FEDERATED INVESTORS INC /PA/, 10-K, 1999-03-26

FEDERATED INVESTORS INC /PA/
10-K, 1999-03-26
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _____________ TO _____________

COMMISSION FILE NUMBER 1-14818

FEDERATED INVESTORS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

25-1111467
PENNSYLVANIA
(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

CLASS B COMMON STOCK, NO PAR VALUE NEW YORK STOCK EXCHANGE
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

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

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

The aggregate market value of the Class B Common Stock held by
non-affiliates of the registrant as of March 22, 1999 was approximately
$965,288,000, based on the last reported sales price of $16.375 as reported by
the New York Stock Exchange. For purposes of this calculation, the registrant
has deemed all of its executive officers and directors to be affiliates, but has
made no determination as to whether any other persons are "affiliates" within
the meaning of Rule 12b-2 under the Securities Exchange Act of 1934. The number
of shares of Class B Common Stock outstanding on March 22, 1999 was 85,990,250
shares.

Documents incorporated by reference:

Selected portions of the 1998 Annual Report to Shareholders - Part I,
Part II and Part IV of this Report. Selected portions of the 1999
Information Statement - Part III of this Report.

<PAGE>

PART I

ITEM 1 - BUSINESS

OVERVIEW

Federated Investors, Inc. and its consolidated subsidiaries
(collectively, "Federated") is a leading provider of investment management and
related financial services. Federated sponsors, markets and provides investment
advisory, distribution and administrative services primarily to mutual funds.
Total assets under management at December 31, 1998 were $111.6 billion,
primarily in funds managed, distributed and administered by Federated and in
other non-fund products ("Managed Assets"), of which $2.6 billion were in
separately managed accounts. Managed Assets at December 31, 1998 increased $19.0
billion since December 31, 1997.

Federated provided investment advisory services to 126 funds at December
31, 1998. These funds are offered through banks, broker/dealers and other
financial intermediaries who use them to meet the needs of their customers;
these customers include retail investors, corporations, and retirement plans.
Federated also provides mutual fund administrative services to its managed funds
and to funds sponsored by third parties, where Federated also acts as fund
distributor. Federated provided these services for $28.2 billion of assets in
funds sponsored by third parties, primarily banks, ("Administered Assets") as of
December 31, 1998. In addition, Federated provides other services related to
mutual funds including trade execution and clearing and retirement plan
recordkeeping.

Total Managed Assets for each of the past three years are as follows:

MANAGED ASSETS Growth Rate
(DOLLARS IN MILLIONS) As of December 31, 3 Yr.
1998 1997 1996 CAGR* 1998

Money Market Funds/
<S> <C> <C> <C> <C> <C>
Cash Equivalents $77,055 $63,622 $51,163 24% 21%
Fixed Income Funds 16,437 15,067 14,109 5% 9%
Equity Funds 15,503 11,710 7,594 43% 32%
Separate Accounts 2,558 2,141 1,976 20% 19%

Total Managed Assets $111,553 $92,540 $74,842 22% 21%
</TABLE>

*Compound Annual Growth Rate
<TABLE>
<CAPTION>

Average Managed Assets for the past three years were as follows:
<S> <C> <C> <C> <C>
AVERAGE MANAGED ASSETS Year ended December 31, Growth Rate
(DOLLARS IN MILLIONS) 1998 1997 1996 1998

Money Market Funds/

Cash Equivalent $69,074 $55,636 $44,223 24%
Fixed Income Funds 15,851 14,382 13,935 10%
Equity Funds 13,777 9,690 6,297 42%
Separate Accounts 2,334 1,872 1,683 25%
------------------------------------

Total Average Managed Assets $101,036 $81,580 $66,138 24%
====================================
</TABLE>

<PAGE>

Federated's revenues from investment advisory, related administrative
and other service fees provided under agreements with the funds and other
entities, and other income over the last three years were as follows:

REVENUE

Year ended December 31, Growth Rate

------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996 1998
------------------------------------ ------------

Investment Advisory Fees $277,331 $218,868 $179,221 27%
Administrative Service 97,234 85,429 72,923 14%
Fees

Other Service Fees 124,599 88,163 60,331 41%
Other Income 22,963 11,259 9,318 104%
------------------------------------

TOTAL REVENUE $522,127 $403,719 $321,793 29%
====================================

BUSINESS STRATEGY

Federated pursues a multi-faceted business strategy having three broad
objectives:

-To be widely recognized as a world class investment management
company that offers highly competitive performance and disciplined risk
management across a broad spectrum of products.

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

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

Federated offers a wide range of products, including money market, fixed
income and equity investments designed to meet the needs of investors with
varying investment objectives. Federated has structured its investment process
to meet the requirements of fiduciaries and others who use Federated's products
to meet the needs of their customers. Fiduciaries typically have stringent
demands related to portfolio composition, risk and investment performance.

Historically, Federated's mix of Managed Assets has been dominated by
money market and other fixed income assets. More recently, in response to market
demand and to diversify its managed assets, Federated has emphasized growth of
its equity fund business and has broadened its range of equity products. In
1998, equity fund assets under management increased from $11.7 billion to $15.5
billion, an increase of $3.8 billion, or 32%. Equity assets are managed across a
wide range of styles including value ($6.0 billion), equity income ($4.5
billion), growth ($1.5 billion), and international ($950 million) investments.
Federated also manages assets in equity index funds ($2.4 billion) and asset
allocation funds ($1.0 billion). These asset allocation funds may include fixed
income assets.

Federated uses a team of portfolio managers led by a senior portfolio
manager for each fund. Federated's investment research process combines
disciplined quantitative screening along with rigorous fundamental analysis to
identify attractive securities. Portfolios are continually reevaluated with
respect to valuation, price and earnings estimate momentum, company
fundamentals, market factors, economic conditions and risk controls in order to
achieve specific investment objectives.

Federated's fixed income assets are managed in a wide range of sectors
including mortgage-backed ($5.4 billion), high yield ($4.4 billion), tax-free
($2.2 billion), corporate ($2.2 billion), government ($2.2 billion),
multi-sector ($1.4 billion) and international ($287 million). Federated's fixed
income funds offer fiduciaries and others a broad range of highly defined
products designed to meet many of their investment needs and requirements. Many
of these fixed income funds are constrained by narrowly defined effective
average maturity or duration bands within specific yield curves. These funds are
limited to investments in specific areas such as municipal,
government/government agency, corporate/asset-backed or mortgage-backed
securities.

In other funds, debt securities from various areas are combined to form
mixed category funds. In general, these funds are also constrained by an
effective average maturity or duration range applied to the portfolio. Through
these funds, Federated offers products that provide the benefit of
diversification across fixed income areas while maintaining the average
maturities and duration ranges that are particularly important to fiduciaries.

Federated is one of the largest U.S. managers of money market fund
assets, with $77.1 billion in assets under management at December 31, 1998.
Federated has developed expertise in managing cash for institutions, which
typically have stringent requirements for regulatory compliance, relative
safety, liquidity and competitive yields. Federated has managed money market
funds for over twenty years and created the first institutional money market
fund in 1976. Federated also manages retail money market fund products which are
typically distributed through broker/dealers. Federated manages money market
fund assets in a variety of asset classes including government ($41.6 billion),
prime ($22.8 billion), and tax-free ($12.6 billion).

Federated's distribution strategy is to provide products geared to
financial intermediaries, primarily banks, broker/dealers and investment
advisers, and directly to institutions such as corporations and government
entities. Through substantial investments in distribution over more than 20
years, Federated has developed selling relationships with more than 3,500
institutions and sells its products directly to another 500 corporations and
government entities. Federated uses its large trained sales force of more than
190 representatives and managers across the United States to add new customer
relationships and strengthen and expand existing relationships.

INVESTMENT PRODUCTS AND MARKETS

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

MANAGED ASSETS BY MARKET Growth Rate
(DOLLARS IN MILLIONS) As of December 31, 3 Yr.
1998 1997 1996 CAGR* 1998
<S> <C> <C> <C> <C> <C>
Bank Trust Market $58,891 $49,662 $40,123 22% 19%
Broker/Dealer Market 35,232 28,256 22,098 21% 25%
Institutional Market 13,993 11,343 9,750 33% 23%
Other Markets 3,437 3,279 2,871 1% 5%

Total Managed Assets $111,553 $92,540 $74,842 22% 21%

</TABLE>

*Compound Annual Growth Rate

BANK TRUST MARKET. Federated pioneered the concept of providing cash
management to bank trust departments through mutual funds over twenty years ago.
In addition, Federated initiated a strategy to provide a broad range of equity
and fixed-income funds, termed MultiTrust(TM), to meet the evolving needs of
bank trust departments. Federated's bank trust customers invest the assets
subject to their control, or upon direction from their customers, in one or more
funds managed by Federated. Federated employs a dedicated sales force backed by
a staff of support personnel to offer its products and services in the bank
trust market.

Money market funds contain the majority of Federated's Managed Assets in
the bank trust market. In allocating investments across various asset classes,
investors typically maintain a portion of their portfolios in cash or cash
equivalents, including money market funds, irrespective of trends in bond or
stock prices. Federated also offers an extensive menu of equity and fixed income
mutual funds structured for use in the bank trust market. As of December 31,
1998, Managed Assets in the bank trust market were comprised of $49.2 billion in
money market funds and cash equivalents, $5.1 billion in fixed income funds and
$4.6 billion in equity funds.

BROKER/DEALER MARKET. Federated distributes its products in this market
through a large diversified group of approximately 2,000 national, regional,
independent, and bank broker/dealers. Federated maintains a sales staff
dedicated to this market, with a separate group focused on the bank
broker/dealers. These sales representatives develop and maintain relationships
with both the management and registered representatives of the broker/dealer.
Broker/dealers use Federated's products to meet the needs of their customers,
who are typically retail investors. Federated offers products with a variety of
commission structures that enable brokers to offer their customers a choice of
pricing options. Federated also offers money market mutual funds as cash
management products designed for use in the broker/dealer market. As of December
31, 1998, Managed Assets in the broker/dealer market were comprised of $18.8
billion in money market funds, $8.8 billion in equity funds, and $7.6 billion in
fixed income funds.

INSTITUTIONAL MARKET. Federated maintains a dedicated sales staff to
focus on the distribution of its products to a wide variety of users: investment
advisors, corporations, corporate and public pension funds, insurance companies,
government entities, foundations, endowments, hospitals, and non-Federated
investment companies. As of December 31, 1998, Managed Assets in the
institutional market were comprised of $8.2 billion in money market funds, $2.2
billion in fixed income funds, $1.2 billion in equity funds and $2.4 billion in
separate accounts.

Federated also seeks to supplement its growth by selectively pursuing
acquisition and alliance opportunities. Through one such alliance, Federated is
taking steps to broaden distribution to areas outside of the U.S. On November
24, 1998, Federated announced the signing of a shareholders agreement with
LVM-Versicherungen, a large German insurance company, to create a joint venture
company to be named Federated Asset Management GmbH ("Federated GmbH"), which
will exclusively manage, distribute and market a family of mutual funds to
insurance clients of LVM, as well as pursuing institutional separate accounts.

Federated has also completed three acquisitions between November, 1996
and May, 1997, which together resulted in an increase of approximately $4.8
billion in Managed Assets. Federated will seek to identify additional
acquisitions and alliances that will enhance shareholder value by adding assets,
complementary investment management expertise or distribution capabilities.

Federated's principal source of revenue is investment advisory fees
earned by various subsidiaries and affiliates pursuant to investment advisory
contracts with the funds. These subsidiaries and affiliates are registered as
investment advisers under the Investment Advisers Act of 1940 (the "Advisers
Act"). Investment advisers are compensated for their services in the form of
investment advisory fees based upon the average daily net assets of the fund.

Federated provided investment advisory services to 126 funds as of
December 31, 1998. The funds sponsored by Federated are domiciled in the U.S.,
with the exception of Federated International Funds PLC which is domiciled in
Dublin, Ireland. Each of Federated's U.S.-domiciled funds (with the exception of
a collective investment trust) is registered under the Investment Company Act of
1940 ("Investment Company Act") and under applicable federal and state laws.
Each of the funds enters into an advisory agreement. The advisory agreements are
subject to annual approval by the fund directors or trustees, including a
majority of the directors who are not "interested persons" of the funds or
Federated as defined under the Investment Company Act. Advisory agreements are
subject to periodic review by the directors or trustees of the respective funds
and amendments to such agreements must be approved by the fund shareholders. A
significant portion of Federated's revenue is derived from these advisory
agreements which generally are terminable upon 60 days notice.

Of these 126 funds, Federated's investment advisory subsidiaries managed
52 money market funds (and cash equivalents) totaling $77.1 billion in assets,
41 fixed income funds with $16.4 billion in assets and 33 equity funds with
$15.5 billion in assets. Appendix "A" hereto lists all of these funds, including
asset levels and date of inception.

Federated also serves as investment advisor to pension and other
employee benefit plans, corporations, trusts, foundations, endowments, mutual
funds sponsored by third parties, and other investors. These separate accounts
totaled $2.6 billion in assets under management as of December 31, 1998. Fees
for separate accounts are typically based on the value of assets under
management pursuant to investment advisory agreements that may be terminated at
any time.

Federated also provides a broad range of services to support the
operation, administration, and distribution of Federated-sponsored funds. These
services, for which Federated receives fees pursuant to administrative
agreements with the funds, include legal support and regulatory compliance,
audit, fund financial services, transfer agency services, and shareholder
servicing and support. Federated also offers these services to institutions
seeking to outsource all or part of their mutual fund service and distribution
functions. Through various subsidiaries, Federated provides its experience and
expertise in these areas to expand its relationships with key financial
intermediaries, primarily banks, who sponsor proprietary mutual funds. Federated
receives fees from these bank-sponsored funds for providing fund services.

The following chart shows period-end and average Administered Assets
since 1996:

ADMINISTERED ASSETS As of and for the year ended

December 31, % Change

(DOLLARS IN MILLIONS) 1998 1997 1996 1998
Period End Administered Assets $28,165 $46,999 $35,574 -40%
Average Administered Assets 53,136 42,965 26,197 24%

The decrease in year-end 1998 Administered Assets was due primarily to
the termination of certain administration contracts due to internalization of
these functions by banks who developed the ability to provide mutual fund
services through acquisitions. These customers collectively accounted for less
than 2% of 1998 total revenue.

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

Federated also provides retirement plan recordkeeping services and trade
execution and settlement services through its various subsidiaries.

COMPETITION

The mutual fund industry is highly competitive. According to the
Investment Company Institute, at the end of 1998, there were over 7,300
registered open-end investment companies, of varying sizes and investment
policies, whose shares are currently being offered to the public both on a load
and no-load basis. In addition to competition from other mutual fund managers
and investment advisers, Federated and the mutual fund industry compete with
investment alternatives offered by insurance companies, commercial banks,
broker/dealers and other financial institutions.

Competition for sales of mutual fund shares is influenced by various
factors, including investment performance in terms of attaining the stated
objectives of the particular funds and in terms of fund yields and total
returns; advertising and sales promotional efforts; and type and quality of
services.

Changes in the mix of customers for mutual fund distribution and
administrative services are expected to continue. Competition for fund
administration services is extremely high. In addition to competing with other
service providers, banks sponsoring mutual funds may choose to internalize
certain service functions. Consolidation within the banking industry also
impacts the fund administration business as merging bank funds typically choose
a single fund administration provider. Due to the relatively lower revenues,
changes in the amount of Administered Assets generally have less impact on
Federated's results of operations than changes in the amount of Managed Assets.

<PAGE>

REGULATORY MATTERS

Substantially all aspects of Federated's business are subject to federal
and state regulation which, depending upon the nature of any non-compliance,
could result in the suspension or revocation of licenses or registration,
including broker/dealer licenses and registrations and transfer agent
registrations, as well as the imposition of civil fines and penalties and in
certain limited circumstances prohibition from acting as an adviser to
registered investment companies. Federated's advisory companies are registered
with the Securities Exchange Commission (the "Commission") under the Advisers
Act and with certain states. All of the mutual funds managed, distributed, and
administered by Federated are registered with the Commission under the
Investment Company Act. Certain wholly owned subsidiaries of Federated are
registered as broker-dealers with the Commission under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and with various states and are
members of the National Association of Securities Dealers (the "NASD"). Their
activities are regulated by the Commission, the NASD, and the various states in
which they are registered. These subsidiaries are required to meet capital
requirements established by the Commission pursuant to the Exchange Act. Two
other subsidiaries are registered with the Commission as transfer agents.
Federated Investors Trust Company is regulated by the State of New Jersey.
Federated believes that it and its subsidiaries are in substantial compliance
with all applicable laws and regulations. Amendments to current laws and
regulations or newly-promulgated laws and regulations governing Federated's
operations could have a material adverse impact on Federated.

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

EMPLOYEES

At December 31, 1998, Federated employed 1,891 persons. Federated
considers its relationships with its employees to be satisfactory.

FORWARD-LOOKING INFORMATION

THIS ANNUAL REPORT ON FORM 10-K AND THE 1998 ANNUAL REPORT TO
SHAREHOLDERS CONTAIN CERTAIN "FORWARD- LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS INVOLVE
CERTAIN UNKNOWN RISKS AND UNCERTAINTIES, INCLUDING, AMONG OTHERS THOSE DISCUSSED
UNDER THE CAPTION "RISK FACTORS AND CAUTIONARY STATEMENTS" BELOW, THAT COULD
CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, OR ACHIEVEMENTS OF
FEDERATED, OR INDUSTRY RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR IMPLIED
BY SUCH FORWARD LOOKING STATEMENTS. FEDERATED CAUTIONS READERS NOT TO PLACE
UNDUE RELIANCE ON ANY SUCH FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF
THE DATE MADE, AND SHOULD BE READ IN CONJUNCTION WITH THE RISK DISCLOSURE BELOW.
FEDERATED WILL NOT UNDERTAKE AND SPECIFICALLY DECLINES ANY OBLIGATION TO RELEASE
PUBLICLY THE RESULT OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS
OR REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS. AS A RESULT OF
THE FOREGOING, AND OTHER FACTORS, NO ASSURANCE CAN BE GIVEN AS TO FUTURE
RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, OR ACHIEVEMENTS OF FEDERATED, AND
NEITHER FEDERATED NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY
OR COMPLETENESS OF SUCH STATEMENTS.

RISK FACTORS AND CAUTIONARY STATEMENTS

POTENTIAL ADVERSE EFFECTS OF INCREASED COMPETITION IN THE INVESTMENT
MANAGEMENT BUSINESS. The investment management business is highly competitive.
Federated competes in the distribution of mutual funds with other independent
fund management companies, national and regional broker/dealers, commercial
banks, insurance companies, and other institutions. Many of these competitors
have substantially greater resources and brand recognition than Federated.
Competition is based on various factors, including business reputation; the
investment performance of funds managed or administered by Federated; quality of
service; the strength and continuity of management and selling relationships;
marketing and distribution services offered; the range of products offered; and
fees charged. See "Business--Competition."

Many of Federated's fund products are designed for use by institutions
such as banks, insurance companies and other corporations. A large portion of
Federated's Managed Assets, particularly money market and fixed income Managed
Assets, are held by institutional investors. Because most institutional mutual
funds are sold without sales commissions at either the time of purchase or the
time of redemption, institutional investors may be more inclined to move their
assets among various institutional funds than investors in retail mutual funds.
Of Federated's 126 managed funds, 91 are sold without sales commission.
Institutions are sensitive to fund investment performance, consistent adherence
to investment objectives, quality of service and pricing. Federated believes
that competitive pressures in the institutional fund market are increasing as a
result of (i) the entry of well known managers from the retail investment
industry and of low-fee investment managers, (ii) mergers and consolidation
occurring in the banking industry, (iii) increased offering of proprietary funds
by institutional investors such as banks, and (iv) regulatory changes affecting
banks and other financial service firms.

A significant portion of Federated's revenue is derived from providing
mutual funds to its bank trust market, comprising over 1,400 banks and other
financial institutions. Future profitability of Federated will be affected by
its ability to retain its share of this market, and could also be adversely
affected by the general consolidation which is occurring in the banking industry
as well as by proposed legislation and regulatory changes. In addition, bank
consolidation trends could not only cause changes in Federated's customer mix,
but could also affect the scope of services provided and fees received by
Federated, depending upon the degree to which banks internalize administrative
functions attendant to proprietary mutual funds.

POTENTIAL ADVERSE EFFECTS OF A DECLINE IN SECURITIES MARKETS. Changes in
economic or market conditions may adversely affect the profitability and
performance of and demand for Federated's investment products and services. The
ability of Federated to compete and grow is dependent, in part, on the relative
attractiveness of the types of investment products Federated offers and its
investment philosophies and market strategies under prevailing market
conditions. A significant portion of Federated's revenue is derived from
investment advisory fees, which are based on the value of Managed Assets and
vary with the type of asset being managed, with higher fees, for example,
generally earned on equity and fixed income funds than on money market funds.
Consequently, significant fluctuations in the prices of securities held by, or
the level of redemptions from, the funds advised by Federated may affect
materially the amount of Managed Assets and thus Federated's revenue,
profitability and ability to grow. Substantially all of Federated's Managed
Assets are in open end funds, which permit investors to redeem their investment
at any time.

POTENTIAL ADVERSE AFFECTS ON MONEY MARKET FUNDS RESULTING FROM INCREASES
IN INTEREST RATES. Approximately 35% of Federated's revenue in 1998 was from
managed money market funds. Assets in these funds are largely from institutional
investors. In a period of rapidly rising interest rates, institutional investors
may redeem shares in money market funds to invest directly in market issues
offering higher yields. These redemptions would reduce Managed Assets, thereby
reducing Federated's advisory fee revenue. Federated has been actively
diversifying its products to expand its Managed Assets in equity mutual funds
which may be less sensitive to interest rate increases. There can be no
assurance that Federated will continue to be successful in these diversification
efforts.

ADVERSE EFFECTS OF POOR FUND PERFORMANCE. Success in the investment
management and mutual fund business is largely dependent on the funds'
investment performance relative to market conditions and performance of
competing funds. Good performance generally stimulates sales of the funds'
shares and tends to keep redemptions low. Sales of funds generate higher
revenues (which are largely based on assets of the funds). Good performance also
attracts private institutional accounts to Federated. Conversely, relatively
poor performance tends to result in decreased sales, increased redemptions of
the funds' shares, and the loss of private institutional accounts, with
corresponding decreases in revenues to Federated. Failure of the funds to
perform well could, therefore, have a material adverse effect on Federated.

ADVERSE EFFECTS OF TERMINATION OR FAILURE TO RENEW FUND AGREEMENTS ON
FEDERATED'S REVENUES AND PROFITABILITY. A substantial majority of Federated's
revenues are derived from investment management agreements with the funds that,
as required by law, are terminable on 60 days' notice. In addition, each such
investment management agreement must be approved and renewed annually by each
fund's board, including disinterested members of the board, or its shareholders,
as required by law. Generally, Federated's administrative servicing agreements
with bank proprietary fund customers have an initial term of three years with a
provision for automatic renewal unless notice is otherwise given and provide for
termination for cause. Failure to renew or termination of a significant number
of these agreement could have a material adverse impact on Federated. In
addition, as required by the Investment Company Act, each investment advisory
agreement with a mutual fund automatically terminates upon its "assignment,"
although new investment advisory agreements may be approved by the mutual fund's
directors or trustees and shareholders. A sale of a sufficient number of shares
of Federated's voting securities to transfer control of Federated could be
deemed an "assignment" in certain circumstances. An assignment, actual or
constructive, will trigger these termination provisions and may adversely affect
Federated's ability to realize the value of these assets.

POTENTIAL ADVERSE EFFECTS OF CHANGES IN LAW AND REGULATIONS ON
FEDERATED'S INVESTMENT MANAGEMENT BUSINESS. Federated's investment management
business is subject to extensive regulation in the United States primarily at
the Federal level, including regulations by the Commission particularly, under
the Investment Company Act and the Advisers Act as well as the rules of the NASD
and all states. Federated is also affected by the regulations governing banks
and other financial institutions. Changes in laws or regulations or in
governmental policies could materially and adversely affect the business and
operations of Federated.

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

YEAR 2000 RISKS. Federated utilizes software and related technologies
throughout its businesses including both proprietary systems as well as those
provided by outside vendors. As the century date change occurs, certain
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause systems to
process critical financial and operational information incorrectly. Federated's
assessment of internal systems is complete and Federated has also substantially
completed the renovation and unit testing of individual programs. In addition,
Federated and the funds have relationships with third parties that have computer
systems that may not be year 2000 compliant. Based on management's
identification of resource requirements for both plan implementation and overall
project management, it is anticipated that the year 2000 costs will be
approximately $10 million for internal systems but do not reflect the impact of
the failure of outside vendors to become year 2000 compliant. Accordingly, there
can be no assurance that potential system interruptions or the cost necessary to
update software would not have a material adverse effect on Federated's
business, financial condition, results of operations or business prospects.

ITEM 2 - PROPERTIES

Federated's facilities are concentrated in Pittsburgh, Pennsylvania
where it leases space sufficient to meet its operating needs. Federated's
headquarters is located in the Federated Investors Tower, where Federated
occupies approximately 345,000 square feet. Federated leases approximately
100,000 square feet at the Pittsburgh Office and Research Park and an aggregate
of 60,000 square feet at other locations in Pittsburgh. Federated maintains
office space for a portion of its servicing business in Rockland, Massachusetts;
in Dublin, Ireland, where administrative offices for offshore funds are
maintained; in New York, New York, where Federated Global Investment Management
Corp. conducts its business; and in Gibbsboro, New Jersey, where Federated
Investors Trust Company is located. Additional offices in Naples, Florida and
Wilmington, Delaware are subleased by Federated.

ITEM 3 - LEGAL PROCEEDINGS

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

<PAGE>

ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

<PAGE>

PART II

ITEM 5 - MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCK HOLDER MATTERS

The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Notes to
Consolidated Financial Statements" and is incorporated herein by reference.

ITEM 6 - SELECTED FINANCIAL DATA

The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the caption "Selected Consolidated Financial
Data" and is incorporated herein by reference.

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8 - FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

The information required by this Item is contained in Federated's 1998
Annual Report to Shareholders under the captions "Report of Ernst & Young LLP,
Independent Auditors," "Consolidated Balance Sheets," "Consolidated Statements
of Income," "Consolidated Statements of Changes in Shareholders' Equity,"
"Consolidated Statements of Cash Flows," and "Notes to Consolidated Financial
Statements" and is incorporated herein by reference.

ITEM 9 - CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

<PAGE>

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information required by this Item (other than the information set
forth below) will be contained in Federated's Information Statement for its 1998
Annual Meeting of Shareholders under the captions "Board of Directors and
Election of Directors" and "Security Ownership - Section 16(a) Beneficial
Ownership Reporting Compliance," and is incorporated herein by reference.

EXECUTIVE OFFICERS

The following table sets forth certain information regarding the
executive officers of Federated as of March 22, 1999:

NAME POSITION AGE

John F. Donahue Chairman and Director 74
J. Christopher Donahue President, Chief Executive Officer and Director 49
Arthur L. Cherry President, Federated Services Company and Director 45
William D. Dawson III Executive Vice President and Chief Investment Officer - 50

Domestic Fixed Income of Federated Advisory Companies*

Thomas R. Donahue Vice President, Treasurer, Chief Financial Officer and 40
Director
John B. Fisher President -- Institutional Sales Division of Federated 42
Securities
Corp. and Director

Richard B. Fisher Executive Vice President 75
Henry A. Frantzen Executive Vice President and Chief Investment Officer - 56
Global

Equity and Fixed Income of Federated Advisory Companies*

James F. Getz President -- Retail Sales Division of Federated 52
Securities Corp.
and Director

J. Thomas Madden Executive Vice President and Chief Investment Officer - 51
Domestic Equity, High Yield and Asset Allocation of
Federated
Advisory Companies*

Eugene F. Maloney Executive Vice President, Federated Investors 54
Management
Company and Director

John W. McGonigle Executive Vice President, Chief Legal Officer, 60
Secretary and Director

</TABLE>

*Federated Advisory Companies include the following subsidiaries of Federated:
Federated Advisers, Federated Global Investment Management Corp., Passport
Research Limited, Federated Management, Federated Investment Counseling,
Federated Research and Federated Research Corp.

Mr. John F. Donahue was a founder of the predecessor of Federated and was
Chairman and Chief Executive Officer of Federated and a trustee of Federated
Investors, a Delaware business trust (the "Trust"), prior to the May 1998 merger
of the Trust into Federated, its wholly-owned subsidiary (the "Merger"). Mr.
Donahue has continued to serve as Chairman following the consummation of the
Merger. He served as President from 1989 until 1993. Mr. Donahue is Chairman or
President and a director or trustee of the investment companies managed by
subsidiaries of Federated. Mr. Donahue was a member of the Board of Directors of
Aetna Life and Casualty Company until April 1995. Mr. Donahue is the father of
J. Christopher Donahue and Thomas R. Donahue, each of whom serves as an
executive officer and director of Federated.

Mr. J. Christopher Donahue was a trustee of the Trust from 1989 until the
consummation of the Merger and has been a director of Federated since the
consummation of the Merger. He served as President and Chief Operating Officer
from 1993 until April 1998, when he became President and Chief Executive
Officer. Prior to 1993, he served as Vice President. He is President or
Executive Vice President of the investment companies managed by subsidiaries of
Federated and a director, trustee or managing general partner of some of the
investment companies. Mr. Donahue is the son of John F. Donahue and the brother
of Thomas R. Donahue.

Mr. Arthur L. Cherry was a trustee of the Trust from 1997 until the
Merger and has been a director of Federated since the consummation of the
Merger. He is the President of Federated Services Company, a wholly-owned
subsidiary of Federated. Prior to joining Federated in January 1997, he was a
managing partner of AT&T Solutions and former president of Scudder Services
Corporation. He also served as a managing director of Scudder, Stevens and Clark
from 1984 to 1994. In addition, Mr. Cherry has worked in various capacities with
The Boston Company, Boston Financial Data Services and EDS Consulting.

Mr. William D. Dawson III serves as Executive Vice President and Chief
Investment Officer - Domestic Fixed Income of Federated Advisory Companies. He
has served as a portfolio manager and held various other positions in the
advisory companies. He is responsible for the investment policy and management
of domestic fixed income funds. Mr. Dawson is a Chartered Financial Analyst.

Mr. Thomas R. Donahue was a trustee of the Trust from 1995 until the
consummation of the Merger and has been a director of Federated since the
consummation of the Merger. He has been Vice President since 1993 and currently
serves as Vice President, Treasurer and Chief Financial Officer. Prior to
joining Federated, Mr. Donahue was in the venture capital business, and from
1983 to 1987 was employed by PNC Bank in its Investment Banking Division. Mr.
Donahue is the son of John F. Donahue and the brother of J. Christopher Donahue.

Mr. John B. Fisher has been a director of Federated since the consummation
of the Merger. He is President-Institutional Sales Division of Federated
Securities Corp., a wholly-owned subsidiary of Federated, and is responsible for
the distribution of Federated's products and services to investment advisors,
insurance companies, retirement plans and corporations. Mr. Fisher is the son of
Richard B. Fisher, Executive Vice President of Federated.

Mr. Richard B. Fisher was a founder of the predecessor of Federated and was
a trustee of the Trust. He currently serves as Executive Vice President and is
primarily responsible for developing and marketing fund products in the
broker/dealer market and for distributing some of the investment companies
managed by Federated. Mr. Fisher is President or Vice President of most of the
investment companies and a director or trustee of most of the investment
companies. Mr. Fisher is the father of John B. Fisher, an officer of Federated.

Mr. Henry A. Frantzen serves as Executive Vice President and Chief
Investment Officer - Global Equity and Fixed Income of Federated Advisory
Companies. Mr. Frantzen is primarily responsible for the management of global
equity and fixed income funds. Prior to joining Federated, Mr. Frantzen was
Managing Director of International Equities for Brown Brothers Harriman
Investment Management Ltd. and Manager and International Equity Chief Investment
Officer for Brown Brothers Harriman and Co. from 1992 to 1995. Prior thereto Mr.
Frantzen served in executive capacities for various investment management
companies, including Oppenheimer Management Corp., Yamaichi Capital Management
and CREF.

Mr. James F. Getz has been a director of Federated since the consummation
of the Merger. He serves as President - Retail Sales Division of Federated
Securities Corp., a wholly-owned subsidiary of Federated, and is responsible for
the marketing and sales efforts in the trust and broker/dealer markets. Mr. Getz
is a Chartered Financial Analyst.

Mr. J. Thomas Madden serves as Executive Vice President and Chief
Investment Officer - Domestic Equity, High Yield and Asset Allocation of
Federated Advisory Companies. Mr. Madden oversees the portfolio management in
the domestic equity, high yield and asset allocation areas. Mr. Madden is a
Chartered Financial Analyst.

Mr. Eugene F. Maloney was a trustee of the Trust from 1989 until the
consummation of the Merger and has continued as a director of Federated since
the consummation of the Merger. He serves as the Executive Vice President of
Federated Investors Management Company, a wholly-owned subsidiary of Federated,
and provides certain legal, technical and management expertise to Federated's
sales divisions, including regulatory and legal requirements relating to a
bank's use of mutual funds in both trust and commercial environments. Mr.
Maloney is an adjunct Professor of Law at Boston University School of Law.

Mr. John W. McGonigle was a trustee of the Trust from 1989 until the
consummation of the Merger and has been a director since the consummation of the
Merger. Mr. McGonigle has served as Secretary of Federated since 1989. He served
as Vice President of Federated from 1989 until August 1995, when he became
Executive Vice President. Mr. McGonigle acted as General Counsel until 1998 when
he became the Chief Legal Officer. Mr. McGonigle is Executive Vice President and
Secretary of the investment companies managed by subsidiaries of Federated.

ITEM 11 - EXECUTIVE COMPENSATION

The information required by this Item is contained in Federated's
Information Statement for the 1999 Annual Meeting of Shareholders under the
captions "Board of Directors and Election of Directors" and "Executive
Compensation" and is incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is contained in Federated's
Information Statement for the 1999 Annual Meeting of Shareholders under the
caption "Security Ownership" and is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

<PAGE>

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)(1) FINANCIAL STATEMENTS:

(A)(2) FINANCIAL STATEMENT SCHEDULES:

Schedules for which provision is made in the applicable accounting
regulations of the United States Securities and Exchange Commission have been
omitted because such schedules are not required under the related instructions
or are inapplicable or because the information required is included in the
Consolidated Financial Statements or notes thereto.

(A)(3) EXHIBITS:

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

Exhibit

NUMBER DESCRIPTION

2.01 Agreement and Plan of Merger, dated as of February 20, 1998,
between Federated Investors and Federated (incorporated by
reference to Exhibit 2.01 to the Registration Statement on Form
S-1 (File No. 333-48405))

3.01 Restated Articles of Incorporation of Federated (incorporated by
reference to Exhibit 3.01 to the Registration Statement on Form
S-1 (File No. 333-48405))

3.02 Restated By-Laws of Federated (incorporated by reference to
Exhibit 3.02 to the Registration Statement on Form S-1
(File No. 333-48405))

4.01 Form of Class A Common Stock certificate (incorporated by
reference to Exhibit 4.01 to the Registration Statement on Form
S-1 (File No. 333-48405))

4.02 Form of Class B Common Stock certificate (incorporated by
reference to Exhibit 4.02 to the Registration Statement on
Form S-1 (File No. 333-48405))

4.03 Stock Purchase Agreement, dated August 1, 1989, between Federated
and Westinghouse Credit Corporation (incorporated by reference to
Exhibit 4.04 to the Registration Statement on Form S-1 (File No.
333-48405))

4.04 Intercompany Subordination Agreement, dated as of June 15, 1996,
by and among Federated Investors and its subsidiaries
(incorporated by reference to Exhibit 4.05 to the Registration
Statement on Form S-1 (File No. 333-48405))

4.05 Shareholder Rights Agreement, dated August 1, 1989, between
Federated and The Standard Fire Insurance Company, as amended
January 31, 1996 (incorporated by reference to Exhibit 4.06 to
the Registration Statement on Form S-1 (File No.

333-48405))

4.06 Senior Secured Credit Agreement, dated as of January 31, 1996, by
and among Federated and the Banks set forth therein and PNC Bank,
National Association (incorporated by reference to Exhibit 4.07
to the Registration Statement on Form S-1 (File No. 333-48405))

<PAGE>

9.01 Voting Shares Irrevocable Trust dated May 31, 1989 (incorporated
by reference to Exhibit 9.01 to the Registration Statement on
Form S-1 (File No. 333-48405))

10.01 Amendment No. 4 to Credit Agreement, dated as of May 11, 1998, by
and among Federated Investors, Inc., the banks set forth therein
and PNC Bank, National Association. (incorporated by reference to
Exhibit 10.1 of the June 30, 1998 Quarterly Report on Form 10-Q
(File No. 001-14818))

10.02 Amendment No. 5 to Credit Agreement, dated as of May 11, 1998,
by and among Federated Investors, Inc., the banks set forth
therein and PNC Bank, National Association. (incorporated by
reference to Exhibit 10.2 of the June 30, 1998
Quarterly Report on Form 10-Q (File No. 001-14818))

10.03 Amendment No. 6 to Credit Agreement, dated as of
December 3, 1998, by and among Federated Investors, Inc., the
banks set forth therein and PNC Bank, National Association
(Filed herewith)

10.04 Federated Note Purchase Agreement, dated as of June 15, 1996
(incorporated by reference to Exhibit 4.08 to the Registration
Statement on Form S-1 (File No.

333-48405))

10.05 Federated Program Master Agreement, dated as of October 24, 1997,
among Federated, Federated Funding 1997-1, Inc., Federated
Management Company, Federated Securities Corp., Wilmington Trust
Company, PLT Finance, L.P., Putnam, Lovell & Thornton Inc. and
Bankers Trust Company (incorporated by reference to Exhibit 4.09
to the Registration Statement on Form S-1 (File No. 333-48405))

10.06 Federated Investors, Inc. Employee Stock Purchase Plan,
effective as of July 1, 1998 (incorporated by reference to
Exhibit 10.3 to the June 30, 1998 Quarterly Report on Form 10-Q
(File No. 001-14818))

10.07 Federated Investors Program Initial Purchase Agreement, dated as
of October 24, 1997, between Federated Funding 1997-1, Inc. and
Wilmington Trust Company, solely as Trustee of the PLT Finance
Trust 1997-1 (incorporated by reference to Exhibit 4.10 to the
Registration Statement on Form S-1 (File No. 333-48405))

10.08 Federated Investors Program Revolving Purchase Agreement, dated
as of October 24, 1997, between Federated Funding 1997-1, Inc.
and PLT Finance, L.P. (incorporated by reference to Exhibit 4.11
to the Registration Statement on Form S-1 (File No. 333-48405))

10.09 Federated Investors Program Fee Agreement, dated as October 24,
1997, between Federated Investors and PLT Finance, L.P.
(incorporated by reference to Exhibit 4.12 to the Registration
Statement on Form S-1 (File No. 333-48405))

10.10 Schedule X to Federated Program Master Agreement, dated as of
October 24, 1997, among Federated, Federated Funding 1997-1,
Inc., Federated Investors Management Company, Federated
Securities Corp., Wilmington Trust Company, PLT Finance, L.P.,
Putnam, Lovell & Thornton Inc. and Bankers Trust Company
(incorporated by reference to Exhibit 4.13 to the Registration
Statement on Form S-1 (File No.

333-48405))

10.11 Stock Incentive Plan, as amended as of August 26, 1998
(incorporated by reference to Exhibit 10 to the September 30,
1998 Quarterly Report on Form 10-Q (File No. 001-14818))

10.12 Executive Annual Incentive Plan (incorporated by reference to
Exhibit 10.02 to the Registration Statement on Form S-1
(File No. 333-48405))

<PAGE>

10.13 Form of Bonus Stock Option Agreement (Filed herewith)

10.14 Federated Investors Tower Lease dated January 1, 1993
(incorporated by reference to Exhibit 10.03 to the Registration
Statement on Form S-1 (File No. 333-48405))

10.15 Federated Investors Tower Lease dated February 1, 1994
(incorporated by reference to Exhibit 10.04 to the Registration
Statement on Form S-1 (File No.

333-48405))

10.16 Centre City Tower Lease dated July 23, 1992, as amended
(incorporated by reference to Exhibit 10.05 to the Registration
Statement on Form S-1 (File No.

333-48405))

10.17 Employment Agreement, dated January 16, 1997, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.06 to the Registration Statement on Form S-1 (File No.
333-48405))

10.18 Employment Agreement, dated December 28, 1990, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.08 to the Registration Statement on Form S-1 (File No.
333-48405))

10.19 Employment Agreement, dated December 22, 1993, between Federated
Securities Corp. and an executive officer (incorporated by
reference to Exhibit 10.09 to the Registration Statement on
Form S-1 (File No. 333-48405))

10.20 Employment Agreement, dated March 17, 1995, between Federated
Investors and an executive officer (incorporated by reference to
Exhibit 10.07 to the Registration Statement on Form S-1 (File No.
333-48405))

13.01 Selected Portions of 1998 Annual Report to Shareholders
(Filed herewith)

21.01 Subsidiaries of the Registrant (Filed herewith)

23.01 Consent of Ernst & Young LLP (Filed herewith)

27.01 Financial Data Schedule (Filed herewith)

(B) REPORTS ON FORM 8-K:

No current reports on Form 8-K were filed for the quarter ended
December 31, 1998.

See (a)(3) above.

(D) FINANCIAL STATEMENT SCHEDULES:

See (a)(2) above.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.

FEDERATED INVESTORS, INC.
By: /S/ J. CHRISTOPHER DONAHUE
J. Christopher Donahue
President and Chief Executive Officer

Date: March 26, 1999

Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John F. Donahue Chairman and Director March 26, 1999
- -----------------------------
John F. Donahue

/s/ J. Christopher Donahue President, Chief Executive Officer March 26, 1999

- -----------------------------
J. Christopher Donahue and Director (Principal Executive
Officer)

/s/ John W. McGonigle Director March 26, 1999
- -----------------------------
John W. McGonigle

/s/ Arthur L. Cherry Director March 26, 1999
- -----------------------------
Arthur L. Cherry

/s/ James F. Getz Director March 26, 1999
- -----------------------------
James F. Getz

/s/ John B. Fisher Director March 26, 1999
- -----------------------------
John B. Fisher

<PAGE>

SIGNATURE TITLE DATE

/s/ Thomas R. Donahue Chief Financial Officer and March 26, 1999
Director
- -----------------------------
Thomas R. Donahue (Principal Accounting and
Financial Officer)

/s/ Eugene F. Maloney Director March 26, 1999
- -----------------------------
Eugene F. Maloney

/s/ Michael J. Farrell Director March 26, 1999
- -----------------------------
Michael J. Farrell

/s/ James L. Murdy Director March 26, 1999
- -----------------------------
James L. Murdy

</TABLE>

<PAGE>

EXHIBIT INDEX

Exhibit

NUMBER DESCRIPTION

10.03 Amendment No. 6 to Credit Agreement, dated as of
December 3, 1998, by and among Federated Investors, Inc., the
banks set forth therein and PNC Bank, National Association

10.13 Form of Bonus Stock Option Agreement

13.01 Selected Portions of 1998 Annual Report to Shareholders

23.01 Consent of Ernst & Young LLP

21.01 Subsidiaries of the Registrant

27.01 Financial Data Schedule

<PAGE>

APPENDIX A
FEDERATED FUNDS
<TABLE>
<CAPTION>

Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE

<S> <C> <C> <C> <C> <C>
EQUITY FUNDS:

FEDERATED AGGRESSIVE 3 Equity Fund - Growth $38,349,125 Y 11/18/1996
GROWTH FUND
FEDERATED AMERICAN 4 Equity Fund - Growth and 3,470,848,033 Y 2/26/1969
LEADERS FUND INC. Income
FEDERATED AMERICAN 1 Equity Fund - Growth and 418,135,276 N 12/15/1993
LEADERS FUND II Income
FEDERATED ASIA PACIFIC 3 International/Global 11,747,428 Y 1/31/1996
GROWTH FUND

FEDERATED CAPITAL 3 Equity Fund - Growth 245,918,002 Y 11/14/1995
APPRECIATION FUND

FEDERATED EMERGING 1 International/Global 3,974,850 N 9/22/1997
MARKETS COMMINGLED

TRUST

FEDERATED EMERGING 3 International/Global 45,742,086 Y 1/31/1996
MARKETS FUND

FEDERATED EQUITY 4 Equity 2,470,603,863 Y 12/30/1986
INCOME FUND INC.
FEDERATED EQUITY 1 Equity 57,579,616 N 12/16/1996
INCOME FUND II

FEDERATED EUROPEAN 3 International/Global 60,345,414 Y 1/31/1996
GROWTH FUND

FEDERATED GLOBAL 3 International/Global 20,109,186 Y 3/8/1998
EQUITY INCOME FUND

FEDERATED GLOBAL 3 International/Global 7,285,517 Y 8/24/1998
FINANCIAL SERVICES FUND

FEDERATED GROWTH 3 Equity Fund - Growth 719,236,572 Y 8/23/1984
STRATEGIES FUND

FEDERATED GROWTH 1 Equity Fund - Growth 62,801,259 N 9/30/1995
STRATEGIES FUND II

FEDERATED 1 International Equity Fund 18,176,400 N 3/21/1997
INTERNATIONAL EQUITY
COMMINGLED TRUST

FEDERATED 3 International Equity Fund 245,729,083 Y 8/17/1984
INTERNATIONAL EQUITY
FUND

FEDERATED 1 International Equity Fund 52,313,331 N 4/4/1995
INTERNATIONAL EQUITY
FUND II

FEDERATED 3 International/Global 0 * Y 6/30/1997
INTERNATIONAL GROWTH

FUND

FEDERATED 3 International/Global 404,149,702 Y 1/31/1996
INTERNATIONAL SMALL
COMPANY FUND

FEDERATED LARGE CAP 3 Equity Fund - Growth 4,084,878 Y 12/23/1998
GROWTH FUND

FEDERATED LATIN 3 International/Global 9,708,922 Y 1/31/1996
AMERICAN GROWTH FUND

FEDERATED MANAGED 2 Asset Allocation Fund 153,997,511 N 3/11/1994
AGGRESSIVE GROWTH FUND

FEDERATED MANAGED 2 Asset Allocation Fund 242,609,359 N 3/11/1994
GROWTH AND INCOME FUND

FEDERATED MANAGED 2 Asset Allocation Fund 265,595,596 N 3/11/1994
GROWTH FUND

FEDERATED MAX-CAP FUND 3 Equity Fund - Growth and 2,178,129,058 N 7/2/1990
Income/Index

FEDERATED MID-CAP FUND 1 Equity Fund - Growth and 95,436,584 N 7/7/1992
Income/Index

FEDERATED MINI-CAP FUND 2 Equity Fund - Growth and 133,611,653 N 7/7/1992
Income/Index

<PAGE>

Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE

FEDERATED SMALL CAP 3 Equity Fund - Growth 439,286,610 Y 9/13/1995
STRATEGIES FUND

FEDERATED STOCK AND 3 Balanced 242,195,636 N 10/31/1984
BOND FUND INC.
FEDERATED STOCK TRUST 1 Equity Fund - Growth and 1,531,791,196 N 3/31/1982
Income

FEDERATED UTILITY 4 Equity Fund - Domestic 1,621,363,503 Y 5/29/1987
FUND INC. Utility
FEDERATED UTILITY FUND 1 Equity Fund - Domestic 161,900,615 N 12/15/1993
II Utility
FEDERATED WORLD 4 International Equity Fund 70,591,085 Y 4/12/1994
UTILITY FUND

------------------
TOTAL EQUITY FUNDS $15,503,346,949

------------------
FIXED INCOME FUNDS:

CAPITAL PRESERVATION 1 Short-Term Corporate Bond $513,997,303 N 8/1/1988
FUND Fund - High Grade
FEDERATED ADJUSTABLE 1 Government Bond Fund 142,885,196 Y 3/2/1992
RATE U.S. GOVERNMENT
FUND INC

FEDERATED ARMS FUND 2 Adjustable Rate 432,438,701 N 12/3/1985
Mortgage-Backed Fund

FEDERATED BOND FUND 4 Long Corporate Bond Fund - 1,051,686,836 Y 6/27/1995
High Grade
FEDERATED CALIFORNIA 2 Municipal Bond Fund 48,839,123 Y 11/24/1992
MUNICIPAL INCOME FUND

FEDERATED FUND FOR 3 Mortgage Backed Fund 1,256,356,541 Y 10/6/1969
U.S. GOVERNMENT
SECURITIES INC

FEDERATED FUND FOR 1 Mortgage Backed Fund 111,116,583 N 12/15/1993
U.S. GOVERNMENT
SECURITIES II

FEDERATED GNMA TRUST 2 Mortgage Backed Fund 1,059,202,049 N 3/23/1982
FEDERATED GOVERNMENT 4 Mortgage Backed Fund 1,496,828,017 Y 8/2/1996
INCOME SECURITIES INC.

FEDERATED HIGH INCOME 1 High Yield Fund 82,361,177 Y 9/20/1993
ADVANTAGE FUND

FEDERATED HIGH INCOME 3 High Yield Fund 2,111,426,313 Y 11/30/1977
BOND FUND INC.
FEDERATED HIGH INCOME 1 High Yield Fund 210,659,839 N 12/15/1993
BOND FUND II

FEDERATED HIGH YIELD 1 High Yield Fund 1,095,107,374 N 8/23/1984
TRUST

FEDERATED INCOME TRUST 2 Mortgage Backed Fund 748,866,726 N 3/30/1982
FEDERATED 1 Government Bond Fund 138,254,493 N 9/13/1994
INSTITUTIONAL

SHORT-DURATION GOVT
FUND

FEDERATED INTERMEDIATE 2 General Investment Grade 214,298,740 N 12/8/1993
INCOME FUND

FEDERATED INTERMEDIATE 1 Municipal Bond Fund 237,388,712 N 12/26/1985
MUNICIPAL TRUST

FEDERATED 3 International Bond Fund 93,282,813 Y 9/9/1996
INTERNATIONAL HIGH
INCOME FUND

FEDERATED 3 International Bond Fund 157,053,708 Y 5/15/1991
INTERNATIONAL INCOME
FUND

FEDERATED LIMITED 2 Mortgage Backed Fund 42,364,174 N 9/16/1996
DURATION FUND

FEDERATED LIMITED TERM 2 Short-Term Corporate Bond 119,772,486 Y 12/24/1991
FUND Fund - High Grade
FEDERATED LIMITED TERM 2 Municipal Bond Fund 89,107,198 Y 8/31/1993
MUNICIPAL FUND

FEDERATED MANAGED 2 Asset Allocation Fund 127,201,737 N 3/11/1994
INCOME FUND

<PAGE>

Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE

FEDERATED MICHIGAN 1 Municipal Bond Fund 80,419,987 Y 9/9/1991
INTERMEDIATE MUNICIPAL

TRUST

FEDERATED MORTGAGE FUND 2 US Government Int. Muni. Bond 5,427,018 N 6/30/1998
FEDERATED MUNICIPAL 4 Municipal Bond Fund 485,464,618 Y 5/3/1996
OPPORTUNITIES FUND

INC.

FEDERATED MUNICIPAL 3 Municipal Bond Fund 680,014,549 N 10/4/1976
SECURITIES FUND INC.
FEDERATED NEW YORK 1 Municipal Bond Fund 25,872,652 Y 11/24/1992
MUNICIPAL INCOME FUND

FEDERATED OHIO 1 Municipal Bond Fund 83,338,048 Y 10/10/1990
MUNICIPAL INCOME FUND

FEDERATED PENNSYLVANIA 2 Municipal Bond Fund 275,778,712 Y 10/10/1990
MUNICIPAL INCOME FUND

FEDERATED SHORT-TERM 2 Short-Term Corporate Bond 207,163,830 N 7/1/1986
INCOME FUND Fund - High Grade
FEDERATED SHORT-TERM 2 Municipal Bond Fund 210,654,632 N 8/20/1981
MUNICIPAL TRUST

FEDERATED STRATEGIC 4 Balanced 954,335,532 Y 4/5/1994
INCOME FUND

FEDERATED TOTAL RETURN 2 Mortgage Backed Fund 122,228,633 N 1/19/1994
BOND FUND

FEDERATED 1 Mortgage Backed Fund 123,910,378 N 12/2/1985
U.S.GOVERNMENT BOND

FUND

FEDERATED ULTRASHORT 1 US Government ST 7,715,615 N 10/27/1998
BOND FUND

FEDERATED US 2 Government Bond Fund 648,386,984 N 3/15/1984
GOVERNMENT SECURITIES
FUND: 1-3 YEARS

FEDERATED US 2 Government Bond Fund 773,872,367 N 2/18/1983
GOVERNMENT SECURITIES
FUND: 2-5 YEARS

FEDERATED US 2 Government Bond Fund 103,424,454 N 9/13/1995
GOVERNMENT SECURITIES
FUND: 5-10 YRS

HIGHLANDER INCOME FUND 1 High Yield Fund 29,422,985 N 6/30/1994
INC. (co-advised)
LIBERTY TERM TRUST 1 Mortgage Backed Fund 39,539,920 N 3/27/1992
INC. - 1999

------------------
TOTAL FIXED INCOME $16,437,466,753
FUNDS

------------------
------------------
TOTAL NON-MONEY MARKET $31,940,813,702
FUNDS

------------------
MONEY MARKET FUNDS:

ALABAMA MUNICIPAL CASH 1 Municipal Money Market $177,568,427 N 12/1/1993
TRUST

ARIZONA MUNICIPAL CASH 1 Municipal Money Market 30,938,927 N 5/30/1998
TRUST

AUTOMATED CASH 2 Prime Money Market Fund 2,340,177,446 N 9/19/1996
MANAGEMENT TRUST

AUTOMATED GOVERNMENT 1 Government Money Market Fund 957,114,935 N 2/2/1990
CASH RESERVES

AUTOMATED GOVERNMENT 1 Government Money Market Fund 2,386,331,956 N 6/1/1982
MONEY TRUST

AUTOMATED TREASURY 1 Government Money Market Fund 286,090,750 N 8/5/1991
CASH RESERVES

CALIFORNIA MUNICIPAL 2 Municipal Money Market 401,044,273 N 2/29/1996
CASH TRUST

CONNECTICUT MUNICIPAL 1 Municipal Money Market 359,308,898 N 11/1/1989
CASH TRUST

<PAGE>

Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE

EDWARD D. JONES DAILY 1 Government Money Market Fund 7,067,968,429 N 5/9/1980
PASSPORT CASH TRUST

FEDERATED MASTER TRUST 1 Prime Money Market Fund 453,717,058 N 12/16/1977
FEDERATED PRIME MONEY 1 Prime Money Market Fund 101,889,493 N 12/15/1993
FUND II

FEDERATED SHORT-TERM 1 Government Money Market Fund 350,002,552 N 4/16/1987
U.S. GOVERNMENT TRUST
FEDERATED SHORT-TERM 1 Government Money Market Fund 588,846,899 N 9/20/1993
U.S. PRIME FUND

FEDERATED SHORT-TERM 3 Government Money Market Fund 1,124,775,514 N 1/18/1991
U.S.GOVT SECURITIES

FUND

FEDERATED SHORT-TERM 1 Government Money Market Fund 479,320,338 N 4/16/1992
U.S.TREASURY

SECURITIES FUND

FEDERATED TAX-FREE 1 Municipal Money Market 547,741,616 N 3/6/1979
TRUST

FLORIDA MUNICIPAL CASH 2 Municipal Money Market 804,195,214 N 11/16/1995
TRUST

GEORGIA MUNICIPAL CASH 1 Municipal Money Market 199,640,381 N 8/14/1995
TRUST

GOVERNMENT CASH SERIES 1 Government Money Market Fund 624,520,124 N 8/15/1989
GOVERNMENT OBLIGATIONS 2 Government Money Market Fund 5,817,681,530 N 12/11/1989
FUND

GOVERNMENT OBLIGATIONS 2 Government Money Market Fund 2,640,242,696 N 5/7/1995
TAX MANAGED FUND

LIBERTY U.S. 2 Government Money Market Fund 659,712,126 N 6/6/1980
GOVERNMENT MONEY
MARKET TRUST

LIQUID CASH TRUST 1 Government Money Market Fund 515,704,425 N 12/12/1980
MARYLAND MUNICIPAL 1 Municipal Money Market 73,107,018 N 5/4/1994
CASH TRUST

MASSACHUSETTS 2 Municipal Money Market 455,019,617 N 2/22/1993
MUNICIPAL CASH TRUST

MICHIGAN MUNICIPAL 2 Municipal Money Market 223,375,568 N 2/29/1996
CASH TRUST

MINNESOTA MUNICIPAL 2 Municipal Money Market 547,261,640 N 12/31/1990
CASH TRUST

MONEY MARKET 1 Prime Money Market Fund 83,474,933 N 2/25/1993
MANAGEMENT INC.
MONEY MARKET TRUST 1 Prime Money Market Fund 450,295,952 N 10/13/1978
MUNICIPAL CASH SERIES 1 Municipal Money Market 650,002,580 N 8/15/1989
MUNICIPAL CASH SERIES 1 Municipal Money Market 253,076,037 N 1/25/1991
II

MUNICIPAL OBLIGATIONS 3 Municipal Money Market 338,897,497 N 2/5/1993
FUND

NEW JERSEY MUNICIPAL 2 Municipal Money Market 183,236,724 N 12/10/1990
CASH TRUST

NEW YORK MUNICIPAL 2 Municipal Money Market 576,123,986 N 5/30/1994
CASH TRUST

NORTH CAROLINA 1 Municipal Money Market 202,746,572 N 12/1/1993
MUNICIPAL CASH TRUST

OHIO MUNICIPAL CASH 3 Municipal Money Market 588,942,030 N 3/26/1991
TRUST

PENNSYLVANIA MUNICIPAL 3 Municipal Money Market 494,300,480 N 12/21/1990
CASH TRUST

PRIME CASH OBLIGATIONS 3 Prime Money Market Fund 2,687,321,928 N 2/5/1993
FUND

PRIME CASH SERIES 1 Prime Money Market Fund 4,234,075,226 N 8/15/1989
PRIME OBLIGATIONS FUND 2 Prime Money Market Fund 9,947,252,170 N 7/5/1994
PRIME VALUE 3 Prime Money Market Fund 1,923,000,510 N 2/5/1993
OBLIGATIONS FUND

TAX-FREE INSTRUMENTS 2 Municipal Money Market 1,915,324,538 N 12/21/1982
TRUST

<PAGE>

Number of Assets
Share as of December 31,
Classes 1998
FUND NAME 12/31/98 FUND CATEGORY LOAD FUND
EFFECTIVE DATE

TAX-FREE OBLIGATIONS 2 Municipal Money Market 3,178,726,939 N 12/11/1989
FUND

TENNESSEE MUNICIPAL 2 Municipal Money Market 71,937,172 N 5/14/1996
CASH TRUST

TREASURY CASH SERIES 1 Government Money Market Fund 974,884,838 N 2/5/1990
TREASURY CASH SERIES II 1 Government Money Market Fund 196,300,140 N 1/25/1991
TREASURY OBLIGATIONS 3 Government Money Market Fund 11,912,327,008 N 4/14/1997
FUND

TRUST FOR GOVERNMENT 1 Government Money Market Fund 648,126,453 N 3/30/1989
CASH RESERVES

TRUST FOR SHORT-TERM 1 Government Money Market Fund 607,142,146 N 12/29/1975
U.S. GOVERNMENT
SECURITIES

TRUST FOR U.S. 1 Government Money Market Fund 1,697,813,635 N 11/8/1979
TREASURY OBLIGATIONS

U.S. TREASURY CASH 2 Government Money Market Fund 2,568,258,718 N 5/14/1991
RESERVES

VIRGINIA MUNICIPAL 2 Municipal Money Market 263,582,806 N 8/30/1993
CASH TRUST

------------------
TOTAL MONEY MARKET $76,860,468,868
FUNDS

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

----------- ------------------
MANAGED FUND TOTAL 244 $108,801,282,570
----------- ------------------

Other Managed Assets $2,752,643,881

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

==================
TOTAL MANAGED ASSETS $111,553,926,451

==================
</TABLE>

Summary:
Total Number of Load

Funds: 35
Total Number of
No-Load Funds: 91
Total Number of
Funds: 126

* "fund-of-funds"
product which invests
principally in shares
of other Federated
managed funds

Exhibit 10.03

AMENDMENT NO. 6 TO CREDIT AGREEMENT

THIS AMENDMENT NO. 6 TO CREDIT AGREEMENT ("AMENDMENT NO. 6") is dated as
of December 3, 1998, and is by and among FEDERATED INVESTORS, INC., a
Pennsylvania corporation (the "BORROWER"), the BANKS set forth therein
(collectively, the "BANKS"), and PNC BANK, NATIONAL ASSOCIATION, as agent for
the Banks (the "AGENT").

WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Senior Secured Credit Agreement dated as of January 31, 1996, as amended
by Amendment No. 1 to Credit Agreement dated as of June 27, 1996, Amendment No.
2 to Credit Agreement dated as of December 13, 1996 and Amendment No. 3 to
Credit Agreement dated as of October 1, 1997, Amendment No. 4 to Credit
Agreement dated as of May 11, 1998 and Amendment No. 5 to Credit Agreement dated
as of July 17, 1998 (the "CREDIT AGREEMENT");

WHEREAS, capitalized terms used herein and not otherwise defined herein
shall have the same meanings given to them in the Credit Agreement; and

WHEREAS, the Borrower, the Banks and the Agent wish to amend the Credit
Agreement as set forth herein.

NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto, intending to be legally bound, agree as
follows:

1. DEFINITIONS.

Defined terms used herein unless otherwise defined herein shall
have the meanings ascribed to them in the Credit Agreement as amended by this
Amendment.

2. AMENDMENT OF CREDIT AGREEMENT.

(a) The definition of Certain Fixed Charges in Section 1.1 of the Credit
Agreement [Certain Definitions] is hereby amended by inserting the following
immediately before the end of the definition:

"plus (iii) all stock repurchase payments made pursuant to Section
8.2(i)(iv)."

(b) Section 8.2(i)(ii) of the Credit Agreement [Dividends and Related
Distributions] is hereby amended by inserting immediately before the beginning
of such clause the following:

"in addition to repurchases of Unpledged Shares permitted pursuant to
Section 8.2(i)(iv) below,"

(c) Section 8.2 (i)(iv) of the Credit Agreement [Dividends and Related
Distributions] is hereby amended by deleting such section in its entirety and
inserting the following in lieu thereof:

"(iv) during the Borrower's fiscal year 1998 and
thereafter, so long as (A) no Event of Default or Potential Default has occurred
and is continuing,

and (B) the Borrower is in compliance with Section 8.2(a), in the case of both
clauses (A) and (B) after giving effect to any such dividend or stock repurchase
payment, the Borrower may (1) make dividend payments with respect to the Common
Shares and in an amount not to exceed, and (2) in addition to repurchases of
Unpledged Shares permitted pursuant to Section 8.2(i)(ii) above, repurchase
Unpledged Shares for an amount not to exceed, in any fiscal year on a cumulative
basis for clauses (1) and (2), $20,000,000 plus 50% of any net income (or minus
100% of any net loss) of the Borrower and its Subsidiaries from January 1, 1998
through the date of payment."

(d) Section 3(B)(ii) of Exhibit L [Form of Compliance Certificate] to the Credit
Agreement is hereby deleted in its entirety and the following is inserted in
lieu thereof:

"(ii) for any period of determination after fiscal year 1996

(a) (1) scheduled principal payments on Indebtedness of the $_____
Borrower

(2) dividend payments on the Common Shares actually paid in $_____
cash

(3) stock repurchase payments pursuant to Section 8.2(i)(iv) $_____

(b) Sum of Items (1), (2) and (3) $____"

3. CONDITIONS OF EFFECTIVENESS OF AMENDMENT OF CREDIT AGREEMENT. The
effectiveness of the amendment of the Credit Agreement is expressly conditioned
upon satisfaction of each of the following conditions precedent on the date
hereof:

(a) REPRESENTATIONS AND WARRANTIES; NO DEFAULTS. The representations and
warranties of the Borrower contained in Article VI of the Credit Agreement shall
be true and accurate on the date thereof with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and the Borrower shall have
performed and complied with all covenants and conditions under the Senior Loan
Documents and hereof; and no Event of Default or Potential Default under the
Credit Agreement and the other Senior Loan Documents shall have occurred and be
continuing or shall exist.

(b) AUTHORIZATION AND INCUMBENCY. There shall be delivered to the Agent for the
benefit of each Bank a certificate, dated as of the date hereof, and signed by
the Secretary or an Assistant Secretary of the Borrower, certifying as
appropriate as to:

(i) all action taken by the Borrower in connection with this Amendment and the
other Loan Documents; and

(ii) the names of the officer or officers
authorized to sign this Amendment and the
other documents executed and delivered in
connection herewith and described in this
Section 3 and the true signatures of such
officer or officers and, in the case of the
Borrower, specifying the Authorized Officers
permitted to act on behalf of the Borrower
for purposes of the Loan Documents and the
true signatures of such officers, on which
the Agent and each Bank may conclusively
rely.

(c) ACKNOWLEDGMENT. Each of the Loan Parties, other than the Borrower,
shall have executed the Confirmation in the form attached hereto
as EXHIBIT 1 hereto.

(d) LEGAL DETAILS; COUNTERPARTS. All legal details and proceedings in connection
with the transactions contemplated by this Amendment shall be in form and
substance satisfactory to the Agent, the Agent shall have received from the
Borrower and the Required Banks an executed original of this Amendment and the
Agent shall have received all such other counterpart originals or certified or
other copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agent.

4. FEES AND EXPENSES. The Borrower hereby agrees to reimburse the Agent and the
Banks on demand for all legal costs, expenses and disbursements relating to this
Amendment No. 6 which are payable by the Borrower as provided in Sections 10.5
and 11.3 of the Credit Agreement.

5. FORCE AND EFFECT. Except as expressly modified by this Amendment, the Credit
Agreement and the other Loan Documents are hereby ratified and confirmed and
shall remain in full force and effect after the date hereof.

6. GOVERNING LAW. This Amendment shall be deemed to be a contract under the laws
of the Commonwealth of Pennsylvania and for all purposes shall be governed by
and construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.

[SIGNATURE PAGES FOLLOW]

SIGNATURE PAGE 1 OF 2 TO AMENDMENT NO. 6 TO CREDIT AGREEMENT

IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Amendment No. 6 as of the date first above
written.

FEDERATED INVESTORS, INC.

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

PNC BANK, NATIONAL ASSOCIATION
individually and as Agent

By: [signature illegible]
Title: Vice President

BANK OF AMERICA NT&SA

By: /s/ John G. Hayes
Title: Vice President

STATE STREET BANK AND TRUST COMPANY

By: /s/ David V. Cox
Title: Vice President

MORGAN GUARANTY TRUST COMPANY
OF NEW YORK

By:
Title:

COMMERZBANK AKTIENGESELLSCHAFT
NEW YORK BRANCH

By: /s/ William M. Earley; /s/ Edward J. McDonnell III
Title: Vice President; Vice President

SIGNATURE PAGE 2 OF 2 TO AMENDMENT NO. 6 TO CREDIT AGREEMENT

THE BANK OF NEW YORK

By: [signature illegible]
Title: Assistant Vice President

THE BANK OF NOVA SCOTIA

By: /s/ F.C.H. Ashby
Title: Senior Manager Loan Operations

FIRST UNION NATIONAL BANK

By: [signature illegible]
Title: [title illegible]

NATIONSBANK, N.A.

By: [signature illegible]
Title: Senior Vice President

NATIONAL CITY BANK OF PENNSYLVANIA

By: [signature illegible]
Title: Assistant Vice President

STAR BANK, N.A.

By: [signature illegible]
Title: Vice President

THE CHASE MANHATTAN BANK

By: /s/ Gail Wein
Title: Vice President

CONFIRMATION

Reference is hereby made to that certain Senior Secured Credit Agreement
by and between FEDERATED INVESTORS, INC. (successor by merger to Federated
Investors), the BANKS set forth therein and PNC BANK, NATIONAL ASSOCIATION, as
Agent for the Banks dated as of January 31, 1996, as amended (the "CREDIT
AGREEMENT"). All terms used herein unless otherwise defined herein shall have
the meanings given to them in the Credit Agreement.

On the date hereof, the Borrower, the Banks and the Agent are entering
into that certain Amendment No. 6 to Credit Agreement (the "AMENDMENT"), a copy
of which has been provided to the undersigned. This Confirmation is delivered to
the Bank pursuant to Section 3(c) of the Amendment.

Pursuant to the Credit Agreement, on the Closing Date (i) the Borrower,
the Pledging Subsidiaries and the holders of the Class A Shares entered into
that certain Pledge Agreement in favor of the Agent for the benefit of the Banks
(the "PLEDGE AGREEMENT"), (ii) the Grantors entered into that certain Security
Agreement in favor of the Agent for the benefit of the Banks (the "SECURITY
AGREEMENT") and (iii) the Borrower and its Subsidiaries entered into that
certain Intercompany and Subordination Agreement in favor of the Agent for the
benefit of the Banks (the "INTERCOMPANY SUBORDINATION AGREEMENT"). This
Confirmation will confirm to the Agent and the Banks that the undersigned
Pledging Subsidiaries, holders of the Class A Shares, Grantors and Subsidiaries
of the Borrower have read and understand the Amendment which amends Section
8.2(i)(iv) of the Credit Agreement [Dividends and Related Distributions] as set
forth therein.

The Pledging Subsidiaries and the holders of the Class A Shares hereby
ratify and confirm the Pledge Agreement. The Grantors hereby ratify and confirm
the Security Agreement. The Subsidiaries of the Borrower hereby ratify and
confirm the Intercompany Subordination Agreement.

[SIGNATURE PAGES FOLLOW]

[SIGNATURE PAGE 1 OF 5 OF CONFIRMATION]

IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned,
by their duly authorized officers, have executed this Confirmation as of
November ___, 1998.

ADVANCED INFORMATION SERVICES

By: /s/ James G. Wallace
Title: James G. Wallace, Vice President

EDGEWOOD SERVICES, INC.

By: /s/ Lawrence Caracciolo
Title: Lawrence Caracciolo, President

FEDERATED ADMINISTRATIVE SERVICES

By: /s/ Arthur L. Cherry
Title: Arthur L. Cherry, President

FEDERATED ADMINISTRATIVE SERVICES, INC.

By: /s/ Arthur L. Cherry
Title: Arthur L. Cherry, President

FEDERATED ADVISERS

By: /s/ J. Christopher Donahue
Title: J. Christopher Donahue, President

[SIGNATURE PAGE 2 OF 5 OF CONFIRMATION]

FEDERATED INVESTORS TRUST CO.

By: /s/ James F. Getz
Title: James F. Getz, President

FEDERATED FINANCIAL SERVICES, INC.

By: /s/ John W. McGonigle
Title: John W. McGonigle, President

FEDERATED GLOBAL RESEARCH CORP.

By: /s/ J. Christopher Donahue
Title: J. Christopher Donahue, President

FEDERATED INTERNATIONAL MANAGEMENT LIMITED

By: /s/ J. Crilley Kelley
Title: J. Crilley Kelley, Company Secretary

FEDERATED INVESTMENT COUNSELING

By: /s/ John B. Fisher
Title: John B. Fisher, President

FEDERATED INVESTORS BUILDING CORP.

By: /s/ John W. McGonigle
Title: John W. McGonigle, President

[SIGNATURE PAGE 3 OF 5 OF CONFIRMATION]

FEDERATED INVESTORS INSURANCE, INC.

By: /s/ John W. McGonigle
Title: John W. McGongile, President

FEDERATED INVESTORS MANAGEMENT COMPANY

By: /s/ John W. McGonigle
Title: John W. McGonigle, President

FEDERATED MANAGEMENT

By: /s/ J. Christopher Donahue
Title: J. Christopher Donahue, President

FEDERATED RESEARCH

By: /s/ J. Christopher Donahue
Title: J. Christopher Donahue, President

FEDERATED RESEARCH CORP.

By: /s/ J. Christopher Donahue
Title: J. Christopher Donahue, President

FEDERATED SECURITIES CORP.

By: /s/ James F. Getz
Title: James F. Getz, President - Broker/Dealer

[SIGNATURE PAGE 4 OF 5 OF CONFIRMATION]

FEDERATED SERVICES COMPANY

By: /s/ Arthur L. Cherry
Title: Arthur L. Cherry, President

FEDERATED SHAREHOLDER SERVICES

By: /s/ John W. McGonigle
Title: John W. McGonigle, President

FEDERATED SHAREHOLDER SERVICES COMPANY

By: /s/ Arthur L. Cherry
Title: Arthur L. Cherry, President

FFSI INSURANCE AGENCY, INC.

By: /s/ John W. McGonigle
Title: John W. McGonigle, President

FII HOLDINGS, INC.

By: /s/ John W. McGonigle
Title: John W. McGonigle, President

PASSPORT RESEARCH, LTD.

By: /s/ J. Christopher Donahue
Title: J. Christopher Donahue, President

[SIGNATURE PAGE 5 OF 5 OF CONFIRMATION]

RETIREMENT PLAN SERVICE COMPANY OF AMERICA

By: /s/ Arthur L. Cherry
Title: Arthur L. Cherry, Chairman

THE VOTING SHARES IRREVOCABLE TRUST

By: /S/ J. CHRISTOPHER DONAHUE
J. Christopher Donahue, Trustee

By: /S/ JOHN F. DONAHUE
John F. Donahue, Trustee

By: /S/ RHODORA J. DONAHUE
Rhodora J. Donahue, Trustee

Exhibit 10.13

FEDERATED INVESTORS, INC.

Stock Incentive Plan

1998 BONUS STOCK OPTION AGREEMENT

THIS AGREEMENT, made this 26th day of January, 1999 by and
between Federated Investors, Inc., its successors and assigns (hereinafter
called the "Company"), a Pennsylvania corporation having its principal place of
business in Pittsburgh, Pennsylvania

________________, an employee of the Company (hereinafter called "Participant").
Capitalized terms used in this Agreement shall, unless specifically defined
herein, have the respective meanings given to such terms in the Federated
Investors Stock Incentive Plan, as adopted as of February 20, 1998 and as the
same may be amended from time to time (the "Stock Incentive Plan").

WITNESSETH THAT:

WHEREAS, in order to provide incentives to its employees, the
Company has adopted the Stock Incentive Plan under which, among other things,
grants of options to purchase Class B Common Stock of the Company, no par value
("Common Stock"), can be made to key employees; and

WHEREAS, the Company desires to have Participant enter into or
continue in its employ and to provide Participant with an incentive to put forth
maximum effort for the success of the business;

WHEREAS, Participant has elected to receive a portion of his 1998 bonus in
the form of stock options; and

WHEREAS, subject to the terms and conditions hereinafter set
forth, the Company has granted stock options to Participant.

NOW, THEREFORE, in consideration of the mutual covenants and
representations herein contained, and intending to be legally bound, the parties
hereto agree as follows:

ARTICLE I

DEFINITIONS

As used herein:

1.1 "Federated" shall mean the Company, or any corporate parent,
affiliate, or direct or indirect subsidiary thereof, or any successor to any
such entity, for which Participant performs services, regardless of whether this
Agreement has been expressly assigned to such corporate parent, affiliate, or
direct or indirect subsidiary, or successor.

ARTICLE II

GRANT OF OPTIONS

2.1 Subject to the conditions set forth in Section 2.2 hereof and
the other terms and conditions of this Agreement, the Company hereby grants to
Participant the right and option to purchase from the Company up to, but not
exceeding in the aggregate, shares of Common Stock (the "Bonus Stock Options").
The Bonus Stock Options shall have an Option Price of seventeen dollars and
sixty two and one half cents ($17.625) per share and shall have a term (the
"Option Term") beginning on the date first above written (the "Grant Date") and
ending on January 25 , 2009.

2.2 Notwithstanding Section 2.1 or any other provision of this
Agreement to the contrary, this Agreement shall become effective only if
Participant executes and delivers to the Company two counterparts of this
Agreement prior to the close of business on March 15, 1999.

2.3 The Bonus Stock Options are not intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Code.

ARTICLE III

VESTING AND EXERCISABILITY

3.1 The Bonus Stock Options shall be 100% vested as of the Grant Date.

3.2 The Bonus Stock Options, or any portion thereof, may be
exercised, in whole or in part, at any time and from time to time during the
Option Term in accordance with this Agreement.

ARTICLE IV

EXERCISE AND WITHHOLDING

4.1 Bonus Stock Options shall be exercised, in whole or in part,
at the election of Participant by delivering to the Company a Notice in the form
set forth as Exhibit A, together with a check payable to the order of the
Company and/or shares of Common Stock that have been held by the Participant for
at least six months prior to the date of exercise, with a stock power executed
in blank, equal in value to the Option Price of the shares being purchased.
Shares of Common Stock surrendered in exercise of the Bonus Stock Options shall
be valued at their Fair Market Value on the date of exercise. Payment of the
exercise price may also be made in accordance with a "cashless exercise"
program, if established by the Company, under which, if so instructed by
Participant and subject to certain conditions, the Company would issue Common
Stock directly to a broker or dealer designated by the Company upon receipt of
an irrevocable written notice of exercise from Participant specifying that
shares subject to the Bonus Stock Options are to be applied in payment of the
Option Price for Bonus Stock Options.

4.2 The Company shall notify Participant of the amount of any
federal, state and local taxes required to be withheld in connection with the
exercise of any Bonus Stock Options. The Company shall be authorized to deduct
such amount from Participant's regular salary payments or other compensation
otherwise due and owing to Participant, and if the full amount of the
withholding tax cannot be recovered in this manner, Participant shall, forthwith
upon the receipt of such notice, remit the deficiency to the Company; PROVIDED,
HOWEVER, that, with the prior approval of the Board Committee, Participant may
satisfy any tax withholding requirements, in whole or in part, by (a) delivering
to the Company shares of Common Stock held by such Participant having a Fair
Market Value equal to the amount of the tax; or (b) directing the Company to
retain shares of Common Stock otherwise issuable to Participant under this
Agreement.

ARTICLE V

MISCELLANEOUS

5.1 In the event of any change or changes in the outstanding
Common Stock of the Company by reason of any stock dividend or split,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, spin-off, spin-out or other distribution of assets to shareholders,
any of which takes effect after the Grant Date of Bonus Stock Options evidenced
by this Agreement, then in any such event the number and kind of shares subject
to the Bonus Stock Options and the Option Price per share shall be appropriately
adjusted consistent with such change in such manner as the Board Committee, in
its discretion, may deem equitable to prevent substantial dilution or
enlargement of the rights granted to Participant hereunder. Any adjustment so
made shall be final and binding upon Participant and all other interested
parties.

5.2 Nothing contained in this Agreement or in the Stock Incentive
Plan shall be deemed to confer upon Participant any right to prevent or to
approve or vote upon any of the corporate actions described in Section 5.1. The
existence of the Bonus Stock Options granted hereunder shall not affect in any
way the right or the power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
preference stocks ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.

5.3 In the event of a merger, reorganization, consolidation,
share exchange, transfer of assets or other transaction having similar effect
involving the Company in which the Company is not the surviving corporation or
pursuant to which a majority of the shares of Common Stock are exchanged for, or
converted into, or otherwise become shares of another corporation or other
consideration, the Board Committee shall have the sole discretion to determine
that (i) the surviving, continuing, successor or purchasing corporation, as the
case may be (the "Acquiring Corporation"), will either assume the Company's
rights and obligations under this Agreement or substitute options in respect of
the Acquiring Corporation's stock for outstanding Bonus Stock Options granted
hereunder or (ii) the outstanding Bonus Stock Options shall be canceled in
exchange for such consideration as the Board Committee shall approve (based on
the value of the consideration received in the transaction by holders of Common
Stock).

5.4 Whenever the word "Participant" is used in any provision of
this Agreement under circumstances where the provision should logically be
construed to apply to the executors, the administrators, or the person or
persons to whom Bonus Stock Options may be transferred by will, by the laws of
descent and distribution or by the Participant in accordance with Section 5.5(b)
of this Agreement, the word "Participant" shall be deemed to include such person
or persons.

5.5 (a) Except as otherwise provided in Section 5.5(b), the Bonus
Stock Options granted hereunder are not transferable by Participant otherwise
than by will or the laws of descent and distribution; and no assignment or
transfer of the Bonus Stock Options granted hereunder, or of the rights
represented thereby, whether voluntary or involuntary, by the operation of law
or otherwise (except by will or the laws of descent and distribution), shall
vest in the assignee or transferee any interest or right herein whatsoever, but
immediately upon any such assignment or transfer the Bonus Stock Options shall
terminate and become of no further effect.

(b) Notwithstanding Section 5.5(a), a Participant may make one or
more gifts of Bonus Stock Options granted hereunder to members of the
Participant's immediate family or trusts or partnerships for the benefit of such
family members (the "Permissible Transferees"). All Bonus Stock Options granted
to a Participant under the Plan shall be exercisable during the lifetime of such
Participant only by such Participant, his agent, guardian, attorney-in-fact or a
Permissible Transferee of the Participant.

5.6 Participant shall not be deemed for any purpose to be a
shareholder of the Company in respect of any shares as to which the Bonus Stock
Options shall not have been exercised as herein provided, and until such shares
have been issued to Participant by the Company hereunder.

5.7 Nothing in this Agreement or the Stock Incentive Plan shall
confer upon Participant any right to continue in the employ of the Company or
shall affect the right of the Company to terminate the employment of Participant
with or without cause.

5.8 Notwithstanding any other provision hereof, Participant
hereby agrees that he or she will not exercise the Bonus Stock Options granted
hereunder, and that the Company will not be obligated to issue any shares to
Participant hereunder, if the exercise thereof or the issuance of such shares
shall constitute a violation by Participant or the Company of any provision of
any law or regulation of any governmental authority. Any determination in this
connection by the Company shall be final and binding. The Company shall in no
event be obligated to register any securities pursuant to the Securities Act of
1933 (as the same shall be in effect from time to time) or to take any other
affirmative action in order to cause the exercise of the Bonus Stock Options or
the issuance of shares pursuant thereto to comply with any law or regulation of
any governmental authority. The Company may require Participant, as a condition
of the exercise of all or any portion of the Bonus Stock Options, to represent
and establish to the satisfaction of the General Counsel of the Company that all
shares of Common Stock to be acquired upon the exercise of such Bonus Stock
Options will be acquired for investment and not for resale. The Company may
refuse to permit the sale or other disposition of any shares acquired pursuant
to any such representation until it is satisfied that such sale or other
disposition would not be in contravention of applicable state or federal
securities law.

5.9 No amounts of income received by Participant pursuant to this
Agreement shall be considered compensation for purposes of any pension or
retirement plan, insurance plan or any other employee benefit plan of the
Company unless otherwise provided in such plan.

5.10 Every notice or other communication relating to this
Agreement shall be in writing and shall be mailed or delivered to the party for
whom it is intended at such address as may from time to time be designated by it
in a notice mailed or delivered to the other party as herein provided; provided,
however, that unless and until some other address be so designated, all notices
or communications by Participant to the Company shall be mailed or delivered to
the Secretary of the Company at its office at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222, and all notices or communications by the Company
to Participant may be given to Participant personally or may be mailed to him or
her.

5.11 This Agreement and its validity, interpretation, performance
and enforcement shall be governed by the laws of the Commonwealth of
Pennsylvania, other than the conflict of law provisions thereof.

5.12 The Bonus Stock Options shall be subject to the terms and
conditions set forth in the Stock Incentive Plan, which is incorporated by
reference into this Agreement in its entirety, and in the event of any conflict
between the provisions of this Agreement and those of the Stock Incentive Plan,
the Stock Incentive Plan provisions shall govern.

5.13 This Agreement will be binding upon and inure to the benefit
of Participant's heirs and representatives and the assigns and successors of the
Company and may be assigned by the Company to any third party, but neither this
Agreement nor any rights hereunder will be assignable or otherwise subject to
hypothecation by Participant.

5.14 Except as stated hereafter, this Agreement represents the
entire agreement of the parties with respect to the subject matter hereof. The
Agreement may be amended or terminated at any time by written agreement of the
parties hereto.

5.15 Whenever possible, each provision in this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement will be held to be prohibited by or
invalid under applicable law, then (a) such provisions will be deemed amended to
accomplish the objectives of the provisions as originally written to the fullest
extent permitted by law and (b) all other provisions of this Agreement will
remain in full force and effect.

5.16 Any dispute or litigation arising out of or relating to this
Agreement will be resolved in the courts of Allegheny County or the Western
District of Pennsylvania and Participant hereby consents to jurisdiction in
Pennsylvania.

5.17 No rule of strict construction will be implied against the
Company, or any other person in the interpretation of any of the terms of this
Agreement or any rule or procedure established by the Board Committee.

5.18 Participant agrees, upon demand of the Company, to do all
acts and execute, deliver and perform all additional documents, instruments and
agreements which may be required by the Company to implement the provisions and
purposes of this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.

FEDERATED INVESTORS, INC.

By ___________________________

------------------------------
(Title)

PARTICIPANT

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

<PAGE>

EXHIBIT A

STOCK OPTION EXERCISE FORM

FEDERATED INVESTORS, INC.

BONUS STOCK OPTIONS

1. OPTIONS EXERCISED

INDICATE THE NUMBER OF SHARES OF COMMON STOCK FOR WHICH YOU ARE
EXERCISING BONUS STOCK OPTIONS AND THE TOTAL OPTION PRICE FOR THE SHARES:

I hereby elect to exercise Bonus Stock Options to purchase __________
shares of Common Stock of Federated Investors, Inc. The total option
price for the shares being purchased is $__________________. The Grant
Date of Bonus Stock Option Agreement to which this exercise relates is:
____________________________.

2. METHOD OF EXERCISE

CHOOSE ONE OF THE METHODS OF EXERCISE LISTED BELOW:

_____ CASH PAYMENT OF OPTION PRICE

I have enclosed a check in the amount of $_____________
in full or partial payment for the shares.

_____ PAYMENT OF EXERCISE PRICE BY DELIVERY OF SHARES

I have enclosed stock certificate no(s). ___________,
together with stock powers endorsed in blank, representing
____________ shares of Class B Common Stock of Federated
Investors, Inc.. I acknowledge that the shares of Common
Stock represented by this/these certificate(s) have been
held by me for at least six months.

_____ CASHLESS EXERCISE THROUGH BROKER

Name, address, telephone number and fax number of broker
designated or approved for this purpose by Federated Investors, Inc.:

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

3. NAME, ADDRESS, TELEPHONE NUMBER AND SOCIAL SECURITY NUMBER

PLEASE INDICATE YOUR NAME, ADDRESS, TELEPHONE NUMBER AND SOCIAL SECURITY
NUMBER BELOW:

Name:

PLEASE USE YOUR EXACT NAME, AS YOU WOULD LIKE IT TO
APPEAR ON YOUR STOCK CERTIFICATES

<PAGE>

Address:

YOUR STOCK CERTIFICATES WILL BE DELIVERED TO THIS ADDRESS
UNLESS YOU INDICATE OTHERWISE.

Telephone:

SS #:

4. FEDERAL INCOME TAX WITHHOLDING

PLEASE INDICATE BELOW THE MANNER IN WHICH FEDERATED INVESTORS, INC.
SHOULD SATISFY THE TAX WITHHOLDING OBLIGATION APPLICABLE TO THE EXERCISE OF YOUR
OPTIONS:

_____ CASH PAYMENT OF FEDERAL WITHHOLDING TAXES

I have enclosed $_____________ as payment in full for the
federal income taxes required to be withheld by Federated
Investors, Inc. with respect to this option exercise.

_____ WITHHOLDING OF SHARES

Please withhold __________ shares of Class B Common Stock
from the number of shares otherwise issuable to me as a result of the option
exercise.

5. SIGNATURE

I hereby elect to exercise my stock options in accordance with the terms
and provisions of this Stock Option Exercise Form.

____________________________________

SIGNATURE DATE

------------------------------------
PRINT NAME

If you have any questions about the exercise of your stock options or the
use of this form, please contact Joseph M. Huber, Senior Corporate Counsel at
(412) 288-1229.

Exhibit 13.01

Selected Portions of the 1998
Annual Report to Shareholders

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below should be read in conjunction
with Federated Investors, Inc. and its subsidiaries (Federated) Consolidated
Financial Statements and Notes. The selected consolidated financial data (except
Managed and Administered Assets) of Federated for the five years ended Dec. 31,
1998 have been derived from the audited Consolidated Financial Statements of
Federated. See the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Consolidated Financial Statements" sections
which follow.

Year Ended Dec. 31,

(dollars in thousands, except per

share data) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:

Total revenue $ 522,127 $ 403,719 $ 321,793 $ 279,831 $ 271,190
Operating expenses:
Compensation and related 146,927 139,373 126,966 101,534 90,003
Other operating expenses 177,845 141,004 134,308 104,885 115,077
Amortization and revaluation of intangible
assets 14,937 13,715 8,886 10,445 105,868
Total operating expenses 339,709 294,092 270,160 216,864 310,948
Operating income (loss) 182,418 109,627 51,633 62,967 (39,758)
Nonoperating expenses 27,614 20,060 20,287 9,826 10,116
Minority interest 8,870 7,584 6,811 5,801 4,070
Income tax provision (benefit) 53,565 30,957 10,930 18,809 (14,608)
Income (loss) before extraordinary item 92,369 51,026 13,605 28,531 (39,336)
Extraordinary item, net of tax 0 449 986 0 0
Net income (loss) 92,369 50,577 12,619 28,531 (39,336)
Dividends on Preferred Stock 0 0 3,025 6,000 6,108
Net income (loss) applicable to Common Stock $ 92,369 $ 50,577 $ 9,594 $ 22,531 $ (45,444)
Cash dividends per common share 1 $ 0.1350 $ 0.0583 $ 0.0417 $ 0.1667 $ 0.00
Earnings (loss) per common share--basic:

Income before extraordinary item 1 $ 1.10 $ 0.62 $ 0.13 $ 0.25 $ (0.53)
Earnings (loss) per common share--
assuming dilution:

Income before extraordinary item 1 $ 1.07 $ 0.61 $ 0.13 $ 0.24 $ (0.53)
Operating margin percentage 35% 27% 16% 23% (15%)
BALANCE SHEET DATA AT PERIOD END:

Cash and cash equivalents $ 185,581 $ 22,912 $ 6,561 $ 7,181 $ 7,968
Deferred sales commissions, net 258,593 164,623 85,905 36,845 36,720
Intangible assets, net 52,953 67,880 69,105 63,703 74,413
Total assets 580,020 337,156 247,377 185,402 178,150
Long-term debt--recourse 98,698 98,950 244,125 68,062 88,690
Long-term debt--nonrecourse 2 272,850 185,388 0 0 0
Total liabilities 490,643 377,800 333,485 155,883 156,284
Shareholders' equity 88,706 (41,110) (86,922) 28,692 20,733
Book value per common share $ 1.03 $ (0.49) $ (1.04) $ 0.32 $ 0.23
MANAGED AND ADMINISTERED ASSETS AT PERIOD
END (in millions):

Money market funds $ 77,055 $ 63,622 $ 51,163 $ 40,610 $ 31,528
Fixed income funds 16,437 15,067 14,109 14,330 14,106
Equity funds 15,503 11,710 7,594 5,287 3,927
Separate accounts 2,558 2,141 1,976 1,486 1,257
Total Managed Assets $ 111,553 $ 92,540 $ 74,842 $ 61,713 $ 50,818
Total Administered Assets $ 28,165 $ 46,999 $ 35,574 $ 22,089 $ 21,304
</TABLE>

1 Reflects the one-for-one stock dividend paid in 1996 and the one-for-one stock
dividend and one-for-two stock dividend paid in 1998.

2 See Note 6 to the Consolidated Financial Statements for information concerning
nonrecourse debt.

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

AVERAGE MANAGED AND ADMINISTERED ASSETS
<TABLE>

Percent

Year Ended Dec. 31, Change

(dollars in millions) 1998 1997 1998
<S> <C> <C> <C>
Money market funds $ 69,074 $ 55,636 24%
Fixed income funds 15,851 14,382 10%
Equity funds 13,777 9,690 42%
Separate accounts 2,334 1,872 25%
Total average Managed Assets $101,036 $ 81,580 24%
Total average Administered Assets $ 53,136 $ 42,965 24%
</TABLE>

COMPONENTS OF CHANGES IN EQUITY AND FIXED INCOME FUND MANAGED ASSETS
<TABLE>
<Caption

Percent

Year Ended Dec. 31, Change

(dollars in millions) 1998 1997 1998
<S> <C> <C> <C>
EQUITY FUNDS

Beginning assets $ 11,710 $ 7,594 54%
Sales 5,049 4,017 26%
Redemptions (3,098) (2,196) 41%
Net sales 1,951 1,821 7%
Net exchanges (17) 128 (113%)
Acquisition related -- 353 (100%)
Other* 1,859 1,814 2%
Ending assets $ 15,503 $11,710 32%
FIXED INCOME FUNDS

Beginning assets $ 15,067 $ 14,109 7%
Sales 6,170 4,584 35%
Redemptions (4,831) (4,416) 9%
Net sales 1,339 168 697%
Net exchanges (274) (72) (281%)
Acquisition related -- 175 (100%)
Other* 305 687 (56%)
Ending assets $ 16,437 $ 15,067 9%
</TABLE>

* Primarily reinvested dividends and distributions, net investment income and
changes in the value of securities held by the funds.

RESULTS OF OPERATIONS

GENERAL

Federated is a leading provider of investment management products and related
financial services.

Federated derives a majority of its revenue through advising, distributing and
servicing the Federated funds, separately managed accounts and other related
products. Federated also derives revenue through distributing and servicing
third-party mutual funds.

Investment advisory, distribution and the majority of the servicing fees are
based on the net asset value of the investment portfolios that are 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.

YEAR ENDED DEC. 31, 1998, COMPARED TO THE YEAR ENDED DEC. 31, 1997

NET INCOME. Net income for the year ended Dec. 31, 1998, was $92.4 million, or
$1.07 per diluted share, an 83% and 78% increase, respectively, over 1997.
Revenue growth of 29% from higher levels of average Managed Assets as well as
improvements in operating margins, from 27% to 35%, were the primary reasons for
the improved financial performance. The higher levels of average Managed Assets
occurred despite the recent market volatility. In 1998, net sales for equity and
fixed income funds were $2.0 billion and $1.3 billion, respectively, resulting
in increases of 7% and 697%, respectively, over 1997, as a result of the
continued strong investment performance and expanded product menu of these asset
classes. Increased assets in money market funds are due to the increased demand
from customers for investment vehicles in which to place cash during periods of
market volatility, as well as efforts to expand the corporate customer base.

REVENUE. Federated's consolidated revenue increased $118.4 million, or 29%, to
$522.1 million for the year ended Dec. 31, 1998, from $403.7 million for 1997
primarily due to higher levels of Managed Assets. Average Managed Assets
increased 24% from $81.6 billion for the year ended Dec. 31, 1997, to $101.0
billion for 1998, including increases of 24%, 10%, 42% and 25% in money market
funds, fixed income funds, equity funds and separate accounts, respectively.
Service-related revenues from sources other than Managed Assets increased by
approximately $3.3 million primarily due to increased revenues within
Federated's clearing and retirement plan recordkeeping services. Interest and
dividends increased by $5.9 million, or 193%, over the prior year as a result of
higher levels of invested cash resulting from the B Share advanced commission
financing program, net proceeds from Federated's initial public offering in May
1998 and higher levels of cash generated from operations. Other income increased
$5.0 million, or 91%, from $5.4 million for the year ended Dec. 31, 1997, to
$10.4 million for 1998, principally as a result of servicing contract buyouts
during 1998 totaling $6.0 million. Collectively, these clients, as well as
certain other clients whose contracts had expired and were not renewed during
1998, had administered assets of $31.6 billion at the time of their departure.
However, these assets accounted for less than 2% of 1998 total revenue. Due to
the relatively lower revenues generated by Administered Assets, 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.

OPERATING EXPENSES. Total operating expenses increased from $294.1 million for
the year ended Dec. 31, 1997, to $339.7 million for 1998, an increase of $45.6
million, or 16%. Expense management continues to be a major focus for Federated,
with expense increases largely attributable to growth in assets under management
and higher levels of profitability. As a result, expense growth has been
contained at levels substantially below the 29% increase in revenues, and,
accordingly, operating margins have improved to 35% for the year ended Dec. 31,
1998, from 27% for 1997.

Compensation and related expenses increased $7.5

million, or 5%, from $139.4 million for the year ended Dec. 31, 1997, to $146.9
million for 1998. This increase was primarily attributed to a 54% increase in
variable-based compensation as a result of increased sales, favorable investment
performance as compared to benchmarks and overall improved financial performance
of Federated, as well as staff growth of 15% within investment research and 6%
within certain service areas. These increases were partially offset by staffing
reductions resulting from the outsourcing of the portfolio accounting function
and the capitalization of certain salaries and employee benefits related to
internally developed software.

Advertising and promotional expenses increased from $34.6 million for the year
ended Dec. 31, 1997, to $46.0 million for 1998, an increase of $11.4 million, or
33%, primarily as a result of higher levels of marketing allowances being paid
to brokers and bank clients for the retailing efforts of marketing funds, as
well as increased spending in printed matter, advertising and promotional
expenses to further build company name and brand awareness.

Office and occupancy expenses increased from $24.9 million for the year ended
Dec. 31, 1997, to $27.2 million for 1998, an increase of $2.3 million, or 9%.
This increase is primarily attributable to increased rent expense for leased
space as a result of general rate increases with respect to current leased space
and to Federated's acquisition of additional office space in the second quarter
of 1998 as part of an effort to consolidate certain servicing functions. This
consolidation eventually resulted in a net reduction of leased office space at
the end of 1998.

Professional service fees increased $12.7 million, or 148%, from $8.5 million
for the year ended Dec. 31, 1997, to $21.2 million for 1998. This increase is
due to fees paid to a third party for portfolio accounting services which were
performed internally throughout most of 1997, and was partially offset by
reductions in consulting and legal fees.

Travel and related expenses declined $1.2 million, or 8%, from $15.0 million for
the year ended Dec. 31, 1997, to $13.8 million for 1998 as a result of continued
expense management.

Amortization of deferred sales commissions increased from $20.9 million for the
year ended Dec. 31, 1997, to $32.1 million for 1998, an increase of $11.2
million, or 54%. This increase is due to higher levels of deferred sales
commissions as a result of the continued sale of shares of funds which require
Federated to advance commissions to the broker/dealers.

Amortization of intangible assets increased from $13.7 million for the year
ended Dec. 31, 1997, to $14.9 million for 1998, an increase of $1.2 million, or
9%, as a result of an acquisition in the second quarter of 1997.

NONOPERATING EXPENSES. Nonoperating expenses increased by $7.5 million, or 38%,
to $27.6 million for the year ended Dec. 31, 1998, as compared to $20.1 million
for 1997. This increase is attributable to the interest and other debt-related
expenses recognized relative to nonrecourse debt incurred for the securitization
of certain B Share fund assets and was partially offset by the elimination of
interest expense on Federated's revolving line of credit as a result of the
reduction of debt previously held within Federated's Senior Secured Credit
Agreement.

MINORITY INTEREST. The minority interest increased from $7.6 million for the
year ended Dec. 31, 1997, to $8.9 million for 1998, an increase of $1.3 million,
or 17%. This increase is a result of higher net income being recorded for the
subsidiary for which Federated acts as the general partner with a majority
interest of 50.5%. The increase in income is attributable to the higher average
Managed Assets of the funds which the subsidiary advises.

INCOME TAXES. The income tax provision for the year ended Dec. 31, 1998, was
$53.6 million as compared to $31.0 million for 1997, an increase of $22.6
million, or 73%. This increase was due primarily to the increase in the level of
income before income taxes from $82.0 million for the year ended Dec. 31, 1997,
to $145.9 million for 1998, an increase of $63.9 million, or 78%.

YEAR ENDED DEC. 31, 1997, COMPARED TO THE YEAR ENDED DEC. 31, 1996

NET INCOME. Net income applicable to Common Stock for the year ended Dec. 31,
1997, was $50.6 million, or $0.60 per diluted share, a 427% and 400% increase,
respectively, over 1996. Revenue growth of 25% from higher levels of average
Managed Assets and improvements in operating margins from 16% to 27% were the
primary reasons for the improved financial performance.

REVENUE. Federated's consolidated revenue increased $81.9 million, or 25%, to
$403.7 million for the year ended Dec. 31, 1997, from $321.8 million for 1996
primarily due to higher levels of Managed Assets. Average Managed Assets
increased 23% from $66.1 billion for the year ended Dec. 31, 1996, to $81.6
billion for 1997, including increases of 26%, 3%, 54% and 11% in money market
funds, fixed income funds, equity funds and separate accounts, respectively.
Service-related revenues from sources other than Managed Assets increased by
approximately $7.7 million, primarily due to increased revenues within
Federated's clearing and retirement plan recordkeeping services, as well as
revenues earned on bank proprietary administration, transfer agency and
portfolio accounting contracts resulting from increased Administered Assets and
accounts. Interest and dividends increased by $0.9 million, or 40%, over the
prior year due to higher levels of invested cash resulting from the B Share
advanced commission financing program initiated in the fourth quarter of 1997.
Marketable securities gains decreased from $2.7 million for the year ended Dec.
31, 1996, to $0.1 million in 1997, a $2.6 million, or 98% decrease resulting
from a reduced level of corporate investments being utilized to prime
corporately sponsored mutual funds.

OPERATING EXPENSES. Total operating expenses increased from $270.2 million for
the year ended Dec. 31, 1996, to $294.1 million for 1997, an increase of $23.9
million, or 9%. Federated's focus on expense management contained the increase
in expenses at levels substantially below the 25% increase in revenues,
improving operating margins to 27% for the year ended Dec. 31, 1997, from 16%
for 1996.

Compensation and related expenses for the year ended Dec. 31, 1997, were $139.4
million as compared to $127.0 million in 1996, an increase of $12.4 million, or
10%. This increase was primarily due to a 56% increase in incentive compensation
expense as a result of increased sales, favorable investment performance as
compared to benchmarks and overall improved financial performance of Federated,
as well as an increase of 7% in the average number of employees. This change
does not reflect the reduction in the number of employees due to the outsourcing
of the portfolio accounting function which occurred late in the fourth quarter
of 1997. Staff growth was experienced in the area of investment research, with
continued emphasis in domestic and global portfolio management, and in various
service areas.

Advertising and promotional expenses increased from $30.6 million for the year
ended Dec. 31, 1996, to $34.6 million for 1997, an increase of $4.0 million, or
13%, primarily as a result of higher levels of marketing allowances being paid
to brokers and bank clients for the retailing efforts of marketing funds.

Systems and communications expense increased by $1.5 million, or 6%, from $25.6
million for the year ended Dec. 31, 1996, to $27.1 million in 1997, primarily as
a result of an increase in costs related to third-party system vendors.

Office and occupancy expense was $24.9 million for the year ended Dec. 31, 1997,
a decrease of $1.6 million, or 6%, as compared to the $26.5 million recorded for
the year ended Dec. 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.

Professional service fees decreased from $10.0 million for the year ended Dec.
31, 1996, to $8.5 million for 1997, a decrease of $1.5 million, or 15%, as a
result of reduced legal and other professional fee expenses.

Travel and related expenses declined $1.0 million, or 7%, from $16.0 million for
the year ended Dec. 31, 1996, to $15.0 million for 1997 as a 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.

Amortization of deferred sales commissions increased from $12.3 million for the
year ended Dec. 31, 1996, to $20.9 million for 1997, an increase of $8.6
million, or 69%. This increase was due to higher levels of deferred sales
commissions as a result of the continued sale of shares of funds which require
Federated to advance commissions to the broker/dealers.

Amortization of intangible assets increased from $8.9 million for the year ended
Dec. 31, 1996, to $13.7 million for 1997, an increase of $4.8 million, or 54%.
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.

Other expenses decreased $3.2 million, or 24%, from $13.2 million for the year
ended Dec. 31, 1996, to $10.0 million for 1997. This reduction was principally
the result of the reduction of taxes other than income taxes and the reduction
of reserves for errors related to the various service businesses.

NONOPERATING EXPENSES. Nonoperating expenses decreased by 1% from $20.3 million
for the year ended Dec. 31, 1996, to $20.1 million in 1997. The decrease was due
to the early prepayment of term debt as a result of a debt restructuring in
mid-1996 and the prepayment of the remaining term debt in the fourth quarter of
1997 as a result of the B Share financing program. In both instances, the
allocable unamortized portions of the debt issuance costs related to the term
debt which was prepaid were recorded as extraordinary items, net of tax.

MINORITY INTEREST. The minority interest increased from $6.8 million for the
year ended Dec. 31, 1996, to $7.6 million for 1997, an increase of $0.8 million,
or 11%. This increase is a result of the higher net income recorded for the
subsidiary for which Federated acts as the general partner with a majority
interest of 50.5%. The increase in income is attributable to the higher average
Managed Assets of the funds which the subsidiary advises.

INCOME TAXES. The income tax provision for the year ended Dec. 31, 1997, was
$31.0 million as compared to $10.9 million for 1996, an increase of $20.1
million, or 183%. This increase was primarily due to the increase in the level
of income before income taxes from $24.5 million for the year ended Dec. 31,
1996, to $82.0 million for 1997, an increase of $57.5 million, or 234%.

CAPITAL RESOURCES AND LIQUIDITY

CASH FLOW. Cash provided by operating activities totaled $60.1 million for the
year ended Dec. 31, 1998. The cash flow from operating activities was primarily
utilized for the purchase of equipment, dividend payments, distributions to the
minority interest and payments on long-term debt.

DEFERRED SALES COMMISSIONS AND NONRECOURSE DEBT.

Certain subsidiaries of Federated pay commissions to broker/dealers (deferred
sales commissions) to promote investments in certain mutual funds. For mutual
fund shares sold under such marketing programs, Federated retains certain
distribution and servicing fees from the mutual fund over the outstanding life
of such shares. These fees consist of 12b-1, shareholder service and contingent
deferred sales charge (CDSC) fees. Both 12b-1 and shareholder service fees are
calculated as a percentage of average Managed Assets associated with the related
classes of shares. If shares are redeemed before the end of a specified holding
period as outlined in the related mutual fund prospectus, the mutual fund
shareholder is normally required to pay Federated a CDSC fee based on a
percentage of the lower of the current market value or the original cost basis
of the redeemed shares, such percentage diminishing over a recovery schedule not
to exceed six years.

For non-B Share related sales, the up-front commissions Federated pays to
broker/dealers are capitalized and recorded as deferred sales commissions and
are amortized over the estimated benefit period not to exceed CDSC periods. The
12b-1 and shareholder service fees are recognized in the statements of income
over the life of the mutual fund class share. Any CDSC fees collected are used
to reduce the deferred sales commission asset.

In the fourth quarter of 1997, Federated entered into an agreement to sell
certain of the future revenue streams associated with its existing B Share
deferred sales commissions. This agreement also provided for Federated to sell,
on a regular basis, the rights associated with such future revenue streams of
future B Share deferred sales commissions during a three-year contract period.
For accounting purposes, these agreements were accounted for as financings, and
nonrecourse debt was recorded.

The following table demonstrates the effects of the B Share financing program
since its inception in the fourth quarter of 1997 on both the Consolidated
Balance Sheets and the Consolidated Statements of Income at, and for the periods
ended, Dec. 31, 1998 and 1997, respectively:

4th

Quarter

(in thousands) 1998 1997
DEC. 31
Assets
Deferred sales commissions, net* $ 249,580 $ 162,398
Receivables--Federated funds 6,314 2,773
Other long-term assets 2,798 3,664
Liabilities
Long-term debt--nonrecourse $ 272,850 $ 185,388
Accounts payable 3,951 0
PERIODS ENDED DEC. 31

Revenues
Other service fees, net--

Federated funds $ 51,912 $ 8,582
Expenses
Amortization of deferred sales
commissions $ 28,881 $ 4,191
Debt expense--nonrecourse 18,759 1,936
Other expenses 764 124

* Excludes deferred sales commissions related to B Share revenue streams which
have not been financed as of the end of the period due to the timing of the sale
of the revenue streams to the third party.

Due to the nonrecourse nature of this financing arrangement, the $18.1 million
excess of B Share-related liabilities over the related assets at Dec. 31, 1998,
will be recognized in income over the remaining life of the B Share cash flows.

CAPITAL EXPENDITURES. Capital expenditures totaled $7.5 million for the year
ended Dec. 31, 1998, which excludes Year 2000-related project costs described
below. It is anticipated that 1999 capital expenditures will range from $20.0
million to $25.0 million.

DIVIDENDS. In 1997, Federated paid a cash dividend of $0.0583 per share.
Federated's board of directors adopted a policy in 1998 to declare and
pay cash dividends on a quarterly basis. A dividend of $0.0208 per share
was paid on Jan. 31, 1998, and dividends of $0.038 per share were paid on
April 30, 1998, Aug. 10, 1998, and Nov. 13, 1998. Federated's board of
directors declared a dividend of $0.038 per share that was paid on Feb. 15,
1999. After the payment of the dividend on Feb. 15, 1999, Federated,
given current debt covenants as disclosed in the Common Stock footnote
(Note 10 to the Consolidated Financial Statements), has the ability to
pay dividends of approximately $51.4 million.

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

SENIOR SECURED CREDIT AGREEMENT. At Dec. 31, 1998, the outstanding balance
under the Senior Secured Credit Agreement was zero with an amount available
to borrow of $150.0 million. The Senior Secured Credit Agreement contains
various financial and other covenants. Federated was in compliance with all
debt covenants at Dec. 31, 1998.

SENIOR SECURED NOTE PURCHASE AGREEMENT. The Senior Secured Note Purchase
Agreement debt totaled $98.0 million as of Dec. 31, 1998. This note is due
in seven annual $14.0 million installments beginning June 27, 2000, and
maturing June 27, 2006. The Senior Secured Note Purchase Agreement
contains various covenants with which Federated was in compliance at
Dec. 31, 1998.

CAPITALIZED LEASE OBLIGATIONS. At Dec. 31, 1998, Federated had
capitalized lease obligations totaling $0.9 million related to certain
telephone equipment. The scheduled principal payments approximate $0.2

million per year for 1999 through 2002.

NONRECOURSE DEBT. Federated had nonrecourse debt obligations aggregating $272.9
million at Dec. 31, 1998. This obligation was incurred in connection with a
three-year future commitment to exchange 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 B Share
assets. See Note 6 to the Consolidated Financial Statements.

SHAREHOLDERS' EQUITY. In May 1998, Federated Investors was merged with and into
Federated Investors, Inc., its wholly owned subsidiary. All outstanding Class A
and Class B Common Shares of Federated Investors were exchanged for an equal
number of shares of no par Class A and Class B Common Stock of Federated
Investors, Inc., respectively, with the same proportionate ownership and
substantially similar rights. All Treasury Stock of Federated Investors was
retired, and additional paid-in capital was transferred to the no par Class A
and Class B Common Stock of Federated Investors, Inc. based on their relative
proportionate values immediately prior to the merger.

Also in May 1998, Federated issued an additional 2,610,000 shares of Class B
Common Stock in an initial public offering for net proceeds of approximately
$46.2 million in cash.

FUTURE CASH REQUIREMENTS. Management expects that the principal needs for cash
will be to advance sales commissions, fund increased property and equipment
acquisitions, pay shareholder dividends, repurchase company stock, service debt
and fund strategic business acquisitions. Management believes that Federated's
existing liquid assets, together with the expected continuing cash flow from
operations, its borrowing capacity under current credit facilities, its B Share
financing arrangement and its ability to issue stock will be sufficient to meet
its present and reasonably foreseeable cash needs.

YEAR 2000 READINESS DISCLOSURE

Many existing information technology (IT) products and systems and non-IT
products and systems containing embedded processor technology were originally
programmed to represent any date by using six digits (e.g., 12/31/99), as
opposed to eight digits (e.g., 12/31/1999). Accordingly, such products and
systems may experience miscalculations, malfunctions or disruptions when
attempting to process information containing dates that fall after Dec. 31,
1999, or when attempting to recognize the year 2000 as a leap year. These
potential problems are collectively referred to as the "Year 2000," or "Y2K"
problem. Also, the occurrence of such problems may take place before the year
2000 if a computer system utilizes future dates during its processing.

STATE OF READINESS. Computer processing is critical to Federated's business
operations, and the Y2K issue poses a significant potential risk to operations.
Therefore, Federated has established an enterprise-wide project to address this
issue. The project includes four phases: inventory/assessment, which includes
the identification of all components of Federated's computing environment and
the assessment of Y2K issues for these components; remediation of the Y2K issues
identified in the inventory/assessment phase; testing to ensure that remediation
was successful; and implementation of the modified systems.

The project scope has been divided into four segments which comprise Federated's
computing environment as follows:

* systems developed internally by Federated's IT division--this constitutes
the majority of Federated's Y2K efforts;

* mission-critical processing provided by the funds' service providers;

* other critical aspects of systems and operations within the business units,
including both commercially available computer applications and the progress of
key business partners; and

* embedded systems--for Federated's operations, embedded systems mainly consist
of building systems and office equipment.

As of the end of 1998, Federated completed the inventory/assessment phase with
respect to its internally developed systems. Federated has also substantially
completed the remediation and unit testing of individual programs. Approximately
85% of applications have been implemented into production after unit level
testing. In addition, approximately three quarters of these systems have
finished the next phase, system level testing. The focus during 1999 is to
complete implementation and system testing during the first half of the year and
test with external interfacing systems.

Certain mission-critical processing is performed for Federated's funds by
outside service providers, including the transfer agency, portfolio accounting,
and custody functions. Federated has identified these service providers, is
monitoring the progress of these companies in addressing Y2K issues via progress
reports and meetings, and is working with these service providers to test their
systems, as appropriate. As of the end of 1998, the critical service providers
reported good progress and confidence in making their systems compliant.

Assessment and remediation are underway for business unit systems, key business
partners and embedded systems. Federated currently expects to complete
assessment and necessary remediation for these items by mid-1999.

Additionally, Federated is participating in the "industry-wide testing" being
coordinated by the Securities Industry Association. This testing is being
conducted to ensure that major broker/dealers, exchanges, clearing houses, and
depositories are able to communicate properly in the year 2000. Federated
participated in initial tests for processing of mutual fund transactions in both
July and Oct. 1998. Federated is also participating in the full industry-wide
test slated for March/April 1999.

COSTS TO ADDRESS Y2K. Federated estimates its Y2K project will cost
approximately $10 million. Federated has incurred approximately $5.2 million
from the inception of the Y2K project through Dec. 31, 1998, with $4.5 million
being reflected within the current year's financial statements. Y2K costs are
being funded from operating revenue and are being expensed as incurred. These
cost estimates are subject to change as the project continues. The estimated
total costs are not considered to have a material impact on Federated's results
of operations or financial position.

While certain non-time sensitive IT projects have been delayed due to Y2K
efforts and costs, no strategic projects or projects for legal or regulatory
requirements have been deferred or canceled.

RISKS OF YEAR 2000 ISSUES. It must be realized that, as with all other companies
in the financial services industry, many day-to-day functions of Federated are
dependent on accurate computer processing. Further, this processing is conducted
by an extensive network of systems, both internal to Federated and external,
with both direct and indirect interaction. Accordingly, if not addressed, Y2K
issues could result in Federated's inability to perform mission-critical
functions, including the trading of securities and processing of fund shareowner
transactions.

A portion of Federated's business involves international investments, thereby
exposing Federated to operations, custody and settlement processes outside the
United States. Federated is monitoring the progress of the funds' international
custodians in these areas. Federated is also assessing Y2K issues for other
aspects of its international operations.

Y2K is a risk for many of the issuers of the specific securities in which
Federated's funds invest, in both the U.S. and international markets.
Accordingly, Federated has incorporated assessment of Y2K risk into its
investment management process.

CONTINGENCY PLANS. Because Federated's operations are reliant upon systems which
are not under its direct control, Federated's Y2K plan includes the development
of contingency plans to address its critical operations in the event of
Y2K-related disruptions. However, in an operation as complex and geographically
distributed as Federated's business, there are limited alternatives to certain
of its mission-critical systems or public utilities. If certain mission-critical
systems or public utilities are not made Year 2000 compliant or fail, there
would be a material adverse impact upon Federated's business, financial
condition and results of operations. Although Federated is investigating
alternative solutions, it is unlikely that an adequate contingency plan can be
developed to avoid such an adverse impact in the event mission-critical systems
or public utilities fail to achieve compliance.

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

Certain statements under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," included in the Year 2000 Readiness
Disclosure and elsewhere in this report, constitute forward-looking statements,
which involve known and unknown risks, uncertainties, and other factors that may
cause the actual results, levels of activity, performance, or achievements of
Federated, or industry results, to be materially different from any future
results, levels of activity, performance, or achievements expressed or implied
by such forward-looking statements. For a discussion of such risk factors, see
the section titled Risk Factors and Cautionary Statements in Federated's Annual
Report on Form 10-K for the year ended Dec. 31, 1998, and other reports on file
with the Securities and Exchange Commission. As a result of the foregoing and
other factors, no assurance can be given as to future results, levels of
activity, performance, or achievements, and neither Federated nor any other
person assumes responsibility for the accuracy and completeness of such
statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Federated's investments are primarily money market funds. Occasionally,
Federated invests in new fluctuating net asset value mutual funds (priming)
sponsored by Federated in order to provide investable cash to the fund, allowing
the fund to establish a yield history. Federated may use derivative financial
instruments as an attempt to hedge these investments. As of Dec. 31, 1998, the
book value of the priming investments and the derivative financial instruments
were $12.0 million and $0.4 million, respectively. All of Federated's debt
instruments carry fixed interest rates and therefore are not subject to market
risk.

MANAGEMENT'S REPORT

Federated Investors, Inc. (Federated) management takes responsibility for the
integrity and fair presentation of the financial statements in this annual
report. These financial statements were prepared from accounting records which
management believes fairly and accurately reflect the operations and financial
position of Federated.

The financial statements were prepared in conformity with generally accepted
accounting principles and, as such, include amounts based on management's best
estimates and judgements considering currently available information and
management's view of current conditions and circumstances. Management also
prepared the other information in this report and is responsible for its
accuracy and consistency with the financial statements.

Management is responsible for establishing and maintaining effective internal
control designed to provide reasonable assurance that assets are protected from
improper use and accounted for in accordance with its policies and that
transactions are recorded accurately in Federated's records. The concept of
reasonable assurance is based upon a recognition that the cost of the controls
should not exceed the benefit derived. Even effective internal control, no
matter how well designed, has inherent limitations -- including the possibility
of circumvention or overriding of controls -- and therefore can only provide
reasonable assurance with respect to financial statement preparation and
safeguarding of assets.

The financial statements of Federated have been audited by Ernst & Young LLP,
independent auditors. Their accompanying report is based on an audit conducted
in accordance with generally accepted auditing standards.

Federated Investors, Inc.

[Graphic]

J. Christopher Donahue
President and Chief Executive Officer

[Graphic]

Thomas R. Donahue
Chief Financial Officer

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Federated Investors, Inc.

We have audited the consolidated balance sheets of Federated Investors, Inc. and
subsidiaries (Federated Investors) as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
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.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Federated
Investors, Inc. and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.

[Graphic]

Pittsburgh, Pennsylvania
January 26, 1999

CONSOLIDATED BALANCE SHEETS (dollars in thousands, except share data)

Dec. 31,
1998 1997

<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 185,581 $ 22,912
Marketable securities 13,398 8,945
Receivables -- Federated funds 26,097 20,062
Receivables -- other, net of reserve of $1,276 and $3,262, respectively 4,872 7,416
Accrued revenues 3,666 4,600
Prepaid expenses 4,688 2,853
Income taxes receivable 0 7,519
Other current assets 3,958 1,805
Total current assets 242,260 76,112
LONG-TERM ASSETS

Customer relationships, net of accumulated amortization of $39,571 and

$26,907, respectively 17,743 30,398
Goodwill, net of accumulated amortization of $13,762 and $11,512,
respectively 35,107 37,356
Other intangible assets, net of accumulated amortization of $3,608 and

$3,585, respectively 103 126
Deferred sales commissions, net 258,593 164,623
Property and equipment, net 21,550 22,163
Other long-term assets 4,664 6,378
Total long-term assets 337,760 261,044
Total assets $ 580,020 $ 337,156
CURRENT LIABILITIES

Cash overdraft $ 5,932 $ 7,680
Current portion of long-term debt -- recourse 239 280
Accrued expenses 51,096 34,939
Accounts payable 24,864 18,634
Income taxes payable 2,522 0
Other current liabilities 1,675 2,520
Total current liabilities 86,328 64,053
LONG-TERM LIABILITIES

Long-term debt -- recourse 98,698 98,950
Long-term debt -- nonrecourse 272,850 185,388
Deferred tax liability, net 29,949 26,546
Other long-term liabilities 2,818 2,863
Total long-term liabilities 404,315 313,747
Total liabilities 490,643 377,800
Minority interest 671 466
SHAREHOLDERS' EQUITY Common Stock:

Class A, no par value, 20,000 shares authorized, 6,000 and 0 shares

issued and outstanding, respectively 189 0
Class B, no par value, 900,000,000 shares authorized, 86,337,000 and 0 shares
issued, respectively 75,090 0
Class A, $1.00 stated value, 99,000 shares authorized, 0 and 6,000 shares
issued and outstanding, respectively 0 6
Class B, $.01 stated value, 149,700,000 shares authorized, 0 and

90,093,758 shares issued, respectively 0 903
Additional paid-in capital 0 28,574
Retained earnings 14,556 55,137
Treasury Stock, at cost, 138,750 and 6,666,758 shares Class B Common

Stock, respectively (23) (123,373)
Employee restricted stock plan (1,512) (2,266)
Accumulated other comprehensive income 406 (91)
Total shareholders' equity 88,706 (41,110)
Total liabilities, minority interest, and shareholders' equity $ 580,020 $ 337,156
</TABLE>

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

CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except
per share data)
<TABLE>
<CAPTION>

Year Ended Dec. 31,
1998 1997 1996

<S> <C> <C> <C>
REVENUE
Investment advisory fees, net -- Federated funds $ 269,971 $ 213,361 $ 174,585
Investment advisory fees, net -- other 7,360 5,507 4,636
Administrative service fees, net -- Federated funds 72,101 60,934 51,239
Administrative service fees, net -- other 25,133 24,495 21,684
Other service fees, net -- Federated funds 101,252 67,494 44,590
Other service fees, net -- other 23,347 20,669 15,741
Commission income -- Federated funds 4,008 2,744 1,652
Interest and dividends 8,887 3,032 2,160
Marketable securities (losses) gains (295) 49 2,651
Other income 10,363 5,434 2,855
Total revenue 522,127 403,719 321,793
OPERATING EXPENSES

Compensation and related 146,927 139,373 126,966
Advertising and promotional 46,042 34,609 30,556
Systems and communications 27,840 27,118 25,630
Office and occupancy 27,215 24,863 26,516
Professional service fees 21,171 8,539 10,018
Travel and related 13,802 14,968 16,020
Amortization of deferred sales commissions 32,117 20,882 12,349
Amortization of intangible assets 14,937 13,715 8,886
Other 9,658 10,025 13,219
Total operating expenses 339,709 294,092 270,160
Operating income 182,418 109,627 51,633
NONOPERATING EXPENSES

Debt expense--recourse 8,855 18,124 20,287
Debt expense--nonrecourse 18,759 1,936 0
Total nonoperating expenses 27,614 20,060 20,287
Income before minority interest, income taxes and extraordinary item 154,804 89,567 31,346
Minority interest 8,870 7,584 6,811
Income before income taxes and extraordinary item 145,934 81,983 24,535
Income tax provision 53,565 30,957 10,930
Income before extraordinary item 92,369 51,026 13,605
Extraordinary item related to debt restructuring costs, net of tax 0 449 986
Net income 92,369 50,577 12,619
Dividends on Preferred Stock 0 0 3,025
Net income applicable to Common Stock $ 92,369 $ 50,577 $ 9,594
EARNINGS PER COMMON SHARE-BASIC

Income before extraordinary item $ 1.10 $ 0.62 $ 0.13
Extraordinary item related to debt restructuring costs, net of tax -- (0.01) (0.01)
Net income per common share -- basic $ 1.10 $ 0.61 $ 0.12
EARNINGS PER COMMON SHARE-ASSUMING DILUTION

Income before extraordinary item $ 1.07 $ 0.61 $ 0.13
Extraordinary item related to debt restructuring costs, net of tax -- (0.01) (0.01)
Net income per common share -- assuming dilution $ 1.07 $ 0.60 $ 0.12
Cash dividends per common share $ 0.1350 $ 0.0583 $ 0.0417
</TABLE>

Per share amounts have been restated to reflect the one-for-one stock dividend
paid in 1996 and the one-for-one stock dividend and one-for-two stock dividend
paid in 1998.

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

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (dollars in
thousands, except per share data)

Years Ended Dec. 31, 1998, 1997 and 1996

Employee Accumulated

Additional Restricted Other Total
Preferred Common Paid-in Retained Treasury Stock Comprehensive Shareholders'

Stock Stock Capital Earnings Stock Plan Income Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JAN. 1, 1996 $ 1 $ 153 $ 29,286 $ 4,034 $ (58) $ (5,350) $ 626 $ 28,692
Net income 0 0 0 12,619 0 0 0 12,619
Other comprehensive
income, net of tax:

Unrealized loss on
marketable securities,
net of reclassification

adjustment 0 0 0 0 0 0 (599) (599)
Other 0 0 0 0 0 0 (12) (12)
Comprehensive income 12,008
Amortization of employee

restricted stock plan
and other compensation

plans 0 0 371 0 0 2,183 0 2,554
Dividends declared on:
Common Stock 0 141 0 (3,639) 0 0 0 (3,498)
Preferred Stock, $3,025

per share 0 0 0 (3,025) 0 0 0 (3,025)
Purchase of Treasury Stock 0 0 0 0 (123,653) 0 0 (123,653)
Conversion of Preferred
Stock to Common Stock (1) 53 (52) 0 0 0 0 0
BALANCE AT DEC. 31, 1996 0 347 29,605 9,989 (123,711) (3,167) 15 (86,922)
Net income 0 0 0 50,577 0 0 0 50,577
Other comprehensive
income, net of tax:

Unrealized loss on
marketable securities,

net of reclassification

adjustment 0 0 0 0 0 0 (110) (110)
Other 0 0 0 0 0 0 4 4
Comprehensive income 50,471
Amortization of employee

restricted stock plan
and other compensation

plans 0 0 257 0 0 28 0 285
Dividends declared on
Common Stock 0 562 0 (5,429) 0 0 0 (4,867)
Issuance of stock under
employee restricted

stock plan, net 0 0 (218) 0 440 (197) 0 25
Restricted stock

forfeitures 0 0 (1,070) 0 0 1,070 0 0
Purchase of Treasury Stock 0 0 0 0 (102) 0 0 (102)
BALANCE AT DEC. 31, 1997 0 909 28,574 55,137 (123,373) (2,266) (91) (41,110)
Net income 0 0 0 92,369 0 0 0 92,369
Other comprehensive
income, net of tax:

Unrealized gain on
marketable securities,
net of reclassification

adjustment 0 0 0 0 0 0 502 502
Other 0 0 0 0 0 0 (5) (5)
Comprehensive income 92,866
Amortization of

employee restricted
stock plan and other

compensation plans 0 216 42 0 0 512 0 770
Dividends declared on

Common Stock 0 0 0 (11,480) 0 0 0 (11,480)
Initial public offering
of Class B Common Stock 0 46,202 0 0 0 0 0 46,202
Merger of Federated
Investors into

Federated Investors, Inc. 0 27,707 (27,707) (121,464) 121,464 0 0 0
Issuance/exercise of
stock options 0 487 (909) 0 1,909 0 0 1,487
Restricted stock

forfeitures 0 (242) 0 0 0 242 0 0
Purchase of Treasury Stock 0 0 0 0 (23) 0 0 (23)
Other 0 0 0 (6) 0 0 0 (6)
BALANCE AT DEC. 31, 1998 $ 0 $ 75,279 $ 0 $ 14,556 $ (23) $ (1,512) $406 $ 88,706
</TABLE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
<TABLE>

Year Ended Dec. 31,
1998 1997 1996

<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 92,369 $ 50,577 $ 12,619
ADJUSTMENTS TO RECONCILE NET

INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

Extraordinary item related to debt restructuring costs 0 690 1,516
Amortization of intangible assets 14,937 13,715 8,886
Depreciation and other amortization 7,923 8,674 9,398
Amortization of deferred sales commissions 32,117 20,882 12,349
Minority interest 8,870 7,584 6,811
Write-off/loss on sale of property and equipment 1,582 271 403
Amortization of employee restricted stock and other

compensation plans 770 285 2,554
Provision for deferred income taxes 3,123 11,117 17,088
Net realized loss/(gain) on sale of marketable securities 295 (49) (2,651)
Deferred sales commissions paid (149,137) (111,628) (69,600)
Contingent deferred sales charges received 23,050 12,027 8,191
Other (11) 4 (12)
Other changes in assets and liabilities:

Increase in receivables, net (3,491) (5,780) (3,941)
Decrease (increase) in accrued revenues 934 (1,216) (620)
(Increase) decrease in prepaid expenses and other current assets (3,988) 116 684
Decrease (increase) in income taxes receivable/payable 10,052 (961) (2,066)
Decrease (increase) in other long-term assets 348 (1,870) (4,805)
Increase in accounts payable and accrued expenses 22,387 15,790 17,653
(Decrease) increase in other current liabilities (2,022) (4,904) 11,485
(Decrease) increase in other long-term liabilities (45) (257) 1,537
Net cash provided by operating activities 60,063 15,067 27,479
INVESTING ACTIVITIES

Proceeds from sale of property and equipment 0 2,454 14
Additions to property and equipment (7,526) (3,129) (12,362)
Cash paid for acquisitions (580) (14,699) (12,128)
Purchases of marketable securities (16,082) (24,531) (60,769)
Proceeds from redemptions of marketable securities 12,104 29,230 65,122
Net cash used by investing activities (12,084) (10,675) (20,123)
FINANCING ACTIVITIES

Distributions to minority interest (8,665) (7,932) (6,824)
Dividends paid (11,480) (4,867) (6,523)
Proceeds from issuance of Common Stock/options 47,689 25 0
Purchase of Treasury Stock (23) (102) (123,653)
Proceeds from new borrowings -- recourse 0 15,729 234,724
Proceeds from new borrowings -- nonrecourse 142,977 195,156 0
Payments on debt -- recourse (293) (176,282) (105,700)
Payments on debt -- nonrecourse (55,515) (9,768) 0
Net cash provided (used) by financing activities 114,690 11,959 (7,976)
Net increase (decrease) in cash and cash equivalents 162,669 16,351 (620)
Cash and cash equivalents, beginning of period 22,912 6,561 7,181
Cash and cash equivalents, end of period $ 185,581 $ 22,912 $ 6,561
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for:

Interest $ 15,251 $ 21,221 $ 16,758
Income taxes 49,075 20,495 702
</TABLE>

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dec. 31, 1998, 1997 and 1996)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) NATURE OF OPERATIONS

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

A large portion of Federated's 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 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's investment products are primarily distributed
within the bank trust, broker/dealer and institutional markets.

Through indirect wholly owned subsidiaries, Federated 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, Inc. and all of its subsidiaries including special purpose entities
(SPEs) (see Note 6). 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

Marketable securities consist of equity and fixed income securities which are
classified as "available for sale" and are carried at fair value. The unrealized
gains or losses on these securities are included in the accumulated other
comprehensive income 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 3 to 10
years. Leasehold improvements are depreciated using the straight-line method
over their estimated useful lives or their respective lease terms, whichever is
shorter. As property and equipment is placed out- of-service, the cost and
related accumulated depreciation are removed and any residual net book value is
reflected as other income in the Consolidated Statements of Income.

(F) INTANGIBLE ASSETS

Goodwill and other intangible assets are amortized on a straight-line basis over
the estimated period of benefit, not to exceed 25 years. Customer relationships
are amortized using the straight-line method over their estimated period of
benefit (5 to 9 years). Federated 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 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 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 occurred. 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
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 asset.

(G) DEFERRED SALES COMMISSIONS

Certain subsidiaries of Federated Investors, Inc. pay commissions to broker/
dealers (deferred sales commissions) to promote investments in certain mutual
funds. For mutual fund shares sold under such marketing programs, Federated
retains certain distribution and servicing fees from the mutual fund over the
outstanding life of such shares. These fees consist of 12b-1, shareholder
service and contingent deferred sales charge (CDSC) fees. Both 12b-1 and
shareholder service fees are calculated as a percentage of average Managed
Assets associated with the related classes of shares. If shares are redeemed
before the end of a specified holding period as outlined in the related mutual
fund prospectus, the mutual fund shareholder is normally required to pay
Federated a CDSC fee based on a percentage of the lower of the current market
value or the original cost basis of the redeemed shares, such percentage
diminishing over a recovery schedule not to exceed six years.

For non-B Share related sales, the up-front commissions Federated pays to
broker/dealers are capitalized and recorded as deferred sales commissions and
are amortized over the estimated benefit period not to exceed CDSC periods. The
12b-1 and shareholder service fees are recognized in the income statement over
the life of the mutual fund class share. Any CDSC fees collected are used to
reduce the deferred sales commission asset.

In the fourth quarter of 1997, Federated entered into an agreement to sell
certain of the future fee revenue streams associated with its existing B Share
deferred sales commissions. This agreement also provided for Federated to sell,
on a regular basis, the rights associated with such future revenue streams
during a three-year contract period. For accounting purposes, these agreements
have been accounted for as financings, and nonrecourse debt was recorded. The
Consolidated Statements of Income reflect 12b-1 and shareholder service fees
which are included in "Other service fees, net -- Federated funds" as well as
debt expense associated with the nonrecourse debt, amortization of deferred
sales commissions and other program-related expenses.

(H) FOREIGN CURRENCY TRANSACTIONS GAINS AND LOSSES

Federated has a foreign subsidiary, in which the subsidiary's financial
statements are reported in U.S. dollars. Transaction gains and losses are
reflected in the statements of income.

(I) REVENUE RECOGNITION

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

(J) REPORTING ON ADVERTISING COSTS

Federated expenses the cost of all advertising as incurred.

(K) INCOME TAXES

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

(L) COMPREHENSIVE INCOME

In 1998, Federated adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," (SFAS 130) which requires companies to report
all changes in equity during a period, except those resulting from investment by
owners and distribution to owners, in a financial statement for the period in
which they are recognized. Comprehensive income is reported within the
Consolidated Statements of Changes in Shareholders' Equity.

(M) STOCK-BASED COMPENSATION

As allowed under the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) Federated has
elected to apply Accounting Principles Board Opinion No. 25 (APB 25) "Accounting
for Stock Issued to Employees" and related interpretations in accounting for its
stock-based plans.

(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 Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," (SOP 98-1) was adopted effective Jan.
1, 1998. SOP 98-1 requires the capitalization of certain costs incurred in
connection with developing or obtaining software for internal use. Qualifying
software costs are capitalized and amortized over the estimated useful life of
the software. Prior to the adoption of SOP 98-1, software development costs were
expensed as incurred. Restatement of prior year financial statements was not
required. In 1998, Federated capitalized $1,396,000 of costs as a result of the
adoption of this pronouncement.

Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities,"
(SOP 98-5) was adopted in 1998. SOP 98-5 requires costs of start-up activities
and organization costs to be expensed as incurred. Prior to the adoption of SOP
98-5, these costs were capitalized and expensed over a period of time.
Restatement of previously issued financial statements is not permitted. The
adoption of this pronouncement did not have a material effect on the results of
operations in 1998 as Federated did not incur a significant level of
organization costs, as defined by this pronouncement.

Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (SFAS 133) requires that all derivatives,
including hedges, be recorded at fair value and that all changes in fair value
or cash flow of both the hedge and the hedged item be recognized in earnings in
the same period. SFAS 133 is effective for years beginning after June 15, 1999,
but companies may early adopt as of the beginning of any fiscal quarter that
begins after June 1998. The adoption of SFAS 133 is not expected to have a
significant effect on earnings or the financial position of Federated based on
the current minimal use of derivatives.

(2) MARKETABLE SECURITIES

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

Estimated

Gross Unrealized Market

(in thousands) Cost Gains (Losses) Value
AVAILABLE-FOR-SALE:
Investments in fluctuating
value mutual funds
Dec. 31, 1998 $ 12,757 $ 719 $ (78) $ 13,398
Dec. 31, 1997 $ 9,076 $ 60 $ (191) $ 8,945

Gross realized gains and (losses) on the sale of marketable securities were
approximately $395,000 and $(690,000); $275,000 and $(226,000); and $3,126,000
and $(475,000), respectively, for the years ended Dec. 31, 1998, 1997 and 1996.

Federated enters into future and currency forward contracts (hedge instruments)
to hedge against market and currency fluctuations related to investments in
mutual funds it sponsors. These investments enable the funds to build a
diversified portfolio and are redeemed as outside investors purchase the funds.
To minimize the risk factors, Federated utilizes hedge instruments which
resemble the investment's portfolio. The hedge instruments are carried at fair
value in "Marketable securities" on the Consolidated Balance Sheets. At Dec. 31,
1998, the futures contracts had maturities of less than one year.

(3) PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:
Dec. 31,

(in thousands) 1998 1997
Leasehold improvements $ 17,810 $ 18,187
Computer equipment 32,019 32,988
Office furniture and equipment 12,789 10,508
Transportation equipment 1,881 1,851
Total cost/fair value 64,499 63,534
Accumulated depreciation (42,949) (41,371)
Property and equipment, net $ 21,550 $ 22,163

Depreciation expense was $6,557,000, $7,599,000 and $7,961,000 for the years
ended Dec. 31, 1998, 1997 and 1996, respectively.

(4) INTANGIBLE ASSETS

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

(5) LONG-TERM DEBT--RECOURSE

Federated's long-term debt--recourse consisted of the following:
Dec. 31,

(in thousands) 1998 1997
Senior Secured Note Purchase Agreement $ 98,000 $ 98,000
Capitalized leases 937 1,230
Total debt 98,937 99,230
Less: current portion 239 280
Total long-term debt -- recourse $ 98,698 $ 98,950

In 1996, Federated 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 entered into a $98,000,000 Senior Secured Note
Purchase Agreement (Note), maturing in 2006. Pursuant to these agreements,
Federated must meet certain financial and nonfinancial covenants. Federated was
in compliance with all such covenants at both Dec. 31, 1998 and 1997.

The obligations of Federated 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, Inc.

(A) SENIOR SECURED CREDIT AGREEMENT

The Term Loan Facility was fully repaid as of Dec. 31, 1997. The Revolving
Credit Facility is used for general business purposes. Federated pays a
commitment fee of 0.25% on the unused portion of the Revolving Credit
Facility. At Dec. 31, 1998, the outstanding balance was $0, with
availability of $150,000,000.

(B) SENIOR SECURED NOTE PURCHASE AGREEMENT

The Note is due in seven equal annual installments beginning in 2000 and
maturing in 2006. The Note carries a fixed interest rate of 7.96%. Under the
terms of the Note, Federated may prepay the debt at any time, however, a
make-whole amount is required at the time of prepayment.

The aggregate contractual maturities of the recourse debt for
the years following Dec. 31, 1998, are:

(in thousands)
1999 $ 239
2000 14,258
2001 14,280
2002 14,160
2003 14,000
2004 and thereafter 42,000
Total recourse debt $ 98,937

(6) SECURITIZATION OF B SHARE ASSETS AND NONRECOURSE DEBT

In the fourth quarter of 1997, Federated 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 a program to sell, on a continuous
basis for a three-year period, 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 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 special purpose entities
(SPEs) were established for the purpose of the initial transaction. A bankruptcy
remote SPE was formed by Federated to purchase the rights to the future cash
flows from a subsidiary, which in turn sold these future cash flows to a
third-party SPE. The third-party SPE funded this purchase by issuing Class A and
Class B notes.

The cash flows of the related 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 and 10% to the holders
of the Class B notes. As a result of Federated's 90% residual interest in the
third-party SPE cash flows, this SPE is a consolidated subsidiary of Federated.
The debt of this SPE is nonrecourse debt to Federated in the event the future
cash flows associated with the rights sold do not cover the full obligation of
the notes.

The outstanding balance of the Class A and Class B notes at Dec. 31
were as follows:

(in thousands) 1998 1997
Class A $ 74,251 $ 97,873
Class B 9,700 9,700

The Class A and Class B notes carry fixed interest rates of 7.44% and 9.80%,
respectively.

Also in the fourth quarter of 1997 and in calendar year 1998, Federated
exchanged additional net deferred sales commission assets with a remaining book
value of $79,190,000 and $139,961,000, respectively, for $81,056,000 and
$143,396,000, respectively, in cash. Additional third-party SPEs were formed,
however, these entities are not consolidated on Federated's financial statements
as a result of Federated having less than a 50% residual interest in these
third-party SPEs' cash flows. These transactions were accounted for as
financings, and the nonrecourse debt has been recorded with imputed interest
rates based on current market conditions at the time of issuance ranging from
6.7% to 7.6%. Cash flows associated with these B Share assets will be applied by
the third-party SPEs in the following succession: fees and other program-related
expenses, interest and principal. Federated will participate in varying levels
of any residual cash flow after full payment of program obligations. The
outstanding balance of this nonrecourse debt was $188,899,000 and $77,815,000 as
of Dec. 31, 1998 and 1997, respectively. The nonrecourse debt does not contain a
contractual maturity but is amortized dependent upon the cash flows of the
related B Share assets.

The third party has agreed into the fourth quarter of 2000 to purchase, on a
semimonthly basis, the rights associated with certain future revenue streams of
B Shares sold.

(7) EMPLOYEE BENEFIT PLANS

(A) 401(K)/PROFIT SHARING PLAN

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

Federated offers a 401(k) plan covering substantially all employees. Under the
401(k) plan, employees can make contributions at a rate of 1% to 15% of their
compensation (as defined in the 401(k) plan), subject to Internal Revenue Code
limitations. Federated makes a matching contribution in an amount equal to 100%
of a participant's first 2% of contributions and 50% of the next 4% of
contributions. Forfeitures of nonvested matching contributions are used to
offset future matching contributions.

In order to vest in Federated's 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 $2,976,000, $2,537,000 and
$2,596,000, for the years ended Dec. 31, 1998, 1997 and 1996, respectively.

An employee of Federated 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 contributes amounts as authorized by its
board of directors. An employee will receive a portion of Federated's
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 1998, 1997 and 1996.

(B) EMPLOYEE STOCK PURCHASE PLAN

In July 1998, Federated established an Employee Stock Purchase Plan which allows
employees to purchase a maximum of 500,000 shares of Class B Common Stock.
Employees may contribute up to 10% of their salary to purchase shares of
Federated's Class B Common Stock on a quarterly basis at the market price. The
shares under the plan may be newly issued or may be shares purchased on the open
market. In 1998, 3,732 shares were purchased by the plan on the open market.

(8) OTHER COMPENSATION PLANS

(A) DEFERRED COMPENSATION PLANS

In 1997, a deferred compensation arrangement was established for a group of key
employees for the purpose of providing incentives to certain individuals who
contribute to the success of Federated. Each annual award provided under this
program is deferred until 2001, 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 Dec. 31, 1998 was
$316,000 and is included in "Other long-term liabilities" on the Consolidated
Balance Sheets. Amounts included in "Compensation and related" expense on the
Consolidated Statements of Income were $232,000 and $71,000 for the years ended
Dec.

31, 1998 and 1997, respectively.

(B) EMPLOYEE RESTRICTED STOCK PLAN

Under the Employee Restricted Stock Plan, Federated has sold to certain key
employees, subject to restrictions, shares of Class B Common Stock. During the
restricted period, the recipient receives dividends on the shares. The
compensation cost to Federated (the difference between the estimated fair value
of the stock and the amount paid by the key employees at issuance) is expensed
over the period of employee performance during which the restrictions lapse, not
to exceed 10 years. In 1998, 1997 and 1996, 0, 75,000 and 0 shares,
respectively, of Class B Common Stock were sold under the Employee Restricted
Stock Plan. Forfeitures of 139,000, 612,000 and 132,000 shares occurred in 1998,
1997 and 1996, respectively. For the years ended Dec. 31, 1998, 1997 and 1996,
compensation expense related to the Employee Restricted Stock Plan was $512,000,
$28,000 and $2,183,000, respectively.

Stock options are part of the Stock Incentive Plan offered by Federated to
reward employees and independent directors who have contributed to the success
of Federated and to provide incentive to increase their efforts on behalf of
Federated.

In the first quarter of 1996, 2,997,000 SAR Plan rights were converted to stock
options. In 1997, 1,683,000 stock options were granted to a group of key
employees. In 1998, the remaining 48,000 SAR Plan rights were converted to stock
options, 300,000 employee stock options were granted and 10,000 options were
awarded to independent directors. The weighted-average grant date fair value of
the options granted in 1998 was $4.86 per option. In the event the independent
appraisals (prior to the public registration of Federated's Class B Common Stock
in May 1998) or market value of the Class B Common Stock exceeds the exercise
price of the options at the time of issuance, the difference is charged to
compensation expense over the vesting period. For existing plans, vesting occurs
over a 1- to 10-year period and may be accelerated as a result of meeting
specific performance criteria. Each vested option may be exercised, during the
stated exercise period, for the purchase of one share of Class B Common Stock at
the exercise price.

For the years ended Dec. 31, 1998, 1997 and 1996, compensation expense related
to the stock options was $(57,000), $231,000 and $365,000, respectively.

The following table summarizes the status of and changes in Federated's stock
option plan during the past three years:

Weighted- Weighted-
Average Average
Exercise Options Exercise

Options Price Exercisable Price

Outstanding at

beginning of 1996 0 $0.00 0 $0.00
Granted 2,997,000 1.91
Exercised 0 0.00
Forfeited (264,000) 1.91
Outstanding at
end of 1996 2,733,000 1.91 0 0.00
Granted 1,683,000 5.53
Exercised 0 0
Forfeited (397,200) 1.91
Outstanding at
end of 1997 4,018,800 3.43 0 0.00
Granted 358,000 8.58
Exercised (300,000) 3.33
Forfeited (249,450) 3.13
Outstanding at
end of 1998 3,827,350 $3.94 0 $0.00

Additional information regarding stock options outstanding at Dec. 31, 1998,
follows:

Weighted-
Average

Weighted- Remaining Weighted-

Range of Average Contractual Average
Exercise Exercise Life Exercise
Prices Outstanding Price (in Years) Exercisable Price
$1.91 to $1.93 2,208,600 $ 1.92 6.8 0 $0.00
$6.00 to $9.30 1,608,750 6.62 8.7 0 0.00
$19.00 10,000 19.00 9.7 0 0.00
3,827,350 $ 3.94 7.6 0 $0.00

(D) PRO FORMA NET INCOME

Federated 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 Dec. 31, 1994. The estimated fair value of the options is
amortized to expense over the option's vesting period. For stock options and
employee restricted stock granted prior to Federated's initial public offering,
the fair value was estimated at the date of grant using the Minimum Value option
pricing model with the following weighted-average assumptions for 1998:

a risk-free interest rate of 5.72%; a dividend yield of 1.6%; and an expected
life of 9.5 years. The estimated fair value of the restricted stock is expensed
over the vesting period. The fair value was based on the estimated market price
on the grant date. For stock options granted after Federated's initial public
offering, Federated estimated the grant-date fair value using the Black-Scholes
option-pricing model with the following weighted-average assumptions: dividend
yield of 0.89%; expected volatility of 29.6%; risk-free interest rate of 4.63%
and expected lives of 5.5 years. 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.

Year Ended Dec. 31,
1998 1997 1996

Pro forma net income

(in thousands) $ 92,235 $ 50,501 $ 12,630
Pro forma basic earnings
per common share $ 1.10 $ 0.61 $ 0.12
Pro forma diluted earnings
per common share $ 1.07 $ 0.60 $ 0.12

(9) MINORITY INTEREST IN SUBSIDIARY

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

(10) COMMON STOCK

On May 19, 1998, Federated Investors was merged with and into Federated
Investors, Inc., its wholly owned subsidiary, with Federated Investors, Inc.
continuing as the surviving corporation. All outstanding Class A and Class B
Common Shares of Federated Investors were exchanged for an equal number of
shares of no par Class A and Class B Common Stock of Federated Investors, Inc.,
respectively, with the same proportionate ownership and substantially similar
rights, and all Treasury Stock of Federated Investors was retired.

As a condition precedent to the merger described above, Federated Investors,
Inc. issued an additional 2,610,000 shares of Class B Common Stock in an initial
public offering for net proceeds of approximately $46 million in cash. At Dec.
31, 1998, 6,000 and 86,198,250 shares of Class A and Class B Common Stock were
outstanding, respectively.

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

Federated's Senior Secured Credit Agreement allows dividends in an amount not to
exceed $20 million plus 50% of any net income (less 100% of any loss) of
Federated during the period from Jan. 1, 1998, to and including the date of
payment. The Senior Secured Note Purchase Agreement allows dividends to an
amount of $5,000,000 plus 50% of any net income (less 100% of any loss) of
Federated during the period from Jan. 1, 1996, to and including the date of
payment. As of Dec. 31, 1998, approximately $54.7 million was available to pay
dividends under the more restrictive of the two limitations. Cash dividends of
$0.135, $0.0583 and $0.0417 per share, or $11,480,000, $4,867,000 and $3,498,000
were paid in 1998, 1997 and 1996, respectively, to holders of shares of Common
Stock.

In 1996, Federated Investors entered into an agreement to convert 1,000 shares
of Series A Preferred Stock into 5,302,758 shares of Class B Common Stock and to
buy the converted shares back for $19.09 per share, or $101,233,000. Also 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 shares were recorded as Treasury Stock at cost.

(11) LEASES

Federated has 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 Dec. 31, 1998:

(in thousands)

1999 $ 16,018
2000 13,749
2001 11,446
2002 11,259
2003 11,162
2004 and thereafter 47,937
Total minimum lease payments $ 111,571

Rent expense was approximately $18,204,000, $14,293,000 and $14,674,000 for the
years ended Dec. 31, 1998, 1997 and 1996, respectively.

(12) INCOME TAXES

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

Income tax expense (benefit) consisted of the following:

Year Ended Dec. 31,

(in thousands) 1998 1997 1996
CURRENT

Federal $ 49,948 $ 19,597 $ (6,672)
State 494 243 514
50,442 19,840 (6,158)

DEFERRED

Federal 3,123 11,117 17,088
Extraordinary item 0 (241) (530)
Total $ 53,565 $ 30,716 $ 10,400

For the years ended Dec. 31, 1998, 1997 and 1996, the foreign subsidiary had net
operating income (losses) of $4,224,000, $1,449,000 and $(257,000),
respectively, for which an income tax expense of $1,478,000, $0 and $0,
respectively, had been provided.

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

Year Ended Dec. 31,
1998 1997 1996

Expected statutory rate 35.0% 35.0% 35.0%
Increase:
State income taxes 0.2 0.2 1.4
Amortization of goodwill 0.5 1.0 3.2
Meals and entertainment
limitation 0.8 1.2 4.6
Other 0.2 0.4 0.3
Total 36.7% 37.8% 44.5%

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

Dec. 31,

(in thousands) 1998 1997
DEFERRED TAX ASSETS
Intangible assets $ 15,419 $ 14,946
Organization costs 1,399 1,399
Employee restricted stock plan 223 170
Property and equipment depreciation 164 0
Reserve for bad debts 926 1,068
Other 1,133 246
Total gross deferred tax asset $ 19,264 $ 17,829
DEFERRED TAX LIABILITIES

Deferred sales commissions $ 33,718 $ 41,753
Deferred 12b-1 fee income 12,252 0
Other 3,243 2,622
Total gross deferred tax liability $ 49,213 $ 44,375
Net deferred tax liability $ 29,949 $ 26,546

(13) EARNINGS PER SHARE

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

Year Ended Dec. 31,

(in thousands, except per share data) 1998 1997 1996
NUMERATOR

Income from continuing operations $ 92,369 $ 50,577 $ 12,619
Preferred stock dividends 0 0 3,025
Numerator for basic and diluted earnings
per share for continuing operations --

income available to common stockholders $ 92,369 $ 50,577 $ 9,594
DENOMINATOR

Denominator for basic earnings per share --

weighted-average shares 84,171 82,392 83,159
Effect of dilutive securities:
Dilutive potential common shares from
stock-based compensation 2,412 1,272 591
Denominator for diluted earnings per
share -- adjusted weighted-average

shares and assumed conversions 86,583 83,664 83,750
Basic earnings per share $ 1.10 $ 0.61 $ 0.12
Diluted earnings per share $ 1.07 $ 0.60 $ 0.12

(14) ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of accumulated other comprehensive income are as follows:

Unrealized
Gain/(Loss)

on Tax
Marketable Other (Expense)/

(in thousands) Securities Adjustments Benefit Total
Balance at
Dec. 31, 1995 $ 960 $ 2 $(336) $ 626
Total change in market value (430) 0 151 (279)
Reclassification adjustment (492) 0 172 (320)
Other adjustments 0 (12) 0 (12)
Balance at
Dec. 31, 1996 38 (10) (13) 15
Total change in market value (253) 0 89 (164)
Reclassification adjustment 84 0 (30) 54
Other adjustments 0 4 0 4
Balance at
Dec. 31, 1997 (131) (6) 46 (91)
Total change in market value 604 0 (211) 393
Reclassification adjustment 168 0 (59) 109
Other adjustments 0 (5) 0 (5)
Balance at
Dec. 31, 1998 $ 641 $(11) $(224) $406

(15) 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's significant financial instruments, are set forth below.

(A) CASH AND 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.

(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.

The majority of Federated's recourse debt is comprised of the Note. The fair
value of Federated's Note is estimated based on the current market rates for
debt of the same remaining maturities. The estimated fair values of the Note are
as follows:

Dec. 31,

(in thousands) 1998 1997
Carrying amount $ 98,000 $ 98,000
Fair value $ 102,519 $ 100,035

For accounting purposes, Federated treats the sale of revenue streams related to
the B Share financing program as nonrecourse debt. Based on the nature of this
debt and the uncertainty of the amounts and timing of the cash flows, Federated
is not able to determine the fair value of the nonrecourse debt.

(D) FUTURES AND CURRENCY FORWARD CONTRACTS

Federated entered into futures and currency forward contracts to hedge against
changes in market and currency values related to the shares of mutual funds it
purchased. Federated's carrying value of $389,000 approximates the estimated
fair value at Dec. 31, 1998.

(16) ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED
OR OBTAINED FOR INTERNAL USE

The effect of adopting SOP 98-1 was to increase operating income for the year
ended Dec. 31, 1998 by $1,381,000, or $0.016 per diluted share.

(17) COMMITMENTS AND CONTINGENCIES

Federated 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 results of
operations of Federated.

(18) RELATED PARTY TRANSACTIONS

Federated 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 may waive
certain fees charged for these services (primarily investment advisory fees) in
order to make the Federated funds more competitive or to meet regulatory
requirements.

(19) SUBSEQUENT EVENTS

In January 1999, Federated issued 750,000 options to certain key employees at an
exercise price at or exceeding the market price at the time of grant. The
contractual life of the options range from 9.5 to 10.5 years.

On Jan. 26, 1999, the board of directors declared a $0.038 per share dividend
which was paid on Feb. 15, 1999.

On Jan. 26, 1999, the board of directors approved a share repurchase program
authorizing Federated to purchase up to $20 million in Federated Class B Common
Stock over the next 12 months. The program authorizes executive management to
make purchases in open market transactions, with the timing of the purchases and
the amount of shares to be determined by the Federated executive management
team. The stock will be held in treasury for employee benefit plans, potential
acquisitions and other corporate activities.

(20) SUPPLEMENTARY QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarter

(in thousands, except per share data) 1st 2nd 3rd 4th
1998
Revenues $122,592 $126,216 $133,068 $140,250
Net income before extraordinary item 20,837 21,071 23,610 26,850
Net income 20,837 21,071 23,610 26,850
Basic earnings per share before

extraordinary item 0.25 0.25 0.28 0.32
Diluted earnings per share before
extraordinary item 0.25 0.24 0.27 0.31
Common Stock price per share1
High -- 20 3/16 18 1/4 19 5/16
Low -- 16 12 7/8 11

1997

Revenues 91,627 93,457 106,560 112,073
Net income before extraordinary item 8,843 9,090 16,009 17,083
Net income 8,843 9,090 16,009 16,634
Basic earnings per share before
extraordinary item 0.11 0.11 0.19 0.20
Diluted earnings per share before
extraordinary item 0.11 0.11 0.19 0.20
Common Stock price per share1
High -- -- -- --
Low -- -- -- --

1 Prior to May 14, 1998, there was no public market for the Common Stock.

Exhibit 21.01

SUBSIDIARIES OF THE REGISTRANT

Advanced Information Systems
Edgewood Services, Inc.
Federated Administrative Services

Federated Administrative Services, Inc.
Federated Advisers
Federated Financial Services, Inc.
Federated Funding 1997-1, Inc.
Federated Global Research Corp.
Federated International Management Limited
Federated Investment Counseling
Federated Investors Building Corp.
Federated Investors Management Company
Federated Investors Trust Company
Federated Management
Federated Research

Federated Research Corp.
Federated Securities Corp.
Federated Services Company

Federated Shareholder Services Co.
FFSI Insurance Agency, Inc.

FII Holdings, Inc.
FS Holdings, Inc.

Passport Research Limited
Retirement Plan Services Company of America

Exhibit 23.01

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-56429) pertaining to the Federated Investors, Inc. Employee Stock
Purchase Plan and the Registration Statement (Form S-8 No. 333-62471) pertaining
to the Federated Investors, Inc. 1998 Stock Incentive Plan of our report dated
January 26, 1999, with respect to the consolidated financial statements of
Federated Investors, Inc. incorporated by reference in this Annual Report (Form
10-K) for the year ended December 31, 1998.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
March 26, 1999

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

Exhibit 27.01

<S> <C>
<ARTICLE> 5

<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 185,581,000
<SECURITIES> 13,398,000
<RECEIVABLES> 27,373,000
<ALLOWANCES> 1,276,000
<INVENTORY> 1,567,000
<CURRENT-ASSETS> 242,260,000
<PP&E> 64,499,000
<DEPRECIATION> 42,949,000
<TOTAL-ASSETS> 580,020,000
<CURRENT-LIABILITIES> 86,328,000
<BONDS> 371,548,000
0
0
<COMMON> 75,279,000
<OTHER-SE> 13,427,000
<TOTAL-LIABILITY-AND-EQUITY> 580,020,000
<SALES> 0
<TOTAL-REVENUES> 522,127,000
<CGS> 0
<TOTAL-COSTS> 339,709,000
<OTHER-EXPENSES> 27,614,000
<LOSS-PROVISION> (359,000)
<INTEREST-EXPENSE> 25,798,000
<INCOME-PRETAX> 145,934,000
<INCOME-TAX> 53,565,000
<INCOME-CONTINUING> 92,369,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,369,000
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.07

</TABLE>