
1998 and the stock dividend declared on April 16, 1998 to be paid on April 30,
1998 to shareholders of record on April 21, 1998), by (i) each person who is
known by the Company to own beneficially more than 5% of the outstanding
shares of Class A or Class B Common Stock, (ii) each of the directors of the
Company, (iii) named executive officers of the Company, and (iv) all directors
and executive officers of the Company as a group.

All of the outstanding shares of Class A Common Stock are held by the Voting
Trust, the trustees of which are John F. Donahue, his wife and his son J.
Christopher Donahue, for the benefit of members of the family of John F.
Donahue. Under the terms of the Voting Trust, the trustees are authorized to
vote shares held by the Voting Trust and the trustees additionally may sell,
transfer or otherwise dispose of shares owned by the Voting Trust. The entire
voting power of the Company is vested in the holders of the outstanding shares
of Class A Common Stock, except as otherwise provided in the Restated Articles
or required by applicable law. See "Description of Securities."

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING
NUMBER OF SHARES OF CLASS A CLASS A OR B
NAME(1) OR B COMMON STOCK OWNED(2) COMMON STOCK(2)
- ------- --------------------------- ---------------
<S> <C> <C>
Voting Trust(3)......... 6,000 shares of Class A Common Stock 100.0%
John F. Donahue(4)...... 10,545,534 shares of Class B Common Stock 12.6
J. Christopher
Donahue(5)............. 4,647,918 shares of Class B Common Stock 5.6
John W. McGonigle(6).... 5,460,000 shares of Class B Common Stock 6.5
Arthur L. Cherry(7)..... 474,000 shares of Class B Common Stock *
James F. Getz........... 540,000 shares of Class B Common Stock *
William D. Dawson III... 120,000 shares of Class B Common Stock *
Thomas R. Donahue(8).... 1,721,838 shares of Class B Common Stock 2.1
John B. Fisher.......... 300,000 shares of Class B Common Stock *
Richard B. Fisher....... 4,800,000 shares of Class B Common Stock 5.8
Henry A. Frantzen....... 180,000 shares of Class B Common Stock *
J. Thomas Madden........ 150,000 shares of Class B Common Stock *
Eugene F. Maloney(9).... 540,000 shares of Class B Common Stock *
James J. Dolan(10)...... 4,825,236 shares of Class B Common Stock 5.8
John A. Staley, IV(11).. 7,617,000 shares of Class B Common Stock 9.1
Westinghouse Pension
Plan(12)............... 7,200,000 shares of Class B Common Stock 8.6
All directors and
executive officers as a
group (12 persons)..... 29,479,290 shares of Class B Common Stock 35.3%
</TABLE>
- --------
* Less than 1%.

78
<PAGE>

(1) Except as indicated in the footnotes below, the address of each five
percent shareholder is in care of the Company at its principal executive
office. See "Management" for a description of the offices held by
directors and executive officers.

(2) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Unless stated
below, each such person has sole voting and investment power with respect
to all such shares.

(3) The Voting Shares Irrevocable Trust dated May 31, 1989 specifically
authorizes John F. Donahue, his wife and J. Christopher Donahue as
trustees to vote shares held by the Voting Trust and grants them power to
sell, transfer or otherwise dispose of shares owned by the Voting Trust.

(4) Includes 4,650,000 shares owned by The Beechwood Company, a limited
partnership of which Mr. Donahue and Oyster Bay Properties, Inc., of which
Mr. Donahue is the sole shareholder, are general partners (Mr. Donahue
disclaims beneficial ownership of 2,325,000 shares owned by The Beechwood
Company); 4,566,372 shares owned by Comax Company, a limited partnership
of which Comax, Inc. is the general partner; John F. Donahue is the sole
shareholder of Comax, Inc. (Mr. Donahue disclaims beneficial ownership of
substantially all of the 4,566,372 shares owned by Comax Company); and
1,329,162 shares owned by Shamrock Partners LP, a limited partnership of
which Mr. Donahue and Shamrock Properties, Inc., of which Mr. Donahue is
the sole shareholder, are general partners.

(5) Includes 3,545,448 shares owned jointly with Mrs. Donahue; includes
838,890 shares for which Mr. Donahue has the power to sell, transfer or
otherwise dispose under powers of attorney; includes 263,580 shares for
which Mr. Donahue is a custodian of shares under the Uniform Trust for
Minors Act. Does not include 750,000 shares held by Tiger Partners, L.P.

(6) All of the shares are owned by Fairview Partners, a limited partnership of
which Mr. McGonigle is the sole general partner.

(7) Includes 300,000 shares subject to options which are currently
exercisable. Includes 34,800 shares owned by or on behalf of Mr. Cherry's
children; includes 64,200 shares owned jointly by Mr. and Mrs. Cherry.

(8) Includes 1,196,520 shares of which Mr. Donahue is a custodian of shares
under the Uniform Trust for Minors Act; includes 261,318 shares owned
jointly by Mr. and Mrs. Thomas R. Donahue.

(9) Includes 210,000 shares owned by Mrs. Maloney.

(10) Mr. Dolan's address is c/o Access Data Corp., Two Chatham Center,
Pittsburgh, Pennsylvania 15219. Includes 605,610 shares owned by Mrs.
Dolan and 541,488 shares owned by Mr. Dolan. Based on information
furnished to the Company, also includes 2,806,200 shares to be registered
in Voyager One Investment Limited Partnership, a limited partnership of
which Mr. Dolan and his wife are general partners. Mr. Dolan is a former
executive officer and a former trustee of the Trust.

(11) Mr. Staley's address is Staley Capital Advisers, Inc., One Oxford Centre,
Suite 3950, Pittsburgh, PA 15219. Includes 3,090,000 shares owned by Glen
Arden Associates, a limited partnership of which Mr. Staley is the sole
general partner. Mr. Staley is a former executive officer and a former
trustee of the Trust.

(12) The address for Westinghouse Pension Plan is c/o Mellon Equity
Associates, 500 Grant Street, Suite 3700, Pittsburgh, Pennsylvania 15258.

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DESCRIPTION OF SECURITIES

The authorized share capital of the Company consists of 20,000 shares of
Class A Common Stock, no par value per share ("Class A Common Stock"),
900,000,000 shares of Class B Common Stock, no par value per share ("Class B
Common Stock") and 100,000,000 shares of preferred stock, no par value per
share ("Preferred Stock"). Following consummation of the Merger and without
giving effect to the Offering, there will be issued and outstanding 6,000
shares of Class A Common Stock, 83,427,000 shares of Class B Common Stock and
no shares of Preferred Stock.

CLASS A COMMON STOCK AND CLASS B COMMON STOCK

Voting Rights

The entire voting power of the Company shall be vested in the holders of the
outstanding shares of Class A Common Stock until the occurrence of the
Agreement Date (as defined below). Except as otherwise provided in the
Restated Articles or by applicable law, the holders of the outstanding Class B
Common Stock shall have no voting rights. On all matters upon which
shareholders are entitled to vote or give consent, each holder of a share of
Class A Common Stock shall be entitled to cast thereon one vote in person or
by proxy for each share of Class A Common Stock held of record by such holder.
After consummation of the Merger, the Voting Trust will have control of the
Company through its ownership of all of the outstanding shares of the Class A
Common Stock of the Company.

With respect to any proposed amendment of the Restated Articles that would
increase or decrease the number of authorized shares of either the Class A
Common Stock or the Class B Common Stock, or alter or change the powers,
preferences, relative voting power or special rights of the shares of the
Class A Common Stock or the Class B Common Stock so as to affect them
adversely, the approval of a majority of the votes entitled to be cast by the
holders of the class affected by the proposed amendment, voting separately as
a class, shall be obtained in addition to the approval of a majority of the
votes entitled to be cast by the holders of the Class A Common Stock and the
Class B Common Stock voting together as a single class as provided above.

Notwithstanding the foregoing, the Company shall not, prior to the Agreement
Date, take any of the following actions without the consent of the holders of
a majority of the then outstanding shares of Class B Common Stock:

(a) merge, consolidate with or otherwise acquire any corporation or other
business entity; provided, however, that, in a transaction (i) in which the
Company is the surviving entity and (ii) pursuant to which the Restated
Articles have not been amended, altered, repealed or superseded, the Company
may, without such consent, merge, consolidate with or otherwise acquire any
corporation or other business entity;

(b) sell, lease, exchange or otherwise dispose of all or substantially all
of the assets of the Company or any subsidiary thereof to other than a wholly
owned subsidiary of the Company; provided, however, that, (i) in any
transaction or series of related transactions not exceeding in value
$100,000,000 in the aggregate (taking into account all liabilities assumed by
the Company or its subsidiaries in any such transaction or transactions)
involving all or substantially all of the assets of any subsidiary, or (ii) in
any transaction or series of transactions involving a securitization or other
receivables sales transaction, the Company may, without such consent, sell,
lease, exchange or otherwise dispose of all or substantially all of the assets
of such subsidiary;

(c) effect any amendment to the Restated Articles or Company Bylaws that
adversely affects the rights, powers or preferences of the shares of Class B
Common Stock; or

(d) liquidate, dissolve or otherwise wind up the affairs of the Company.

The "Agreement Date" is the first date on which the Company shall execute
and deliver, and enter into, a legally binding and enforceable agreement
providing for the issue by the Company of shares of Class B Common

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Stock in a transaction constituting a business combination which, for
financial reporting purposes, shall be accounted for as a pooling of interests
in accordance with generally accepted accounting principles.

From and after the Agreement Date, the holders of the outstanding shares of
Class A Common Stock and the holders of the outstanding shares of Class B
Common Stock, except as provided below, shall vote together as a single class,
and every holder of the outstanding shares of the Class A Common Stock shall
be entitled to cast 1,000 votes for each share of Class A Common Stock held of
record by such holder, and every holder of the outstanding shares of the Class
B Common Stock shall be entitled to cast one vote for each share of Class B
Common Stock held of record by such holder. Notwithstanding the foregoing,
from and after the Agreement Date the holders of the Class A Common Stock,
voting separately as a class with each holder of the outstanding shares of
Class A Common Stock being entitled to one vote in person or by proxy for each
share of the Class A Common Stock held of record by such holder, shall have
the right to elect that number of directors so that four-tenths ( 4/10)
(calculated to the next highest whole number) of the total number of directors
of the Company fixed from time to time by, or in the manner provided for in,
the Bylaws of the Company, shall have been elected by the holders of the Class
A Common Stock separately. Neither holders of the Class A Common Stock nor
holders of the Class B Common Stock shall be entitled to cumulate their votes
for election of directors of the Company.

Directors elected by the holders of the Class A Common Stock voting
separately as a class may be removed, with or without cause, only by the vote
or consent of a majority of the votes then entitled to be cast by the holders
of the Class A Common Stock, voting separately as a class. Directors elected
by the holders of the Class A Common Stock and the Class B Common Stock voting
together without regard to class, and directors filling vacancies and newly
created directorships, may be removed, with or without cause, only by the vote
or consent of a majority of the votes then entitled to be cast by the holders
of the Class A Common Stock and the Class B Common Stock, voting together
without regard to class. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors elected by holders of
the Class A Common Stock or the Class B Common Stock, as the case may be,
shall be filled by a majority vote of the remaining directors, so elected by
the (x) holders of the Class A Common Stock or (y) the holders of the Class A
Common Stock and the Class B Common Stock, as the case may be, then in office,
even though less than a quorum.

At any time, when there shall be no shares of either Class A Common Stock
but there shall be shares of Class B Common Stock outstanding, without any
action by the Board of Directors or the holders of the shares of Class B
Common Stock, the entire voting power of the Company shall then be vested in
the holders of the outstanding shares of Class B Common Stock and each of such
holders shall be entitled to cast one vote for each share of Class B Common
Stock held by such holder. In such event, the provisions of the Restated
Articles that provide for differing voting rights for the Class A Common Stock
shall be of no further effect. All shares of either the Class A Common Stock
or the Class B Common Stock that are then outstanding shall have equal and
general voting power in the election of directors and in all other matters
upon which shareholders of the Company are entitled to vote or give consent.

Dividends and Distributions

Under Pennsylvania law, the Board of Directors may authorize, and the
Company may pay, dividends or make other distributions to shareholders unless,
as a result (i) the Company would be unable to pay its debts as they become
due in the usual course of business or (ii) the total assets of the Company
would be less than the sum of its total liabilities plus the amount that would
be needed, if the Company were to be dissolved at the time of such
distribution, to satisfy the preferential rights of holders of Preferred
Stock. Dividends must be paid on both the Class A Common Stock and the Class B
Common Stock at any time that dividends are paid on either.

Shares of Class A Common Stock and shares of Class B Common Stock rank on a
parity with respect to dividends and distributions; provided, however, that in
the case of dividends or other distributions payable in stock of the Company
(other than Preferred Stock), including distributions pursuant to stock split-
ups or divisions, only shares of the Class A Common Stock shall be distributed
with respect to the Class A Common Stock, and only shares of Class B Common
Stock shall be distributed with respect to the Class B Common Stock.

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At any time shares of both the Class A Common Stock and the Class B Common
Stock are outstanding, the Board of Directors may issue shares of the Class B
Common Stock in the form of a distribution or distributions pursuant to a
stock dividend on, or a split-up of, shares of the Class B Common Stock only
to the then holders of the outstanding shares of the Class B Common Stock and
in conjunction with and in the same ratio as a stock dividend on, or a split-
up of, the shares of the Class A Common Stock.

Except as otherwise required by applicable law or otherwise provided in the
Restated Articles, each share of Class A Common Stock and each share of Class
B Common Stock shall have identical powers, preferences and rights, including
rights in liquidation. Upon liquidation of the Company, holders of Class A
Common Stock and holders of Class B Common Stock are entitled to share ratably
in the assets thereof that may be available for distribution after
satisfaction of creditors. In addition, in connection with a Company Sale (as
hereinafter defined), the holders of the Class A Common Stock and the Class B
Common Stock shall receive the same amount of consideration per share,
notwithstanding any differences in voting rights. The term "Company Sale"
shall be deemed to include the following: (A) the acquisition of the Company
by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger,
consolidation or stock purchase) and (B) a sale of all or substantially all of
the assets of the Company. In any Company Sale, if the consideration received
by the Company or its stockholders, as the case may be, is other than cash,
its value, as determined in good faith by the Board of Directors will be
deemed its fair market value.

Preemptive Rights

The holders of the Class B Common Stock shall have no preemptive rights to
subscribe for any shares of any class of stock of the Company, whether now or
hereafter authorized.

Each holder of any shares of Class A Common Stock then outstanding shall be
entitled to a preemptive right to purchase or subscribe for any unissued
shares of Class A Common Stock to be issued by the Company for any reason,
including any increase of the authorized number of shares of Class A Common
Stock, or for any additional shares of any class of the capital stock of the
Company or any bonds, certificates of indebtedness, debentures or other
securities convertible into shares of Class A Common Stock, or carrying any
rights to purchase shares of Class A Common Stock, whether such shares or
bonds, certificates of indebtedness, debentures or other securities shall be
issued for cash, property or other lawful consideration.

Dissenters' Rights

Under Pennsylvania law, holders of shares of the Company's capital stock
shall have a right of appraisal with respect to specified corporate actions,
including (i) a plan of merger, consolidation, division or share exchange,
(ii) certain plans or amendments of the Restated Articles in which disparate
treatment is accorded to holders of shares of the same class or series, and
(iii) a sale or transfer of substantially all of the Company's assets.
Appraisal rights are not provided to holders of shares of any class that is
either listed on a national securities exchange or held of record by more than
2,000 holders, but this exception does not apply in the case of (i) a plan
under which such shares are not converted solely into shares of the acquiring,
surviving or new corporation and cash is paid in lieu of the fractional
shares, if any, or (ii) shares of Preferred Stock unless the resolution of the
Board of Directors that creates such series or class of Preferred Stock, the
plan or the terms of the transaction entitle all holders of such class to vote
thereon and require for adoption of the plan the affirmative vote of a
majority of the votes cast by all holders of shares of the series or class.

Restrictions on Transfer

Under the Company Bylaws, an existing shareholder of the Trust that will own
shares of Common Stock of the Company to be received in the Merger shall not
sell, transfer or otherwise dispose of the shares owned by such shareholder,
directly or indirectly, in any public sale or distribution, including a sale
under Rule 144 promulgated under the Securities Act during the period of seven
days prior to, and 180 days after, the date such registration statement
becomes effective, except as to those shares to be sold to or distributed by
the underwriters.

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This bylaw provision shall not be amended without the unanimous written
consent of the shareholders of the Company. Notwithstanding anything contained
in the Company Bylaws to the contrary, the Board of Directors of the Company
may waive any restrictions set forth in this bylaw provision as it applies to
any shareholder at any time or from time to time.

PREFERRED STOCK

The Company is authorized to issue 100,000,000 shares of Preferred Stock, of
which no shares will be issued and outstanding upon consummation of the Merger
and the Offering. The Company has no plans to issue shares of Preferred Stock
but believes that the grant of full authority to the Board of Directors of the
Company to authorize the issuance of shares of Preferred Stock into one or
more series, as described below, will enhance the financial flexibility of the
Company. The Restated Articles grant full authority (to the extent permitted
by law) to the Board of Directors of the Company to divide the shares of
Preferred Stock into one or more series, to determine the designation and the
number of shares of any series (within the total number of shares of the class
authorized by the Restated Articles), and to determine the voting rights
(whether full, limited, multiple, fractional or no voting rights),
preferences, limitations and special rights, if any, of any series. Such
division and determination may be made by action of the Board of Directors
from time to time and shall constitute an amendment of the Restated Articles.
It is not possible to state the actual effect of the authorization and
issuance of any series of Preferred Stock upon the rights of the holders of
the Class A Common Stock and the Class B Common Stock until the Board of
Directors determines the specific terms, rights and preferences of a series of
Preferred Stock. However, such effects might include, among other things,
restricting dividends on the Class A Common Stock and the Class B Common
Stock, diluting the voting power of the Class A Common Stock and the Class B
Common Stock, or impairing liquidation rights of such shares without further
action by holders of the Class A Common Stock and the Class B Common Stock. In
addition, under certain circumstances, the issuance of Preferred Stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of the
Company's securities or the removal of incumbent management.

ANTI-TAKEOVER CONSIDERATIONS

The Restated Articles contain certain provisions that could make more
difficult a change in control of the Company not having approval of the Board
of Directors. The entire voting power of the Company is vested in the holders
of the outstanding Class A Common Stock until the occurrence of the Agreement
Date relating to an agreement by the Company to issue shares of Class B Common
Stock in a business combination which is intended to be treated as a "pooling
of interests" under generally accepted accounting principles. After the Merger
and the Offering, the Voting Trust will control the Company through the
ownership of all of the outstanding shares of Class A Common Stock of the
Company. After the Agreement Date, holders of the Class A Common Stock, voting
separately as a class, will be entitled to elect four-tenths (calculated to
the next highest whole number) of the total number of directors of the
Company.

The Restated Articles authorizes the issuance of blank check Preferred
Stock. The Board of Directors may establish voting rights, liquidation
preferences, redemption rights, conversion rights and other rights relating to
such Preferred Stock, all or some of which may be senior to the Class A Common
Stock and the Class B Common Stock, without the approval of the holders of the
Class A Common Stock and the holders of the Class B Common Stock. In some
circumstances, the Preferred Stock could be issued and have the effect of
preventing a merger, tender offer or other takeover attempt which the Board of
Directors opposes.

TRANSFER AGENT

The transfer agent of the Trust Class A Common Shares and Trust Class B
Common Shares is Boston EquiServe.

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COMPARISON OF SHAREHOLDER RIGHTS

Upon consummation of the Merger, the beneficial owners of the Trust, a
Delaware business trust, will become shareholders of the Company, a
Pennsylvania corporation and a "registered corporation" (as defined in the
Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL")).
Differences between the Delaware Business Trust Act (the "DBTA") and the PBCL,
as well as between the Trust's Restated Declaration of Trust and the Trust
Bylaws and the Restated Articles of the Company and the Company Bylaws will
result in changes in the rights of the Trust's beneficial owners when they
become shareholders of the Company.

The Trust's Restated Declaration of Trust was adopted in 1989 in connection
with the Trust's acquisition of the business of the Company from Aetna for
cash and 1,000 Series A Preferred Shares of the Trust. In January 1996,
Federated entered into an agreement with Aetna to convert all 1,000 Series A
Preferred Shares into Trust B Common Shares and to sell the converted shares
back to Federated at a mutually agreed upon price. As of April 21, 1998 (after
giving effect to the stock dividend paid on April 15, 1998 and the stock
dividend declared on April 16, 1998 to be paid on April 30, 1998 to
shareholders of record on April 21, 1998), there were 6,000 Trust Class A
Common Shares and 83,427,000 Trust Class B Common Shares outstanding. No
shares of any series of Trust Preferred Shares are outstanding.

Pursuant to the Merger, each outstanding Class A Common Share and Class B
Common Share of Federated will be converted into the right to receive one
share of Class A Common Stock and one share of Class B Common Stock,
respectively, of the Company. Holders of Class A Common Stock and the Class B
Common Stock of the Company to be received in the Merger will have
substantially the same rights as holders of the Class A Common Shares and
Class B Common Shares of Federated, except as summarized below. In the event
the Company enters into a binding agreement providing for the issuance by the
Company of shares of Class B Common Stock in a transaction constituting a
business combination which, for financial reporting purposes, shall be
accounted for as a "pooling of interests" in accordance with generally
accepted accounting principles, the holders of the Class B Common Stock will
also have the right to elect a majority of the Board of Directors of the
Company.

Following is a description of certain differences, based on the DBTA and the
PBCL as in effect on the date hereof and the Declaration of Trust, the
Restated Articles, and the respective Bylaws of the Trust and the Company.
Descriptions of the Restated Articles and Bylaws of the Company are qualified
in their entirety by reference to the full texts thereof attached as exhibits
to the Merger Agreement and separately as Appendices B and C attached hereto.

ELECTION OF DIRECTORS

Under the Restated Declaration of Trust, the number of trustees (directors)
must be between three and fifteen, as determined by the trustees themselves.
Each trustee serves a term from the date of such trustee's election until the
next annual meeting of the shareholders. Trustees may be removed with or
without cause by the holders of Class A Common Shares or by two-thirds of the
board of trustees. A vacancy on the board created by the removal or
resignation of a trustee or by the expansion of the number of trustees may be
filled by the remaining trustees then in office.

The Restated Articles provide that the Board of Directors of the Company
shall consist of at least five members, all of whom prior to the Agreement
Date shall be elected by the holders of the Class A Common Stock. Following
the Agreement Date, the holders of the Class B Common Stock shall be entitled
to vote on all matters, including the election of directors, provided,
however, that the holders of the Class A Common Stock, voting separately as a
class with each holder of the outstanding shares of Class A Common Stock being
entitled to one vote per share, shall have the right to elect that number of
directors so that four-tenths (4/10) (calculated to the next highest whole
number) of the total number of directors fixed from time to time by, or in the
manner provided for in, the Bylaws of the Company, shall have been elected by
the holders of the Class A Common Stock separately.

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All directors, whether elected by the holders of the Class A Common Stock
voting separately as a class or elected by holders of both the Class A Common
Stock and the Class B Common Stock voting together, shall have equal standing,
serve terms of equal duration and have equal voting powers. Vacancies created
by the resignation or removal of a director elected by the holders of the
Class A Common Stock voting separately shall be filled by the holders of the
Class A Common Stock, voting separately, and vacancies created by the
resignation or removal of a director elected by the holders of the Class A
Common Stock and Class B Common Stock voting together as a class shall be
filled by the holders of the Class A Common Stock and Class B Common Stock,
voting together as a class. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors elected by
holders of the Class A Common Stock or the Class B Common Stock, as the case
may be, shall be filled by the majority vote of the directors so elected by
holders of the Class A Common Stock or the Class B Common Stock, as the case
may be, then in office, even though less than a quorum.

DIRECTORS' DUTIES

Under Delaware law, the standard of care applicable to trustees and officers
of a Delaware business trust such as the Trust is the standard of care set
forth in the governing instrument of such business trust, or, if no standard
is set forth, the general Delaware fiduciary standard of care. The Restated
Declaration of Trust does not specify the standard of care applicable to
trustees or officers of the Trust, and, therefore, the general Delaware
fiduciary standard of care applies to the trustees and officers of the Trust.
Under that standard, trustees must act with the care, skill, prudence and
diligence that a prudent person acting in like capacity would use under the
same circumstances.

Under the PBCL, directors of a Pennsylvania corporation are obligated to
perform their duties in good faith, in a manner they reasonably believe to be
in the best interests of the corporation and with such care, including
reasonable inquiry, skill and diligence, as a person of ordinary prudence
would use under similar circumstances. The PBCL states that directors of a
Pennsylvania corporation may, but are not required to, take into consideration
the effects of their actions upon various groups affected by such action,
including not only shareholders, but also employees, suppliers, customers,
creditors and communities. The PBCL also makes clear that a director has no
greater obligation to justify, or higher burden of proof with respect to, any
act relating to an actual or potential takeover of the corporation than he or
she has with respect to any other act as a director.

LIMITATION OF DIRECTORS' LIABILITY

By the terms of the Restated Declaration of Trust, trustees and officers of
the Trust are personally liable only for their willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties to the Trust; provided,
however, that actions taken by the trustees in good faith reliance upon the
advice of counsel or other experts of recognized competence with respect to
the meaning and operation of the Restated Declaration of Trust shall not
constitute willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office of the trustee.
The foregoing provision operates to eliminate under many circumstances the
ability of the Trust or its shareholders to recover monetary damages from a
trustee of the Trust found to have breached his or her fiduciary duty in such
capacity.

Absent a breach of fiduciary duty, lack of good faith or self-dealing,
actions taken as a director of a Pennsylvania corporation are presumed to be
in the best interests of the corporation. The PBCL states that shareholders of
a Pennsylvania corporation may adopt a bylaw which eliminates the personal
liability of directors

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for monetary damages for any action taken (or any failure to take any action)
unless (i) the directors have breached or failed to perform their duties and
(ii) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. However, a corporation may not eliminate personal
liability where the responsibility or liability of a director is pursuant to
any criminal statute or is for the payment of taxes pursuant to local, State
or Federal law.

The Company Bylaws contain a provision adopted by the shareholders limiting
personal liability of directors.

DIRECTORS' INDEMNIFICATION

Pursuant to Section 10.4 of the Restated Declaration of Trust and Article IX
of the Trust Bylaws, any trustee or officer of the Trust who is held
personally liable for any debts, liabilities or obligations of the Trust or in
taking or failing to take any other actions in connection with the Trust, the
taking or failure to take of which does not constitute willful misfeasance,
bad faith, gross negligence or reckless disregard, is indemnified and
reimbursed by the Trust.

The PBCL provides that, unless otherwise restricted in its bylaws, a
Pennsylvania corporation has the power to indemnify any person involved in any
third party or derivative action by reason of the fact that the person is or
was a representative of the corporation, if the person acted in good faith and
reasonably believed that his actions were in or not opposed to the best
interests of the corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe the conduct was unlawful. In general, no
indemnification is allowable in derivative actions where the person has been
adjudged liable to the corporation, unless and to the extent that the court
finds him entitled to indemnification against expenses despite such
adjudication. To the extent that a representative of a Pennsylvania
corporation has been successful on the merits or otherwise in defense of any
action or proceeding or in defense of any claim, issue, or matter therein, the
PBCL requires mandatory indemnification against expenses (including attorneys'
fees) actually and reasonably incurred in connection therewith. Unless
otherwise restricted by its bylaws, a Pennsylvania corporation may also
purchase insurance on behalf of representatives of the corporation against any
liability whether or not the corporation would have the power to indemnify
such person against that liability.

The Company Bylaws do not restrict indemnification and do not contain a
provision limiting the power of the Company to purchase insurance.

DIVIDENDS AND DISTRIBUTIONS

Declarations of dividends out of income and distributions out of principal
of the Trust may be made at any time and in any amount as may be determined by
the trustees. All dividend and distribution payments to a class or series of
stock are distributed pro rata to the holders of shares of such class or
series.

Under Pennsylvania law, unless otherwise restricted in the bylaws, the board
of directors may authorize and a business corporation may pay dividends or
make other distributions to stockholders. However, a distribution may not be
made if as a result (i) the corporation would be unable to pay its debts as
they become due in the usual course of business or (ii) the total assets of
the corporation would be less than the sum of its total liabilities plus
(unless otherwise provided in the articles) the amount that would be needed,
if the corporation were to be resolved at the time of distribution, to satisfy
the preferential rights of holders of preferred stock.

The Restated Articles provide that shares of Class A Common Stock and Class
B Common Stock rank on a parity with respect to dividends and distributions,
provided, however, that in the case of dividends or other distributions
payable in stock of the Company (other than Preferred Stock), including
distributions pursuant to stock split-ups or divisions, only shares of the
Class A Common Stock shall be distributed with respect the Class A Common
Stock, and only shares of the Class B Common Stock shall be distributed with
respect to the Class B Common Stock. At any time shares of both the Class A
Common Stock and the Class B Common Stock are

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outstanding, the Board of Directors may issue shares of the Class B Common
Stock in the form of a distribution or distributions pursuant to a stock
dividend on, or a split-up of, shares of the Class B Common Stock only to the
then holders of the outstanding shares of the Class B Common Stock and in
conjunction with and in the same ratio as a stock dividend on, or a split-up
of, the shares of the Class A Common Stock.

Except as otherwise required by applicable law or otherwise provided in the
Restated Articles, each share of Class A Common Stock and each share of Class
B Common Stock shall have identical powers, preferences and rights, including
rights in liquidation. Upon liquidation of the Company, holders of Class A
Common Stock and holders of Class B Common Stock are entitled to share ratably
in the assets thereof that may be available for distribution after
satisfaction of creditors. In addition, in connection with a Company Sale (as
hereinafter defined), the holders of the Class A Common Stock and the Class B
Common Stock shall receive the same amount of consideration per share,
notwithstanding any differences in voting rights. The term "Company Sale"
shall be deemed to include the following: (A) the acquisition of the Company
by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger,
consolidation or stock purchase), and (B) a sale of all or substantially all
of the assets of the Company. In any Company Sale, if the consideration
received by the Company or its stockholders, as the case may be, is other than
cash, its value, as determined in good faith by the Board of Directors will be
deemed its fair market value.

APPRAISAL RIGHTS

Under the Restated Declaration of Trust, holders of Class B Common Shares
may have a conditional right of appraisal in specified circumstances. The
Trust's position is that Section 8.7 was not intended to apply to the Merger.
Section 8.7 of the Restated Declaration of Trust provides that if there has
been a conversion of Trust Series A Preferred Shares into Trust Class B Common
Shares, any holder of Trust Class B Common Shares (other than any member of
the Trust's "management circle", (as defined in the Shareholders Rights
Agreement dated August 1, 1989), or any employee of the Trust or any of its
subsidiaries) who has not voted in favor of a merger or consolidation of the
Trust with or into another entity shall have the right to obtain an appraisal
of the fair value of such shares (exclusive of any element of value arising
from the accomplishment or expectation of such merger or consolidation)
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value; provided, that the right to obtain an
appraisal of fair value shall apply only if such holders holding at least 2/3
of the total Trust Class B Common Shares held by such holders have requested
such rights. Such a holder shall be entitled to receive out of the assets of
the Trust, in exchange for such Trust Class B Shares, the fair value of such
shares determined pursuant to such appraisal. Section 8.7 of the Restated
Declaration of Trust further provides that in determining such fair value and
in otherwise implementing Section 8.7, Section 262 of the DGCL shall apply. A
copy of Section 8.7 of the Restated Declaration of Trust and Section 262 of
the DGCL are attached to this Proxy Statement/Prospectus as Appendix D and is
incorporated by reference herein in its entirety.

Pennsylvania law provides that shareholders shall have a right of appraisal
with respect to specified corporate actions, including (i) a plan of merger,
consolidation, division or share exchange, (ii) certain plans or amendments of
the articles in which disparate treatment is accorded to holders of shares of
the same class or series, and (iii) a sale or transfer of substantially all of
the corporation's assets. Appraisal rights are not provided to holders of
shares of any class that is either listed on a national securities exchange or
held of record by more than 2,000 stockholders, but this exception does not
apply in the case of (i) a plan under which such shares are not converted
solely into shares of the acquiring, surviving or new corporation and cash in
lieu of the fractional shares, or (ii) shares of a preferred or special class
of stock unless the articles, the plan or the terms of the transaction entitle
all holders of such class to vote thereon and require for adoption of the plan
the affirmative vote of a majority of the votes cast by all holders of shares
of the class.

87
<PAGE>

VOTING RIGHTS

Trust Class A Common Shares

The entire voting power of the Trust is vested in the holders of Trust Class
A Common Shares, except as otherwise provided in the Restated Declaration of
Trust which provides for voting rights for holders of Trust Class B Common
Shares in circumstances specified below or by law. Each holder of Trust Class
A Common Shares is entitled to one vote for each Trust Class A Common Share
held by such holder, subject to the rights of the holders of Trust Class B
Common Shares with respect to certain corporate actions described below. The
holders of Trust Class A Common Shares are entitled to elect the entire board
of trustees. Trustees may be removed with or without cause by the holders of
Trust Class A Common Shares.

Trust Class B Common Shares

The holders of Trust Class B Common Stock have no voting power for any
purpose except as provided in the Restated Declaration of Trust or the Trust
Bylaws. The Restated Declaration of Trust provides that, without the consent
(given in writing or by vote at any regular or special meeting of
shareholders) of the holders of a majority of the aggregate of the Trust Class
B Common Shares that are then outstanding, the Trust will not (i) merge,
consolidate with or otherwise acquire any corporation or other business entity
except in a transaction (a) in which the Trust is the surviving entity and (b)
pursuant to which the Restated Declaration of Trust has not been amended,
altered, repealed or superseded; or (ii) sell, lease, exchange or otherwise
dispose of assets of the Trust or any subsidiary, other than to a wholly-owned
subsidiary of the Trust, in any transaction or series of transactions
exceeding in value $100,000,000 in the aggregate (taking into account all
liabilities assumed by the Trust or its subsidiaries in any such transaction
or transactions); (iii) (A) effect any amendment to the Restated Declaration
of Trust or the Trust Bylaws that adversely affects the rights, powers or
preferences of Trust Class B Common Shares or authorize any shares of
beneficial interest in the Trust other than Preferred Shares and Trust Common
Shares, provided that the Trust may issue Trust Series C Preferred Shares
without such consent (none are issued and outstanding), or (B) reclassify or
recapitalize any shares; or (iv) liquidate, dissolve or otherwise wind up the
affairs of the Trust or file, or consent by answer or otherwise to the filing
against the Trust of, a petition for relief of reorganization or arrangement
or any other petition in bankruptcy, insolvency or similar law of any
jurisdiction.

Trust Series A Preferred Shares

Under the Restated Declaration of Trust, the holders of any outstanding
shares of Trust Series A Preferred Shares have no voting power for any purpose
except as provided in the Restated Declaration of Trust. Trust Series A
Preferred Shares previously issued in 1989 are no longer outstanding. See
"Certain Transactions--Relationship with Aetna and Westinghouse Pension Plan."
So long as any Trust Series A Preferred Shares were outstanding, the Trust
could not, without the consent of the holders of a majority of the outstanding
Trust Series A Preferred Shares (i) reorganize the Trust into a corporation
unless the corporate holders of Trust Preferred Shares shall have received an
opinion reasonably satisfactory to each of them of independent counsel to the
effect that such reorganization would have no adverse federal or Pennsylvania
income tax consequences to such corporate holders, or (ii) amend, alter,
repeal or supersede the Restated Declaration of Trust or the Trust Bylaws in
any manner or take any other action so as to affect adversely the powers,
preferences or rights of any Trust Series A Preferred Shares, provided the
Trust could issue Trust Series C Preferred Shares without such consent. The
holders of Trust Series A Preferred Shares are also entitled to vote as a
class with the holders of Trust Class B Common Shares in certain circumstances
as discussed above with respect to the voting power of the Class B Common
Shares.

Trust Series B Preferred Shares

No Trust Series B Preferred Shares have been issued. If any Trust Series B
Preferred Shares are outstanding, the Trust cannot without the consent of the
holders of a majority of the outstanding Trust Series B Preferred Shares, (i)
reorganize the Trust into a corporation unless the corporate holders of Trust
Preferred Shares shall

88
<PAGE>

have received an opinion of counsel to the effect that such reorganization
would have no adverse federal or Pennsylvania income tax consequences to such
corporate holders, and (ii) amend, alter, repeal or supersede the Restated
Declaration of Trust or the Trust Bylaws in any manner to take any other
action so as to affect adversely the powers, preferences or rights of any
Trust Series B Preferred Shares, provided that the Trust may issue Trust
Series C Preferred Shares without such consent. Except as provided in the
foregoing sentence, the holders of Trust Series B Preferred Shares are not
entitled to vote.

Trust Series C Common Shares

No Trust Series C Preferred Shares have been issued. The holders of
outstanding Trust Series C Preferred Shares have no voting rights, except that
the Company may not, without the consent of the holders of a majority of the
outstanding Trust Series C Preferred Shares, amend, alter, repeal or supersede
the Restated Declaration of Trust in any manner or take any other action so as
to affect adversely the powers, preferences or rights of any Trust Series C
Preferred Shares.

Class A Common Stock and Class B Common Stock of the Company

Prior to the Agreement Date, the entire voting power of the Company shall be
vested in the holders of the outstanding shares of Class A Common Stock. On
all matters upon which shareholders are entitled to vote or give consent, each
holder of a share a Class A Common Stock shall be entitled to cast thereon one
vote in person or by proxy for each share of Class A Common Stock held of
record by such holder. After consummation of the Merger, the Voting Trust will
have control of the Company through its ownership of all of the outstanding
shares of the Class A Common Stock of the Company.

If, at any time, there shall be only shares of either Class A Common Stock
or shares of Class B Common Stock outstanding, any shares of the Class B
Common Stock which are then outstanding shall, without any action by the Board
of Directors or the or holders of Class B Common Stock, the entire voting
power of the Company shall then be vested in the holders of the outstanding
shares of Class B Common Stock and each of such holders shall be entitled to
cast one vote for each share of Class B Common Stock held by such person. In
such event, the provisions of the Restated Articles that provide for differing
voting rights for the Class A Common Stock shall be of no further effect. All
shares of either the Class A Common Stock or the Class B Common Stock that are
then outstanding shall have equal and general voting power in the election of
directors and in all other matters upon which shareholders of the Company are
entitled to vote or give consent.

SHAREHOLDER APPROVAL OF MERGER OR CONSOLIDATION

The Restated Declaration of Trust provides that the entire voting power of
the Trust is vested in the holders of Trust Class A Common Shares and that
each holder of Trust Class A Common Shares is entitled to one vote for each
Trust Class A Common Share held, provided that, without the consent (given in
writing or by vote at

89
<PAGE>

any regular or special meeting of shareholders) of the holders of a majority
of the aggregate of (a) the Trust Class B Common Shares that are then
outstanding, and (b) the Trust Class B Common Shares that would be issued to
holders of the Trust Series A Preferred Shares were the outstanding Trust
Series A Preferred Shares converted into Trust Class B Common Shares, the
Trust will not (i) merge, consolidate with or otherwise acquire any
corporation or other business entity except in a transaction (a) in which the
Trust is the surviving entity and (b) pursuant to which the Restated
Declaration of Trust has not been amended, altered, repealed or superseded; or
(ii) sell, lease, exchange or otherwise dispose of assets of the Trust or any
subsidiary, other than to a wholly-owned subsidiary of the Trust, in any
transaction or series of transactions exceeding in value $100,000,000 in the
aggregate (taking into account all liabilities assumed by the Trust or its
subsidiaries in any such transaction or transactions).

Under Pennsylvania law, unless required by the bylaws of the corporation, no
shareholder approval is required for a plan of merger or consolidation if: (i)
the surviving or new corporation is a domestic business corporation with
articles identical to those of the constituent corporation and shares
outstanding prior to the merger or consolidation will continue as or be
converted into identical shares of the surviving or new corporation under a
plan that causes the shareholders of the constituent corporation to hold in
the aggregate shares of the surviving or new corporation entitled to cast at
least a majority of the votes entitled to be cast for the election of
directors; (ii) prior to the adoption of the plan, another corporation that is
a party to the plan owns 90% or more of the outstanding shares of each class
of the corporation; or (iii) no shares of the corporation have been issued
prior to the adoption of the plan of merger or consolidation by the board of
directors. The Company Bylaws do not provide for shareholder approval in such
circumstances.

In cases where stockholder approval is required, Pennsylvania law provides
that a merger or consolidation will be authorized by a majority of the votes
cast by holders of securities entitled to vote thereon. The presence, in
person or by proxy, of the holders of at least a majority of shares entitled
to vote is necessary to constitute a quorum at a meeting of shareholders held
for such purpose.

The Restated Articles provide that, the Company shall not, prior to the
Agreement Date, take any of the following actions without the consent of the
holders of a majority of the then outstanding shares of Class B Common Stock:

(b) sell, lease, exchange or otherwise dispose of all or substantially all
of the assets of the Company or any subsidiary thereof to other than a wholly
owned subsidiary of the Company; provided, however, that, (i) in any
transaction or series of related transactions not exceeding in value
$100,000,000 in the aggregate (taking into account all liabilities assumed by
the Company or its subsidiaries in any such transaction or transactions)
involving all or substantially all of the assets of any subsidiary, or (ii) in
any transaction or series of transactions involving a securitization or other
receivable sales transaction, the Company may, without such consent, sell,
lease, exchange or otherwise dispose of all or substantially all of the assets
of such subsidiary;

(c) effect any amendment to the Restated Articles or Bylaws of the Company
that adversely affects the rights, powers or preferences of the shares of
Class B Common Stock; or

(d) liquidate, dissolve or otherwise wind up the affairs of the Company.

ANTI-TAKEOVER PROVISIONS

The DBTA provides that a business trust may merge or consolidate with or
into another business trust or other business entity. Unless otherwise
provided in the governing instrument of a business trust, a merger or
consolidation of a business trust must be approved by all of the trustees and
the beneficial owners of such

90
<PAGE>

business trust. The Trust Bylaws provide that the act of a majority of
trustees present at any meeting at which a quorum is present shall be the act
of the trustees unless a greater proportion is required by the Restated
Declaration of Trust or applicable law. The Restated Declaration of Trust
provides that the Trust will not, without the consent (given in writing or by
vote at any regular or special meeting of shareholders) of the holders of a
majority of the aggregate of the Trust Class B Common Shares that are then
outstanding, (i) merge, consolidate with or otherwise acquire any corporation
or other business entity except in a transaction (a) in which the Trust is the
surviving entity and (b) pursuant to which the Restated Declaration of Trust
has not been amended, altered, repealed or superseded; or (ii) sell, lease,
exchange or otherwise dispose of assets of the Trust or any subsidiary, other
than to a wholly-owned subsidiary of the Trust, in any transaction or series
of transactions exceeding in value $100,000,000 in the aggregate (taking into
account all liabilities assumed by the Trust or its subsidiaries in any such
transaction or transactions).

The Company is governed by certain "anti-takeover" provisions in the PBCL,
including the following: (i) provisions which prohibit certain business
combinations (as defined in the PBCL) involving a corporation that has voting
shares registered under the Exchange Act and an "interested person" (generally
defined to include a person who beneficially owns shares representing at least
twenty percent of the votes that all shareholders would be entitled to cast in
an election of directors of the corporation) unless certain conditions are
satisfied or an exemption is applicable; (ii) provisions concerning a
"control-share acquisition" in which the voting rights of certain shareholders
of the Company (specifically, a shareholder who acquires 20%, 33 1/3% or 50%
or more of the voting power of the Company) are conditioned upon the consent
of a majority vote at a meeting of the independent shareholders of the Company
after disclosure by such shareholder of certain information, and with respect
to which such shareholder is effectively deprived of voting rights if consent
is not obtained; (iii) provisions pursuant to which any profit realized by a
"controlling person or group," generally defined as a 20% beneficial owner,
from the disposition of any equity securities within twenty-four months prior
to, and eighteen months succeeding, the acquisition of such control is
recoverable by the Company; (iv) provisions pursuant to which severance
payments are to be made by the corporation to any eligible employee of a
covered corporation whose employment is terminated, other than for willful
misconduct, within ninety days before, or twenty-four months after, a control-
share acquisition; (v) provisions pursuant to which any holder of voting
shares of a registered corporation who objects to a "control transaction"
(generally defined as the acquisition by a person or group (the "controlling
person or group") that would entitle the holders thereof to cast at least 20%
of the votes that all shareholders would be entitled to cast in an election of
the directors of the corporation) is entitled to make a written demand on the
controlling person or group for payment of the fair value of the voting shares
of the corporation held by the shareholder; (vi) a set of interrelated
provisions that are designed to support the validity of actions taken by the
Board of Directors in response to takeover bids, including specifically the
Board's authority to "accept, reject or take no action" with respect to a
takeover bid, and permitting the unfavorable disparate treatment of a takeover
bidder; and (vii) provisions that allow the directors broad discretion in
considering the best interests of the corporation and the resources, intent
and conduct of any person seeking to acquire the corporation.

In addition, the Restated Articles contain certain provisions that could
make more difficult a change in control of the Company not having approval of
the Board of Directors. See "Description of Securities--Anti-Takeover
Considerations." The Restated Articles also authorize the issuance of blank
check Preferred Stock. The Board of Directors may establish voting rights,
liquidation preferences, redemption rights, conversion rights and other rights
relating to such Preferred Stock, all or some of which may be senior to the
Class A Common Stock and the Class B Common Stock, without the approval of the
holders of the Class A Common Stock and the holders of the Class B Common
Stock. In some circumstances, the Preferred Stock could be issued and have the
effect of preventing a merger, tender offer or other takeover attempt which
the Board of Directors opposes.

RIGHT TO CALL SPECIAL MEETING

The Trust Bylaws provide that a special meeting of the shareholders can be
called by the trustees or the chairman or by written request of the holder or
holders of at least one-tenth ( 1/10) of the outstanding shares of the Trust
entitled to vote.

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<PAGE>

The PBCL provides that a special meeting of the shareholders of a registered
corporation may be called at any time (i) by the board of directors, (ii) by
such officers or other person as may be designated in the bylaws of that
corporation or (iii) by an interested stockholder for the purpose of approving
a business combination. The Company Bylaws designate the Chairman or the
President as officers entitled to call a special meeting and also provide that
a special meeting may be called by holders of not less than 20% of the
outstanding shares entitled to vote at such meeting.

ACTION BY SHAREHOLDER CONSENT

The Trust Bylaws provide that any action required or permitted to be taken
at any meeting of the shareholders may be taken without a meeting if a consent
to such action is signed by all the shareholders entitled to vote on the
action.

Pennsylvania law requires unanimous written consent of the shareholders to
authorize any action without a meeting, unless otherwise permitted in the
bylaws. An action may be authorized by less than unanimous written consent of
the shareholders of a registered corporation, if less than unanimous written
consent is permitted by its articles. The Restated Articles, relating to a
registered corporation under the PBCL, do not permit action by less than
unanimous written consent.

AMENDMENTS TO CHARTER

The Restated Declaration of Trust provides that a majority of the trustees
then in office may amend the Declaration of Trust by making an amendment
thereto; provided, however, that thereafter the shareholders then holding a
majority of the shares entitled to vote thereon shall approve such amendment.
If such amendment to the Restated Declaration of Trust will adversely affect
the rights, powers or preferences of any class or series of stock, the holders
of shares of such series or class must also approve such amendment.

Under the PBCL, amendments to the articles of incorporation of a registered
company may be proposed only by its board of directors. Except for certain
amendments which do not require shareholder approval and unless a greater vote
is required by its articles of incorporation, amendments of the articles of
incorporation of a Pennsylvania corporation are to be approved by the
affirmative vote of a majority of the votes entitled to be cast by all
shareholders entitled to vote thereon and, if any class or series of capital
stock is entitled to vote as a class, the affirmative vote of a majority of
the votes cast in each such separate vote. The Restated Articles require the
affirmative vote of a majority of the outstanding shares of Class B Common
Stock to effect any amendment to the Restated Articles that adversely affects
the rights, powers or preferences of the shares of Class B Common Stock.

AMENDMENTS TO BYLAWS

The Trust Bylaws may be amended by a majority vote of all of the trustees,
provided, however, that if such amendment will adversely affect the powers,
preferences or rights of any class or series of stock, the holders of shares
of such series or class must also approve such amendment.

Under the PBCL, the general rule is that the shareholders of a Pennsylvania
corporation who are entitled to vote have the power to adopt, amend or repeal
the bylaws thereof. The authority to adopt, amend or repeal bylaws of a
corporation may be expressly vested by the bylaws in the board of directors,
subject to the power of the shareholders to override any such action and
except that a board of directors may not have the authority to adopt or change
a bylaw on any subject that is expressly committed to the shareholders under
the PBCL, unless the articles of incorporation of that corporation expressly
give the board that authority.

The Restated Articles require the affirmative vote of a majority of the
outstanding shares of Class B Common Stock to effect any amendment to the
Company Bylaws that adversely affects the rights, powers or preferences of the
shares of the Class B Common Stock.

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<PAGE>

PREEMPTIVE RIGHTS

Holders of shares of the Trust have no preemptive rights with respect to
issuances of additional shares of the Trust.

Pursuant to the Restated Articles, the holders of the Class B Common Stock
shall have no preemptive rights to subscribe for any shares of any class of
stock of the Company, whether now or hereafter authorized. Each holder of any
shares of Class A Common Stock then outstanding shall be entitled to a
preemptive right to purchase or subscribe for any unissued shares of Class A
Common Stock to be issued by the Company for any reason, including any
increase of the authorized number of shares of Class A Common Stock, or for
any additional shares of any class of the capital stock of the Company or any
bonds, certificates of indebtedness, debentures or other securities
convertible into shares of Class A Common Stock, or carrying any rights to
purchase shares of Class A Common Stock, whether such shares or bonds,
certificates of indebtedness, debentures or other securities shall be issued
for cash, property or other lawful consideration.

RESTRICTIONS ON TRANSFER

Under the Shareholders Rights Agreement, if Federated or holders of
securities of Federated shall register and sell such securities to the public
in a public offering which shall be an underwritten public offering pursuant
to an underwritten registration under the Securities Act, each shareholder
agrees not to effect any public sale or distribution of any equity securities
of Federated or any securities convertible into or exchangeable or exercisable
for such securities, including a sale under Rule 144 promulgated under the
Securities Act during the period of seven days prior to and 90 days after any
underwritten registration has become effective, except as part of such
underwritten registration.

Under the Company Bylaws, a similar provision is set forth except that the
period during which no sales may be made by shareholders owning such shares
prior to any such public offering extends to 180 days after the date the
registration statement becomes effective, except that the Board of Directors
of the Company may waive any restrictions set forth in this bylaw provision as
it applies to any shareholder. See "Description of Securities--Class A Common
Stock and Class B Common Stock--Restrictions on Transfer." The Company Bylaws
will be adopted at the time the Merger is consummated.

LEGAL MATTERS

Certain legal matters in connection with the shares of Class A Common Stock
and Class B Common Stock to be issued in connection with the Merger will be
passed upon for the Company by Kirkpatrick & Lockhart LLP, Pittsburgh,
Pennsylvania.

EXPERTS

The consolidated financial statements of Federated as of December 31, 1997
and 1996, and for each of the two years in the period ended December 31, 1997,
included in this Proxy Statement/Prospectus, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

The consolidated financial statements of the Trust for the year ended
December 31, 1995, have been included herein and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent auditors,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

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<PAGE>

On October 25, 1996, a committee of the Board of Trustees of Federated
Investors approved the engagement of Ernst & Young LLP as its independent
auditors for the year ending December 31, 1996, to replace the firm of KPMG
Peat Marwick LLP who after receiving Federated Investors notice to solicit
proposals for independent auditors, declined to stand for re-election as
auditors of Federated Investors effective August 26, 1996.

The report of KPMG Peat Marwick LLP on Federated Investors' consolidated
financial statements for the year ended December 31, 1995, did not contain an
adverse opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principles.

In connection with the audit of Federated Investors' consolidated financial
statements for each of the two years ended December 31, 1995, and in the
subsequent interim period through August 26, 1996, there were no disagreements
with KPMG Peat Marwick LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedures
which if not resolved to the satisfaction of KPMG Peat Marwick LLP would have
caused KPMG Peat Marwick LLP to make reference to the matter in their report.
Federated Investors requested KPMG Peat Marwick LLP to furnish a letter
addressed to the Commission stating whether it agrees with the above
statements. A copy of that letter dated April 14, 1998 is filed as an Exhibit
to the Registration Statement.

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<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
Report of KPMG Peat Marwick LLP, Independent Auditors ..................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996............... F-4
Consolidated Statements of Income for the Three Years Ended December 31,
1997, 1996 and 1995....................................................... F-5
Consolidated Statements of Changes in Shareholders' Equity for the Three
Years Ended December 31, 1997, 1996 and 1995.............................. F-6
Consolidated Statements of Cash Flows for the Three Years Ended December
31, 1997, 1996 and 1995................................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Federated Investors

We have audited the consolidated balance sheets of Federated Investors and
subsidiaries (Federated Investors) as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in shareholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of Federated Investors' management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
financial statements of Federated Investors for the year ended December 31,
1995 were audited by other auditors whose report dated January 25, 1996,
expressed an unqualified opinion on those statements.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Federated
Investors and subsidiaries at December 31, 1997 and 1996 and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
April 23, 1998

F-2
<PAGE>

REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS

The Board of Trustees and Shareholders
Federated Investors:

We have audited the consolidated statements of income, changes in
shareholders' equity, and cash flows of Federated Investors for the year ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Federated Investors for the year ended December 31, 1995, in
conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Pittsburgh, Pennsylvania
January 25, 1996

F-3
<PAGE>

FEDERATED INVESTORS

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................... $ 22,912 $ 6,561
Marketable securities................................... 8,945 13,761
Receivables--Federated Funds............................ 5,772 11,276
Receivables--Other, net of reserve of $3,266 and $1,584,
respectively........................................... 26,306 13,806
Prepaid expenses........................................ 2,853 1,704
Income taxes receivable................................. 7,519 6,558
Other current assets.................................... 1,805 3,196
--------- ---------
Total Current Assets................................... 76,112 56,862
--------- ---------
Long-Term Assets:
Customer relationships, net of accumulated amortization
of $26,907 and $15,550, respectively................... 30,398 29,265
Goodwill, net of accumulated amortization of $11,512 and
$9,273, respectively................................... 37,356 39,653
Other intangible assets, net............................ 126 187
Deferred sales commissions, net......................... 164,623 85,905
Property and equipment, net............................. 22,163 29,357
Other long-term assets.................................. 6,378 6,148
--------- ---------
Total Long-Term Assets................................. 261,044 190,515
--------- ---------
Total Assets........................................ $ 337,156 $ 247,377
========= =========
Current Liabilities:
Cash overdraft.......................................... $ 7,680 $ 8,849
Current portion of long-term debt--recourse............. 280 15,659
Accrued expenses........................................ 34,939 22,138
Accounts payable........................................ 18,634 15,645
Other current liabilities............................... 2,520 8,354
--------- ---------
Total Current Liabilities.............................. 64,053 70,645
--------- ---------
Long-Term Liabilities:
Long-term debt--recourse................................ 98,950 244,125
Long-term debt--nonrecourse............................. 185,388 0
Deferred tax liability, net............................. 26,546 15,642
Other long-term liabilities............................. 2,863 3,073
--------- ---------
Total Long-Term Liabilities............................ 313,747 262,840
--------- ---------
Total Liabilities................................... 377,800 333,485
--------- ---------
Minority Interest........................................ 466 814
--------- ---------
Shareholders' Equity:
Common Stock:
Class A, $1.00 stated value, 99,000 shares authorized,
6,000 and 2,000 shares issued and outstanding,
respectively.......................................... 6 2
Class B, $.01 stated value, 149,700,000 shares
authorized, 90,094,000 and 34,476,000 shares issued
and 90,094,000 and 34,476,000 shares outstanding,
respectively.......................................... 901 345
Additional paid-in capital.............................. 28,574 29,605
Retained earnings....................................... 55,139 9,989
Unrealized (loss) gain on marketable securities, net of
tax.................................................... (85) 25
Treasury stock, at cost, 6,667,000 and 6,488,000 shares
Class B Common Stock, respectively..................... (123,373) (123,711)
Equity adjustment for foreign currency translation...... (6) (10)
Employee restricted stock plan.......................... (2,266) (3,167)
--------- ---------
Total Shareholders' Equity............................ (41,110) (86,922)
--------- ---------
Total Liabilities, Minority Interest, and
Shareholders' Equity................................ $ 337,156 $ 247,377
========= =========
</TABLE>

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-4
<PAGE>

FEDERATED INVESTORS

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Investment advisory fees, net--Federated Funds.. $213,361 $174,585 $155,032
Investment advisory fees, net--Other............ 5,507 4,636 3,930
Administrative service fees, net--Federated 60,934 51,239 42,736
Funds..........................................
Administrative service fees, net--Other......... 24,495 21,684 24,957
Other service fees, net--Federated Funds........ 65,432 43,998 29,375
Other service fees, net--Other.................. 21,953 15,796 16,443
Commission income (loss)--Federated Funds....... 2,641 1,535 (157)
Interest and dividends.......................... 3,032 2,160 1,109
Marketable securities gains..................... 49 2,651 1,156
Other income.................................... 6,315 3,509 5,250
-------- -------- --------
Total Revenue.................................. 403,719 321,793 279,831
-------- -------- --------
Operating Expenses:
Compensation and related........................ 139,373 126,966 101,534
Amortization of deferred sales commissions...... 20,882 12,349 9,554
Office and occupancy............................ 28,608 29,859 23,272
Systems and communications...................... 23,373 22,288 22,829
Advertising and promotional..................... 34,984 30,984 21,471
Travel and related.............................. 14,834 15,929 12,827
Other........................................... 18,323 22,899 14,932
Amortization of intangible assets............... 13,715 8,886 10,445
-------- -------- --------
Total Operating Expenses....................... 294,092 270,160 216,864
-------- -------- --------
Operating income................................. 109,627 51,633 62,967
-------- -------- --------
Nonoperating Expenses:
Interest expense................................ 18,862 18,563 9,413
Other debt expense.............................. 1,198 1,724 413
-------- -------- --------
Total Nonoperating Expenses.................... 20,060 20,287 9,826
-------- -------- --------
Income before minority interest, income taxes and 89,567 31,346 53,141
extraordinary item..............................
Minority interest................................ 7,584 6,811 5,801
-------- -------- --------
Income before income taxes and extraordinary 81,983 24,535 47,340
item............................................
Income tax provision............................. 30,957 10,930 18,809
-------- -------- --------
Income before extraordinary item................. 51,026 13,605 28,531
Extraordinary item related to debt restructuring
costs, net of tax............................... 449 986 0
-------- -------- --------
Net income....................................... 50,577 12,619 28,531
Dividends on preferred stock..................... 0 3,025 6,000
-------- -------- --------
Net income applicable to common stock............ $ 50,577 $ 9,594 $ 22,531
======== ======== ========
Earnings per common share--basic:
Income before extraordinary item................ $ 0.62 $ 0.13 $ 0.25
Extraordinary item related to debt restructuring
costs, net of tax.............................. (0.01) (0.01) 0.00
-------- -------- --------
Net income per common share..................... $ 0.61 $ 0.12 $ 0.25
======== ======== ========
Earnings per common share--assuming dilution:
Income before extraordinary item................ $ 0.61 $ 0.13 $ 0.24
Extraordinary item related to debt restructuring
costs, net of tax.............................. (0.01) (0.01) 0.00
-------- -------- --------
Net income per common share--assuming dilution.. $ 0.60 $ 0.12 $ 0.24
======== ======== ========
Cash dividends per common share.................. $ 0.0583 $ 0.0417 $ 0.1667
======== ======== ========
</TABLE>

Per share amounts have been restated to reflect the one for one stock
dividend paid in 1996, the one for one stock dividend paid on April 15, 1998
and the one for two stock dividend declared on April 16, 1998 to be paid on
April 30, 1998.

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-5
<PAGE>

FEDERATED INVESTORS

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
RETAINED ON
ADDITIONAL EARNINGS MARKETABLE FOREIGN
PREFERRED COMMON PAID-IN (ACCUMULATED SECURITIES, TREASURY CURRENCY
STOCK STOCK CAPITAL DEFICIT) NET OF TAX STOCK TRANSLATION
--------- ------ ---------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January
1, 1995.......... $ 1 $152 $44,358 $(18,497) $ 0 $ 0 $ 1
Amortization of
Employee
Restricted Stock
Plan............. 0 0 0 0 0 0 0
Dividends Declared
on:
Common Stock..... 0 0 (15,160) 0 0 0 0
Preferred Stock,
$6,000
per share....... 0 0 0 (6,000) 0 0 0
Issuance of Stock
Under Employee
Restricted Stock
Plan, Net........ 0 1 88 0 0 173 0
Purchase of
Treasury Stock... 0 0 0 0 0 (231) 0
Foreign Currency
Translation...... 0 0 0 0 0 0 1
Unrealized Gain on
Marketable
Securities, Net
of Tax........... 0 0 0 0 624 0 0
Net Income........ 0 0 0 28,531 0 0 0
--- ---- ------- -------- ----- --------- ----
Balance at
December 31,
1995............. 1 153 29,286 4,034 624 (58) 2
Amortization of
Employee
Restricted Stock
Plan and
Other Compensation
Plans............ 0 0 371 0 0 0 0
Dividends Declared
on:
Common Stock..... 0 141 0 (3,639) 0 0 0
Preferred Stock,
$3,025
per share....... 0 0 0 (3,025) 0 0 0
Purchase of
Treasury Stock... 0 0 0 0 0 (123,653) 0
Conversion of
Preferred Stock
to Common Stock.. (1) 53 (52) 0 0 0 0
Foreign Currency
Translation...... 0 0 0 0 0 0 (12)
Unrealized Loss on
Marketable
Securities, Net
of Tax........... 0 0 0 0 (599) 0 0
Net Income........ 0 0 0 12,619 0 0 0
--- ---- ------- -------- ----- --------- ----
Balance at
December 31,
1996............. 0 347 29,605 9,989 25 (123,711) (10)
Amortization of
Employee
Restricted Stock
Plan and
Other Compensation
Plans............ 0 0 257 0 0 0 0
Dividends Declared
on Common Stock.. 0 560 0 (5,427) 0 0 0
Issuance of Stock
Under Employee
Restricted Stock
Plan, Net........ 0 0 (218) 0 0 440 0
Restricted Stock
Forfeitures...... 0 0 (1,070) 0 0 0 0
Purchase of
Treasury Stock... 0 0 0 0 0 (102) 0
Foreign Currency
Translation...... 0 0 0 0 0 0 4
Unrealized Loss on
Marketable
Securities, Net
of Tax........... 0 0 0 0 (110) 0 0
Net Income........ 0 0 0 50,577 0 0 0
--- ---- ------- -------- ----- --------- ----
Balance at
December 31,
1997............. $ 0 $907 $28,574 $ 55,139 $ (85) $(123,373) $ (6)
=== ==== ======= ======== ===== ========= ====
<CAPTION>
EMPLOYEE
RESTRICTED TOTAL
STOCK SHAREHOLDERS'
PLAN EQUITY
---------- -------------
<S> <C> <C>
Balance at January
1, 1995.......... $(5,282) $ 20,733
Amortization of
Employee
Restricted Stock
Plan............. 169 169
Dividends Declared
on:
Common Stock..... 0 (15,160)
Preferred Stock,
$6,000
per share....... 0 (6,000)
Issuance of Stock
Under Employee
Restricted Stock
Plan, Net........ (237) 25
Purchase of
Treasury Stock... 0 (231)
Foreign Currency
Translation...... 0 1
Unrealized Gain on
Marketable
Securities, Net
of Tax........... 0 624
Net Income........ 0 28,531
---------- -------------
Balance at
December 31,
1995............. (5,350) 28,692
Amortization of
Employee
Restricted Stock
Plan and
Other Compensation
Plans............ 2,183 2,554
Dividends Declared
on:
Common Stock..... 0 (3,498)
Preferred Stock,
$3,025
per share....... 0 (3,025)
Purchase of
Treasury Stock... 0 (123,653)
Conversion of
Preferred Stock
to Common Stock.. 0 0
Foreign Currency
Translation...... 0 (12)
Unrealized Loss on
Marketable
Securities, Net
of Tax........... 0 (599)
Net Income........ 0 12,619
---------- -------------
Balance at
December 31,
1996............. (3,167) (86,922)
Amortization of
Employee
Restricted Stock
Plan and
Other Compensation
Plans............ 28 285
Dividends Declared
on Common Stock.. 0 (4,867)
Issuance of Stock
Under Employee
Restricted Stock
Plan, Net........ (197) 25
Restricted Stock
Forfeitures...... 1,070 0
Purchase of
Treasury Stock... 0 (102)
Foreign Currency
Translation...... 0 4
Unrealized Loss on
Marketable
Securities, Net
of Tax........... 0 (110)
Net Income........ 0 50,577
---------- -------------
Balance at
December 31,
1997............. $(2,266) $ (41,110)
========== =============
</TABLE>

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-6
<PAGE>

FEDERATED INVESTORS

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income..................................... $ 50,577 $ 12,619 $ 28,531
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary item related to debt
restructuring costs........................... 690 1,516 0
Amortization of intangible assets.............. 13,715 8,886 10,445
Depreciation and other amortization............ 8,674 9,398 5,106
Amortization of deferred sales commissions..... 20,882 12,349 9,554
Minority interest.............................. 7,584 6,811 5,801
Loss on sale of property and equipment......... 271 0 42
Write-off of property and equipment............ 0 403 0
Amortization of employee restricted stock and
other compensation plans...................... 285 2,554 169
Provision for deferred income taxes............ 11,117 17,088 5,153
Net realized gain on sale of marketable
securities.................................... (49) (2,651) (1,156)
Foreign currency translation................... 4 (12) 1
Deferred sales commissions..................... (111,628) (69,600) (40,050)
Contingent deferred sales charges received..... 12,027 8,191 8,634
Other changes in assets and liabilities:
Increase in receivables, net.................. (6,996) (4,561) (6,634)
Decrease (increase) in prepaid expenses and
other current assets......................... 116 684 (1,802)
Increase in income taxes receivable........... (961) (2,066) (4,566)
(Increase) decrease in other long-term assets. (1,870) (4,805) 3,526
Increase in accounts payable and accrued
expenses..................................... 15,790 17,653 2,150
(Decrease) increase in other current
liabilities.................................. (4,904) 11,485 1,011
(Decrease) increase in other long-term
liabilities.................................. (257) 1,537 (2,711)
Other......................................... 0 0 480
--------- -------- --------
Net Cash Provided by Operating Activities..... 15,067 27,479 23,684
--------- -------- --------
Investing Activities:
Proceeds from sale of property and equipment... 2,454 14 238
Additions to property and equipment............ (3,129) (12,362) (7,406)
Cash paid for acquisitions..................... (14,699) (12,128) 0
Purchases of marketable securities............. (24,531) (60,769) (27,218)
Proceeds from redemptions of marketable
securities.................................... 29,230 65,122 16,463
Other.......................................... 0 0 (35)
--------- -------- --------
Net Cash Used by Investing Activities.......... (10,675) (20,123) (17,958)
--------- -------- --------
Financing Activities:
Distributions to minority interest............. (7,932) (6,824) (6,107)
Dividends paid................................. (4,867) (6,523) (21,160)
Proceeds from issuance of common stock......... 25 0 25
Purchase of treasury stock..................... (102) (123,653) (231)
Proceeds from new borrowings--Recourse......... 15,729 234,724 63,658
Proceeds from new borrowings--Nonrecourse...... 195,156 0 0
Payments on debt--Recourse..................... (176,282) (105,700) (42,698)
Payments on debt--Nonrecourse.................. (9,768) 0 0
--------- -------- --------
Net Cash Provided (Used) by Financing
Activities.................................... 11,959 (7,976) (6,513)
--------- -------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................... 16,351 (620) (787)
Cash and Cash Equivalents, Beginning of Period.. 6,561 7,181 7,968
--------- -------- --------
Cash and Cash Equivalents, End of Period........ $ 22,912 $ 6,561 $ 7,181
========= ======== ========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for:
Interest....................................... $ 19,668 $ 16,758 $ 9,961
Income taxes................................... 20,495 702 18,272
</TABLE>

(The accompanying notes are an integral part of these consolidated financial
statements.)

F-7
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Nature of Operations

Federated Investors and its subsidiaries ("Federated Investors") sponsor,
market and provide investment advisory, distribution and administrative
services primarily to mutual funds. Federated Investors also provides
investment advisory services and administrative services to corporations,
employee benefit plans and private investment advisory accounts. The
operations of Federated Investors are organized into three principal
functions: investment advisory, distribution and services.

A large portion of Federated Investors' revenue is derived from investment
advisory services provided to mutual funds and separately managed accounts
through various subsidiaries and affiliates pursuant to investment advisory
contracts. These subsidiaries are registered as investment advisers under the
Investment Advisers Act of 1940 and with certain states.

Shares of the portfolios or classes of shares under management or
administration by Federated Investors are distributed by indirect wholly-owned
subsidiaries which are registered broker/dealers under the Securities Exchange
Act of 1934 and under applicable state laws. Federated Investors' investment
products are primarily distributed within the bank trust, broker/dealer and
institutional markets.

Through an indirect wholly-owned subsidiary, Federated Investors provides
mutual fund services to support the operation and administration of all mutual
funds it sponsors.

(b) Basis of Presentation

The consolidated financial statements include the accounts of Federated
Investors and all of its subsidiaries including a special purpose entity
("SPE"). All significant intercompany accounts and transactions have been
eliminated.

The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements. Actual
results will differ from those estimates, and such differences may be material
to the consolidated financial statements.

For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and investments which consist of interest-
bearing deposits with banks, overnight federal funds sold, money market
accounts, and other investments with an original maturity of less than three
months.

(d) Marketable Securities

Investments consist of equity securities which are classified as "available
for sale" and are carried at fair value. The unrealized gains or losses on
these securities are carried as a separate component of shareholders' equity,
net of tax. Realized gains and losses on these securities are computed on a
specific identification basis and recognized in the statements of income.

(e) Property and Equipment

Property and equipment are recorded at cost, or fair value if acquired in
connection with a business combination, and are depreciated using the
straight-line method over their estimated useful lives ranging from

F-8
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

(e) Property and Equipment, continued

three to ten years. Leasehold improvements are depreciated using the straight-
line method over their estimated useful lives or their respective lease terms,
whichever is shorter.

(f) Intangible Assets

Goodwill and other intangible assets are amortized on a straight-line basis
over the estimated period of benefit not to exceed twenty-five years. Customer
relationships are amortized using the straight-line method over their
estimated period of benefit (five to nine years). Federated Investors
continuously evaluates the remaining useful lives and carrying values of the
intangible assets to determine whether events and circumstances indicate that
a change in the useful life or impairment in value may have occurred.
Indicators of impairment monitored by Federated Investors include a decline in
the level of managed assets, changes to contractual provisions underlying
certain intangible assets and reductions in operating cash flows. Should there
be an indication of a change in the useful life or an impairment in value,
Federated Investors compares the carrying value of the asset and its related
useful life to the projected undiscounted cash flows expected to be generated
from the underlying asset over its remaining useful life to determine whether
an impairment has been triggered. If the carrying value of the asset exceeds
the undiscounted cash flows, impairment is measured based on fair value using
a discounted cash flow methodology. The discount rate utilized by Federated
Investors reflects its weighted average cost of capital. Impairment from
changes in contractual provisions is based on the carrying value of the
underlying asset, or component of the underlying asset when the restrictions
change.

Measuring impairment for the customer relationship intangible asset is
dependent upon the level of remaining managed assets for those relationships.
A decline in the remaining managed asset balance in excess of the estimated
attrition rate for those managed assets could have a considerable impact on
the underlying value of the customer relationship intangible.

(g) Deferred Sales Commissions

Certain subsidiaries of Federated Investors pay commissions to
broker/dealers ("deferred sales commissions") to promote investments in
certain mutual funds. These deferred sales commissions are capitalized and
amortized on a straight-line basis over estimated periods of benefit not to
exceed contingent deferred sales charge ("CDSC") periods and are subject to
recoverability tests. Mutual fund shareholders redeeming Class B Shares within
six full years of the purchase date will be charged a CDSC. Any CDSC will be
imposed on the lesser of the net asset value of the redeemed shares at the
time of purchase or the net asset value of the redeemed shares at the time of
redemption. The CDSC is determined in accordance with a predetermined
declining scale over the full six year period. Any CDSCs collected are used to
reduce deferred sales commissions.

(h) Foreign Currency Translation

In consolidating a foreign subsidiary, the subsidiary's financial statements
are converted to U.S. currency resulting in an equity adjustment for foreign
currency translation on the Consolidated Balance Sheets.

(i) Revenue Recognition

Revenue is recognized during the period in which the services are performed.
Federated Investors may waive certain fees for services (primarily investment
advisory fees) for competitive reasons, or to meet regulatory requirements.

F-9
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

(j) Reporting on Advertising Costs

Federated Investors reports the cost of all advertising as expenses as
incurred.

(k) Income Taxes

Federated Investors accounts for income taxes under the liability method
which requires the recognition of deferred tax assets and liabilities for the
future tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.

(l) Earnings per Share

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS 128"). SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings
per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
Diluted earnings per share replaces the previous calculation of fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to SFAS 128 requirements.

(m) Stock-Based Compensation Plans

The Financial Accounting Standards Board issued Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), which was effective
for Federated Investors' fiscal year ended December 31, 1996. SFAS 123 defines
a fair value-based method of accounting for stock-based employee compensation
plans. Under the fair value-based method, compensation cost is measured at the
grant date based upon the value of the award and is recognized over the
service period. While the standard encourages entities to adopt this method of
accounting for employee stock compensation plans, it also allows an entity to
continue to measure compensation costs for its plans as prescribed in APB
Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB 25").
Federated Investors has elected to continue to apply APB 25 and has disclosed
the pro forma effect on earnings with SFAS 123 applied (see Note 8).

(n) Reclassification of Prior Periods' Statements

Certain items previously reported have been reclassified to conform with the
current year's presentation.

(o) Recent Accounting Pronouncements

Statement of Financial Standards No. 130, "Reporting Comprehensive Income,"
("SFAS 130") is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income includes net income and all
other changes in shareholders' equity except those resulting from investments
and distributions to owners.

Statement of Financial Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") is effective for financial
statements for periods beginning after December 15, 1997. SFAS 131 requires
financial and descriptive information about an entity's operating segments to
be included in the annual financial statements.

Federated Investors believes that the impact of the adoptions of SFAS 130
and SFAS 131 will not have a material impact on its financial statements.

F-10
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(2) MARKETABLE SECURITIES

A summary of the cost and estimated market value of marketable securities is
as follows:

<TABLE>
<CAPTION>
GROSS UNREALIZED ESTIMATED
------------------ MARKET
COST GAINS (LOSSES) VALUE
------- ------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
Investments in fluctuating value mutual
funds
December 31, 1997..................... $ 9,075 $ 61 $ (191) $ 8,945
======= ======= ======== =======
December 31, 1996..................... $13,722 $ 115 $ (76) $13,761
======= ======= ======== =======
</TABLE>

Gross realized gains and (losses) on the sale of marketable securities were
approximately $275,000 and ($226,000); $3,126,000 and ($475,000); and
$1,169,000 and ($13,000), respectively, for the years ended December 31, 1997,
1996, and 1995.

Federated Investors enters into futures contracts to hedge against changes
in market values related to investing in mutual funds it sponsors. These
investments enable the funds to build a diversified portfolio and are redeemed
as outside investors purchase the funds. The futures contracts are carried at
fair value in Marketable Securities on the Consolidated Balance Sheets. At
December 31, 1997, the futures contracts had maturities of less than one year.

(3) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements...................................... $ 18,187 $ 18,432
Computer equipment.......................................... 32,988 31,229
Office furniture and equipment.............................. 10,508 10,706
Transportation equipment.................................... 1,851 5,699
-------- --------
63,534 66,066
Accumulated depreciation.................................. (41,371) (36,709)
-------- --------
Property and equipment, net................................. $ 22,163 $ 29,357
======== ========
</TABLE>

Depreciation expense was approximately $7,599,000, $7,961,000, and
$5,106,000 for the years ended December 31, 1997, 1996 and 1995, respectively.

F-11
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(4) INTANGIBLE ASSETS

Intangible assets consist of customer relationships, goodwill and other
intangible assets. The other intangible assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Employment contracts.......................................... $ 2,634 $ 2,634
Computer software............................................. 10 10
Organization expenses......................................... 1,067 1,067
------- -------
3,711 3,711
Accumulated amortization.................................... (3,585) (3,524)
------- -------
Other intangible assets, net.................................. $ 126 $ 187
======= =======
</TABLE>

In 1997, Federated Investors assumed the investment management and
distribution responsibilities for seven retail mutual funds. The acquisition
was accounted for as a purchase for which Federated Investors recorded a
customer relationship intangible and paid $13,282,000 in cash.

In 1996, Federated Investors acquired the right to advise, distribute,
administer and provide management services for fund assets for a total of
$11,280,000 in cash plus a percentage of certain assets over a two year
period. Additionally in 1996, Federated Investors acquired the right to
negotiate new administration or sub-administration and/or distribution
agreements for cash of $800,000. Both acquisitions resulted in Federated
Investors recording customer relationship intangibles.

(5) LONG-TERM DEBT--RECOURSE

Federated Investors' long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Secured Credit Agreement............................... $ 0 $160,300
Senior Secured Note Purchase Agreement........................ 98,000 98,000
Capitalized Leases............................................ 1,230 1,484
------- --------
Total Debt.................................................. 99,230 259,784
Less: Current Portion......................................... 280 15,659
------- --------
Total Long-Term Debt.......................................... $98,950 $244,125
======= ========
</TABLE>

In 1996, Federated Investors obtained a bank Senior Secured Credit Agreement
("Senior") maturing in 2001 consisting of a Revolving Credit Facility and a
Term Loan Facility. Also in 1996, Federated Investors entered into a
$98,000,000 Senior Secured Note Purchase Agreement ("Note") maturing in 2006.
Pursuant to these agreements, Federated Investors must meet certain financial
and nonfinancial covenants. At December 31, 1997 and 1996, respectively,
Federated Investors was in compliance with all such covenants.

In 1996, Federated Investors entered into an interest rate cap agreement
("Cap") to reduce the impact of increases in interest rates on the Senior. The
premium paid was amortized to interest expense until the Cap was sold in 1997
concurrent with the extinguishment of the Term Loan Facility.

F-12
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(5) LONG-TERM DEBT--RECOURSE, CONTINUED

The obligations of Federated Investors under the Senior and the Note are
secured by pledges of all the outstanding common stock or shares of beneficial
interest of all of the subsidiaries owned by Federated Investors.

(a) Senior Secured Credit Agreement

The Term Loan Facility was fully repaid as of December 31, 1997. The
Revolving Credit Facility is used for general business purposes. At December
31, 1997, the outstanding balance was $0, with availability of $148,961,000.
The $160,300,000 outstanding balance at December 31, 1996 had a weighted-
average borrowing rate of 6.90%.

(b) Senior Secured Note Purchase Agreement

The Note is due in seven equal annual installments beginning in the year
2000 and maturing in 2006. The Note carries a fixed interest rate of 7.96%.

The aggregate contractual maturities of the recourse debt for the years
following December 31, 1997 are:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......................................................... $ 280
1999.......................................................... 238
2000.......................................................... 14,258
2001.......................................................... 14,280
2002.......................................................... 14,174
2003 and thereafter........................................... 56,000
-------
Total Recourse Debt......................................... $99,230
=======
</TABLE>

(6) SECURITIZATION OF B-SHARE ASSETS AND NONRECOURSE DEBT

Federated Investors has entered into an agreement with a third party to sell
the rights to the future revenue streams associated with the 12b-1,
shareholder service and CDSC fees of the Class B shares of various mutual
funds it manages. This agreement includes both an initial sale of existent
rights to future revenue streams as well as establishing a program to sell on
a continuous basis the future rights associated with future revenue streams
relating to the ongoing sale of B shares. For accounting purposes,
transactions executed under the agreement are reflected as financings and
nonrecourse debt has been recorded.

In the fourth quarter of 1997, Federated Investors exchanged its rights to
certain future cash flows associated with net deferred sales commission assets
with a remaining book value of $88,738,000 for $110,214,000 in cash. Two SPEs
were established for the purpose of the initial transaction. A bankruptcy
remote SPE was formed by Federated Investors to purchase the rights to the
future cash flows from a subsidiary and in turn it sold these future cash
flows to a third party's SPE. The third party's SPE funded this purchase by
issuing Class A and Class B notes.

F-13
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(6) SECURITIZATION OF B-SHARE ASSETS AND NONRECOURSE DEBT, CONTINUED

The cash flows of the B-share assets will be used by the third party SPE to
first pay trustee fees and other program related expenses. After these fees
are paid, interest and principal are paid in the following succession: Class A
interest, Class B interest, Class A principal, and Class B principal (only
upon full payment of Class A principal). Any residual cash flow after full
payment of all principal on the notes will be paid 90% to Federated Investors
and 10% to the holders of the Class B notes. This debt is nonrecourse debt to
Federated Investors in the event the future cash flows associated with the
rights sold do not cover the full obligation of the notes.

The Class A notes had an outstanding balance at December 31, 1997 of
$97,873,000 at a fixed interest rate of 7.44%. The Class B notes had an
outstanding balance at December 31, 1997 of $9,700,000 at a fixed interest
rate of 9.80%.

Also in the fourth quarter of 1997, Federated Investors exchanged additional
net deferred sales commission assets with a remaining book value of
$79,190,000 for $81,056,000 in cash. The transactions were also accounted for
as financings, and the nonrecourse debt has been recorded with an imputed
interest rate of 7.6%. Cash flows associated with these B-share assets will be
applied by the third party in the following succession: i) fees and other
program related expenses; ii) interest and iii) principal. Federated will also
participate in 49.6% of any residual cash flow after full payment of program
obligations. As of December 31, 1997, the outstanding balance of this
nonrecourse debt was $77,815,000. The nonrecourse debt does not contain a
contractual maturity but is repaid dependent upon the cash flows of the
transaction.

For a period of three years, the third party has agreed to purchase on a
semi-monthly basis the rights associated with certain future revenue streams
of B shares sold during that period.

(7) EMPLOYEE BENEFIT PLANS

The employees of Federated Investors participate in a 401(k)/Profit Sharing
Plan.

F-14
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(7) EMPLOYEE BENEFIT PLANS, CONTINUED

(a) 401(k)

Federated Investors offers a 401(k) plan covering substantially all
employees. Under the 401(k) plan, employees can make contributions at a rate
of one to fifteen percent of their compensation (as defined in the 401(k)
plan), subject to Internal Revenue Code limitations. Federated Investors makes
a matching contribution in an amount equal to 100% of a participant's first 2%
of contributions and 50% of the next 4% of contributions. Forfeitures of
unvested matching contributions are used to offset future matching
contributions.

In order to vest in Federated Investors' matching contributions, a
participant in the 401(k) plan must be employed at least three years and work
at least 1,000 hours per year. Upon completion of three years of service, 20%
of a participant's balance vests and 20% vests for each of the following four
years, if the participant works 1,000 hours per year. Employees are
immediately vested in their 401(k) salary reduction contributions.

Matching contributions to the 401(k) plan amounted to $2,537,000, $2,596,000
and $1,322,000, for the years ended December 31, 1997, 1996 and 1995,
respectively.

(b) Profit Sharing

An employee of Federated Investors becomes eligible to participate in the
Profit Sharing plan upon the first day of employment. The Profit Sharing plan
is a defined contribution plan to which Federated Investors contributes
amounts as authorized by its Board of Trustees. An employee will receive a
portion of Federated Investors' contribution upon completion of 500 hours of
service and if employed on the last day of the plan year. No contributions
have been made to the Profit Sharing plan in 1997, 1996 and 1995.

(8) OTHER COMPENSATION PLANS

(a) Deferred Compensation Plans

(1) In 1997, a deferred compensation arrangement was established for a group
of key employees for the purpose of providing incentive to certain individuals
who contribute to the success of Federated Investors. Each annual award
provided under this program is deferred for a period of four years with the
vesting period beginning in 1997. Termination of employment for any reason
other than death, disability or retirement prior to the plan's vesting date of
the third quarter 2001 causes the participant's benefit to be forfeited. The
liability at December 31, 1997 is $73,000 and is included in Other Long-Term
Liabilities on the Consolidated Balance Sheet.

(2) A deferred compensation arrangement ("Deferred Comp") was established
for a group of employees for the purpose of providing incentive to individuals
who contribute to the success of Federated Investors by their superior
performance. A portion of the Deferred Comp award through December 31, 1991
was deferred for a period of five years. Termination of employment prior to
the five-year vesting period causes the participant's benefit to be forfeited.
The Deferred Comp terminated in 1996 and all liabilities under the plan were
paid with interest to participants by December 31, 1996. Amounts forfeited
during these periods were not significant. Amounts included in compensation
and related expense on the Consolidated Statements of Income were $0, $44,000
and $4,299,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.

(b) Employee Restricted Stock Plan

Under the Employee Restricted Stock Plan, Federated Investors has sold to
certain key employees, subject to restrictions, shares of Class B Common Stock
(nonvoting). During the restricted period, the recipient receives

F-15
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(8) OTHER COMPENSATION PLANS, CONTINUED

dividends on the shares. The compensation cost to Federated Investors (the
difference between the estimated fair value of the stock and the amount paid
by the key employees at issuance) is charged to expense over the period of
employee performance during which the restrictions lapse, not to exceed ten
years. In 1997, 1996, and 1995, 75,000, 0, and 240,000 shares of Class B
Common Stock (nonvoting) were sold under the Employee Restricted Stock Plan,
respectively. Forfeitures of 612,000, 132,000, and 90,000 shares occurred in
1997, 1996 and 1995, respectively. For the years ended December 31, 1997, 1996
and 1995, compensation expense related to the Employee Restricted Stock Plan
was $28,000, $2,183,000, and $169,000, respectively.

In 1994, Federated Investors established an Employee Stock Appreciation
Rights Plan ("SARS Plan") to reward employees who have contributed to the
success of Federated Investors and to provide incentive to increase their
efforts on behalf of Federated Investors. In 1995 and 1994, 615,000 and
2,694,000 rights were issued under the SARS Plan, respectively. The SARS Plan
rights are valued over a period of up to ten years. The value at the time of
issuance and subsequent valuations to measure compensation expense is based on
an independent appraisal of the Class B Common Stock. Vesting occurs over a
period of five to ten years and is subject to the fulfillment of certain
defined criteria. The awards can be paid in cash or in shares of Class B
Common Stock at the end of the vesting period. Forfeitures of 24,000 and
240,000 rights of the 1994 SARS Plan occurred in 1996 and 1995, respectively.
At January 31, 1996, the SARS Plan rights previously issued were converted to
stock options with the exception of 48,000 rights which remained with the SARS
Plan.

(d) Stock Options

In the first quarter of 1996, 2,997,000 SARS Plan rights were converted to
stock options ("Replacement Options"). In 1997, 1,683,000 stock options ("1997
Options") were granted to a group of key employees. All options are part of a
Stock Incentive Plan offered by Federated Investors to reward employees who
have contributed to the success of Federated Investors and to provide
incentive to increase their efforts on behalf of Federated Investors. The
difference between the independent appraisal of the Class B Common Stock and
the exercise price of the options at the time of issuance is charged to
compensation expense over the vesting period. The fair value of the 1997
Options and the Replacement Options on the date of grant was $3.36 and $2.29
per option. For existing plans vesting occurs over a nine year period, a ten-
year period, or on a predetermined date and is subject to the fulfillment of
certain defined criteria. Each vested Replacement Option may be exercised for
the purchase of one share of Class B Common Stock at the exercise price.

For the year ended December 31, 1997 and 1996, compensation expense related
to the stock options was $231,000 and $365,000, respectively. At December 31,
1997, the weighted-average remaining contractual life of outstanding options
was 8 years, 1 month.

F-16
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(8) OTHER COMPENSATION PLANS, CONTINUED

The following table summarizes the changes in the stock options outstanding
during 1997:

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at beginning of year...................... 2,709,000 $1.91
Granted............................................. 1,683,000 5.53
Exercised........................................... 0 --
Forfeited/Expired................................... (397,500) 1.91
---------
Outstanding at end of year............................ 3,994,500 3.43
=========
Exercisable at end of year............................ 0 --
=========
</TABLE>

(e) Pro Forma Net Income

Federated Investors accounts for stock options and employee restricted stock
in accordance with APB 25. The following pro forma information regarding net
income assumes the adoption of SFAS 123 for stock options and employee
restricted stock granted subsequent to December 31, 1994. (Disclosure is not
required for options granted prior to 1995.) The estimated fair value of the
options is amortized to expense over the option and vesting period. The fair
value was estimated at the date of grant using the Minimum Value option
pricing model with the following weighted-average assumptions for 1997: nine
and ten year risk-free interest rates of 5.69% and 5.75%, respectively; a
dividend yield of 1.6% and an expected life of nine to ten years based upon
the specific plans valued. The estimated fair value of the restricted stock is
amortized to expense over the vesting period. The fair value was estimated at
the market price on the grant date. The pro forma results are estimates of
statements of income as if compensation expense had been recognized for all
stock-based compensation plans and are not indicative of the impact on future
periods.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Pro forma net income (In Thousands).................... $50,501 $12,630 $28,483
======= ======= =======
Pro forma Basic Earnings per common share.............. $ 0.61 $ 0.12 $ 0.25
======= ======= =======
Pro forma Diluted Earnings per common share............ $ 0.60 $ 0.11 $ 0.24
======= ======= =======
</TABLE>

(9) MINORITY INTEREST IN SUBSIDIARY

A subsidiary of Federated Investors has a majority interest (50.5%) and acts
as the general partner in Passport Research, Ltd., a limited partnership.
Edward D. Jones & Co. is the limited partner with a 49.5% interest. The
Partnership acts as investment adviser to two regulated investment companies.

(10) COMMON AND PREFERRED STOCK

In 1996, Federated Investors entered into an agreement to convert 1,000
shares of Series A Preferred Stock ("Series A Preferred") into 5,302,758 Class
B Common Stock and to buy the converted shares back for $19.09 per share, or
$101,233,000. In 1996, Federated Investors purchased 1,180,000 shares of Class
B Common Stock from existing shareholders at $19.00 per share for a total of
$22,420,000. The repurchased Class A and Class B shares were recorded as
treasury stock at cost.

F-17
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995
(10) COMMON AND PREFERRED STOCK, CONTINUED

Federated Investors has authorized 125,000 shares of no par Series B
Cumulative Nonconvertible Preferred Stock ("Series B Preferred"). The Series B
Preferred is entitled to dividends of $1,000 per share and is subject to a
mandatory redemption date of August 1, 1999. In the event of Federated
Investors' liquidation, Series B Preferred shareholders are entitled to $1,000
per share plus unpaid dividends. No Series B Preferred shares have been issued
to date. Federated Investors has also authorized 75,000 shares of no par
Series C Preferred Stock ("Series C Preferred"). The Series C Preferred is not
entitled to receive dividends as long as the Series A and Series B Preferred
are outstanding. No Series C Preferred shares have been issued to date.

The Class A Common Stock ("Class A Common") and Class B Common Stock ("Class
B Common"), (collectively "Common Shares") are entitled to receive dividends
only after all dividends on the Series A, B and C Preferred have been paid.

The holders of the Class A Common have the entire voting rights of Federated
Investors; however, without the consent of the majority of the holders of the
Class B Common, Class A Common shareholders cannot alter its structure,
dispose of all or substantially all of its assets, amend the Declaration of
Trust or Bylaws of Federated Investors to adversely affect the Class B Common,
or liquidate or dissolve Federated Investors.

Dividend payments on Common Shares may not exceed $5,000,000 in any fiscal
year nor exceed the sum of $5,000,000 plus 50% of the net income of Federated
Investors during the period from January 1, 1996 to and including the date of
payment. A cash dividend of $0.0583, $0.0417, and $0.1667 per share, or
$4,867,000, $3,498,000, and $15,160,000 was paid in 1997, 1996 and 1995,
respectively, to holders of Common Shares.

(11) LEASES

Federated Investors and its subsidiaries have various operating lease
agreements primarily involving facilities, office and computer equipment, and
vehicles. These leases are noncancellable and expire on various dates through
the year 2007.

The following is a schedule by year of future minimum rental payments
required under the operating leases that have initial or remaining
noncancellable lease terms in excess of one year as of December 31, 1997:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......................................................... $16,267
1999.......................................................... 10,183
2000.......................................................... 9,172
2001.......................................................... 8,914
2002.......................................................... 9,179
2003 and thereafter........................................... 45,636
-------
Total Minimum Lease Payments................................ $99,351
=======
</TABLE>

Rent expense was approximately $14,293,000, $14,674,000, and $12,841,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.

F-18
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(12) INCOME TAXES

Federated Investors files a consolidated federal income tax return with its
subsidiaries. Financial statement tax expense is determined under the
liability method.

Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $19,597 $(6,672) $13,548
State............................................ 243 514 108
-------- -------- --------
19,840 (6,158) 13,656
Deferred:
Federal.......................................... 11,117 17,088 5,153
Extraordinary Item............................... (241) (530) 0
-------- -------- --------
Total.............................................. $30,716 $10,400 $18,809
======== ======== ========
</TABLE>

For the years ended December 31, 1997, 1996 and 1995, the foreign subsidiary
had net operating income (losses) of $1,449,000, $(257,000), and $(447,000),
respectively, for which no income tax expense (benefit) has been provided.

The reconciliation between the federal statutory income tax rate and
Federated Investors' effective income tax rate consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Expected statutory rate........................... 35.0% 35.0% 35.0%
Increase:
State income taxes.............................. 0.2 1.4 0.1
Amortization of goodwill........................ 1.0 3.2 1.7
Meals and entertainment limitation.............. 1.2 4.6 1.9
Other........................................... 0.4 0.3 1.0
-------- -------- --------
Total........................................... 37.8% 44.5% 39.7%
======== ======== ========
</TABLE>

F-19
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(12) INCOME TAXES, CONTINUED

The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Intangible assets............................................ $14,946 $14,641
Organization costs........................................... 1,399 1,399
Deferred compensation plans.................................. 0 29
Employee restricted stock plan............................... 170 38
Reserve for rent escalation.................................. 0 126
Reserve for bad debts........................................ 1,068 0
Other........................................................ 246 1,021
------- -------
Total gross deferred tax asset............................. 17,829 17,254
Deferred tax liabilities:
Deferred sales commissions................................... 12,730 30,052
Deferred gain................................................ 29,023 0
Property and equipment depreciation.......................... 101 875
Other........................................................ 2,521 1,969
------- -------
Total gross deferred tax liability......................... 44,375 32,896
------- -------
Net deferred tax liability..................................... $26,546 $15,642
======= =======
</TABLE>

F-20
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(13) EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Income from continuing operations.................... $50,577 $12,619 $28,531
Preferred stock dividends............................ 0 3,025 6,000
------- ------- -------
Numerator for basic earnings per share for continuing
operations--
income available to common stockholders............. 50,577 9,594 22,531
Effect of dilutive securities:
Preferred stock dividends............................ 0 0 6,000
------- ------- -------
Numerator for diluted earnings per share for
continuing operations-- income available to common
stockholders after assumed conversions.............. $50,577 $ 9,594 $28,531
======= ======= =======
Denominator:
Denominator for basic earnings per share--
weighted-average shares............................. 82,392 83,159 88,995
Effect of dilutive securities:
Restricted Stock..................................... 435 117 0
Employee stock options/SARs.......................... 837 474 132
Convertible preferred stock.......................... 0 0 31,817
------- ------- -------
Dilutive potential common shares..................... 1,272 591 31,949
Denominator for diluted earnings per share--
adjusted weighted-average shares and assumed
conversions......................................... 83,664 83,750 120,944
======= ======= =======
Basic earnings per share............................... $ 0.61 $ 0.12 $ 0.25
======= ======= =======
Diluted earnings per share............................. $ 0.60 $ 0.12 $ 0.24
======= ======= =======
</TABLE>
- --------
The convertible preferred stock is antidilutive at December 31, 1996, as such,
it was excluded from the computation of diluted earnings per share.

(14) DISCLOSURES OF FAIR VALUE

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of estimated fair values
of certain on- and off-balance sheet financial instruments. The fair value
estimates, as well as the related methods and assumptions used to value each
of Federated Investors' significant financial instruments, are set forth
below.

(a) Cash, Cash Equivalents, and Marketable Securities

The carrying amount of cash and cash equivalents approximates fair value due
to the short maturities of these instruments. The fair value of marketable
securities is based on quoted market prices.

F-21
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(14) DISCLOSURES OF FAIR VALUE, CONTINUED

(b) Receivables, Accounts Payable, and Accrued Expenses

The carrying amounts of these financial instruments approximate fair value
due to the short maturities of these instruments.

As described in Note 5, the majority of Federated Investors' debt is
comprised of the Note. Because of the difficulty in obtaining quoted market
values for comparable debt with similar terms and limitations, Federated
Investors considered the maturity date, underlying collateral and borrowing
rates available to Federated Investors for loans with similar terms and
maturities. Based upon these factors, Federated Investors estimates that the
recorded amount approximates fair value.

(d) Futures Contracts

Federated Investors entered into futures contracts during 1997 and 1996 to
hedge against changes in market values related to the shares purchased of
mutual funds. Federated Investors' carrying value of $45,000 approximates the
estimated fair value at December 31, 1997.

(15) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1997 1996 1995
---- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase to employee restricted stock plan, net............... $ 0 $ 0 $ 237
Sale of deferred sales commissions............................ 0 0 21,737
Payoff of the revolving credit facility....................... 0 0 21,737
</TABLE>

(16) COMMITMENTS AND CONTINGENCIES

Federated Investors is contingently liable to an insurance company for
unanticipated expenses or losses in an amount not to exceed 180% of Federated
Investors' annual premium. At December 31, 1997, this amount is secured by an
irrevocable stand-by letter of credit for $1,039,000.

Federated Investors has claims asserted against it that result from
litigation in the ordinary course of business. Management believes that the
ultimate resolution of such matters will not materially affect the financial
position or statements of income of Federated Investors.

(17) RELATED PARTY TRANSACTIONS

Federated Investors provides investment advisory, administrative,
distribution and shareholder services to the Federated group of funds
(Federated Funds). All of these services provided for the Federated Funds are
under contracts that definitively set forth the fees to be charged for these
services and are approved by the funds' independent Directors/Trustees.
Federated Investors may waive certain fees charged for these services
(primarily investment advisory fees) in order to make the funds more
competitive or to meet regulatory requirements.

In 1996, prior to the stock dividends, Federated Investors repurchased from
related parties 956,000 shares of Class B Common Stock for $19.00 per share.
During 1995, Federated Investors repurchased from an executive officer 20,000
shares of Class B Common Stock. Federated Investors paid $11.58 per share, the
estimated fair value at that date. The Class B Common Stock repurchases were
recorded as treasury stock.

F-22
<PAGE>

FEDERATED INVESTORS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DECEMBER 31, 1997, 1996 AND 1995

(18) SUBSEQUENT EVENTS

On February 20, 1998, the Board of Directors declared a one for one stock
dividend payable on April 15, 1998 to stockholders of record on March 17,
1998. On April 16, 1998 the Board of Directors declared a one for two stock
dividend payable on April 30, 1998 to stockholders of record on April 21,
1998. Federated Investors has recorded these stock dividends effective
December 31, 1997.

(19) YEAR 2000 DISCLOSURE (UNAUDITED)

Federated Investors utilizes software and related technologies throughout
its businesses including both proprietary systems as well as those provided by
outside vendors. Significant functions such as portfolio accounting/-
recordkeeping and shareholder services rely on systems provided by outside
vendors. It is anticipated that these systems will be affected by the date
change in the year 2000. The year 2000 issue exists because many computer sys-
tems and applications currently use two-digit date fields to designate a year.
As the century date change occurs, certain date-sensitive systems may recog-
nize 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 Investors, like many other
companies, is expected to incur expenditures over the next two years to ad-
dress this issue.

Federated Investors formed a team of employees in 1997 to determine the full
scope and related costs to ensure both proprietary and third party vendor
systems will be year 2000 compliant, meeting both internal needs and those of
our customers. Federated Investors' assessment of internal systems is
substantially complete and plans are in place for all proprietary applications
within Federated Investors to be renovated or replaced. Completion of
renovation or replacement and the subsequent testing and implementation are
scheduled for 1998, with 1999 being reserved for industry-wide, cooperative
testing. The assessment process is in progress for the related infrastructure
and third party desktop software products. Based on management's
identification of resource requirements for both plan implementation and
overall project management, it is anticipated that the Year 2000 costs, which
are being expensed as incurred, will be, at a minimum, $10 million for
internal systems and do not reflect the impact of outside vendors to become
Year 2000 compliant. Accordingly, a final cost estimate cannot be determined
at this time.

F-23
<PAGE>

APPENDIX A

AGREEMENT AND PLAN OF MERGER

DATED AS OF FEBRUARY 20, 1998

BETWEEN

FEDERATED INVESTORS,

A DELAWARE BUSINESS TRUST

AND

FEDERATED INVESTORS, INC.,

A PENNSYLVANIA CORPORATION.
<PAGE>

AGREEMENT AND PLAN OF MERGER dated as of February 20, 1998 (this
"Agreement"), among FEDERATED INVESTORS, a Delaware business trust (the
"Trust"), and FEDERATED INVESTORS, INC., a Pennsylvania corporation (the
"Company").

WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, the Trust and the Company desire to enter into a merger transaction
pursuant to which the Trust will be merged with and into the Company, with the
Company continuing as the surviving corporation (the "Merger"), whereby each
issued and outstanding Class A Common Share, $1.00 stated value per share, of
the Trust ("Trust Class A Common Shares") will be converted into one share of
Class A Common Stock, no par value per share, of the Company ("Class A Common
Stock"), and each issued and outstanding Class B Common Share, $0.01 stated
value per share, of the Trust ("Trust Class B Common Shares")(other than
shares held in the treasury of the Trust immediately prior to the Effective
Time (as defined herein)) will be converted into one share of Class B Common
Stock, no par value per share, of the Company ("Class B Common Stock", and,
together with the Class A Common Stock, the "Company Common Stock"); and

WHEREAS, the Merger is intended to be a tax-free transaction pursuant to
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
such that no gain or loss will be recognized by the Trust and no gain or loss
will be recognized by holders of Trust Class A Common Shares or Trust Class B
Common Shares on the exchange of such shares for Class A Common Stock or Class
B Common Stock pursuant to this Agreement; and

WHEREAS, the Trust and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger, including the consummation of an
initial public offering by the Company on terms satisfactory to the Company
and the Trust (the "Offering");

NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:

ARTICLE I
THE MERGER

SECTION 1.01. THE MERGER

Upon the terms and subject to the conditions set forth in this Agreement,
and in accordance with the Pennsylvania Business Corporation Law of 1988, as
amended (the "PBCL"), the Delaware Business Trust Act, as amended (the "DBTA")
and the Restated Declaration of Trust of the Trust dated July 28, 1989, as
amended (the "Declaration"), the Trust shall be merged with and into the
Company at the Effective Time (as defined in Section 1.03). Following the
Effective Time, the separate existence of the Trust shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and shall succeed to and assume all the rights and obligations
of the Trust in accordance with applicable law.

SECTION 1.02. CLOSING

The closing of the Merger (the "Closing") will take place at 10:00 a.m. on a
date to be specified by the parties (the "Closing Date") at the offices of the
Trust, Federated Investors Tower, Pittsburgh, Pennsylvania 15222, unless
another time, date or place is agreed to by the parties hereto.

SECTION 1.03. EFFECTIVE TIME

Subject to the provisions of this Agreement, as soon as practicable on or
after the Closing Date, the parties shall file a certificate of merger (the
"Certificate of Merger") executed in accordance with the relevant provisions
of the DBTA and the Declaration and articles of merger (the "Articles of
Merger") executed in accordance with

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the relevant provisions of the PBCL, and shall make all other filings or
recordings required under the DBTA and the PBCL. The Merger shall become
effective at such time as the Trust and the Company shall agree and as is
specified in the Certificate of Merger and the Articles of Merger (the time
the Merger becomes effective being hereinafter referred to as the "Effective
Time").

SECTION 1.04. EFFECTS OF THE MERGER

The Merger shall have the effects specified in Section 1929 of the PBCL and
Section 3815(g) of the DBTA.

SECTION 1.05. ARTICLES OF INCORPORATION AND BY-LAWS

(a) At the Effective Time and without further action on the part of the
Company, the Restated Articles of Incorporation of the Company attached hereto
as Exhibit A shall be the articles of incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.

(b) At the Effective Time and without further action on the part of the
Company, the Restated By-laws of the Company attached hereto as Exhibit B
shall be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.

SECTION 1.06. DIRECTORS

The directors of the Company immediately prior to the Effective Time shall
be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.

SECTION 1.07. OFFICERS

The officers of the Company immediately prior to the Effective Time shall be
the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected
and qualified, as the case may be.

ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE PARTIES

SECTION 2.01. EFFECT ON CAPITAL STOCK

As of the Effective Time, by virtue of the Merger and without any action on
the part of the Trust or the holder of any Trust Class A Common Shares or
Trust Class B Common Shares:

(a) Cancellation of Treasury Shares. Each Trust Class A Common Share and
Trust Class B Common Share that is owned by the Trust or the Company shall
automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.

(b) Conversion of Trust Class A Common Shares. Each issued and outstanding
Trust Class A Common Share (other than shares to be canceled in accordance
with Section 2.01(a)) shall be converted into one share of Class A Common
Stock (the "Class A Merger Consideration").

(c) Conversion of Trust Class B Common Shares. Except as otherwise provided
by Section 2.01(d), each issued and outstanding Trust Class B Common Share
(other than shares to be canceled in accordance with Section 2.01(a)) shall be
converted into one share of Class B Common Stock. The consideration issuable
pursuant to this paragraph is referred to herein as the "Class B Merger
Consideration", and together with the Class A Merger Consideration, as the
"Merger Consideration".

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(d) Dissenting Shareholders. To the extent that Section 8.7 of the
Declaration is declared by a court of competent jurisdiction to be applicable
to the Merger, any issued and outstanding Trust Class B Common Shares held by
a person, other than any member of the Management Circle (as defined in the
Shareholder Rights Agreement dated August 1, 1989, between the Company, The
Standard Fire Insurance Company and the other shareholders bound thereby, as
amended (the "Shareholder Rights Agreement")) or any employee of the Trust or
any subsidiary of the Trust ("Employee Shareholders"), who shall not have
voted to adopt this Agreement or consented thereto in writing and who shall
have properly demanded appraisal (a "Dissenting Shareholder") for such shares
in accordance with Section 8.7 of the Declaration ("Dissenting Shares") (which
Section provides that appraisal rights shall only apply if holders other than
members of the Management Circle and Employee Shareholders holding at least
2/3 of the total outstanding Trust Class B Common Shares held by such holders
have requested such rights) shall not be converted as described in Section
2.01(b) and (c), unless such holder fails to perfect or withdraws or otherwise
loses his right to appraisal. If, after the Effective Time, such Dissenting
Shareholder fails to perfect or withdraws or loses his right to appraisal,
such Dissenting Shareholder's Trust Class B Common Shares shall no longer be
considered Dissenting Shares for the purposes of this Agreement and shall
thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the Class B Merger Consideration. In
determining the fair value of the Dissenting Shares and in otherwise
implementing Section 8.7 of the Declaration, Section 262 of the Delaware
General Corporation Law ("DGCL") shall apply.

(e) Cancellation of Trust Class A Common Shares and Trust Class B Common
Shares. As of the Effective Time, all Trust Class A Common Shares and Trust
Class B Common Shares shall no longer be outstanding and shall automatically
be canceled and shall cease to exist, and each holder of a certificate that
immediately prior to the Effective Time represented any such Trust Class A
Common Shares or Trust Class B Common Shares (a "Certificate") shall cease to
have any rights with respect thereto, except the right to receive the
applicable Merger Consideration, or, in the case of Dissenting Shareholders,
if any, the rights, if any, accorded under Section 8.7 of the Declaration.

(f) Cancellation of Company Capital Stock held by Trust. As of the Effective
Time, all shares of the capital stock of the Company that are owned by the
Trust shall automatically be canceled and retired and shall cease to exist,
and no consideration shall be delivered in exchange therefor.

SECTION 2.02. EXCHANGE OF CERTIFICATES

(a) Deposit with the Exchange Agent. As of the Effective Time, the Company
shall deposit with Boston EquiServe or other independent agent mutually
acceptable to the Company and the Trust (the "Exchange Agent") for the benefit
of the holders of Trust Class A Common Shares and Trust Class B Common Shares,
for exchange through the Exchange Agent, the certificates evidencing the
Merger Consideration (the "Exchange Fund") payable pursuant to Section 2.01 in
exchange for outstanding Trust Class A Common Shares and Trust Class B Common
Shares.

(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
Certificate or Certificates, (i) a letter of transmittal and (ii) instructions
for use in effecting the surrender of such Certificates in exchange for the
applicable Merger Consideration. Upon surrender of such a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by the Company, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive a
certificate or certificates evidencing the Merger Consideration which such
holder has the right to receive pursuant to this Article II, and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each certificate formerly evidencing shares of Trust Common Shares which have
been so converted will be deemed for all corporate purposes of the Company to
evidence ownership of the number of shares of Class A Common Stock or Class B
Common Stock of the Company, as the case may be, for which the Trust Class A
or Class B Common Shares formerly represented thereby were exchanged;
provided, however, that until such certificate is so surrendered, no dividend
payable to holders of record of Class A Common Stock or Class

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B Common Stock of the Company as of any date subsequent to the Effective Time
shall be paid to the holder of such certificate in respect of the shares of
Class A Common Stock or Class B Common Stock of the Company evidenced thereby
and such holder shall not be entitled to vote such shares of Class A Common
Stock or Class B Common Stock of the Company. Upon surrender of a certificate
formerly evidencing Trust Common Shares which have been so converted, there
shall be paid to the record holder of the certificates of Class A Common Stock
or Class B Common Stock issued in exchange therefor (i) at the time of such
surrender, the amount of dividends and any other distributions theretofore
paid with respect to such shares of Class A Common Stock or Class B Common
Stock of the Company, as of any date subsequent to the Effective Time to the
extent the same has not yet been paid to a public official pursuant to
abandoned property, escheat or similar laws and (ii) at the appropriate
payment date, the amount of dividends and any other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such shares of Class A Common
Stock or Class B Common Stock of the Company. No interest shall be payable
with respect to the payment of such dividends.

(c) No Further Ownership Rights in Trust Class A Common Shares and Trust
Class B Common Shares. The Merger Consideration issued upon the surrender of
Certificates in accordance with the terms of this Article II shall be deemed
to have been paid in full satisfaction of all rights pertaining to the Trust
Class A Common Shares and Trust Class B Common Shares theretofore represented
by such Certificates, and there shall be no further registration of transfers
on the stock transfer books of the Surviving Corporation of the Trust Class A
Common Shares and Trust Class B Common Shares that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this
Article II, except as otherwise provided by law.

(d) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the Merger Consideration deliverable in respect thereof, pursuant to this
Agreement.

ARTICLE III

SECTION 3.01. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Trust as follows:

(a) Organization, Standing and Corporate Power. The Company is a corporation
duly formed and validly subsisting under the laws of the Commonwealth of
Pennsylvania and has the requisite corporate power and authority to carry on
its business as now being conducted. The business of the Company is carried
out through subsidiaries that are duly qualified or licensed to do business
and are in good standing (with respect to jurisdictions which recognize such
concept) in each jurisdiction in which the nature of their business or the
ownership or leasing of their properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing individually or in the
aggregate would not have a material adverse effect on the Company or any
subsidiary.

(b) Capital Structure. Immediately prior to the Effective Time (or prior to
the adoption of the Restated Articles of Incorporation), there were 5,095,512
shares of common stock, par value $.05 per share, of the Company issued and
outstanding, all of which were owned by the Trust. As of the Effective Time,
the authorized capital stock of the Company shall consist of 20,000 shares of
Class A Common Stock, no par value, 900,000,000 shares of Class B Common
Stock, no par value and 100,000,000 shares of preferred stock, no par value
per share ("Preferred Stock"). As of the Effective Time (after giving effect
to the 1998 Stock Dividend,

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as hereinafter defined, but without giving effect to the Offering described in
Section 4.03), the consummation which is a condition to the Merger as set
forth in Section 5.01(d), there will be 4,000 shares of Class A Common Stock
issued and outstanding, 55,618,000 shares of Class B Common Stock issued and
outstanding and 9,000,000 shares of Class B Common Stock reserved for issuance
under the Federated Investors Stock Incentive Plan (the "Stock Incentive
Plan"). Except as set forth above, immediately prior to the Effective Time, no
shares of capital stock or other voting securities of the Company were issued,
reserved for issuance or outstanding. All outstanding shares of capital stock
of the Company are, and all shares which may be issued will be, when issued,
duly authorized, validly issued, fully paid and nonassessable.

(c) Authority. The Company has all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
by this Agreement. The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company. The execution and delivery of this Agreement by the Trust
shall constitute the approval of this Agreement by the Trust in its capacity
as the sole shareholder of the Company. This Agreement has been duly executed
and delivered by the Company and constitutes the valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.

(d) Noncontravention. Subject to (i) compliance with the terms of the Senior
Secured Credit Agreement, dated January 31, 1996, as amended, among the Trust,
PNC Bank, National Association, and the other banks named therein (the "Senior
Credit Agreement"), (ii) compliance with the terms of the Note Purchase
Agreement, dated as of June 15, 1996, among the Trust and the Purchasers
identified therein (the "Note Purchase Agreement"), and (iii) compliance with
the terms of the Pledge Agreement, dated as of June 15, 1996, among the Trust,
the Company, the Pledgors (as defined therein), the Collateral Agent (as
defined therein) and the Noteholders (as defined therein) (the "Pledge
Agreement"), the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement and compliance
with the provisions of this Agreement will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or
result in the creation of any lien upon any of the properties or assets of the
Company under, (i) the Articles of Incorporation or By-laws of the Company, as
amended to date, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or its properties or assets or (iii) any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, violations, defaults, rights,
losses or liens that individually or in the aggregate would not (x) have a
material adverse effect on the Company, (y) impair the ability of the Company
to perform its obligations under this Agreement in any material respect or (z)
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Federal, state or local
government or any court, administrative or regulatory agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of its
subsidiaries in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (1) the effectiveness of the
Registration Statement on Form S-4 with respect to the Merger (the "S-4
Registration Statement") filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act of 1933, as amended (the
"Act"), including a Proxy Statement (hereinafter defined) meeting the
requirements of the Securities Exchange Act of 1934, as amended; (2) the
effectiveness of the Registration Statement on Form S-1 with respect to the
Offering filed with the Commission pursuant to the Act; (3) the filing of the
Certificate of Merger with the Delaware Secretary of State and the Articles of
Merger with the Pennsylvania Secretary of State and; (4) such consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure to make or obtain which would not reasonably be expected to have a
material adverse effect on the Company or impair the ability of the Company to
perform its obligations under this Agreement in any material respect.

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SECTION 3.02. REPRESENTATIONS AND WARRANTIES OF THE TRUST.

The Trust represents and warrants to the Company as follows:

(a) Organization, Standing and Power. The Trust is a business trust duly
organized, validly existing and in good standing under the laws of Delaware
and has the requisite power and authority to carry on its business as now
being conducted. The Trust is duly qualified or licensed to do business and is
in good standing in the Commonwealth of Pennsylvania, and is not required to
be so qualified or licensed in any other jurisdiction.

(b) Capital Structure. The authorized capital stock of the Trust consists of
150,000,000 shares of beneficial interest, consisting of four classes as
follows: (i) 125,000 shares of Series B Cumulative Preferred Shares, no par
value per share, none of which are issued and outstanding, (ii) 75,000 shares
of Series C Preferred Shares, no par value per share, none of which are issued
and outstanding as of February 20, 1998 (4,000 shares after giving effect to
the 1998 Stock Dividend hereinafter defined), (iii) 99,000 Class A Common
Shares, no par value per share, 2,000 of which are issued and outstanding, and
(iv) 149,700,000 Class B Common Shares, no par value per share, 27,809,000 of
which are issued and outstanding as of February 20, 1998 (55,618,000 shares
after giving effect to the 1998 Stock Dividend). Except for the shares of
restricted stock, stock appreciation rights and stock options issued and/or
granted under the Trust's Restricted Stock Plan, Stock Appreciation Rights
Plan and Stock Incentive Plan (the "Prior Stock Plan") which, as of February
20, 1998, aggregated 1,411,000 restricted shares of Class B Common Shares
(2,822,000 shares after giving effect to the 1998 Stock Dividend) and
1,332,400 shares of Class B Common Shares (2,664,800 shares after giving
effect to the 1998 Stock Dividend), and except as set forth in the first
sentence of this paragraph, there are no outstanding stock appreciation rights
or rights to receive shares of the Trust on a deferred basis and no shares of
capital stock or beneficial interests of the Trust are issued, reserved for
issuance or outstanding, except for the one for one stock dividend declared on
February 20, 1998 to be paid on April 1, 1998 to shareholders of record on
March 17, 1998 (the "1998 Stock Dividend"). All outstanding shares of
beneficial interest of the Trust are duly authorized, validly issued, fully
paid and nonassessable, and subject to the Shareholder Rights Agreement.

(c) Authority. The Trust has all requisite power and authority under the
DBTA and the Declaration to enter into this Agreement and, subject to the
Trust Shareholder Approval (as defined herein), to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement
by the Trust and the consummation by the Trust of the transactions
contemplated by this Agreement have been duly authorized by all necessary
action required under the DBTA and the Declaration on the part of the Trust,
subject to the Trust Shareholder Approval. This Agreement has been duly
executed and delivered by the Trust and constitutes a valid and binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms. The consummation of the Merger contemplated by this Agreement requires
the affirmative vote of the holders of a majority of the outstanding Trust
Class A Common Shares and Trust Class B Common Shares, each voting separately
as a class ("Trust Shareholder Approval").

(d) Ownership of the Company. The Trust owns all of the outstanding capital
stock of the Company, free and clear of all liens and encumbrances except for
encumbrances created under the Pledge Agreement, and has duly approved this
Agreement in its capacity as the sole shareholder of the Company.

(e) Noncontravention. Subject to (i) the Trust Shareholder Approval, (ii)
compliance with the terms of Sections 8.1 and 8.2 of the Senior Credit
Agreement and (iii) compliance with Section 6 of the Pledge Agreement, the
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
of this Agreement by the Trust will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the
creation of any lien upon any of the properties or assets of the Trust under,
(i) the Restated Declaration of Trust of the Trust, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Trust
or its properties or assets or (iii) subject to the governmental filings and
other matters referred to in the following sentence, any

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judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Trust or its properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, violations, defaults, rights,
losses or liens that individually or in the aggregate would not (x) have a
material adverse effect on the Trust, (y) impair the ability of the Trust to
perform its obligations under this Agreement in any material respect or (z)
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by or with respect to the Trust in connection with the execution and
delivery of this Agreement by the Trust or the consummation by the Trust of
the transactions contemplated by this Agreement, except for (1) the filing
with the Commission of a definitive proxy statement relating to the Special
Meeting (as defined herein) (such proxy statement, as amended or supplemented
from time to time, the "Proxy Statement"), (2) the filing of the Certificate
of Merger with the Delaware Secretary of State and the Articles of Merger with
the Pennsylvania Secretary of State; and (3) such consents, approvals, orders,
authorizations, registrations, declarations and filings the failure to make or
obtain which would not reasonably be expected to have a material adverse
effect on the Trust or impair the ability of the Trust to perform its
obligations under this Agreement in any material respect.

ARTICLE IV
ADDITIONAL AGREEMENTS

SECTION 4.01. PREPARATION OF THE PROXY STATEMENT AND S-4 REGISTRATION
STATEMENT; SPECIAL MEETING.

(a) As soon as practicable following the date of this Agreement, the Company
and the Trust shall prepare and file with the Commission the Proxy Statement
and the S-4 Registration Statement. The Trust and the Company shall use all
reasonable efforts to cause the S-4 Registration Statement to be declared
effective by the Commission as soon as practicable following the filing
thereof with the Commission. The Trust will use all reasonable efforts to
cause the Proxy Statement to be mailed to holders of the Trust's beneficial
interests as promptly as practicable after the effectiveness of the S-4
Registration Statement.

(b) The Trust will, as soon as practicable following the effectiveness of
the S-4 Registration Statement, duly call, give notice of, convene and hold a
meeting of the holders of its beneficial interests (the "Special Meeting") for
the purpose of obtaining the approval of the holders of a majority of the
Trust Class A Common Shares and Trust Class B Common Shares, each voting
separately as a class, of this Agreement and the transactions contemplated
hereby (the "Trust Shareholder Approval"). The Trust will, through its Board
of Trustees, recommend to the holders of its beneficial interests the adoption
of this Agreement and the approval of the transactions contemplated hereby.

SECTION 4.02. STOCK OPTION AND BENEFIT PLANS.

At the Effective Time, the Company shall assume the rights and obligations
of the Trust under the Trust's Prior Stock Plan. The Company shall treat as
having been issued under its Stock Incentive Plan all shares of restricted
stock, stock appreciation rights and stock options issued under the Prior
Stock Plan. At the Effective Time, each share of restricted stock, stock
appreciation right and stock option issued or granted under the Prior Stock
Plan shall be converted automatically into a share of restricted stock, stock
appreciation right or stock option, as the case may be, of or with respect to
Class B Common Stock. The Board of Directors of the Company and the Board of
Trustees of the Trust shall take all actions necessary to carry into effect
the intent of this Section 4.02. The Company shall, as soon as practicable
following the Effective Time, register on Form S-8 or such other form as may
be prescribed by the Commission the securities to be issued by the Company in
connection with the assumption of the Trust's obligations under the Prior
Stock Plan.

SECTION 4.03. PREPARATION OF S-1 REGISTRATION STATEMENT.

As soon as practicable following the date of this Agreement, the Company,
with the cooperation of the Trust, shall prepare and file with the Commission
a Registration Statement on Form S-1 with respect to the

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Offering setting forth the terms of such Offering as the Company, in its sole
discretion, may determine, including timing and pricing of the Offering, the
number of the shares to be offered by the Company and any selling
shareholders, the selection of underwriters and all other matters relating to
the Offering. The Offering will be subject to prevailing market conditions and
other factors as may be taken into account by the Board of Directors of the
Company. Neither the Trust nor the Company shall be obligated to cause the S-1
Registration Statement to be declared effective by the Commission, if in
either party's judgment the Offering should not proceed.

ARTICLE V
CONDITIONS PRECEDENT

SECTION 5.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER

The respective obligation of each party to effect the Merger is subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:

(a) Trust Shareholder Approval. The Trust Shareholder Approval shall have
been obtained.

(b) No Appraisal Rights. In connection with the Merger, there shall not be
written demands or objections made and not withdrawn or otherwise lost by
Dissenting Shareholders who in the aggregate hold at least 2/3 of the total
outstanding Trust Class B Common Shares held by all holders who are entitled
to seek appraisal rights under Section 8.7 of the Declaration.

(c) No Injunctions or Restraints. No judgment, decree, statute, law,
ordinance, rule, regulation, temporary restraining order, preliminary or
permanent injunction or other order enacted, entered, promulgated, enforced or
issued by any court of competent jurisdiction or other Governmental Entity or
other legal restraint or prohibition preventing the consummation of the Merger
shall be in effect.

(d) Effective Registration Statement. The S-4 Registration Statement filed
by the Company with respect to the Merger shall have been declared effective,
and no stop order or proceeding seeking a stop order is in effect or has been
instituted.

(e) Consummation of Offering. The S-1 Registration Statement filed by the
Company with respect to the Offering shall have been declared effective, and
no stop order or proceeding seeking stop order is in effect or has been
instituted, and the Offering shall have been made on terms and conditions
(including size and price) satisfactory to the Company and the Trust and shall
be consummated on the Closing Date concurrently with the Merger.

SECTION 5.02. CONDITIONS TO OBLIGATION OF THE TRUST

The obligation of the Trust to effect the Merger is further subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions:

(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing Date as though made on and as of
the Closing Date, except to the extent such representations and warranties
expressly relate to an earlier date (in which case as of such date).

(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.

(c) Consents and Notices. The Company shall have received any material third
party or governmental consent and shall have provided any material notice or
other document required to be provided by it in connection with the
transactions contemplated by this Agreement, including, without limitation,
the consent of

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PNC Bank, National Association pursuant to the Senior Credit Agreement and the
Note Purchase Agreement, and the provision of the notice required by the
Pledge Agreement.

SECTION 5.03. CONDITIONS TO OBLIGATION OF THE COMPANY

The obligation of the Company to effect the Merger is further subject to
satisfaction or waiver on or prior to the Closing Date of the following
conditions:

(a) Representations and Warranties. The representations and warranties of
the Trust set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except to the extent such representations expressly relate to an
earlier date (in which case as of such date).

(b) Performance of Obligations of the Trust. The Trust shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date.

(c) Consents. The Trust shall have received any material third party or
governmental consent and shall have provided any material notice or other
document required to be provided by it in connection with the transactions
contemplated by this Agreement, including, without limitation, obtaining the
consent and providing the notice and proxies required by the Senior Credit
Agreement and providing the notices required by the Pledge Agreement.

ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER

SECTION 6.01. TERMINATION

This Agreement may be terminated at any time prior to the Effective Time,
whether before or after the Trust Shareholder Approval:

(a) by mutual consent of the Trust and the Company;

(b) by either the Trust or the Company:

(i) if a court of competent jurisdiction or other governmental entity
shall have issued a nonappealable final order, decree or ruling or taken
any other action, in each case having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger;

(ii) if at the Special Meeting (including any adjournment or postponement
thereof), the requisite vote of the holders of the Trust Class A Common
Shares and Trust Class B Common Shares in favor of this Agreement and the
Merger shall not have been obtained; or

(iii) if the registration statement relating to the Offering shall not
have become effective under the Securities Act of 1933, as amended, or the
Offering shall have been abandoned or not otherwise consummated.

SECTION 6.02. EFFECT OF TERMINATION

In the event of termination of this Agreement by either the Company or the
Trust as provided in Section 6.01, this Agreement shall forthwith become void
and have no effect, without any liability or obligation on the part of the
Trust, the Company or their respective officers, directors, trustees,
shareholders or affiliates.

A-9
<PAGE>

SECTION 6.03. AMENDMENT

This Agreement may be amended at any time by action taken or authorized by
the Board of Trustees of the Trust and the Board of Directors of the Company;
provided, however, that after the Trust Shareholder Approval is obtained, no
amendment shall be made which by law requires further approval by the holders
of Trust Class A Common Shares or Trust Class B Common Shares without such
further approval.

SECTION 6.04. EXTENSION; WAIVER

The Company and the Trust, by action taken or authorized by the Board of
Directors or the Board of Trustees, respectively, may extend the time for
performance of the obligations or other acts of the other party to this
Agreement, may waive inaccuracies in the representations or warranties
contained in this Agreement, and may waive compliance with any agreements or
conditions contained in this Agreement. The failure of either party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.

ARTICLE VII
GENERAL PROVISIONS

SECTION 7.01. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES

None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time. This Section 7.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time.

SECTION 7.02. COUNTERPARTS

This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the parties and delivered
to the other parties.

SECTION 7.03. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES

This Agreement constitutes the entire agreement, and supersede all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement and is not intended to confer
upon any person other than the parties any rights or remedies.

SECTION 7.04. GOVERNING LAW

Except as otherwise specifically referred to herein, this Agreement shall be
governed by, and construed in accordance with, the laws of the Commonwealth of
Pennsylvania, regardless of the laws that might otherwise govern under
applicable principles of conflicts of laws thereof; except that the Merger
contemplated hereby shall be governed by the laws of the State of Delaware and
the Commonwealth of Pennsylvania.

SECTION 7.05. ASSIGNMENT

Neither this Agreement nor any of the rights, interests or obligations under
this Agreement shall be assigned, in whole or in part, by operation of law or
otherwise by either party without the prior written consent of the other
party. Any assignment in violation of the preceding sentence shall be void.
Subject to the preceding sentence, this Agreement will be binding upon, inure
to the benefit of, and be enforceable by, the parties and their respective
successors and assigns.

A-10
<PAGE>

SECTION 7.06. FEES AND EXPENSES

All fees, costs and expenses incurred by the Trust and the Company in
connection with this Agreement and the transactions contemplated hereby shall
be paid (i) by the Trust if the Merger does not occur and (ii) by the Company
if the Merger occurs.

IN WITNESS WHEREOF, the Trust and the Company have caused this Agreement to
be signed by their respective officers hereunto duly authorized, all as of the
date first written above.

FEDERATED INVESTORS

/s/ J. Christopher Donahue
By:
-------------------------------
Name:J. Christopher Donahue
Title:President and Chief Operating
Officer

FEDERATED INVESTORS, INC.

/s/ J. Christopher Donahue
By:
-------------------------------
Name:J. Christopher Donahue
Title:President

A-11
<PAGE>

APPENDIX B

RESTATED ARTICLES OF INCORPORATION OF FEDERATED INVESTORS, INC.
-------------------------

FIRST: Name. The name of the Corporation is FEDERATED INVESTORS, INC.

SECOND: Registered Office. The location and post office address of the
registered office of the Corporation in the Commonwealth of Pennsylvania is
Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, Pennsylvania
15222, in the County of Allegheny.

THIRD: Incorporation. The Corporation was incorporated on October 18, 1957
under the Business Corporation Law of 1933 of the Commonwealth of Pennsylvania
for the purpose or purposes to advise, counsel, and make recommendations on
investment, economic, business and allied matters to individuals,
partnerships, corporations and other entities; to buy, sell and otherwise deal
in stocks, bonds, mutual funds, investment plans and investment securities of
all kinds; and generally to engage in the business of investment adviser and
investment broker-dealer for itself and as agent for others, as well as to
have unlimited power to engage in and to do any lawful act concerning any and
all lawful business for which corporations may be incorporated under such
Business Corporation Law.

FOURTH: Term. The term for which the Corporation is to exist is perpetual.

FIFTH: Capital Stock.

A. Classes and Number of Shares. The aggregate number of shares which the
Corporation shall have authority to issue is One Billion, Twenty Thousand
(1,000,020,000) shares, consisting of (1) Twenty Thousand (20,000) shares of
Class A Common Stock, of no par value, (2) Nine Hundred Million (900,000,000)
shares of Class B Common Stock, of no par value, and (3) One Hundred Million
(100,000,000) shares of Preferred Stock, of no par value. The Board of
Directors of the Corporation shall have the full authority permitted by law to
divide the shares of Preferred Stock into one or more series, to determine the
designation and the number of shares of any series (within the total number of
shares of the class authorized by these Restated Articles of Incorporation),
and to determine the voting rights (whether full, limited, multiple,
fractional or no voting rights), preferences, limitations and special rights,
if any, or any series. Any such division and any such determination may be
made by action of the Board of Directors from time to time and shall
constitute an amendment of this Article FIFTH.

B. Issuance of the Common Stock and the Preferred Stock. Subject to the
preemptive rights of the holders of the Class A Common Stock as hereinafter
provided, the Board of Directors of the Corporation may from time to time
authorize by resolution the issuance of any and all shares of Class A Common
Stock, Class B Common Stock and Preferred Stock herein authorized for such
purposes, in such amounts, to such persons (including any corporation or other
business entity), for such consideration, and in the case of the Preferred
Stock, in one more series, all as the Board of Directors in its discretion may
determine and without any vote or other action by the shareholders, except as
otherwise required by applicable law.

C. Powers and Rights of the Common Stock.

1. Voting Rights and Powers. Prior to the agreement date hereinafter
defined in this Article FIFTH (hereinafter sometimes called the "Agreement
Date"), except as otherwise provided in this Article FIFTH or by applicable
law, the holders of the outstanding shares of Class B Common Stock shall
have no voting rights; the entire voting power of the Corporation shall be
vested in the holders of the outstanding shares of

B-1
<PAGE>

Class A Common Stock and, with respect to all matters upon which
shareholders are entitled to vote or to which shareholders are entitled to
give consent, each of such holders shall be entitled to cast thereon one
vote in person or by proxy for each share of Class A Common Stock standing
in his or her name. From and after the Agreement Date, with respect to all
matters upon which shareholders are entitled to vote or to which
shareholders are entitled to give consent, the holders of the outstanding
shares of Class A Common Stock and the holders of outstanding shares of
Class B Common Stock, except as otherwise provided herein, shall vote
together without regard to class, and every holder of the outstanding
shares of the Class A Common Stock shall be entitled to cast thereon one
thousand (1,000) votes in person or by proxy for each share of the Class A
Common Stock standing in his or her name and every holder of the
outstanding shares of the Class B Common Stock shall be entitled to cast
thereon one vote in person or by proxy for each share of Class B Common
Stock standing in his or her name; except, however, that holders of the
Class A Common Stock, voting separately as a class with each holder of the
outstanding shares of Class A Common Stock being entitled to one vote in
person or by proxy for each share of the Class A Common Stock standing in
his or her name, shall have the right to elect that number of directors so
that four-tenths ( 4/10) (calculated to the next highest whole number) of
the total number of directors of the Corporation fixed from time to time
by, or in the manner provided for in, the Bylaws of the Corporation, shall
have been elected by the holders of the Class A Common Stock separately.
With respect to any proposed amendment to these Restated Articles of
Incorporation which would increase or decrease the number of authorized
shares of either Class A Common Stock or Class B Common Stock, or alter or
change the powers, preferences, relative voting power or special rights of
the shares of Class A Common Stock or Class B Common Stock so as to affect
them adversely, the approval of a majority of the votes entitled to be cast
by the holders of the class affected by the proposed amendment, voting
separately as a class, shall be obtained in addition to the approval of a
majority of the votes entitled to be cast by the holders of the Class A
Common Stock and the Class B Common Stock voting together without regard to
class as hereinbefore provided.

2. Exceptions. Notwithstanding anything contained herein to the contrary,
prior to the Agreement Date, without the consent (given in writing or by
vote at any regular or special meeting of the shareholders of the
Corporation) of the holders of a majority of the then outstanding shares of
Class B Common Stock, the Corporation shall not:

(a) merge, consolidate with or otherwise acquire any corporation or
other business entity; provided, however, that, in a transaction (i) in
which the Corporation is the surviving entity and (ii) pursuant to
which these Restated Articles of Incorporation have not been amended,
altered, repealed or superseded, the Corporation may, without such
consent, merge, consolidate with or otherwise acquire any corporation
or other business entity;

(b) sell, lease, exchange or otherwise dispose of all or
substantially all of the assets of the Corporation or any subsidiary
thereof to other than a wholly-owned subsidiary of the Corporation;
provided, however, that, (i) in any transaction or series of related
transactions not exceeding in value One Hundred Million Dollars
($100,000,000.00) in the aggregate (taking into account all liabilities
assumed by the Corporation or its subsidiaries in any such transaction
or transactions) involving all or substantially all of the assets of
any subsidiary, or (ii) in any transaction or series of related
transactions involving a securitization or other receivables sale
transaction, the Corporation may, without such consent, sell, lease,
exchange or otherwise dispose of all or substantially all of the assets
of such subsidiary;

(c) effect any amendment to these Restated Articles of Incorporation
or the Bylaws of the Corporation that adversely affects the rights,
powers or preferences of the shares of Class B Common Stock; or

(d) liquidate, dissolve or otherwise wind up the affairs of the
Corporation.

B-2
<PAGE>

3. Board of Directors.

a. Number. The Board of Directors of the Corporation shall consist of
at least five members, all of whom prior to the Agreement Date shall be
elected by the holders of the Class A Common Stock voting separately as
a class as hereinbefore provided and at least two of whom from and
after the Agreement Date shall be elected by the holders of the Class A
Common Stock voting separately as a class as hereinbefore provided.

b. Standing and Term. All directors, whether elected by the holders
of the Class A Common Stock voting separately as a class or elected by
the holders of both the Class A Common Stock and the Class B Common
Stock voting together, shall have equal standing, serve terms of equal
duration and have equal voting powers.

c. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled
by a majority vote of the remaining directors then in office, even
though less than a quorum; provided however, that any vacancies and
newly created directorships involving directors who have been or shall
be elected by the holders of the Class A Common Stock voting separately
as a class as hereinbefore provided shall be filled by a majority vote
of the remaining directors then in office elected by the holders of the
Class A Common Stock voting separately as a class and that any
vacancies and newly created directorships involving directors who have
been or shall be elected by the holders of the Class A Common Stock and
the Class B Common Stock voting together as hereinbefore provided shall
be filled by a majority of the remaining directors then in office
elected by the holders of the Class A Common Stock and the Class B
Common Stock voting together.

d. Removal. Directors elected by the holders of the Class A Common
Stock voting separately as a class, and directors filling vacancies and
newly created directorships involving directors who have been or shall
be elected by the holders of the Class A Common Stock voting separately
as a class as hereinbefore provided, may be removed, with or without
cause, only by the vote or consent of a majority of the votes then
entitled to be cast by the holders of the Class A Common Stock, voting
separately as a class. Directors elected by the holders of the Class A
Common Stock and the Class B Common Stock voting together without
regard to class, and directors filling vacancies and newly created
directorships, other than those involving directors who have been or
shall be elected by the holders of the Class A Common Stock voting
separately as a class as hereinbefore provided, may be removed, with or
without cause, only by the vote or consent of a majority of the votes
then entitled to be cast by the holders of the Class A Common Stock and
the Class B Common Stock, voting together without regard to class.

4. Dividends and Distributions. Each share of Class A Common Stock and
each share of Class B Common Stock shall be equal in respect of rights to
dividends and distributions, when and as declared, whether in cash or in
the form of stock or other property of the Corporation; except, however,
that, in the case of dividends or other distributions payable in stock of
the Corporation, other than Preferred Stock, including distributions
pursuant to stock split-ups or divisions, only shares of Class A Common
Stock shall be distributed with respect to the Class A Common Stock and
only shares of Class B Common Stock shall be distributed with respect to
the Class B Common Stock.

5. Preemptive Rights. Each holder of any shares of Class A Common Stock
then outstanding shall be entitled to a preemptive right to purchase or
subscribe for any unissued shares of Class A Common Stock to be issued by
the Corporation for any reason, including any increase of the authorized
number of shares of Class A Common Stock, or for any additional shares of
any class of the capital stock of the Corporation or any bonds,
certificates of indebtedness, debentures or other securities convertible
into shares of Class A Common Stock, or carrying any rights to purchase
shares of Class A Common Stock, whether such shares or bonds, certificates
of indebtedness, debentures or other securities shall be issued for cash,
property or

B-3
<PAGE>

other lawful consideration. The holders of the Class B Common Stock shall
have no preemptive rights to subscribe for any shares of any class of stock
of the Corporation, whether now or hereafter authorized.

6. Other Rights. Except as otherwise required by applicable law or as
otherwise provided in these Restated Articles of Incorporation, each share
of Class A Common Stock and each share of Class B Common Stock shall have
identical powers, preferences and rights, including rights in liquidation.
Upon liquidation of the Corporation, holders of Class A Common Stock and
holders of Class B Common Stock are entitled to share ratably in the assets
thereof that may be available for distribution after satisfaction of
creditors. In addition, in connection with a Company Sale (as hereinafter
defined), the holders of the Class A Common Stock and the Class B Common
Stock shall receive the same amount of consideration per share,
notwithstanding any differences in voting rights. The term "Company Sale"
shall be deemed to include the following: (A) the acquisition of the
Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization,
merger, consolidation or stock purchase) and (B) a sale of all or
substantially all of the assets of the Corporation. In any Company Sale, if
the consideration received by the Corporation or its stockholders, as the
case may be, is other than cash, its value, as determined in good faith by
the Board of Directors, will be deemed its fair market value.

7. Duration of Class Rights and Powers. At any time when there shall be
no shares of Class A Common Stock outstanding but there shall be shares of
Class B Common Stock outstanding, except as otherwise provided in this
Article FIFTH or by applicable law, without any action by the Board of
Directors or the holders of the shares of Class B Common Stock outstanding,
the entire voting power of the Corporation shall then be vested in the
holders of the outstanding shares of Class B Common Stock and, with respect
to all matters upon which shareholders are entitled to vote or to which
shareholders are entitled to give consent, each of such holders shall be
entitled to cast thereon one vote in person or by proxy for each share of
Class B Common Stock standing in his or her name; and the provisions of
these Restated Articles of Incorporation which provide for different voting
rights for the Class A Common Stock shall not be of any effect.

D. Powers and Rights of the Preferred Stock. The voting rights, preferences,
limitations and special rights, if any, pertaining to the Preferred Stock, or
any series thereof, shall be such as may be fixed by the Board of Directors of
the Corporation in its sole discretion, authority so to do being hereby
expressly vested in the Board of Directors.

E. Agreement Date. For the purposes of this Article FIFTH, the term
"Agreement Date" as used herein shall mean the first date on which the Company
shall execute and deliver, and enter into, a legally binding and enforceable
agreement providing for the issue by the Company of shares of Class B Common
Stock in a transaction constituting a business combination which, for
financial reporting purposes, shall be accounted for as a pooling of interests
in accordance with generally accepted accounting principles.

F. Shares Represented by Certificates and Uncertificated Shares. The shares
of the Corporation of any class or series shall be represented by certificates
or shall be uncertificated shares.

SIXTH: No Cumulative Voting. The shareholders of the Corporation shall not
have the right to cumulate their votes for election of directors of the
Corporation.

SEVENTH: Amendment. Subject to the provisions of Article FIFTH hereof, these
Restated Articles of Incorporation may be amended in the manner prescribed at
the time by applicable law; and all rights conferred upon shareholders in
these Restated Articles of Incorporation are granted subject to this
reservation.

EIGHTH: Restatement. These Restated Articles of Incorporation supersede the
original Articles of Incorporation of the Corporation and all amendments
thereto.

B-4
<PAGE>

APPENDIX C

FEDERATED INVESTORS, INC.

------------

RESTATED BYLAWS
------------

C-1
<PAGE>

RESTATED BYLAWS
OF FEDERATED INVESTORS, INC.

TABLE OF CONTENTS

<TABLE>
<C> <S> <C>
ARTICLE I OFFICES AND FISCAL YEAR
Section 1.01 Registered office........................................... C-4
Section 1.02 Other Offices............................................... C-4
Section 1.03 Fiscal Year................................................. C-4
ARTICLE II NOTICES--WAIVERS--MEETINGS GENERALLY
Section 2.01 Manner of Giving Notice..................................... C-4
Section 2.02 Notice of Meetings of Board of Directors.................... C-5
Section 2.03 Notice of Meeting of Shareholders........................... C-5
Section 2.04 Waiver of Notice............................................ C-5
Section 2.05 Modification of Proposal Contained in Notice................ C-5
Section 2.06 Exception to Requirement of Notice.......................... C-5
Section 2.07 Use of Conference Telephone and Similar Equipment........... C-6
ARTICLE III SHAREHOLDERS
Section 3.01 Place of Meeting............................................ C-6
Section 3.02 Annual Meeting.............................................. C-6
Section 3.03 Special Meetings............................................ C-6
Section 3.04 Quorum and Adjournment...................................... C-6
Section 3.05 Action by Shareholders...................................... C-7
Section 3.06 Organization of Meetings.................................... C-7
Section 3.07 Voting Rights of Shareholders............................... C-7
Section 3.08 Voting and Other Action by Proxy............................ C-7
Section 3.09 Voting by Fiduciaries and Pledgees.......................... C-8
Section 3.10 Voting by Joint Holders of Shares........................... C-8
Section 3.11 Voting by Corporations and Other Business Organizations..... C-9
Section 3.12 Determination of Shareholders of Record..................... C-9
Section 3.13 Voting Lists................................................ C-10
Section 3.14 Judges of Election.......................................... C-10
Section 3.15 Consent of Shareholders in Lieu of Meeting.................. C-10
Section 3.16 Minors as Security Holders.................................. C-11
ARTICLE IV BOARD OF DIRECTORS
Section 4.01 Powers; Personal Liability.................................. C-11
Section 4.02 Qualifications and Selection of Directors................... C-11
Section 4.03 Number and Term of Office................................... C-12
Section 4.04 Vacancies................................................... C-12
Section 4.05 Removal of Directors........................................ C-13
Section 4.06 Place of Meeting............................................ C-13
Section 4.07 Organization of Meetings.................................... C-13
Section 4.08 Regular Meetings............................................ C-13
Section 4.09 Special Meetings............................................ C-13
Section 4.10 Quorum of and Action by Directors........................... C-13
Section 4.11 Executive and Other Committees.............................. C-13
Section 4.12 Compensation................................................ C-14
</TABLE>

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<PAGE>

TABLE OF CONTENTS (CONTINUED)

<TABLE>
<C> <S> <C>
ARTICLE V OFFICERS
Section 5.01 Officers Generally.......................................... C-14
Section 5.02 Election and Term of Office................................. C-14
Section 5.03 Subordinate Officers, Committees and Agents................. C-14
Section 5.04 Removal of Officers and Agents.............................. C-15
Section 5.05 Vacancies................................................... C-15
Section 5.06 Authority................................................... C-15
Section 5.07 Chairman of the Board....................................... C-15
Section 5.08 Vice Chairman............................................... C-15
Section 5.09 President................................................... C-15
Section 5.10 Vice President.............................................. C-15
Section 5.11 Secretary................................................... C-15
Section 5.12 Treasurer................................................... C-15
Section 5.13 Salaries.................................................... C-16
ARTICLE VI SHARE CERTIFICATES, TRANSFER, ETC.
Section 6.01 Share Certificates.......................................... C-16
Section 6.02 Issuance.................................................... C-16
Section 6.03 Transfer.................................................... C-16
Section 6.04 Record Holder of Shares..................................... C-16
Section 6.05 Lost, Destroyed or Mutilated Certificates................... C-16
Section 6.06 Restriction on Transfer of Shares........................... C-16
ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS
AND OTHER AUTHORIZED REPRESENTATIVES
Section 7.01 Scope of Indemnification.................................... C-17
Section 7.02 Proceedings Initiated by Indemnified Representatives........ C-18
Section 7.03 Advancing Expenses.......................................... C-18
Section 7.04 Securing of Indemnification Obligations..................... C-18
Section 7.05 Payment of Indemnification.................................. C-19
Section 7.06 Arbitration................................................. C-19
Section 7.07 Contribution................................................ C-19
Section 7.08 Mandatory Indemnification of Directors, Officers, Etc....... C-19
Section 7.09 Contract Rights; Amendment or Repeal........................ C-19
Section 7.10 Scope of Article............................................ C-19
Section 7.11 Reliance on Provisions...................................... C-20
Section 7.12 Interpretation.............................................. C-20
ARTICLE VIII MISCELLANEOUS
Section 8.01 Corporate Seal.............................................. C-20
Section 8.02 Checks...................................................... C-20
Section 8.03 Contracts................................................... C-20
Section 8.04 Interested Directors or Officers; Quorum.................... C-20
Section 8.05 Deposits.................................................... C-21
Section 8.06 Corporate Records........................................... C-21
Section 8.07 Financial Reports........................................... C-21
Section 8.08 Amendment of Bylaws......................................... C-22
</TABLE>

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<PAGE>

RESTATED BYLAWS

FEDERATED INVESTORS, INC.

----------------

ARTICLE I

OFFICES AND FISCAL YEAR

Section 1.01. Registered Office. The registered office of the Corporation in
the Commonwealth of Pennsylvania shall be at Federated Investors Tower, 1001
Liberty Avenue, Pittsburgh, Pennsylvania 15222-3779 in the County of
Allegheny, until otherwise established by an amendment of the articles of the
Corporation or by the board of directors and a record of the change is filed
with the Pennsylvania Department of State in the manner provided by law.

Section 1.02. Other Offices. The Corporation may also have offices at such
other places within or without the Commonwealth of Pennsylvania as the board
of directors may from time to time appoint or the business of the Corporation
may require.

Section 1.03. Fiscal Year. The fiscal year of the Corporation shall end on
the last day of December in each year.

ARTICLE II

NOTICE--WAIVERS--MEETINGS GENERALLY

SECTION 2.01. MANNER OF GIVING NOTICE.

(a) General Rule. Whenever written notice is required to be given to any
person under the provisions of the Business Corporation Law of 1988 or by the
articles of the Corporation or these bylaws, it may be given to the person
either personally or by sending a copy thereof by first class or express mail,
postage prepaid, or by telegram (with messenger service specified), telex or
TWX (with answerback received) or courier service, charges prepaid, or by
facsimile transmission, to the address (or to the telex, TWX or facsimile
number) of the person appearing on the books of the Corporation or, in the
case of directors, supplied by the director to the Corporation for the purpose
of notice. If the notice is sent by mail, telegraph or courier service, it
shall be deemed to have been given to the person entitled thereto when
deposited in the United States mail or with a telegraph office or courier
service for delivery to that person or, in the case of telex or TWX, when
dispatched or, in the case of facsimile transmission, when received. A notice
of meeting shall specify the place, day and hour of the meeting and any other
information required by any other provision of the Business Corporation Law of
1988, the articles of the Corporation, or these bylaws.

(b) Adjourned Shareholder Meetings. When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned
meeting or of the business to be transacted at an adjourned meeting, other
than by announcement at the meeting at which the adjournment is taken, unless
the board of directors fixes a new record date for the adjourned meeting or
the Business Corporation Law of 1988 requires notice of the business to be
transacted and that notice has not previously been given.

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<PAGE>

Section 2.02. Notice of Meetings of Board of Directors. Notice of a regular
meeting of the board of directors need not be given. Notice of every special
meeting of the board of directors shall be given to each director by telephone
or in writing at least 72 hours (in the case of notice by telephone, telex,
TWX or facsimile transmission, telegraph, courier service or express mail) or
five days (in the case of notice by first class mail) before the time at which
the meeting is to be held. Every such notice shall state the time and place of
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board need be specified in the notice of the
meeting.

Section 2.03. Notice of Meetings of Shareholders.

(a) General Rule. Written notice of every meeting of the shareholders shall
be given by, or at the direction of, the secretary to each shareholder of
record entitled to vote at the meeting at least:

(1) ten days prior to the day named for a meeting called to consider a
fundamental change under 15 Pa.C.S. Chapter 19; or

(2) five days prior to the day named for the meeting in any other case.

If the secretary neglects or refuses to give notice of a meeting, the person
or persons calling the meeting may do so.

(b) Contents. In the case of a special meeting of shareholders, the notice
shall specify the general nature of the business to be transacted.

(c) Notice of Action by Shareholders on By-laws. In the case of a meeting of
shareholders that has as one of its purposes, action on the bylaws, written
notice shall be given to each shareholder entitled to vote at the meeting that
the purpose, or one of the purposes, of the meeting is to consider the
adoption, amendment or repeal of the bylaws. There shall be included in, or
enclosed with, the notice a copy of the proposed amendment or a summary of the
changes to be effected thereby.

Section 2.04. Waiver of Notice.

(a) Written Waiver. Whenever any written notice is required to be given
under the provisions of the Business Corporation Law of 1988, the articles of
the Corporation or these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of the notice.
Neither the business to be transacted at, nor the purpose of, a meeting need
be specified in the waiver of notice of the meeting.

(b) Waiver by Attendance. Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.

Section 2.05. Modification of Proposal Contained in Notice. Whenever the
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Business Corporation Law of
1988 or the articles of the Corporation or these bylaws, the meeting
considering the resolution may without further notice adopt it with such
clarifying or other amendments as do not enlarge its original purpose.

Section 2.06. Exception to Requirement of Notice.

(a) General Rule. Whenever any notice or communication is required to be
given to any person under the provisions of the Business Corporation Law of
1988 or by the articles of the Corporation or these bylaws or by the terms of
any agreement or other instrument or as a condition precedent to taking any
corporate action and communication with that person is then unlawful, the
giving of the notice or communication to that person shall not be required.

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(b) Shareholders Without Forwarding Addresses. Notice or other
communications shall not be sent to any shareholder with whom the Corporation
has been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder
has otherwise failed to provide the Corporation with a current address.
Whenever the shareholder provides the Corporation with a current address, the
Corporation shall commence sending notices and other communications to the
shareholder in the same manner as to other shareholders.

Section 2.07 Use of Conference Telephone and Similar Equipment. One or more
persons may participate in a meeting of the board of directors or the
shareholders of the Corporation by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
section shall constitute presence in person at the meeting.

ARTICLE III

SHAREHOLDERS

Section 3.01. Place of Meeting. All meetings of the shareholders of the
Corporation shall be held at the registered office of the Corporation unless
another place is designated by the board of directors in the notice of a
meeting.

Section 3.02. Annual Meeting. The board of directors may fix the date and
time of the annual meeting of the shareholders; but, if no such date and time
is fixed by the board, the meeting for any calendar year shall be held on the
first Tuesday in May in such year, if not a legal holiday under the laws of
the Commonwealth of Pennsylvania, and, if a legal holiday, then on the next
succeeding business day, not a Saturday, at ten o'clock a.m., local time. At
the meeting the shareholders then entitled to vote shall elect directors and
shall transact such other business as may properly be brought before the
meeting. If the annual meeting shall not have been called and held within six
months after the designated time, any shareholder then entitled to vote may
call the meeting at any time thereafter.

Section 3.03. Special Meetings.

(a) Call of Special Meetings. Special meetings of the shareholders may be
called at any time (1) by the board of directors or (2) unless otherwise
provided in the articles of the Corporation, by shareholders entitled to cast
at least 20% of the votes that all shareholders are entitled to cast at the
particular meeting.

(b) Fixing of Time for Meeting. At any time, upon written request of any
person who has duly called a special meeting, it shall be the duty of the
secretary to fix the time of meeting which shall be held not more than 60 days
after the receipt of the request. If the secretary neglects or refuses to fix
the time of the meeting, the person or persons calling the meeting may do so.

Section 3.04. Quorum and Adjournment.

(a) General Rule. A meeting of shareholders of the Corporation duly called
shall not be organized for the transaction of business unless a quorum is
present. The presence of shareholders entitled to cast at least a majority of
votes that all shareholders are entitled to cast on a particular matter to be
acted upon at the meeting shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the Corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
board of directors of the Corporation, as such, shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.

(b) Withdrawal of a Quorum. The shareholders present at a duly organized
meeting can continue to do business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.

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(c) Adjournment for Lack of Quorum. If a meeting cannot be organized because
a quorum has not attended, those present may, except as provided in the
Business Corporation Law of 1988, adjourn the meeting to such time and place
as they may determine.

(d) Adjournments Generally. Any meeting at which directors are to be elected
shall be adjourned only from day to day, or for such longer periods not
exceeding 15 days each as the shareholders present and entitled to vote shall
direct, until the directors have been elected. Any other regular or special
meeting may be adjourned for such period as the shareholders present and
entitled to vote shall direct.

(e) Electing Directors at Adjourned Meeting. Those shareholders entitled to
vote who attend a meeting called for the election of directors that has been
previously adjourned for lack of a quorum, although less than a quorum as
fixed in this section, shall nevertheless constitute a quorum for the purpose
of electing directors.

(f) Other Action in Absence of Quorum. Those shareholders entitled to vote
who attend a meeting of shareholders that has been previously adjourned for
one or more periods aggregating at least 15 days because of an absence of a
quorum, although less than a quorum as fixed in this section, shall
nevertheless constitute a quorum for the purpose of acting upon any matter set
forth in the notice of the meeting if the notice states that those
shareholders who attend the adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter.

Section 3.05. Action by Shareholders. Except as otherwise provided in the
Business Corporation Law of 1988 or the articles of the Corporation or these
bylaws, whenever any corporate action is to be taken by vote of the
shareholders of the corporation, it shall be authorized upon receiving the
affirmative vote of a majority of the votes cast by all shareholders entitled
to vote thereon and, if any shareholders are entitled to vote thereon as a
class, upon receiving the affirmative vote of a majority of the votes cast by
the shareholders entitled to vote as a class.

Section 3.06. Organization of Meetings. At every meeting of the
shareholders, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the president, the vice
presidents in their order of rank and seniority, or a person chosen by
majority vote of the shareholders present and entitled to vote, shall act as
chairman of the meeting. The secretary or, in the absence of the secretary, an
assistant secretary, or, in the absence of the secretary and assistant
secretaries, a person appointed by the chairman of the meeting, shall act as
secretary.

Section 3.07. Voting Rights of Shareholders. Unless otherwise provided in
the articles of the Corporation, every shareholder of the Corporation shall be
entitled to one vote for every share standing in the name of the shareholder
on the books of the Corporation.

Section 3.08. Voting and Other Action by Proxy.

(a) General Rule.

(1) Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent to corporate action in writing without a meeting
may authorize another person to act for the shareholder by proxy.

(2) The presence of, or vote or other action at a meeting of
shareholders, or the expression of consent or dissent to corporate action
in writing, by a proxy of a shareholder, shall constitute the presence of,
or vote or action by, or written consent or dissent of the shareholder.

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(3) Where two or more proxies of a shareholder entitled to vote are
present, the Corporation shall, unless otherwise expressly provided in the
proxy, accept as the vote of all shares represented thereby the vote cast
by a majority of them and, if a majority of the proxies cannot agree
whether the shares represented shall be voted or upon the manner of voting
the shares, the voting of the shares shall be divided equally among those
persons.

(b) Minimum Requirements. Every proxy shall be executed in writing by the
shareholder or by the duly authorized attorney-in-fact of the shareholder and
filed with the secretary of the Corporation. A telegram, telex, cablegram,
datagram or similar transmission from a shareholder or attorney-in-fact, or a
photographic, facsimile or similar reproduction of a writing executed by a
shareholder or attorney-in-fact:

(1) may be treated as properly executed for purposes of this subsection;
and

(2) shall be so treated if it sets forth a confidential and unique
identification number or other mark furnished by the corporation to the
shareholder for the purposes of a particular meeting or transaction.

(c) Revocation. A proxy, unless coupled with an interest, shall be revocable
at will, notwithstanding any other agreement or any provision in the proxy to
the contrary, but the revocation of a proxy shall not be effective until
written notice thereof has been given to the secretary of the Corporation. An
unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A proxy shall
not be revoked by the death or incapacity of the maker unless, before the vote
is counted or the authority is exercised, written notice of the death or
incapacity is given to the secretary of the corporation.

(d) Expenses. Unless otherwise restricted in the articles of the
Corporation, the Corporation shall pay the reasonable expenses of solicitation
of votes, proxies or consent of shareholders entitled to vote by or on behalf
of the board of directors or its nominees for election to the board, including
solicitation by professional proxy solicitors and otherwise.

Section 3.09. Voting by Fiduciaries and Pledgees. Shares of the Corporation
standing in the name of a trustee or other fiduciary and shares held by an
assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are
pledged shall be entitled to vote the shares until the shares have been
transferred into the name of the pledgee, or a nominee of the pledgee, but
nothing in this section shall affect the validity of a proxy given to a
pledgee or nominee.

Section 3.10. Voting by Joint Holders of Shares.

(a) General Rule. Where shares of the Corporation are held jointly or as
tenants in common by two or more persons, as fiduciaries or otherwise:

(1) if only one or more of such persons is present in person or by proxy,
all of the shares standing in the names of such persons shall be deemed to
be represented for the purpose of determining a quorum and the Corporation
shall accept as the vote of all the shares the vote cast by a joint owner
or a majority of them; and

(2) if the persons are equally divided upon whether the shares held by
them shall be voted or upon the manner of voting the shares, the voting of
the shares shall be divided equally among the persons without prejudice to
the rights of the joint owners or the beneficial owners thereof among
themselves.

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(b) Exception. If there has been filed with the secretary of the corporation
a copy, certified by an attorney at law to be correct, of the relevant
portions of the agreement under which the shares are held or the instrument by
which the trust or estate was created or the order of court appointing them or
of an order of court directing the voting of the shares, the persons specified
as having such voting power in the document latest in date of operative effect
so filed, and only those persons, shall be entitled to vote the shares but
only in accordance therewith.

Section 3.11. Voting by Corporations and Other Business Organizations.

(a) Voting by Corporate Shareholders. Any corporation or other business
organization that is a shareholder of this corporation may vote by any of its
officers or agents, or by proxy appointed by any officer or agent, unless some
other person, (i) in the case of such corporation, by resolution of the board
of directors or a provision of its articles or bylaws, or (ii) in the case of
such business organization, by resolution of its governing body or a provision
of its charter or bylaws or their equivalent, a copy of which resolution or
provision certified to be correct by one of its officers, has been filed with
the secretary of this Corporation, is appointed its general or special proxy
in which case that person shall be entitled to vote the shares.

(b) Controlled Shares. Shares of this Corporation owned, directly or
indirectly, by it and controlled, directly or indirectly, by the board of
directors of this Corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.

Section 3.12. Determination of Shareholders of Record.

(a) Fixing Record Date. The board of directors may fix a time prior to the
date of any meeting of shareholders as a record date for the determination of
the shareholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall not be more than 60
days prior to the date of the meeting of shareholders. Only shareholders of
record on the date fixed shall be so entitled notwithstanding any transfer of
shares on the books of the Corporation after any record date fixed as provided
in this subsection. The board of directors may similarly fix a record date for
the determination of shareholders of record for any other purpose. When a
determination of shareholders of record has been made as provided in this
section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the board fixes a new record date for the adjourned
meeting.

(b) Determination When a Record Date is Not Fixed. If a record date is not
fixed:

(1) The record date for determining shareholders entitled to notice of or
to vote at a meeting of shareholders shall be at the close of business on
the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day immediately preceding the day
on which the meeting is held.

(2) The record date for determining shareholders entitled to:

(i) express consent or dissent to corporate action in writing without a
meeting, when prior action by the board of directors is not necessary;

(ii) call a special meeting of the shareholders; or

(iii) propose an amendment of the articles of the Corporation;

shall be the close of business on the day on which the first written
consent or dissent, request for a special meeting or petition proposing an
amendment of the articles is filed with the secretary of the Corporation.

(3) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.

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Section 3.13. Voting Lists.

(a) General Rule. The officer or agent having charge of the transfer books
for shares of the Corporation shall make a complete list of the shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical
order, with the address of and the number of shares held by each. The list
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.

(b) Effect of List. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at a meeting prior to a
demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.

Section 3.14. Judges of Election.

(a) Appointment. In advance of any meeting of shareholders of the
Corporation, the board of directors may appoint judges of election, who need
not be shareholders, to act at the meeting or any adjournment thereof. If
judges of election are not so appointed, the presiding officer of the meeting
may, and on the request of any shareholder entitled to vote shall, appoint
judges of election at the meeting. The number of judges shall be one or three.
A person who is a candidate for office to be filled at the meeting shall not
act as a judge.

(b) Vacancies. In case any person appointed as a judge fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
board of directors in advance of the convening of the meeting or at the
meeting by the presiding officer thereof.

(c) Duties. The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes or ballots, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes, determine the result and do such acts as may be proper to
conduct the election or vote with fairness to all shareholders. The judges of
election shall perform their duties impartially, in good faith, to the best of
their ability and as expeditiously as is practical. If there are three judges
of election, the decision, act or certificate of a majority shall be effective
in all respects as the decision, act or certificate of all.

(d) Report. On request of the presiding officer of the meeting, or of any
shareholder, the judges of election shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate
of any fact found by them. Any report or certificate made by them shall be
prima facie evidence of the facts stated therein.

Section 3.15. Consent of Shareholders in Lieu of Meeting.

(a) Unanimous Written Consent. Any action required or permitted to be taken
at a meeting of the shareholders or of a class of shareholders may be taken
without a meeting if, prior or subsequent to the action, a consent or consents
thereto by all of the shareholders who would be entitled to vote at a meeting
for such purpose shall be filed with the secretary of the Corporation.

(b) Partial Written Consent. Any action required or permitted to be taken at
a meeting of the shareholders or of a class of shareholders may be taken
without a meeting upon the written consent of shareholders who would have been
entitled to cast the minimum number of votes that would be necessary to
authorize the action at a meeting at which all shareholders entitled to vote
thereon were present and voting. The consents shall be filed with the
secretary of the Corporation. The action shall not become effective until
after at least ten days' written notice of the action has been given to each
shareholder entitled to vote thereon who has not consented thereto.

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Section 3.16. Minors as Security Holders. The Corporation may treat a minor
who holds shares or obligations of the Corporation as having capacity to
receive and to empower others to receive dividends, interest, principal and
other payments or distributions, to vote or express consent or dissent and to
make elections and exercise rights relating to such shares or obligations
unless, in the case of payments or distributions on shares, the corporate
officer responsible for maintaining the list of shareholders or the transfer
agent of the Corporation or, in the case of payments or distributions on
obligations, the treasurer or paying officer or agent has received written
notice that the holder is a minor.

ARTICLE IV

BOARD OF DIRECTORS

Section 4.01. Powers; Personal Liability.

(a) General Rule. Unless otherwise provided by statute, all powers vested by
law in the Corporation shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the
direction of, the board of directors.

(b) Personal Liability of Directors.

(1) A director shall not be personally liable, as such, for monetary
damages for any action taken unless:

(i) the director has breached or failed to perform the duties of his
or her office under 15 Pa.C.S. Such. 17B; and

(ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.

(2) Paragraph (1) shall not apply to:

(i) the responsibility or liability of a director pursuant to any
criminal statute, or

(ii) the liability of a director for the payment of taxes pursuant to
Federal, State or local law.

Any repeal, amendment or modification of the bylaw set forth in this Section
4.01 (b) shall not adversely affect any right or protection existing at the
time of such repeal, amendment or modification to which a director or former
director may be entitled hereunder. The rights conferred by this bylaw shall
continue as to any person who has ceased to be a director of the Corporation
and shall inure to the benefit of the heirs, executors and administrators of
such person.

(c) Notation of Dissent. A director who is present at a meeting of the board
of directors, or of a committee of the board, at which action on any corporate
matter is taken on which the director is generally competent to act, shall be
presumed to have assented to the action taken unless his or her dissent is
entered in the minutes of the meeting or unless the director files a written
dissent to the action with the secretary of the meeting before the adjournment
thereof or transmits the dissent in writing to the secretary of the
Corporation immediately after the adjournment of the meeting. The right to
dissent shall not apply to a director who voted in favor of the action.
Nothing in this section shall bar a director from asserting that minutes of
the meeting incorrectly omitted his or her dissent if, promptly upon receipt
of a copy of such minutes, the director notifies the secretary, in writing, of
the asserted omission or inaccuracy.

Section 4.02. Qualifications and Selection of Directors.

(a) Qualifications. Each director of the Corporation shall be a natural
person of full age who need not be a resident of Pennsylvania or a shareholder
of the Corporation.

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(b) Nomination of Directors. Nominations for the election of directors by
the shareholders entitled to vote therefor may be made by the board of
directors or by any shareholder entitled to vote for the election thereof;
provided, however, that in the case of any nomination by such shareholder,
advance written notice of such nomination shall be received by the secretary
of the Corporation by certified mail no later than (i) 90 days prior to the
anniversary of the previous year's annual meeting of shareholders, or (ii)
with respect to an election of directors to be held at a special meeting of
shareholders or at an annual meeting, the tenth day following the date on
which notice of such meeting is first given to the shareholder. Each such
notice of such nomination shall set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in such notice, (ii)
the principal occupation of employment of each such nominee, and (iii) the
number and class of shares of stock of the Corporation which are beneficially
owned by each such nominee. In addition, the shareholder making such
nomination shall promptly provide any other information reasonably requested
by the secretary of the Corporation.

(c) Election of Directors. Except as otherwise provided in these bylaws,
directors of the Corporation shall be elected by the shareholders entitled to
vote. In elections for directors, voting need not be by ballot unless required
by vote of the shareholders before the voting for election of directors
begins. The candidates receiving the highest number of votes from each class
or group of classes, if any, entitled to elect directors separately up to the
number of directors to be elected by the class or group of classes shall be
elected. If at any meeting of shareholders, directors of more than one class
are to be elected, each class of directors shall be elected in a separate
election.

(d) Cumulative Voting. The shareholders of the Corporation shall not have
the right to cumulate their votes for election of directors of the
Corporation.

Section 4.03. Number and Term of Office.

(a) Number. The board of directors shall consist of such number of
directors, not less than five nor more than fifteen, as may be determined from
time to time by resolution of the board of directors.

(b) Term of Office. Each director shall hold office until the expiration of
the term of one year for which he or she was selected and until a successor
has been selected and qualified or until his or her earlier death, resignation
or removal. A decrease in the number of directors shall not have the effect of
shortening the term of any incumbent director.

(c) Resignation. Any director may resign at any time upon written notice to
the Corporation. The resignation shall be effective upon receipt thereof by
the Corporation or at such subsequent time as shall be specified in the notice
of resignation.

Section 4.04. Vacancies.

(a) General Rule. Unless otherwise provided in the articles of
incorporation, vacancies in the board of directors, including vacancies
resulting from an increase in the number of directors, may be filled by a
majority vote of the remaining members of the board though less than a quorum,
or by a sole remaining director, and each person so selected shall be a
director to serve for the balance of the unexpired term, and until a successor
has been selected and qualified or until his or her earlier death, resignation
or removal.

(b) Action by Resigned Directors. Unless otherwise provided in the articles
of incorporation, when one or more directors resign from the board effective
at a future date, the directors then in office, including those who have so
resigned, shall have power by the applicable vote to fill the vacancies, the
vote thereon to take effect when the resignations become effective.

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Section 4.05. Removal of Directors.

(a) Removal by the Shareholders. The entire board of directors, or any class
of the board, or any individual director may be removed from office without
assigning any cause by the vote of shareholders, or of the holders of a class
or series of shares, entitled to elect directors, or the class of directors.
In case the board or a class of the board or any one or more directors are so
removed, new directors may be elected at the same meeting.

(b) Removal by the Board. The board of directors may declare vacant the
office of a director who has been judicially declared of unsound mind or who
has been convicted of an offense punishable by imprisonment for a term of more
than one year or if, within 50 days after notice of his or her selection, the
director does not accept the office either in writing or by attending a
meeting of the board of directors.

Section 4.06. Place of Meetings. Meetings of the board of directors may be
held at such place within or without the Commonwealth of Pennsylvania as the
board of directors may from time to time appoint or as may be designated in
the notice of the meeting.

Section 4.07. Organization of Meetings. At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the president, the vice
presidents in their order of rank and seniority, or a person chosen by
majority vote of the directors present, shall act as chairman of the meeting.
The secretary or, in the absence of the secretary, an assistant secretary, or,
in the absence of the secretary and assistant secretaries, a person appointed
by the chairman of the meeting, shall act as secretary.

Section 4.08. Regular Meetings. Regular meetings of the board of directors
shall be held at such time and place as shall be designated from time to time
by resolution of the board of directors.

Section 4.09. Special Meetings. Special meetings of the board of directors
shall be held whenever called by the chairman or by two or more of the
directors.

Section 4.10. Quorum of and Action by Directors.

(a) General Rule. A majority of the directors in office of the Corporation
shall be necessary to constitute a quorum for the transaction of business, and
the acts of a majority of the directors present and voting at a meeting at
which a quorum is present shall be the acts of the board of directors.

(b) Action by Written Consent. Any action required or permitted to be taken
at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of the
directors in office is filed with the secretary of the Corporation.

Section 4.11. Executive and Other Committees.

(a) Establishment and Powers. The board of directors may, by resolution
adopted by a majority of the directors in office, establish one or more
committees to consist of one or more directors of the Corporation. Any
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all of the powers and authority of the board of
directors except that a committee shall not have any power or authority as to
the following:

(1) The submission to shareholders of any action requiring approval of
shareholders under the Business Corporation Law of 1988.

(2) The creation or filling of vacancies in the board of directors.

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(3) The adoption, amendment or repeal of these bylaws.

(4) The amendment or repeal of any resolution of the board that by its
terms is amendable or repealable only by the board of directors.

(5) Action on matters committed by a resolution of the board of directors
to another committee of the board.

(b) Alternate Committee Members. The board of directors may designate one or
more directors as alternate members of any committee who may replace any
absent or disqualified member at any meeting of the committee or for the
purposes of any written action by the committee. In the absence or
disqualification of a member and alternate member or members of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
director to act at the meeting in the place of the absent or disqualified
member.

(d) Committee Procedures. The term "board of directors" or "board," when
used in any provision of these bylaws relating to the organization or
procedures of or the manner of taking action by the board of directors, shall
be construed to include and refer to any executive or other committee of the
board.

Section 4.12. Compensation. The board of directors shall have the authority
to fix the compensation of directors for their services as directors and a
director may be a salaried officer of the corporation.

ARTICLE V

OFFICERS

Section 5.01. Officers Generally.

(a) Number. Qualifications and Designation. The officers of the Corporation
shall be a chairman of the board of directors, a vice chairman, a president, a
secretary, a treasurer, and such other officers as may be elected in
accordance with the provisions of Section 5.03. Except for the chairman of the
board who shall be a member of the board of directors, officers may but need
not be directors or shareholders of the Corporation. The chairman, vice
chairman, president and secretary shall be natural persons of full age. The
treasurer may be a corporation, but if a natural person shall be of full age.
Any number of offices may be held by the same person.

(b) Resignations. Any officer may resign at any time upon written notice to
the Corporation. The resignation shall be effective upon receipt thereof by
the Corporation or at such subsequent time as may be specified in the notice
of resignation.

Section 5.02. Election and Term of Office. The officers of the Corporation,
except those elected by delegated authority pursuant to Section 5.03, shall be
elected annually by the board of directors, and each such officer shall hold
office for a term of one year and until a successor has been selected and
qualified or until his or her earlier death, resignation or removal.

Section 5.03. Subordinate Officers, Committees and Agents. The board of
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more vice presidents, one or more assistant
secretaries, and one or more assistant treasurers, each of whom shall hold
office for such period, have such authority, and perform such duties as are
provided in these bylaws or as the board of directors may from time to time
determine. The board

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of directors may delegate to any officer or committee the power to elect
subordinate officers and to retain or appoint employees or other agents, or
committees thereof and to prescribe the authority and duties of such
subordinate officers, committees, employees or other agents.

Section 5.04. Removal of Officers and Agents. Any officer or agent of the
Corporation may be removed by the board of directors with or without cause.
The removal shall be without prejudice to the contract rights, if any, of any
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.

Section 5.05. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause, shall be filled by
the board of directors or by the officer or committee to which the power to
fill such office has been delegated pursuant to Section 5.03, as the case may
be, and if the office is one for which these bylaws prescribe a term, shall be
filled for the unexpired portion of the term.

Section 5.06. Authority. All officers of the Corporation, as between
themselves and the Corporation, shall have such authority and perform such
duties in the management of the Corporation as may be provided by or pursuant
to resolutions or orders of the board of directors or, in the absence of
controlling provisions in the resolutions or orders of the board of directors,
as may be determined by or pursuant to these bylaws.

Section 5.07. The Chairman of the Board. The chairman of the board of
directors shall be the chief executive officer of the Corporation and shall
have general supervision over the business and operations of the Corporation,
subject, however, to the control of the board of directors. The chairman of
the board, or, in the absence of the chairman, the president, shall preside at
all meetings of the shareholders and of the board of directors.

Section 5.08. The Vice Chairman. The vice chairman shall perform such duties
as may from time to time be assigned to him by the board of directors, the
chairman of the board or the president.

Section 5.09. The President. The president shall be the chief operating
officer of the Corporation and shall have general supervision over the
business and operations of the Corporation, subject, however, to the control
of the chairman of the board of directors. The president shall sign, execute
and acknowledge, in the name of the corporation, deeds, mortgages, bonds,
contracts or other instruments authorized by the board of directors, except in
cases where the signing and execution thereof shall be expressly delegated by
the board of directors, or by these bylaws, to some other officer or agent of
the Corporation; and, in general, shall perform all duties incident to the
office of president and such other duties as from time to time may be assigned
by the board of directors or the chairman of the board.

Section 5.10. The Vice Presidents. The vice presidents shall perform the
duties of the president in the absence of the president and such other duties
as may from time to time be assigned to them by the board of directors or the
president.

Section 5.11. The Secretary. The secretary or an assistant secretary shall
attend all meetings of the shareholders and of the board of directors and
shall record all the votes of the shareholders and of the directors and the
minutes of the meetings of the shareholders and of the board of directors and
of committees of the board in a book or books to be kept for that purpose;
shall see that notices are given and records and reports properly kept and
filed by the Corporation as required by law; shall be the custodian of the
seal of the Corporation and see that it is affixed to documents executed on
behalf of the Corporation under its seal; and, in general, shall perform all
duties incident to the office of the secretary, and such other duties as may
from time to time be assigned by the board of directors or the president.

Section 5.12. The Treasurer. The treasurer or an assistant treasurer shall
have or provide for the custody of the funds or other property of the
Corporation; shall collect and receive or provide for the collection and
receipt of moneys earned by or in any manner due to or received by the
Corporation; shall deposit all funds in his or her custody as treasurer in
such banks or other places of deposit as the board of directors may from time

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to time designate; shall, whenever so required by the board of directors,
render an account showing all transactions as treasurer and the financial
condition of the corporation; and, in general, shall discharge such other
duties as may from time to time be assigned by the board of directors or the
president.

Section 5.13. Salaries. The salaries of the officers elected by the board of
directors shall be fixed from time to time by the board of directors or by
such officer as may be designated by resolution of the board. The salaries or
other compensation of any other officers, employees and other agents shall be
fixed from time to time by the officer or committee to which the power to
elect such officers or to retain or appoint such employees or other agents has
been delegated pursuant to Section 5.03. No officer shall be prevented from
receiving such salary or other compensation by reason of the fact that the
officer is also a director of the Corporation.

ARTICLE VI

SHARE CERTIFICATES. TRANSFER, ETC.

Section 6.01. Share Certificates. Certificates for shares of the Corporation
shall be in such form as approved by the board of directors, and shall state
that the Corporation is incorporated under the laws of the Commonwealth of
Pennsylvania, the name of the person to whom issued, and the number and class
of shares and the designation of the series (if any) that the certificate
represents. The share register or transfer books and blank share certificates
shall be kept by the secretary or by any transfer agent or registrar
designated by the board of directors for that purpose.

Section 6.02. Issuance. The share certificates of the Corporation shall be
numbered and registered in the share register or transfer books of the
Corporation as they are issued. They shall be signed by the president or a
vice president and by the secretary or an assistant secretary or the treasurer
or an assistant treasurer; but where a certificate is signed by a transfer
agent or a registrar, the signature of any corporate officer upon the
certificate may be a facsimile, engraved or printed. In case any officer who
has signed, or whose facsimile signature has been placed upon, any share
certificate shall have ceased to be such officer because of death, resignation
or otherwise, before the certificate is issued, it may be issued with the same
effect as if the officer had not ceased to be such at the date of its issue.
The provisions of this Section 6.02 shall be subject to any inconsistent or
contrary agreement at the time between the Corporation and any transfer agent
or registrar.

Section 6.03. Transfer. Transfers of shares shall be made on the share
register or transfer books of the Corporation upon surrender of the
certificate therefor, endorsed by the person named in the certificate or by an
attorney lawfully constituted in writing. No transfer shall be made
inconsistent with the provisions of the Uniform Commercial Code, 13 Pa.C.S.
Div. 8, or other provisions of law.

Section 6.04. Record Holder of Shares. The Corporation shall be entitled to
treat the person in whose name any share or shares of the Corporation stand on
the books of the Corporation as the absolute owner thereof, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person.

Section 6.05. Lost, Destroyed or Mutilated Certificates. The holder of any
shares of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the board of
directors may, in its discretion, cause a new certificate or certificates to
be issued to the holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of
the certificate, upon satisfactory proof of the loss or destruction and, if
the board of directors shall so determine, the deposit of a bond in such form
and in such sum, and with such surety or sureties, as the board may direct.

Section 6.06. Restriction on Transfer of Shares.

(a) Initial Underwritten Registration. In the event that the Corporation at
any time prepares and files a registration statement registering shares of
capital stock of the Corporation to be sold to, or otherwise distributed

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by, underwriters under the Securities Act of 1933, as the initial public
offering by the Corporation of such shares, a shareholder shall not sell,
transfer or otherwise dispose of the shares of capital stock of the
Corporation held, directly or indirectly, prior to such initial public
offering, in any public sale or distribution, including a sale pursuant to
Rule 144 (or any successor provision) under the Securities Act of 1933, during
the period of seven days prior to, and 180 days after, the day when the
registration statement has become effective, except as part of the sale to, or
distribution by, the underwriters.

(b) Waiver by Board of Directors. Notwithstanding anything contained in
these bylaws to the contrary, the Board of Directors of the Corporation may
waive any restrictions set forth in this Section 6.06 as it applies to any
shareholder or shareholders at any time or from time to time.

(c) Certificate Legend. All certificates for shares of the Corporation shall
have the following legend printed or stamped thereon:

"The shares represented by this certificate may not be sold, assigned,
transferred, pledged or otherwise disposed of, except in accordance with
the terms and conditions of the bylaws of the corporation."

(d) Status of Bylaws. Notwithstanding any other provision of these bylaws or
of the Business Corporation Law of 1988, the bylaw in this Section 6.06 shall
constitute a contract among the shareholders of the Corporation, and shall not
be amended without their unanimous consent.

ARTICLE VII

INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER
AUTHORIZED REPRESENTATIVES

Section 7.01. Scope of Indemnification.

(a) General Rule. The Corporation shall indemnify an indemnified
representative against any liability incurred in connection with any
proceeding in which the indemnified representative may be involved as a party
or otherwise by reason of the fact that such person is or was serving in an
indemnified capacity, including, without limitation, liabilities resulting
from any actual or alleged breach or neglect of duty, error, misstatement or
misleading statement, negligence, gross negligence or act giving rise to
strict or products liability, except:

(1) where the indemnification is expressly prohibited by applicable law;

(2) where the conduct of the indemnified representative has been finally
determined pursuant to Section 7.06 or otherwise:

(i) to constitute willful misconduct or recklessness within the
meaning of 15 Pa.C.S. (S) 1746(b) or any superseding provision of law
sufficient in the circumstances to bar indemnification against
liabilities arising from the conduct; or

(ii) to be based upon or attributable to the receipt by the
indemnified representative from the Corporation of a personal benefit
to which the indemnified representative is not legally entitled; or

(3) to the extent the indemnification has been finally determined in a
final adjudication pursuant to Section 7.06 to be otherwise unlawful.

(b) Partial Payment. If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the Corporation shall indemnify the
indemnified representative to the maximum extent for such portion of the
liabilities.

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(c) Presumption. The termination of a proceeding by judgment, order,
settlement or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the indemnified representative
is not entitled to indemnification.

(d) Definitions. For the purposes of this Article VII:

(1) "indemnified capacity" means any and all past, present and future
service by an indemnified representative in one or more capacities as a
director, officer, employee or agent of the Corporation, or, at the request
of the Corporation, as a director, officer, employee, agent, fiduciary or
trustee of another corporation, limited liability company, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise;

(2) "indemnified representative" means any and all directors and officers
of the Corporation and any other person designated as an indemnified
representative by the board of directors of the Corporation (which may, but
need not, include any person serving at the request of the corporation, as
a director, officer, employee, agent, fiduciary or trustee of another
corporation, limited liability company, partnership, joint venture, trust,
employee benefit plan or other entity of enterprise);

(3) "liability" means any damage, judgment, amount paid in settlement,
fine, penalty, punitive damages, excise tax assessed with respect to an
employee benefit plan, or cost or expense, of any nature (including,
without limitation, attorneys' fees and disbursements); and

(4) "proceeding" means any threatened, pending or completed action, suit,
appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether
brought by or in the right of the corporation, a class of its security
holders or otherwise.

Section 7.02. Proceedings Initiated by Indemnified
Representatives. Notwithstanding any other provision of this Article VII, the
Corporation shall not indemnify under this Article an indemnified
representative for any liability incurred in a proceeding initiated (which
shall not be deemed to include counterclaims or affirmative defenses) or
participated in as an intervenor or amicus curiae by the person seeking
indemnification unless the initiation of or participation in the proceedings
is authorized, either before or after its commencement, by the affirmative
vote of a majority of the directors in office. This section shall not apply to
reimbursement of expenses incurred in successfully prosecuting or defending an
arbitration under Section 7.06 or otherwise successfully prosecuting or
defending the rights of an indemnified representative granted by or pursuant
to this Article.

Section 7.03. Advancing Expenses. The Corporation shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 7.01 or the initiation of or participation in a
proceeding which is authorized pursuant to Section 7.02 upon receipt of an
undertaking by or on behalf of the indemnified representative to repay the
amount if it is ultimately determined pursuant to Section 7.06 that such
person is not entitled to be indemnified by the Corporation pursuant to this
Article. The financial ability of an indemnified representative to repay an
advance shall not be a prerequisite to the making of the advance.

Section 7.04. Securing of Indemnification Obligations. To further effect,
satisfy or secure the indemnification obligations provided herein or
otherwise, the Corporation may maintain insurance, obtain a letter of credit,
act as selfinsurer, create a reserve, trust, escrow, cash collateral or other
fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the Corporation, or use any
other mechanism or arrangement whatsoever in such amounts, at such costs, and
upon such other terms and conditions as the board of directors shall deem
appropriate. Absent fraud, the determination of the board of directors with
respect to such amounts, costs, terms and conditions shall be conclusive
against all security holders, officers and directors and shall not be subject
to voidability.

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Section 7.05. Payment of Indemnification. An indemnified representative
shall be entitled to indemnification within 30 days after a written request
for indemnification has been delivered to the secretary of the Corporation.

Section 7.06. Arbitration.

(a) General Rule. Any dispute related to the right to indemnification,
contribution or advancement of expenses as provided under this Article, except
with respect to indemnification for liabilities arising under the Securities
Act of 1933 that the Corporation has undertaken to submit to a court for
adjudication, shall be decided only by arbitration in the metropolitan area in
which the principal executive offices of the Corporation are located at the
time, in accordance with the commercial arbitration rules then in effect of
the American Arbitration Association, or any successor to the functions
thereof, before a panel of three arbitrators, one of whom shall be selected by
the Corporation, the second of whom shall be selected by the indemnified
representative and third of whom shall be selected by the other two
arbitrators. In the absence of the American Arbitration Association or such
successor, or if for any reason arbitration under the arbitration rules of the
American Arbitration Association or such successor cannot be initiated, or if
one of the parties fails or refuses to select an arbitrator or if the
arbitrators selected by the corporation and the indemnified representative
cannot agree on the selection of the third arbitrator within 30 days after
such time as the Corporation and the indemnified representative have each been
notified of the selection of the other's arbitrator, the necessary arbitrator
or arbitrators shall be selected by the presiding judge of the court of
general jurisdiction in such metropolitan area.

(b) Burden of Proof. The party or parties challenging the right of an
indemnified representative to the benefits of this Article VII shall have the
burden of proof.

(c) Expenses. The Corporation shall reimburse an indemnified representative
for the expenses (including attorneys' fees and disbursements) incurred in
successfully prosecuting or defending such arbitration.

(d) Effect. Any award entered by the arbitrators shall be final, binding and
nonappealable and judgment may be entered thereon by any party in accordance
with applicable law in any court of competent jurisdiction, except that the
Corporation shall be entitled to interpose as a defense in any such judicial
enforcement proceeding any prior final judicial determination adverse to the
indemnified representative under Section 7.01(a)(2) in a proceeding not
directly involving indemnification under this Article VII. This arbitration
provision shall be specifically enforceable.

Section 7.07. Contribution. If the indemnification provided for in this
Article VII or otherwise is unavailable for any reason in respect of any
liability or portion thereof, the Corporation shall contribute to the
liabilities to which the indemnified representative may be subject in such
proportion as is appropriate to effect the intent of this Article or
otherwise.

Section 7.08. Mandatory Indemnification of Indemnified Representatives. To
the extent that a representative of the Corporation has been successful on the
merits or otherwise in defense of any action or proceeding referred to in 15
Pa.C.S. (S)(S) 1741 or 1742 or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including
attorneys' fees and disbursements) actually and reasonably incurred by such
person in connection therewith.

Section 7.09. Contract Rights; Amendment or Repeal. All rights under this
Article VII shall be deemed a contract between the Corporation and the
indemnified representative pursuant to which the Corporation and each
indemnified representative intend to be legally bound. Any repeal, amendment
or modification hereof shall be prospective only and shall not affect any
rights or obligations then existing.

Section 7.10. Scope of Article. The rights granted by this Article VII shall
not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement, vote of shareholders or disinterested directors or
otherwise both as to action in an

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indemnified capacity and as to action in any other capacity. The
indemnification, contribution and advancement of expenses provided by, or
granted pursuant to, this Article shall continue as to a person who has ceased
to be an indemnified representative in respect of matters arising prior to
such time, and shall inure to the benefit of the heirs and personal
representatives of such a person.

Section 7.11. Reliance on Provisions. Each person who shall act as an
indemnified representative of the Corporation shall be deemed to be doing so
in reliance upon the rights provided by this Article VII.

Section 7.12. Interpretation. The provisions of this Article VII are
intended to constitute bylaws authorized by 15 Pa.C.S. (S) 1746.

ARTICLE VIII

MISCELLANEOUS

Section 8.01. Corporate Seal. The Corporation shall have a corporate seal in
the form of a circle containing the name of the Corporation, the year of
incorporation and such other details as may be approved by the board of
directors.

Section 8.02. Checks. All checks, notes, bills of exchange or other orders
in writing shall be signed by such person or persons as the board of directors
or any person authorized by resolution of the board of directors may from time
to time designate.

Section 8.03. Contracts.

(a) General Rule. Except as otherwise provided in the Business Corporation
Law of 1988 in the case of transactions that require action by the
shareholders, the board of directors may authorize any officer or agent to
enter into any contract or to execute or deliver any instrument on behalf of
the corporation, and such authority may be general or confined to specific
instances.

(b) Statutory Form of Execution of Instruments. Any note, mortgage, evidence
of indebtedness, contract or other document, or any assignment or endorsement
thereof, executed or entered into between the corporation and any other
person, when signed by one or more officers or agents having actual or
apparent authority to sign it, or by the president or vice president and
secretary or assistant secretary or treasurer or assistant treasurer of the
Corporation, shall be held to have been properly executed for and in behalf of
the Corporation, without prejudice to the rights of the Corporation against
any person who shall have executed the instrument in excess of his or her
actual authority.

Section 8.04. Interested Directors or Officers; Quorum.

(a) General Rule. A contract or transaction between the corporation and one
or more of its directors or officers or between the Corporation and another
corporation, limited liability company, partnership, joint venture, trust or
other enterprise in which one or more of its directors or officers are
directors or officers or have a financial or other interest, shall not be void
or voidable solely for that reason, or solely because the director or officer
is present at or participates in the meeting of the board of directors that
authorizes the contract or transaction, or solely because his, her or their
votes are counted for that purpose, if:

(1) the material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the board of
directors and the board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors even though
the disinterested directors are less than a quorum;

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(2) the material facts as to his or her relationship or interest and as
to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon and the contract or transaction is
specifically approved in good faith by vote of those shareholders; or

(3) the contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board of directors or
the shareholders.

(b) Quorum. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board that authorizes a contract or
transaction specified in subsection (a).

Section 8.05. Deposits. All funds of the Corporation shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies
or other depositaries as the board of directors may approve or designate, and
all such funds shall be withdrawn only upon checks signed by such one or more
officers or employees as the board of directors shall from time to time
determine.

Section 8.06. Corporate Records.

(a) Required Records. The Corporation shall keep complete and accurate books
and records of account, minutes of the proceedings of the incorporators,
shareholders and directors and a share register giving the names and addresses
of all shareholders and the number and class of shares held by each. The share
register shall be kept at either the registered office of the Corporation in
the Commonwealth of Pennsylvania or at its principal place of business
wherever situated or at the office of its registrar or transfer agent. Any
books, minutes or other records may be in written form or any other form
capable of being converted into written form within a reasonable time.

(b) Right of Inspection. Every shareholder shall, upon written verified
demand stating the purpose thereof, have a right to examine, in person or by
agent or attorney, during the usual hours for business for any proper purpose,
the share register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors and to make
copies or extracts therefrom. A proper purpose shall mean a purpose reasonably
related to the interest of the person as a shareholder. In every instance
where an attorney or other agent is the person who seeks the right of
inspection, the demand shall be accompanied by a verified power of attorney or
other writing that authorizes the attorney or other agent to so act on behalf
of the shareholder. The demand shall be directed to the corporation at its
registered office in the Commonwealth of Pennsylvania or at its principal
place of business wherever situated.

Section 8.07. Financial Reports. Unless otherwise agreed between the
Corporation and a shareholder, the Corporation shall furnish to its
shareholders annual financial statements, including at least a balance sheet
as of the end of each fiscal year and a statement of income and expenses for
the fiscal year. The financial statement shall be prepared on the basis of
generally accepted accounting principles, if the Corporation prepares
financial statements for the fiscal year on that basis for any purpose, and
may be consolidated statements of the Corporation and one or more of its
subsidiaries. The financial statements shall be mailed by the Corporation to
each of its shareholders entitled thereto within 120 days after the close of
each fiscal year and, after the mailing and upon written request, shall be
mailed by the Corporation to any shareholder or beneficial owner entitled
thereto to whom a copy of the most recent annual financial statements has not
previously been mailed. Statements that are audited or reviewed by a public
accountant shall be accompanied by the report of the accountant; in other
cases, each copy shall be accompanied by a statement of the person in charge
of the financial records of the corporation:

(1) Stating his or her reasonable belief as to whether or not the
financial statements were prepared in accordance with generally accepted
accounting principles and, if not, describing the basis of presentation.

(2) Describing any material respects in which the financial statements
were not prepared on a basis consistent with those prepared for the
previous year.

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This Section 8.07 shall not apply to the Corporation if it shall be required
by the Securities Exchange Act of 1934 or any other law to file financial
statements at least once a year in a public office.

Section 8.08. Amendment of Bylaws. These bylaws may be amended or repealed,
or new bylaws may be adopted, either (i) subject to the provisions of the
articles of the Corporation, by vote of the shareholders entitled to vote at
any duly organized annual or special meeting of shareholders, or (ii) with
respect to those matters that are not by statute committed expressly to the
shareholders, and regardless of whether the shareholders have previously
adopted or approved the bylaw being amended or repealed, by vote of a majority
of the board of directors of the Corporation in office at any regular or
special meeting of directors. Any change in these bylaws shall take effect
when adopted unless otherwise provided in the resolution effecting the change.

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APPENDIX D

SECTION 8.7 OF RESTATED DECLARATION OF TRUST OF
FEDERATED INVESTORS DATED AS OF JULY 28, 1989

SECTION 8.7 APPRAISAL RIGHTS. If there has been a conversion of any Series A
Preferred Share into Class B Common Shares, any holder of Class B Common
Shares (other than any member of the Management Circle (as such term is
defined in the Shareholder Agreement) or any employee of the Trust or any
Subsidiary of the Trust) who has not voted in favor of a merger or
consolidation of the Trust into or with another entity shall have the right to
obtain an appraisal of the fair value of such Shares (exclusive of any element
of value arising from the accomplishment or expectation of such merger or
consolidation) together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value, provided that such right shall
apply only if such holders holding at least 2/3 of the total Class B Common
Shares held by such holders have requested such rights. Such a holder shall be
entitled to receive out of the assets of the Trust, in exchange for such
Shares, the fair value of such Shares determined pursuant to such appraisal.
In determining such fair value and in otherwise implementing this section,
section 262 of the Delaware General Corporation Law shall apply.
Notwithstanding any other provision hereof, no Shareholder shall have
appraisal rights with respect to a reorganization of the Trust into a
corporation permitted pursuant to section 4.2.5 or 4.3.5. [neither section is
applicable]

Excerpts from the Shareholder Rights Agreement between The Standard Fire
Insurance Company, Federated Investors and the other Shareholders dated August
l, 1989, as amended.

Certain Definitions:

Management Circle: "At any date, (a) the Management Group, (b) any relative
(by blood, adoption or marriage) within the third degree of any of the
Management Group, (c) any corporation 90% or more of the stock of which is,
any partnership 90% or more of the interests in which are, or any trust
(including a decedent's estate) 90% or more of the beneficial interests in
which are, held by any of the Persons referred to in clauses (a) and (b), and
(d) any qualified employee benefit plan of the Company."

Management Group: "At any date, (a) the original Managers, and (b) the
Replacement Managers."

Original Managers: The individuals listed in the definitions in the
Shareholder Rights Agreement and in Section A of Schedule l to the Asset
Purchase Agreement who consisted of the members of the Board of Trustees of
Federated Investors at its inception in 1989.

Replacement Manager: "Any executive employee of the Company performing
services for the Company substantially similar to those performed by any one
or more Original Managers . . . ., at any time when such executive employee
is employed by the Company to perform such services."

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SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

262 APPRAISAL RIGHTS.

(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S)228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock
corporation and also a member of record of a nonstock corporation; the words
"stock" and "share" mean and include what is ordinarily meant by those words
and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.

(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:

(1) Provided, however that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.

(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:

a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;

b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;

c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or

d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.

(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.

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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.

(d) Appraisal rights shall be perfected as follows:

(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or

(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given; provided that,
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record

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date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.

(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.

(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.

(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal of their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.

(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determine their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value,
the Court shall take into account all relevant factors. In determining the
fair rate of interest, the Court may consider all relevant factors, including
the rate of interest which the surviving or resulting corporation would have
had to pay to borrow money during the pendency of the proceeding. Upon
application by the surviving or resulting corporation or by any stockholder
entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal prior to the final determination of the stockholder
entitled to an appraisal. Any stockholder whose name appears on the list filed
by the surviving or resulting corporation pursuant to subsection (f) of this
section and who has submitted his certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that he is not entitled to appraisal rights under
this section.

(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as

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the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of holders
of shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.

(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.

(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his rights as provided in subsection (d) of this
section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of his demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.

(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.

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