10-K

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, 2002

¨ 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)

Pennsylvania	25-1111467
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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 ¨ No x

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. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨

The aggregate market value of the Class B Common Stock held by non-affiliates of the registrant as of March 14, 2003 was approximately $2.0 billion, based on the last reported sales price of $24.48 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 A and Class B Common Stock outstanding on March 14, 2003, was 9,000 and 110,152,721, respectively.

DOCUMENTS INCORPORATED BY REFERENCE:

Selected portions of the 2002 Annual Report to Shareholders—Part I, Part II and Part IV of this Report.

Selected portions of the 2003 Information Statement—Part III of this Report.

Part I

ITEM 1 – BUSINESS

General

Federated Investors, Inc., a Pennsylvania corporation, together with its consolidated subsidiaries (collectively, “Federated”), is a leading provider of investment management products and related financial services. Federated has been in the asset management business since 1955 and is one of the largest mutual fund managers in the United States with $195.4 billion in assets under management at December 31, 2002.

Federated sponsors, markets and provides investment-related services to various investment products, including mutual funds and separately managed accounts. Federated’s principal source of revenue is investment advisory fee income earned by various subsidiaries of Federated pursuant to investment advisory contracts with the investment products. These subsidiaries are registered as investment advisers under the Investment Advisers Act of 1940. Investment advisers are compensated for their services in the form of investment advisory fees based upon the net assets of the fund or separately managed account.

Federated provided investment advisory services to 137 Federated-sponsored funds as of December 31, 2002. Federated markets these funds to banks, broker/dealers and other financial intermediaries who use them to meet the needs of their customers, including retail investors, corporations and retirement plans. The funds sponsored by Federated are domiciled in the U.S., with the exception of Federated International Funds Plc and Federated Unit Trust, which are domiciled in Dublin, Ireland. Federated’s U.S.-domiciled funds (with the exception of a collective investment trust) are 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 that is 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. Amendments to such advisory 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 the 137 mutual funds sponsored by Federated (the “Federated Funds”), Federated’s investment advisory subsidiaries managed 52 money market funds (and cash equivalents) totaling $136.4 billion in assets, 49 fixed-income funds with $22.2 billion in assets and 36 equity funds with $16.2 billion in assets. Appendix “A” hereto lists all of these funds, including asset levels and dates of inception.

As of December 31, 2002, Federated provided investment advisory services to $20.6 billion in separately managed account assets. These separate accounts (together with the Federated Funds, “Managed Assets”) represented assets from government entities, pension and other employee benefit plans, corporations, trusts, foundations, endowments, mutual funds sponsored by third parties, and other investors. 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.

Certain funds sponsored by Federated have adopted distribution plans that, subject to applicable law, provide for payment to Federated for marketing expenses, including sales commissions paid to broker/dealers. These distribution plans are implemented through a distribution agreement between Federated and each respective 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 funds and distributes shares of the funds through unaffiliated dealers. Each distribution plan and agreement is initially approved by the directors or trustees of the respective fund and is reviewed for approval annually.

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 agreements with the Federated Funds, include administrative services, transfer agency services, shareholder servicing, accounting and general support.

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

Managed Assets

	As of December 31,						Growth Rate
(dollars in millions)	2002		2001		2000		3 Yr. CAGR1		2002
Money Market Funds	$	136,374	$	135,092	$	98,797	18	%	1	%
Fixed-Income Funds		22,169		17,378		14,268	12	%	28	%
Equity Funds		16,240		20,760		20,641	(8	%)	(22	%)
Separate Accounts2		20,570		6,457		5,878	63	%	219	%
Total Managed Assets	$	195,353	$	179,687	$	139,584	16	%	9	%

1 Compound Annual Growth Rate

2 Separate Accounts included investments in money market, fixed-income and equity products. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2002 Annual Report for further details.

Average Managed Assets for the past three years were as follows:

Average Managed Assets

	Year ended December 31,						Growth Rate
(dollars in millions)	2002		2001		2000		3 Yr. CAGR1		2002
Money Market Funds	$	135,506	$	117,784	$	86,406	20	%	15	%
Fixed-Income Funds		19,773		15,859		14,713	6	%	25	%
Equity Funds		18,483		20,682		22,107	2	%	(11	%)
Separate Accounts2		15,480		6,268		5,168	56	%	147	%
Total Average Managed Assets	$	189,242	$	160,593	$	128,394	17	%	18	%
1 Compound Annual Growth Rate 2 Separate Accounts included investments in money market, fixed-income and equity products. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2002 Annual Report for further details.

Federated also derives revenue from providing mutual fund administrative services and various other fund-related 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. Federated provided these services for $34.8 billion of assets in funds sponsored by third parties (“Administered Assets”) as of December 31, 2002.

The following chart shows period-end and average Administered Assets for the past three years:

Administered Assets

	As of and for the year ended December 31,						Growth Rate
(dollars in millions)	2002		2001		2000		2002
Period-End Administered Assets	$	34,827	$	44,684	$	39,732	(22	%)
Average Administered Assets		38,032		41,982		41,966	(9	%)

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

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Federated’s revenues from investment advisory, administrative and other service fees provided under agreements with the funds and other entities over the last three years were as follows (certain amounts previously reported have been reclassified to conform with the current year’s presentation):

Revenue

	Year ended December 31,						Growth Rate
(dollars in thousands)	2002		2001		2000		3 Yr. CAGR1		2002
Investment advisory fees, net	$	453,600	$	422,980	$	380,234	12	%	7	%
Administrative service fees, net		141,111		130,364		109,870	11	%	8	%
Other service fees, net		111,226		161,180		166,356	(9	%)	(31	%)
Other, net		5,132		5,239		8,482	(8	%)	(2	%)
Total revenue		711,069		719,763		664,942	7	%	(1	%)
Less: B-share-related distribution fees2		0		48,070		63,792	n/a		(100	%)
Adjusted total revenue	$	711,069	$	671,693	$	601,150	10	%	6	%

1 Compound Annual Growth Rate

2 Revenue for 2001 and 2000 have been adjusted to exclude certain B-share-related distribution fee income that is no longer recorded in revenue beginning in 2002 as a result of the sale of the B-share retained interest in 2001. See the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2002 Annual Report for further details.

Investment Products

Federated is one of the largest U.S. managers of money market assets, with $150.8 billion in assets under management at December 31, 2002. Federated offers a wide range of products, including money market, equity and fixed-income investments and believes that its product diversification allows it to accumulate assets in different market cycles. Federated’s mix of products is designed to serve individuals at different stages of their life and earnings cycle and includes products that are expected to be in demand under a variety of economic and market conditions.

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 25 years and began selling money market fund products to institutions in 1974. Federated also manages retail money market products which are typically distributed through broker/dealers. Federated manages money market assets in the following asset classes: prime corporate ($60.5 billion), government ($69.1 billion) and tax free ($21.2 billion).

In recent years, Federated has emphasized growth of its equity business as an important component of its strategy and has broadened its range of equity products. Equity assets are managed across a wide range of styles including large cap value ($5.2 billion), small-mid cap growth ($3.6 billion), equity income ($2.0 billion), core equity ($2.0 billion), international ($1.3 billion) and mid-large cap growth ($1.1 billion). Federated also manages assets in equity index funds ($1.8 billion) and balanced and asset allocation funds ($1.1 billion). These asset allocation funds include fixed-income assets.

Federated’s fixed-income assets are managed in a wide range of sectors including multi-sector ($7.2 billion), mortgage-backed ($4.9 billion), high-yield ($4.1 billion), municipal ($3.2 billion), U.S. corporate ($2.9 billion), U.S. government ($2.9 billion) and international ($1.3 billion). Federated’s fixed-income products offer fiduciaries and others a broad range of highly defined products designed to meet many of their investment needs and requirements.

Each investment product is managed by a team of portfolio managers and analysts. Federated’s proprietary, independent investment research process is centered on the integration of several fundamentals: quantitative research models, fundamental research and credit analysis, disciplined portfolio construction and management, portfolio attribution and trading. Federated has structured its investment process to meet the requirements of a broad array of global clients through our disciplined, integrated investment process.

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Distribution Channels

Federated’s distribution strategy is to provide products geared to financial intermediaries, primarily banks, broker/dealers, investment advisers and directly to institutions such as corporations and government entities. Through substantial investments in distribution for more than 20 years, Federated has developed relationships with more than 5,000 intermediaries and sells its products directly to another 500 corporations and government entities. Federated uses its trained sales force of more than 180 representatives and managers across the United States to add new customer relationships and strengthen and expand existing relationships.

Product Markets

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

Managed Assets by Market

	As of December 31,						Growth Rate
(Dollars in millions)	2002		2001		2000		3 Yr. CAGR1		2002
Trust	$	102,186	$	96,568	$	71,955	17	%	6	%
Broker/Dealer		44,060		46,592		43,462	3	%	(5	%)
Institutional		27,730		27,531		17,808	19	%	1	%
International		1,795		1,367		1,356	18	%	31	%
Other		19,582		7,629		5,003	77	%	157	%
Total Managed Assets	$	195,353	$	179,687	$	139,584	16	%	9	%

¹ Compound Annual Growth Rate

Trust Market. Federated pioneered the concept of providing cash management to bank trust departments through mutual funds over 25 years ago. In addition, Federated initiated a strategy to provide a broad range of equity and fixed-income funds, termed MultiTrust^™, 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 trust market. In addition to bank trust departments, Federated provides services to bank capital markets (institutional brokerages within banks) and to certain other institutional customers as part of the trust market.

Money market funds contain the majority of Federated’s Managed Assets in the 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 and separately managed accounts structured for use in the trust market. As of December 31, 2002, Managed Assets in the trust market included $91.0 billion in money market assets, $7.8 billion in fixed-income assets and $3.4 billion in equity assets.

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. 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, 2002, Managed Assets in the broker/dealer market included $27.4 billion in money market assets, $8.5 billion in fixed-income assets and $8.2 billion in equity assets.

Institutional Market. 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

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demands related to portfolio composition, risk and investment performance. Federated maintains a dedicated sales staff to focus on the distribution of its products to a wide variety of users: investment advisers, corporations, corporate and public pension funds, insurance companies, government entities, foundations, endowments, hospitals, and non-Federated investment companies. As of December 31, 2002, Managed Assets in the institutional market included $17.5 billion in money market assets, $6.4 billion in fixed-income assets and $3.8 billion equity assets.

International Market. Federated continues to broaden distribution to areas outside of the U.S. Federated partnered with LVM-Versicherungen (“LVM”), a large German insurance company, to create a joint-venture company named Federated Asset Management GmbH (“Federated GmbH”), to pursue institutional separate accounts in German-speaking Europe. In addition, Federated sponsors six retail funds (“Federated Unit Trust”) for which Federated GmbH acts as a distributor in German-speaking countries in Europe. LVM also distributes a separate share class of these retail funds through its network of insurance agents throughout Germany. As of December 31, 2002, Managed Assets in the international market included $1.4 billion in fixed-income assets and $0.4 billion in equity assets.

Other Markets. Other markets included $12.8 billion in money market assets under management from TexPool, a Texas government pool investment mandate. Other markets also includes affinity group assets from a historical arrangement with a large affinity group to provide a money market fund for its members and other assets which resulted from earlier marketing efforts and acquisitions. Managed Assets in these categories totaled $5.8 billion as of December 31, 2002. Assets attributable to acquisitions represented retail assets and included $1.8 billion relating to the Federated Kaufmann Fund. Other markets also includes assets invested in three separate collateralized bond obligation (CBO) products for which Federated acts as the investment adviser. These products package Federated’s investment management expertise into an alternative product structure and offer another source of investment advisory fee revenue. As of December 31, 2002, Managed Assets in Federated’s CBOs totaled $1.0 billion.

Competition

The mutual fund industry is highly competitive. According to the Investment Company Institute, at the end of 2002, there were over 8,250 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 investment products 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 fact that Federated derives a smaller portion of its revenue from Administered Assets as compared to Managed Assets, changes in the amount of Administered Assets generally have less impact on Federated’s results of operations than changes in Managed Assets.

Recent Acquisitions

In the second quarter 2002, Federated signed an agreement with FirstMerit Advisors Inc. pursuant to which the assets previously advised by FirstMerit Advisors, Inc., totaling approximately $250 million, were merged into various Federated funds.

In 2001, Federated completed two acquisitions. In the second quarter, Federated acquired substantially all of the business of Edgemont Asset Management Corporation, the former adviser of the Kaufmann Fund. As a result of the acquisition, the $3.2 billion Kaufmann Fund was reorganized into the Federated Kaufmann Fund. In the fourth quarter, assets of three mutual funds previously advised by Rightime Econometrics, Inc., totaling approximately $148.0 million, were merged into Federated Capital Appreciation Fund in connection with an agreement between Federated, Lincoln Investment Planning, Inc. and Rightime Econometrics, Inc.

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Federated continues to look for new alliances and opportunities to enhance shareholder value through acquisitions.

Regulatory Matters

Substantially all aspects of Federated’s business are subject to federal and state regulation and to the extent operations take place outside the United States, they are subject to the regulations of foreign countries. Depending upon the nature of any non-compliance, the results could include 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 and Exchange Commission (the “Commission”) under the Investment Advisers Act of 1940 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 of 1940. 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, state and foreign 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, 2002, Federated employed 1,706 persons. Federated considers its relationships with its employees to be satisfactory.

Forward-Looking Information

This Annual Report on Form 10-K and the 2002 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 known and unknown risks, uncertainties and other factors, 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. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism. 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.

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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 137 managed funds, 94 are sold without sales commission.

A significant portion of Federated’s revenue is derived from providing mutual funds to the 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 recent 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 performance and 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 generally earned on equity products than on fixed-income and money market products. Consequently, significant fluctuations in the prices of securities held by, or the level of redemptions from, the funds or other products advised by Federated may materially affect the amount of Managed Assets and thus Federated’s revenue, profitability and ability to grow. Substantially all of Federated’s Managed Assets are in investment products that permit investors to redeem their investment at any time.

Potential Adverse Affects on Money Market and Other Fixed-Income Assets Resulting From Changes in Interest Rates. Approximately 47% of Federated’s revenue in 2002 was from managed assets in money market products. These assets 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 and administrative service fee revenue. In addition, rising interest rates diminish the total return of many bond investments due to lower market valuations of existing bonds in a rising rate environment. Lower total returns or losses may cause investors to redeem their holdings, which reduces Federated’s revenue. As a result of Federal Reserve Bank easings, interest rates reached historic lows in 2002. Further decreases in interest rates from levels in existence on the filing date of this report could also have an adverse effect on Federated’s revenue from certain retail money market funds distributed largely through the broker/dealer market. Lower interest rates on the investments in these funds could cause Federated and other service providers to the funds to waive some or all of their fees in order to maintain positive yields. Management estimates that a decrease of 0.50% or more in interest rates on money market investments could cause an adverse effect on Federated’s revenue from these retail money market funds. Federated has been actively diversifying its products to expand its Managed Assets in equity products which may be less sensitive to interest rate increases. There can be no assurance that Federated will be successful in these diversification efforts.

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Adverse Effects of Poor Investment Performance. Success in the investment management business is largely dependent on investment performance relative to market conditions and performance of competing products. Good performance generally assists asset retention and growth generating additional revenues (which are largely based on assets of the funds). Conversely, poor performance tends to result in decreased sales and increased redemptions with corresponding decreases in revenues to Federated. Poor performance 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 agreements 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 Laws and Regulations on Federated’s Investment Management Business. Federated and its investment management business are subject to extensive regulation in the United States primarily at the Federal level (most recently in the form of the Sarbanes-Oxley Act of 2002 and the Gramm-Leach-Bliley Act of 1999), 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 and, to the extent operations take place outside the United States, by foreign regulations. 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.

Systems and Technology Risks. Federated utilizes software and related technologies throughout its businesses including both proprietary systems as well as those provided by outside vendors. Unanticipated issues could occur and it is not possible to predict with certainty all of the adverse effects that could result from a failure of a third party to address computer system problems. Accordingly, there can be no assurance that potential system interruptions or the cost necessary to rectify the problems would not have a material adverse effect on Federated’s business, financial condition, results of operations or business prospects.

Adverse Effects of Rising Costs of Risk Management. Since 2001, insurance expenses have increased and management expects further increases to be significant going forward. In addition, certain insurance coverage may not be available or may only be available at prohibitive costs. Renewals of insurance policies may expose the company to additional costs through the assumption of higher deductibles and/or co-insurance liability. Higher insurance costs and incurred deductibles reduce Federated’s operating and net income.

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ITEM 2 – PROPERTIES

Federated’s facilities are concentrated in Pittsburgh, Pennsylvania where it leases space sufficient to meet its operating needs. Federated’s headquarters are located in the Federated Investors Tower, where Federated occupies approximately 325,000 square feet. Federated leases approximately 100,000 square feet at the Pittsburgh Office and Research Park and an aggregate of 25,000 square feet at other locations in Pittsburgh. Federated also leases approximately 51,000 square feet of office space for a portion of its servicing business in Rockland, Massachusetts. Federated maintains office space in Dublin, Ireland, and Frankfurt, Germany, where administrative offices for offshore funds and other international initiatives are maintained; in New York, New York, where Federated Global Investment Management Corp. and InvestLink Technologies, Inc. conduct their business; and in Gibbsboro, New Jersey, where Federated Investors Trust Company is located. Additional offices in Wilmington, Delaware are subleased by Federated.

ITEM 3 – LEGAL PROCEEDINGS

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

ITEM 4 – SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

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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 2002 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to the 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 2002 Annual Report to Shareholders under the caption “Selected Consolidated Financial Data” and is incorporated herein by reference.

ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this Item is contained in Federated’s 2002 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.

ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item is contained in Federated’s 2002 Annual Report to Shareholders under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and is incorporated herein by reference.

ITEM 8 – FINANCIAL STATEMENT AND SUPPLEMENTARY DATA

The information required by this Item is contained in Federated’s 2002 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 the Consolidated Financial Statements” and is incorporated herein by reference.

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

None.

11

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 2003 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 19, 2003:

Name	Position	Age
John F. Donahue	Chairman and Director	78
J. Christopher Donahue	President, Chief Executive Officer and Director	53
Arthur L. Cherry	President and Chief Executive Officer, Federated Services Company and Director	49
Thomas R. Donahue	Vice President, Treasurer, Chief Financial Officer and Director	44
John B. Fisher	President – Institutional Sales Division of Federated Securities Corp. and Federated Investment Counseling and Director	46
James F. Getz	President – Retail Sales Division of Federated Securities Corp. and Director	56
Eugene F. Maloney	Vice President and Director	58
Denis McAuley III	Vice President and Principal Accounting Officer	56
John W. McGonigle	Executive Vice President, Chief Legal Officer, Secretary and Director	64
Keith M. Schappert	President and/or Chief Executive Officer of Federated Advisory Companies*	52

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

Mr. John F. Donahue 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”) and has continued as Chairman of Federated following the consummation of the Merger. He served as President of the Trust from 1989 until 1993 and was a founder of Federated. Mr. Donahue is Chairman or President and a director or trustee of 44 investment companies managed by subsidiaries of Federated. 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 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 and has continued in that capacity with Federated since the consummation of the Merger. Prior to 1993, he served as Vice President of the Trust. He is

12

President or Executive Vice President and director, trustee or managing general partner of 44 investment companies managed by subsidiaries of Federated. 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 and Chief Executive Officer 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, former president of Scudder Services Corporation and a managing director of Scudder, Stevens & Clark.

Mr. Thomas R. Donahue was a trustee of the Trust from 1995 until the Merger and has been a director of Federated since the consummation of the Merger. He served as Vice President of the Trust from 1993 until the Merger and currently serves as Vice President, Treasurer and Chief Financial Officer of Federated. He is President of Federated Investors Management Company, a wholly owned subsidiary of Federated. Prior to joining Federated, Mr. Donahue was in the venture capital business and 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 advisers, insurance companies, retirement plans and corporations. In addition, Mr. Fisher serves as President and director of Federated Investment Counseling, a wholly owned subsidiary of Federated involved in the management of separate accounts and sub-advised mandates.

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. Eugene F. Maloney was a trustee of the Trust from 1989 until the Merger and has continued as a director of Federated since the consummation of the Merger. He serves as a Vice President 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. Denis McAuley III serves as Vice President and Principal Accounting Officer of Federated and as Senior Vice President, Treasurer or Assistant Treasurer for various subsidiaries of Federated. Mr. McAuley is a Certified Public Accountant.

Mr. John W. McGonigle was a trustee of the Trust from 1989 until the Merger and has been a director of Federated since the consummation of the Merger. Mr. McGonigle served as Secretary of the Trust from 1989 until the Merger and continues in that capacity with Federated. He served as Vice President of Federated from 1989 until August 1995, when he became Executive Vice President and continues in that capacity with Federated. Mr. McGonigle was President and CEO of Federated Investors Management Company until 1999. He is Chairman of Federated International Management Limited. Mr. McGonigle was General Counsel of Federated 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.

Mr. Keith M. Schappert became President and/or Chief Executive Officer of the Federated Advisory Companies on February 4, 2002. Prior to joining Federated, he spent 28 years with J.P. Morgan, most recently in the position of President of J.P. Morgan Fleming Asset Management, Inc. Prior to J.P. Morgan’s merger with Chase Manhattan Corp., Mr. Schappert was President and Chief Executive Officer of J.P. Morgan Asset Management Services.

13

ITEM 11 – EXECUTIVE COMPENSATION

The information required by this Item is contained in Federated’s Information Statement for the 2003 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 following table sets forth information regarding Federated’s stock-based compensation as of December 31, 2002:

Category of stock-based compensation plan	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans
Approved by shareholders	11,910,804	$	16.11	1,424,971
Not approved by shareholders	—		—	—
Total	11,910,804	$	16.11	1,424,971

All other information required by this Item is contained in Federated’s Information Statement for the 2003 Annual Meeting of Shareholders under the caption “Security Ownership” and is incorporated herein by reference.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is contained in Federated’s Information Statement for the 2003 Annual Meeting of Shareholders under the caption “Executive Compensation” and is incorporated herein by reference.

ITEM 14 – CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this report, Federated carried out an evaluation, under the supervision and with the participation of management, including Federated’s President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Federated’s disclosure controls and procedures. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that Federated’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the registrant in the reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Subsequent to the most recent evaluation, there have not been any significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

14

PART IV

ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements:

The information required by this Item is contained in Federated’s 2002 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 the Consolidated Financial Statements” and is incorporated herein by reference.

(a)(2) Financial Statement Schedules:

Schedule II, Valuation and Qualifying Accounts, is filed herewith on page S-1 of this Form 10-K.

All other schedules for which provisions are 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.

(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))
2.02	Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.1 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
2.03	Amendment No. 1, dated April 11, 2001, to the Asset Purchase Agreement dated as of October 20, 2000, by and among Federated Investors, Inc., Edgemont Asset Management Corporation, Lawrence Auriana and Hans P. Utsch (incorporated by reference to Exhibit 2.2 of Amendment No. 2 to the Current Report on Form 8-K dated April 20, 2001, filed with the Securities and Exchange Commission on July 3, 2001 (File No. 001-14818))
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))

15

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))
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))
10.06	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))
10.07	Federated Investors, Inc. Employee Stock Purchase Plan, amended as of July 20, 1999 (incorporated by reference to Exhibit 10.2 of the June 30, 1999 Quarterly Report on Form 10-Q (File No. 001-14818))
10.08	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))
10.09	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))
10.10	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))
10.11	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))
10.12	Stock Incentive Plan, as amended as of July 20, 1999 (incorporated by reference to Exhibit 10.3 to the June 30, 1999 Quarterly Report on Form 10-Q (File No. 001-14818))
10.13	Executive Annual Incentive Plan (incorporated by reference to Exhibit 10.02 to the Registration Statement on Form S-1 (File No. 333-48405))
10.14	Form of Bonus Stock Option Agreement (incorporated by reference to Exhibit 10.13 of the Form 10-K for the fiscal year ended December 31, 1998 (File No. 001-14818))
10.15	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))
10.16	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))
10.18	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))

16

10.19	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))
10.20	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))
10.21	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))
10.23	Federated Investors, Inc. Guaranty and Suretyship Agreement, dated as of March 28, 2000 (incorporated by reference to Exhibit 10.2 to the March 31, 2000 Quarterly Report on Form 10-Q (File No. 001-14818))
10.26	Purchase and Sale Agreement, dated as of December 21, 2000, among Federated Investors Management Company, Federated Securities Corp., Federated Funding 1997-1, Inc., Federated Investors, Inc., Citibank, N.A., and Citicorp North America, Inc. Company (incorporated by reference to Exhibit 10.26 of the Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 001-14818))
10.27	Amendment No. 2 to the Federated Investors Program Documents dated as of December 21, 2000, among Federated Investors, Inc., Federated Funding 1997-1, Inc., Federated Investors Management Company, Federated Securities Corp., Wilmington Trust Company, Putnam Lovell Finance L.P., Putnam Lovell Securities Inc., and Bankers Trust Company (incorporated by reference to Exhibit 10.27 of the Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 001-14818))
10.29	Second Amended and Restated Credit Agreement, dated as of January 22, 2002, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.29 of the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-14818))
10.30	Federated Investors, Inc. Stock Incentive Plan, amended as of January 29, 2002 (incorporated by reference to Exhibit 10.30 of the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-14818))
10.31	Federated Investors, Inc. Annual Incentive Plan, dated January 29, 2002 (incorporated by reference to Exhibit 10.31 of the Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 001-14818))
10.32	Amendment No. 1 to the Second Amended and Restated Credit Agreement, dated April 8, 2002, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (incorporated by reference to Exhibit 10.1 to the March 31, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.33	Employment agreement, dated May 13, 2002, between Federated Investors, Inc. and an executive officer (incorporated by reference to Exhibit 10.2 to the March 31, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.34	Annual Stock Option Agreement dated April 24, 2002 between Federated Investors, Inc. and the independent directors (incorporated by reference to Exhibit 10.1 to the June 30, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))

17

10.35	Federated Investors, Inc. Stock Incentive Plan as approved by shareholders April 24, 2002 (incorporated by reference to Exhibit 10.2 to the June 30, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.36	Federated Investors, Inc. Annual Incentive Plan as approved by shareholders April 24, 2002, as amended (incorporated by reference to Exhibit 10.3 to the June 30, 2002 Quarterly Report on Form 10-Q (File No. 001-14818))
10.37	Amendment No. 2 to the Second Amended and Restated Credit Agreement, dated January 20, 2003, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association (Filed herewith)
13.01	Selected Portions of 2002 Annual Report to Shareholders (Filed herewith)
21.01	Subsidiaries of the Registrant (Filed herewith)
23.01	Consent of Ernst & Young LLP (Filed herewith)

(b) Reports on Form 8-K:

none

(c) Exhibits:

See (a)(3) above.

(d) Financial Statement Schedules:

See (a)(2) above.

18

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 20, 2003

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

Signature	Title	Date
/s/    JOHN F. DONAHUE         John F. Donahue	Chairman and Director	March 20, 2003
/s/    J. CHRISTOPHER DONAHUE         J. Christopher Donahue	President, Chief Executive Officer and Director (Principal Executive Officer)	March 20, 2003
/s/    ARTHUR L. CHERRY         Arthur L. Cherry	Director	March 20, 2003
/s/    THOMAS R. DONAHUE         Thomas R. Donahue	Chief Financial Officer and Director	March 20, 2003
/s/    MICHAEL J. FARRELL         Michael J. Farrell	Director	March 20, 2003
/s/    JOHN B. FISHER         John B. Fisher	Director	March 20, 2003

19

Signature	Title	Date
/s/    JAMES F. GETZ         James F. Getz	Director	March 20, 2003
/s/    EUGENE F. MALONEY         Eugene F. Maloney	Director	March 20, 2003
/s/    DENIS MCAULEY III         Denis McAuley III	Principal Accounting Officer	March 20, 2003
/s/    JOHN W. MCGONIGLE         John W. McGonigle	Director	March 20, 2003
/s/    JAMES L. MURDY         James L. Murdy	Director	March 20, 2003
/s/    EDWARD G. O’CONNOR         Edward G. O’Connor	Director	March 20, 2003

20

CERTIFICATIONS

I, J. Christopher Donahue, certify that:

1. I have reviewed this annual report on Form 10-K of Federated Investors, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date	March 20, 2003	By:	/s/    J. CHRISTOPHER DONAHUE
			J. Christopher Donahue President and Chief Executive Officer

21

CERTIFICATIONS

I, Thomas R. Donahue, certify that:

1. I have reviewed this annual report on Form 10-K of Federated Investors, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date	March 20, 2003	By:	/s/    THOMAS R. DONAHUE
			Thomas R. Donahue Chief Financial Officer

22

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Federated Investors, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.

Date	March 20, 2003	By:	/s/    J. CHRISTOPHER DONAHUE
			J. Christopher Donahue President and Chief Executive Officer

Date	March 20, 2003	By:	/s/    THOMAS R. DONAHUE
			Thomas R. Donahue Chief Financial Officer

23

EXHIBIT INDEX

Exhibit Number	Description
10.37	Amendment No. 2 to the Second Amended and Restated Credit Agreement, dated January 20, 2003, by and among Federated Investors, Inc., the banks set forth therein and PNC Bank, National Association
13.01	Selected Portions of 2002 Annual Report to Shareholders
21.01	Subsidiaries of the Registrant
23.01	Consent of Ernst & Young LLP

24

APPENDIX A

FEDERATED FUNDS

Fund Name	Number of Share Classes as of 12/31/02	Fund Category	Assets as of 12/31/02	Load	Fund Effective Date
EQUITY FUNDS:
FEDERATED AMERICAN LEADERS FUND INC.	4	Equity Fund—Growth and Income	2,370,957,193	Y	2/26/1969
FEDERATED AMERICAN LEADERS FUND II	2	Equity Fund—Growth and Income	314,188,538	N	12/15/1993
FEDERATED CAPITAL APPRECIATION FUND	3	Equity Fund—Growth	1,982,298,519	Y	11/14/1995
FEDERATED CAPITAL APPRECIATION FUND II	2	Equity Fund—Growth	10,227,638	N	6/17/2000
FEDERATED CAPITAL INCOME FUND INC	4	Equity	411,261,909	Y	5/29/1988
FEDERATED COMMUNICATIONS TECHNOLOGY FUND	3	Equity Fund—Growth	106,471,720	Y	9/13/1999
FEDERATED EQUITY INCOME FUND INC.	4	Equity	1,391,944,773	Y	12/30/1986
FEDERATED EQUITY INCOME FUND II	1	Equity	61,461,853	N	12/16/1996
FEDERATED EUROPEAN GROWTH FUND	3	International/Global	23,753,457	Y	1/31/1996
FEDERATED GLOBAL EQUITY FUND	3	International/Global	25,928,657	Y	3/8/1998
FEDERATED GLOBAL FINANCIAL SERVICES FUND	3	International/Global	40,084,127	Y	8/24/1998
FEDERATED GLOBAL VALUE FUND	3	International/Global	41,771,361	Y	4/22/1994
FEDERATED GROWTH STRATEGIES FUND	3	Equity Fund—Growth	592,765,591	Y	8/23/1984
FEDERATED GROWTH STRATEGIES FUND II	1	Equity Fund—Growth	53,366,696	N	9/30/1995
FEDERATED INTERNATIONAL CAPITAL APPRECIATION FUND	3	International Equity Fund	56,112,282	Y	6/30/1997
FEDERATED INTERNATIONAL EQUITY FUND	3	International Equity Fund	331,265,237	Y	8/17/1984
FEDERATED INTERNATIONAL EQUITY FUND II	1	International Equity Fund	37,869,577	N	4/4/1995
FEDERATED INTERNATIONAL SMALL COMPANY FUND	3	International/Global	344,060,310	Y	1/31/1996
FEDERATED INTERNATIONAL SMALL COMPANY FUND II	1	International/Global	4,224,108	N	6/21/2000
FEDERATED KAUFMANN FUND	4	Equity Fund—Growth	3,519,552,921	Y	4/23/2001
FEDERATED KAUFMANN FUND II	1	Equity Fund—Growth	650,862	N	4/30/2002
FEDERATED KAUFMANN SMALL CAP FUND	3	Equity Fund—Growth	302,068	Y	12/18/2002
FEDERATED LARGE CAP GROWTH FUND	3	Equity Fund—Growth	263,501,308	Y	12/23/1998
FEDERATED MANAGED CONSERVATIVE GROWTH PORTFOLIO	2	Balanced	111,436,365	N	3/11/1994
FEDERATED MANAGED GROWTH PORTFOLIO	2	Asset Allocation Fund	80,316,447	N	3/11/1994
FEDERATED MANAGED MODERATE GROWTH PORTFOLIO	2	Asset Allocation Fund	143,808,393	N	3/11/1994
FEDERATED MARKET OPPORTUNITY FUND	3	Equity Fund—Growth and Income	448,352,443	Y	12/4/2000
FEDERATED MAX-CAP INDEX FUND	3	Equity Fund—Growth and Income/Index	1,370,757,892	N	7/2/1990
FEDERATED MID-CAP INDEX FUND	1	Equity Fund—Growth and Income/Index	379,483,781	N	7/7/1992
FEDERATED MINI-CAP INDEX FUND	2	Equity Fund—Growth and Income/Index	67,852,128	N	7/7/1992
FEDERATED STOCK AND BOND FUND INC.	3	Balanced	270,749,663	N	10/31/1984
FEDERATED STOCK TRUST	1	Equity Fund—Growth and Income	1,191,893,762	N	3/31/1982
FEDERATED UTILITY FUND II	1	Equity Fund—Domestic Utility	85,374,207	N	12/15/1993
LVM EUROPA-AKTIEN	2	International/Global	38,881,083	Y	1/26/2000
LVM INTER-AKTIEN	2	International/Global	31,290,919	Y	1/26/2000
LVM PROFUTUR	2	International/Global	35,322,216	Y	1/26/2000
Total Equity Funds			16,239,540,003

25

Fund Name	Number of Share Classes as of 12/31/02	Fund Category	Assets as of 12/31/02	Load	Fund Effective Date
FIXED-INCOME FUNDS:
CAPITAL PRESERVATION FUND	1	Short-Term Corporate Bond Fund—High Grade	1,176,925,756	N	8/1/1988
FEDERATED ADJUSTABLE RATE SECURITIES FUND	2	Adjustable Rate Mortgage-Backed Fund	437,739,484	N	12/3/1985
FEDERATED BOND FUND	4	Long Corporate Bond Fund—High Grade	1,105,714,884	Y	6/27/1995
FEDERATED CALIFORNIA MUNICIPAL INCOME FUND	2	Municipal Bond Fund	88,014,450	Y	11/24/1992
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES	3	Mortgage Backed Fund	1,479,195,706	Y	10/6/1969
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II	1	Mortgage Backed Fund	488,044,763	N	12/15/1993
FEDERATED GNMA TRUST	2	Mortgage Backed Fund	988,568,848	N	3/23/1982
FEDERATED GOVERNMENT INCOME SECURITIES INC.	4	Mortgage Backed Fund	1,039,331,032	Y	8/2/1996
FEDERATED GOVERNMENT ULTRASHORT FUND	2	Government Bond Fund	1,322,162,980	N	9/29/1999
FEDERATED HIGH INCOME ADVANTAGE FUND	1	High Yield Fund	45,832,430	Y	9/20/1993
FEDERATED HIGH INCOME BOND FUND INC.	3	High Yield Fund	1,701,915,467	Y	11/30/1977
FEDERATED HIGH INCOME BOND FUND II	2	High Yield Fund	281,822,650	N	12/15/1993
FEDERATED HIGH YIELD TRUST	1	High Yield Fund	500,877,101	N	8/23/1984
FEDERATED INCOME TRUST	2	Mortgage Backed Fund	703,584,063	N	3/30/1982
FEDERATED INSTITUTIONAL HIGH YIELD BOND FUND	1	High Yield Fund	16,725,744	N	10/30/2002
FEDERATED INTERMEDIATE INCOME FUND	2	General Investment Grade	293,907,821	N	12/8/1993
FEDERATED INTERMEDIATE MUNICIPAL TRUST	1	Municipal Bond Fund	164,363,706	N	12/26/1985
FEDERATED INTERNATIONAL BOND FUND	3	International Bond Fund	53,521,906	Y	5/15/1991
FEDERATED INTERNATIONAL HIGH INCOME FUND	3	International Bond Fund	149,714,589	Y	9/9/1996
FEDERATED LIMITED DURATION FUND	2	Mortgage Backed Fund	124,294,096	N	9/16/1996
FEDERATED LIMITED DURATION GOVERNMENT FUND INC.	2	Government Bond Fund	102,110,162	Y	3/2/1992
FEDERATED LIMITED TERM FUND	2	Short-Term Corporate Bond Fund—High Grade	321,571,692	Y	12/24/1991
FEDERATED LIMITED TERM MUNICIPAL FUND	2	Municipal Bond Fund	245,485,970	Y	8/31/1993
FEDERATED MANAGED INCOME PORTFOLIO	2	Asset Allocation Fund	84,068,618	N	3/11/1994
FEDERATED MICHIGAN INTERMEDIATE MUNICIPAL TRUST	1	Municipal Bond Fund	138,430,072	Y	9/9/1991
FEDERATED MORTGAGE FUND	2	US Government Int. Muni. Bond	375,622,990	N	6/30/1998
FEDERATED MUNICIPAL OPPORTUNITIES FUND INC.	4	Municipal Bond Fund	413,047,669	Y	5/3/1996
FEDERATED MUNICIPAL SECURITIES FUND INC.	3	Municipal Bond Fund	562,811,998	N	10/4/1976
FEDERATED MUNICIPAL ULTRASHORT FUND	2	Municipal Bond Fund	614,895,176	N	10/23/2000
FEDERATED NEW YORK MUNICIPAL INCOME FUND	2	Municipal Bond Fund	30,058,416	Y	11/24/1992
FEDERATED NORTH CAROLINA MUNICIPAL INCOME FUND	1	Municipal Bond Fund	63,773,857	Y	6/4/1999
FEDERATED OHIO MUNICIPAL INCOME FUND	1	Municipal Bond Fund	93,676,785	Y	10/10/1990
FEDERATED PENNSYLVANIA MUNICIPAL INCOME FUND	2	Municipal Bond Fund	275,174,689	Y	10/10/1990
FEDERATED PREMIER INTERMEDIATE MUNI INCOME FD	1	Municipal Bond Fund	92,382,809	Y	12/19/2002

26

Fund Name	Number of Share Classes as of 12/31/02	Fund Category	Assets as of 12/31/02	Load	Fund Effective Date
FEDERATED PREMIER MUNICIPAL INCOME FUND	1	Municipal Bond Fund	84,328,807	Y	12/19/2002
FEDERATED QUALITY BOND FUND II	2	Short-Term Corporate Bond Fund—High Grade	547,077,098	N	4/21/1999
FEDERATED SHORT-TERM INCOME FUND	2	Short-Term Corporate Bond Fund—High Grade	301,312,154	N	7/1/1986
FEDERATED SHORT-TERM MUNICIPAL TRUST	2	Municipal Bond Fund	319,552,787	N	8/20/1981
FEDERATED STRATEGIC INCOME FUND	4	Balanced	806,437,215	Y	4/5/1994
FEDERATED TOTAL RETURN BOND FUND	5	Mortgage Backed Fund	851,465,327	N	8/16/2001
FEDERATED TOTAL RETURN BOND FUND II	1	Mortgage Backed Fund	4,919,355	N	5/21/1999
FEDERATED TOTAL RETURN GOVERNMENT BOND FUND	2	Government Bond Fund	176,918,675	N	9/13/1995
FEDERATED U.S.GOVERNMENT BOND FUND	1	Mortgage Backed Fund	101,428,447	N	12/2/1985
FEDERATED ULTRASHORT BOND FUND	3	US Government ST	1,775,602,972	N	10/27/1998
FEDERATED US GOVERNMENT SECURITIES FUND: 1-3 YEARS	3	Government Bond Fund	595,558,545	N	3/15/1984
FEDERATED US GOVERNMENT SECURITIES FUND: 2-5 YEARS	2	Government Bond Fund	857,762,629	N	2/18/1983
LVM EURO-KURZLAUFER	2	International/Global	49,117,174	Y	1/26/2000
LVM EURO-RENTEN	2	International/Global	74,841,543	Y	1/26/2000
LVM INTER-RENTEN	2	International/Global	47,303,823	Y	1/26/2000
Total Fixed-Income Funds			22,168,994,930
Total Non-Money Market Funds			38,408,534,933
MONEY MARKET FUNDS:
ALABAMA MUNICIPAL CASH TRUST	1	Municipal Money Market	364,943,614	N	12/1/1993
ARIZONA MUNICIPAL CASH TRUST	1	Municipal Money Market	98,775,238	N	5/30/1998
AUTOMATED CASH MANAGEMENT TRUST	2	Prime Money Market Fund	2,919,580,128	N	9/19/1996
AUTOMATED GOVERNMENT CASH RESERVES	1	Government Money Market Fund	1,020,685,107	N	2/2/1990
AUTOMATED GOVERNMENT MONEY TRUST	1	Government Money Market Fund	1,121,426,632	N	6/1/1982
AUTOMATED TREASURY CASH RESERVES	1	Government Money Market Fund	216,707,705	N	8/5/1991
CALIFORNIA MUNICIPAL CASH TRUST	3	Municipal Money Market	1,037,823,173	N	2/29/1996
CONNECTICUT MUNICIPAL CASH TRUST	1	Municipal Money Market	310,010,965	N	11/1/1989
EDWARD JONES MONEY MARKET FUND	2	Government Money Market Fund	11,345,661,612	N	5/9/1980
FEDERATED MASTER TRUST	1	Prime Money Market Fund	223,389,781	N	12/16/1977
FEDERATED PRIME MONEY FUND II	1	Prime Money Market Fund	184,227,876	N	12/15/1993
FEDERATED SHORT-TERM EURO FUND	3	Prime Money Market Fund	173,898,773	N	11/9/1999
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST	1	Government Money Market Fund	218,061,325	N	4/16/1987
FEDERATED SHORT-TERM U.S. PRIME FUND	2	Government Money Market Fund	2,315,685,411	N	9/20/1993
FEDERATED SHORT-TERM U.S.GOVT SECURITIES FUND	5	Government Money Market Fund	1,246,398,040	N	1/18/1991
FEDERATED SHORT-TERM U.S.TREASURY SECURITIES FUND	2	Government Money Market Fund	1,371,399,163	N	4/16/1992
FEDERATED TAX-FREE TRUST	1	Municipal Money Market	567,929,850	N	3/6/1979
FLORIDA MUNICIPAL CASH TRUST	2	Municipal Money Market	1,114,292,232	N	11/16/1995
GEORGIA MUNICIPAL CASH TRUST	1	Municipal Money Market	477,719,468	N	8/14/1995
GOVERNMENT CASH SERIES	1	Government Money Market Fund	760,087,684	N	8/15/1989
GOVERNMENT OBLIGATIONS FUND	2	Government Money Market Fund	10,945,627,806	N	12/11/1989
GOVERNMENT OBLIGATIONS TAX MANAGED FUND	2	Government Money Market Fund	5,265,580,666	N	5/7/1995
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST	2	Government Money Market Fund	664,066,512	N	6/6/1980
LIQUID CASH TRUST	1	Government Money Market Fund	249,345,047	N	12/12/1980
MARYLAND MUNICIPAL CASH TRUST	1	Municipal Money Market	99,476,049	N	5/4/1994

27

Fund Name	Number of Share Classes as of 12/31/02	Fund Category	Assets as of 12/31/02	Load	Fund Effective Date
MASSACHUSETTS MUNICIPAL CASH TRUST	2	Municipal Money Market	820,669,648	N	2/22/1993
MICHIGAN MUNICIPAL CASH TRUST	3	Municipal Money Market	347,278,460	N	2/29/1996
MINNESOTA MUNICIPAL CASH TRUST	2	Municipal Money Market	542,186,688	N	12/31/1990
MONEY MARKET MANAGEMENT INC.	1	Prime Money Market Fund	64,600,551	N	2/25/1993
MONEY MARKET TRUST	1	Prime Money Market Fund	266,584,783	N	10/13/1978
MUNICIPAL CASH SERIES	1	Municipal Money Market	457,014,360	N	8/15/1989
MUNICIPAL CASH SERIES II	1	Municipal Money Market	416,701,709	N	1/25/1991
MUNICIPAL OBLIGATIONS FUND	3	Municipal Money Market	1,558,138,931	N	2/5/1993
NEW JERSEY MUNICIPAL CASH TRUST	2	Municipal Money Market	275,611,078	N	12/10/1990
NEW YORK MUNICIPAL CASH TRUST	2	Municipal Money Market	1,191,907,354	N	5/30/1994
NORTH CAROLINA MUNICIPAL CASH TRUST	1	Municipal Money Market	365,019,178	N	12/1/1993
OHIO MUNICIPAL CASH TRUST	3	Municipal Money Market	322,468,698	N	3/26/1991
PENNSYLVANIA MUNICIPAL CASH TRUST	3	Municipal Money Market	505,819,211	N	12/21/1990
PRIME CASH OBLIGATIONS FUND	3	Prime Money Market Fund	10,949,158,515	N	2/5/1993
PRIME CASH SERIES	1	Prime Money Market Fund	5,057,928,333	N	8/15/1989
PRIME OBLIGATIONS FUND	2	Prime Money Market Fund	26,003,563,229	N	7/5/1994
PRIME VALUE OBLIGATIONS FUND	3	Prime Money Market Fund	11,283,262,265	N	2/5/1993
TAX FREE INSTRUMENTS TRUST	2	Municipal Money Market	2,482,635,526	N	12/21/1982
TAX-FREE OBLIGATIONS FUND	2	Municipal Money Market	6,841,681,105	N	12/11/1989
TREASURY CASH SERIES	1	Government Money Market Fund	519,614,916	N	2/5/1990
TREASURY CASH SERIES II	1	Government Money Market Fund	380,053,441	N	1/25/1991
TREASURY OBLIGATIONS FUND	3	Government Money Market Fund	15,984,525,624	N	4/14/1997
TRUST FOR GOVERNMENT CASH RESERVES	1	Government Money Market Fund	201,808,570	N	3/30/1989
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES	1	Government Money Market Fund	323,638,850	N	12/29/1975
TRUST FOR U.S. TREASURY OBLIGATIONS	1	Government Money Market Fund	778,686,166	N	11/8/1979
U.S. TREASURY CASH RESERVES	2	Government Money Market Fund	3,587,173,238	N	5/14/1991
VIRGINIA MUNICIPAL CASH TRUST	2	Municipal Money Market	372,099,760	N	8/30/1993
Total Money Market Funds			136,212,630,044
MANAGED FUND TOTAL	281		174,621,164,977
Other Managed Assets*			20,731,451,688
TOTAL MANAGED ASSETS			195,352,616,665

Summary:

Total Number of Load Funds: 43

Total Number of No-Load Funds: 94

Total Number of Funds: 137

*Other Managed Assets include Separate Account and Repo Assets

28

REPORT OF INDEPENDENT AUDITORS ON

FINANCIAL STATEMENT SCHEDULE

We have audited the consolidated financial statements of Federated Investors, Inc. and subsidiaries (Federated) as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated January 24, 2003 (incorporated by reference elsewhere in this Form 10-K). Our audits also included the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. The schedule is the responsibility of Federated’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/    Ernst & Young LLP

Pittsburgh, Pennsylvania

January 24, 2003

SCHEDULE II

FEDERATED INVESTORS, INC.

VALUATION AND QUALIFYING ACCOUNTS

(in thousands)	Balance at Beginning of year		Additions charged to expenses		Deductions			Balance at End of year
Allowance accounts for:
Year ended December 31, 2000
Uncollectible accounts receivable	$	184	$	190	$	(288	)	$	86
Year ended December 31, 2001
Uncollectible accounts receivable	$	86	$	382	$	(153	)	$	315
Year ended December 31, 2002
Uncollectible accounts receivable	$	315	$	79	$	(119	)	$	275
Valuation allowance on tax loss carry-forwards		0		2,348		—			2,348

S-1

EX-10.37

EXHIBIT 10.37

AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

          THIS AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is dated as of January 20, 2003, and is by and among FEDERATED INVESTORS, INC., a Pennsylvania corporation (the “Borrower”), the BANKS set forth herein (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 Second Amended and Restated Credit Agreement dated as of January 22, 2002, as amended by Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of April 8, 2002 (the “Credit Agreement”);

          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.
Capitalized 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 “Revolving Credit Expiration Date” in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof:
	Revolving Credit Expiration Date shall mean January 18, 2004 (which is the date 364 days after the effective date of Amendment No. 2 to Second Amended and Restated Credit Agreement among the Borrower, the Banks and the Agent) or such later date as determined pursuant to Section 2.13(a).
(b)           Section 8.2(g) [Guaranties] of the Credit Agreement is hereby amended by inserting the following immediately before the end of the sentence:
	and (iii) the Guaranty dated January 1, 2000 by the Borrower in favor of  40th Associates pursuant to which the Borrower guarantees that certain lease dated October 9, 1998 between InvestLink Technologies, Inc., as lessee, and 40th

	Associates, as lessor, of commercial space located at 8 West 40th Street, New York, NY at an annual rent of approximately $225,000 and with a term expiring December 31, 2008.
(c)           Section 8.2(i) [Dividends and Related Distributions] of the Credit Agreement is hereby amended by deleting clause (iv) in its entirety and inserting the following in lieu thereof:
	(iv)     during the Borrower’s fiscal year 2003 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 Class B Shares permitted pursuant to Section 8.2(i)(ii) above, repurchase Class B Shares for an amount not to exceed, in any fiscal year on a cumulative basis for clauses (1) and (2), 50% of any net income (or minus 100% of any net loss) of the Borrower and its Subsidiaries from January 1, 2000 through the date of payment.
(d)           Section 8.2(j) [Liquidations, Mergers, Consolidations and Acquisitions] of the Credit Agreement is hereby amended by inserting the following sentence at the end of such section:
The parties expressly acknowledge that Section 8.2(j) does not restrict the acquisition of assets by a Fund in the ordinary course of business where no liabilities are assumed by the Fund and the acquisition price consists of trailer payments based on average net assets in the Fund from time to time but in no event more than the Fund Fees received by any of the Companies and such fees are paid out of the Fund itself or by any of the Companies in accordance with normal business practices.
(e)           Section 8.3(g) [Certain Events] of the Credit Agreement is hereby deleted in its entirety and the following is inserted in lieu thereof:
(g)     Certain Events.
	Written notice to the Agent of (i) any sale or other transfer of assets as permitted under subsections (ii), (iii) or (iv) of Section 8.2(k), (ii) any merger, acquisition, consolidation or liquidation permitted under Section 8.2(j), (iii) any change in the ownership or management of the Borrower permitted under Section 8.2(u), (iv) the creation or acquisition of any new Subsidiaries or investment in any other corporate entity, such notice to be delivered to the Agent within five (5) Business Days after occurrence of such event or consummation of such transaction(s), and in the case of the creation or acquisition of a new Subsidiary or investment in any other corporate entity, accompanied by the items specified in Section 8.1 to be delivered within thirty (30) calendar days after the creation or acquisition of a new Subsidiary or investment in any

- 2 -

	other corporate entity, and (v) any amendment to the declaration of trust, certificate or articles of incorporation, bylaws, partnership agreement or other organizational documents of any of the Companies or the use by any of the Companies of any fictitious name, it being understood that any such amendments require at least ten (10) Business Days’ prior notice to the Agent and may in some cases, including any amendment to the  Articles of Incorporation of the Borrower which the Agent has determined would be adverse to the Banks pursuant to Section 8.2(s), require the prior written consent of the Required Banks.  Written notice to the Agent of any sale or other transfer of assets as permitted under Section 8.2(k)(i) shall be given on a quarterly basis at the same time that quarterly financial statements are required to be delivered under Section 8.3(b).
(f)           Schedule 1.1(a) [Commitments of the Banks] of the Credit Agreement is hereby deleted in its entirety and Schedule 1.1(a) attached hereto is inserted in lieu thereof.
(g)           Exhibit I [Compliance Certificate] of the Credit Agreement is hereby deleted in its entirety and Exhibit I attached hereto is inserted in lieu thereof.
3.       Conditions of Effectiveness of Amendment of Credit Agreement.  The effectiveness of this 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 hereof 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 Senior 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.
(c)           Notes.  There shall be delivered to the Agent for the benefit of each Bank which is having its Revolving Credit Commitment amended pursuant to this Amendment a

- 3 -

Revolving Credit Note executed by the Borrower which reflects its new Revolving Credit Commitment as set forth on Schedule 1.1(a) hereto.

                                   (d)           Acknowledgment.  There shall be delivered to the Agent for the benefit of each Bank the Confirmation in the form attached hereto as Exhibit 1 hereto executed by each of the Loan Parties (other than the Borrower).

                                   (e)           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 each of the Banks an executed original of this Amendment.  Each of this Amendment and the Confirmation may be executed by the parties hereto or thereto in any number of separate counterparts, each of which when taken together shall constitute one and the same instrument.

                                   (f)           Amendment Fee.  The Borrower shall pay to each of the Banks in immediately available funds an amendment fee equal to five (5) basis points of each Bank’s Revolving Credit Commitment, determined as of the date of this Amendment.

                         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 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 Senior 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]

- 4 -

SIGNATURE PAGE 1 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

               IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Amendment No. 2 to Second Amended and Restated Credit Agreement as of the date first above written.

FEDERATED INVESTORS, INC.
By:	/s/ DENIS MCAULEY III
Name:	Denis McAuley, III
Title:	Vice President

SIGNATURE PAGE 2 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

PNC BANK, NATIONAL ASSOCIATION individually and as Agent
By:	/s/ ENRICO DELLA CORNA
Name:	Enrico Della Corna
Title:	Vice President

SIGNATURE PAGE 3 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

BANK OF AMERICA, NATIONAL ASSOCIATION
By:	/s/ ELIZABETH W.F. BISHOP
Name:	Elizabeth W.F. Bishop
Title:	Managing Director

SIGNATURE PAGE 4 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

US BANK, N.A.
By:	/s/ DAVID J. DANNEMILLER
Name:	David J. Dannemiller
Title:	Vice President

SIGNATURE PAGE 5 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

STATE  STREET BANK AND TRUST COMPANY
By:	/s/ JOHN T. DALEY
Name:	John T. Daley
Title:	Vice President

SIGNATURE PAGE 6 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

BANKONE, NA (Main Office Chicago)
By:	/s/ ANDREA S. KANTOR
Name:	Andrea S. Kantor
Title:	Director

SIGNATURE PAGE 7 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

CITIBANK, N.A.
By:	/s/ MATTHEW NICHOLLS
Name:	Matthew Nicholls
Title:	Vice President

SIGNATURE PAGE 8 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

FLEET NATIONAL BANK
By:	/s/ LAWRENCE DAVIS
Name:	Lawrence Davis
Title:	Portfolio Manager

SIGNATURE PAGE 9 OF 9 TO AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT

FIFTH THIRD BANK
By:	/s/ CHRISTOPHER HELMECI
Name:	Christopher Helmeci
Title:	Vice President

EXHIBIT I

FORM OF
COMPLIANCE CERTIFICATE

PNC Bank, National Association, as Agent
One PNC Plaza, 2nd Floor
249 Fifth Avenue
P1-POPP-02-1
Pittsburgh, PA 15222
Telephone No.:  (412) 762-3669
Telecopier No.: (412) 705-0981
Attn:   John Werner, Vice President

Ladies and Gentlemen:

               Pursuant to Section 8.3(d) of the Second Amended and Restated Credit Agreement (the “Agreement”) dated as of January 22, 2002, by and among Federated Investors, Inc. (the ”Borrower”), the Banks party thereto, and PNC Bank, National Association, as agent (the “Agent”) for the Banks, as further amended, restated or supplemented from time to time, I, the [Chief Executive Officer / President / Chief Financial Officer / Treasurer / Principal Accounting Officer] of the Borrower, in my capacity as the [Chief Executive Officer / President / Chief Financial Officer / Treasurer / Principal Accounting Officer], do hereby certify to the Banks and the Agent as follows (capitalized terms which are not defined herein have the meanings given in the Agreement) as of the [quarter/year] ending on _____________ (the “Report Date”):

(1)	The representations and warranties of the Borrower contained in Article 6 of the Agreement and any certifications delivered by any of the Companies after the Closing Date are true on and as of the Report Date with the same effect as though such representations, warranties and certifications had been made on and as of such date (except representations, warranties and certifications which expressly related solely to an earlier date and time which representations, warranties and certifications were true on and as of the specific date referred to therein), and the Borrower has performed and complied with all covenants and conditions of the Agreement, [except that: insert any applicable disclosures].
(2)	No Event of Default or Potential Default exists and is continuing.
(3)	Minimum Consolidated EBITDA.  (Section 8.2(a)).  Consolidated EBITDA, for the four (4) fiscal quarters ending as of the Report Date, is $__________ (see item 4(A)(iv) below), which is not less than $200,000,000.

(4)	Minimum Interest Coverage Ratio (Section 8.2(b)).  The ratio of (A)  Consolidated EBITDA to (B) consolidated interest expense, for the four (4) fiscal quarters ending as of the Report Date, is ________ to 1.0 which is not less than 4.0 to 1.0.
	(A)	Consolidated EBITDA is computed as follows (each item is measured for the four (4) fiscal quarters ending on the Report Date on a consolidated basis):
		(i)	(a)	net income	$________
			(b)	depreciation	$________
			(c)	amortization	$________
			(d)	other non-cash charges to net income (excluding any non-cash charges which require an accrual or reserve for cash charges for any future period)	$________
			(e)	interest expense	$________
			(f)	income tax expense	$________
		(ii)	Sum of Items (a), (b), (c), (d), (e) and (f)		$________
		(iii)	Non-cash credits to net income		$________
		(iv)	Item (ii) reduced by Item (iii) equals Consolidated EBITDA		$________
	(B)	Consolidated interest expense for the four (4) fiscal quarters ending on the Report Date			$________
	(C)	Ratio of Item (A)(iv) to Item (B) equals interest coverage ratio			___ to 1.0
(5)	Maximum Leverage Ratio (Section 8.2(c)).  Beginning with the fiscal quarter ending December 31, 2001, the ratio of (A) Total Indebtedness on the Report Date to (B) Consolidated EBITDA for the four (4) fiscal quarters ending as of the Report Date is ________ to 1.0 which does not exceed 2.0 to 1.0.
	(A)	Total Indebtedness as of the Report Date (each item is measured on a consolidated basis):
		(i)	Borrowed money (including money borrowed under the Agreement)		$________

		(ii)	Amounts raised under or liabilities in respect of any note purchase or acceptance credit facility	$________
		(iii)	Reimbursement obligations under letters of credit, currency swap agreements, any interest rate swap, cap, collar or floor agreement or other interest rate protection devices	$________
		(iv)	Other transactions (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such person to finance operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not more than thirty (30) days past due)	$________
		(v)	Any Guaranty of Indebtedness for borrowed money	$________
		(vi)	Sum of Items (i), (ii), (iii), (iv), and (v) equals Total Indebtedness	$________
	(B)	Consolidated EBITDA for the four (4) quarters ending on the Report Date (insert figure from Item 4(A)(iv) above)		$________
	(C)	Ratio of Item (A)(vi) to Item (B) equals Leverage Ratio		___ to 1.0
(6)	Loans and Investments (Section 8.2(h)).  The Borrower and its Subsidiaries have not made any loans and investments in any other persons except as expressly permitted under Section 8.2(h).
	(A)	Less than Wholly Owned Corporate Entities (Subsection (iii)(B)).  The Companies’ investment in corporate entities in which the Borrower does not maintain control but for which none of the Companies has any liability greater than its initial investment in such entity and where the activities in which such entity engages are consistent with the activities set forth in Section 6.1(aa) of the Agreement is $________ on the Report Date which does not exceed the maximum permitted amount of $50,000,000.

Less than Wholly Owned Corporate Entities (list the dollar amount of each investment separately)

	$	_______
	$	_______
Total	$	_______

	(B)	Limited Investments in Special Purpose Subsidiaries (Subsection (ix)).  The Companies’ Limited Investment in Special Purpose Subsidiaries is $_________ on the Report Date which does not exceed the maximum permitted amount of $500,000.
(7)		Dividends and Related Distributions (Section 8.2(i)).  The Companies have not made or paid or agreed to make or pay any dividends or other distributions on account of any shares of Borrower’s capital stock or the purchase, redemption or retirement of any such shares (or warrants, rights or options therefor) during the quarter ending on the Report Date except for (A) purchases of Class B Shares in the amount of $________ or purchases of Restricted Stock in the amount of $____________ made in compliance with Sections 8.2(i)(ii) and (iv) of the Agreement and (B) dividends on Borrower’s Common Shares in the amount of $________ made in compliance with Section 8.2(i)(iv) of the Agreement.
	(A)	Purchase of Class B Shares and Restricted Stock (Subsection (ii) of 8.2(i)).  In addition to repurchases of Class B Shares permitted pursuant to Section 8.2(i)(iv) of the Agreement, Item 7(B) of this Certificate, the Borrower has purchased Class B Shares (net of purchases of Restricted Stock) from and after January 1, 2001 through the Report Date, primarily on the open market and in accordance with any stock repurchase plan authorized by the Board of Directors from time to time, in an amount of $__________ which is not more than $125,000,000 and the number of Class B Shares purchased is _________.  The Borrower has purchased Restricted Stock during the term of the Agreement in the amount of $__________ which does not exceed the permitted amount of $5,000,000.

	(B)	Dividends and Repurchases (Subsection (iv) of Section 8.2(i)).  During Borrower’s fiscal year 2003 and thereafter, Borrower has paid dividends on its Common Shares and, in addition to repurchases of Class B Shares permitted pursuant to Section 8.2(i)(ii), made repurchases of Class B Shares during its current fiscal year in the amount of $_________ which does not exceed on a cumulative basis the permitted amount of 50% of any net income (or minus 100% of any net loss) of the Borrower and its Subsidiaries from January 1, 2000 through the date of payment.
		(i)	Dividends paid by Borrower on its Common Shares and purchases of Class B Shares (in addition to repurchases permitted pursuant to Section 8.2(i)(ii) above) from January 1, 2003 through the quarter preceding the quarter ending on Report Date.	$________
		(ii)	Dividends paid by Borrower on its Common Shares and repurchases of Class B Shares (in addition to repurchases permitted pursuant to Section 8.2(i)(ii) above) during the quarter ending on the Report Date.	$________
		(iii)	50% of any net income (or minus 100% of any net loss) of the Borrower and its Subsidiaries from January 1, 2000 through the date of payment.	$________
		(iv)	Sum of clauses (i) and (ii) (may not exceed amount in line (iii))	$________
(8)	Liquidations, Mergers, Consolidations, Acquisitions (Section 8.2(j)).  None of the Companies was a party to any dissolution, liquidation, merger, consolidation or acquisition during the quarter ending on the Report Date, except as expressly permitted under Section 8.2(j).
	(A)	Acquisitions of Stock or Assets of Third Parties (Subsection (iii) of Section 8.2(j)).
		(i)	The Borrower and each Consolidated Subsidiary of the Borrower did not acquire the stock or assets of any other persons except as listed below, each of which transactions is correctly described below and was completed in compliance with Section 8.2(j)(iii) of the Agreement:

Date of Transaction	Name of Seller	Assets Acquired (Stock or Assets)	Purchase Price (including liabilities assumed)
____________	____________	____________	$____________
____________	____________	____________	$____________
			$____________	(Total)

(9)	Disposition of Assets or Subsidiaries (Section 8.2(k)).  The Borrower and its Subsidiaries did not sell, convey, assign, lease, abandon or otherwise transfer or dispose of, voluntarily or involuntarily, any of their properties or assets, tangible or intangible (including sale, assignment, discount or other disposition of accounts, contract rights, chattel paper, equipment or general intangibles with or without recourse or of capital stock, shares of beneficial interest or partnership interests of a Subsidiary), except in accordance with clauses (i) through (iv) of Section 8.2(k) of the Agreement.
	(A)	Designated Assets (Subsection (i) of Section 8.2(k)).  The following Subsidiaries of the Borrower have sold or transferred Designated Assets in the following amounts in connection with a securitization or other receivables sale transaction in accordance with Section 8.2(k)(i):

Subsidiary Amount of Designated Assets Transferred

(B)

Unnecessary Assets (Subsection (ii) of Section 8.2(k).  The after-tax proceeds (net of customary expenses) in connection with sales, transfers or leases of assets of the Borrower or its Subsidiaries no longer necessary or required in the conduct of their business during the fiscal year in which the Report Date falls is $________ which does not exceed the permitted amount of $10,000,000.

(C)

Capital Stock or Substantially All Assets  (Subsection (iv) of Section 8.2(k)).  The assets of any sold or transferred Subsidiary comprised _____% of the total assets of the Borrower and the Consolidated Subsidiaries for the most recent fiscal quarter ending prior to such disposition, which does not exceed the permitted percentage of 5%, and _____% of Consolidated EBITDA for the most recent four (4) fiscal

		quarters ending prior to such disposition is attributable to such sold or transferred Subsidiaries or assets, which does not exceed the permitted percentage of 5%.
(10)	Change of Ownership (Section 8.2(u)).
	(A)	No change in the ownership of Borrower’s capital stock has occurred during the quarter ending on the Report Date except for transactions permitted under of Section 8.2(u) of the Agreement.
(11)	New Subsidiaries (Section 8.1(1)).  Borrower has not created or acquired any Subsidiaries during the calendar quarter ending on the Report Date except for the following:

Name of Subsidiary	Acquired/Formed	Date of Acquisition of Formation
____________	____________	____________
____________	____________	____________

[insert “None” if Borrower has not created or acquired any new Subsidiaries]
If Borrower has listed any Subsidiaries above, Borrower must check and complete (1) or (2) below, as applicable (see Section 8.1(1)):
	(1)	___	Borrower has previously caused each of the Subsidiaries listed above and its owners to execute and deliver to the Agent each of the following (check each of (a), (b) and (c), as applicable):
	(a)	___	A joinder to the Intercompany Subordination Agreement
	(b)	___	A joinder to the Guaranty Agreement (not required for Foreign Subsidiaries or Subsidiaries that are less than wholly-owned and over which the Borrower does not maintain control as permitted by Section 8.2(h)(iii)(B) of the Agreement)
	(c)	___	a legal opinion confirming the matters set forth in Exhibit H to the Credit Agreement
	(2)	___	Borrower is delivering each of the documents listed in item 1(a) through (c) above with this Certificate

FEDERATED INVESTORS, INC.

By:

Title:

Exhibit 1

Form of
CONFIRMATION

               Reference is hereby made to that certain Second Amended and Restated Credit Agreement by and between FEDERATED INVESTORS, INC., the BANKS set forth therein, and PNC BANK, NATIONAL ASSOCIATION, as Agent for the Banks, dated as of January 22, 2002, as amended by Amendment No. 1 to Second Amended and Restated Credit Agreement dated as of April 8, 2002 (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. 2 to Second Amended and Restated 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 Guarantors entered into that certain Continuing Agreement of Guaranty and Suretyship in favor of the Agent for the benefit of the Banks (the “Guaranty Agreement”) and (ii) the Borrower and its Subsidiaries entered into that certain Intercompany 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 Guarantors and Subsidiaries of the Borrower have read and understand the Amendment which provides for, subject to certain conditions set forth in the Credit Agreement, the extension of the Revolving Credit Expiration Date and the modification of certain covenants.

               The Guarantors hereby ratify and confirm the Guaranty Agreement.  The Subsidiaries of the Borrower hereby ratify and confirm the Intercompany Subordination Agreement.

               This Confirmation is dated as of January 20, 2003.

[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 the date set forth above.

EDGEWOOD SERVICES, INC.

By:

Name:

Title:

FEDERATED ADMINISTRATIVE SERVICES

By:

Name:

Title:

FEDERATED ADMINISTRATIVE SERVICES, INC.

By:

Name:

Title:

FEDERATED INVESTMENT MANAGEMENT COMPANY

By:

Name:

Title:

[SIGNATURE PAGE 2 OF 5 OF CONFIRMATION]

FEDERATED INVESTORS TRUST COMPANY

By:

Name:

Title:

FEDERATED FINANCIAL SERVICES, INC.

By:

Name:

Title:

FEDERATED GLOBAL INVESTMENT MANAGEMENT CORP.

By:

Name:

Title:

FEDERATED INTERNATIONAL MANAGEMENT LIMITED

By:

Name:

Title:

FEDERATED INVESTORS, INC.

By:

Name:

Title:

[SIGNATURE PAGE 3 OF 5 OF CONFIRMATION]

FEDERATED INVESTORS MANAGEMENT COMPANY

By:

Name:

Title:

FEDERATED INVESTMENT COUNSELING

By:

Name:

Title:

FEDERATED SECURITIES CORP.

By:

Name:

Title:

FEDERATED SERVICES COMPANY

By:

Name:

Title:

FEDERATED SHAREHOLDER SERVICES COMPANY

By:

Name:

Title:

[SIGNATURE PAGE 4 OF 5 OF CONFIRMATION]

FII HOLDINGS, INC.

By:

Name:

Title:

PASSPORT RESEARCH, LTD.

By:

Name:

Title:

FEDERATED INTERNATIONAL HOLDINGS BV

By:

Name:

Title:

FEDERATED INTERNATIONAL - EUROPE GMBH

By:

Name:

Title:

[SIGNATURE PAGE 5 OF 5 OF CONFIRMATION]

FEDERATED ASSET MANAGEMENT GMBH

By:

Name:

Title:

FEDERATED PRIVATE ASSET MANAGEMENT, INC.

By:

Name:

Title:

EX-13.1

Exhibit 13.01

Financial Contents

Selected Consolidated Financial Data	18
Management’s Discussion and Analysis	19
Management’s Report	28
Report of Ernst & Young LLP, Independent Auditors	28
Consolidated Balance Sheets	29
Consolidated Statements of Income	30
Consolidated Statements of Changes in Shareholders’ Equity	31
Consolidated Statements of Cash Flows	32
Notes to the Consolidated Financial Statements	33

Certain statements in this report, including those related to the strategy for future growth and the prospects for industry growth and certain statements included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Liquidity and Capital Resources” and “Critical Accounting Policies” 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 December 31, 2002, and other reports on file with the Securities and Exchange Commission. Many of these factors may be more likely to occur as a result of the ongoing threat of terrorism. As a result, no assurance can be given as to future results, levels of activity, performance or achievements, and neither Federated nor any other person assumes responsibility for the accuracy and completeness of such statements.

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data and managed and administered assets)

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 December 31, 2002, have been derived from the audited Consolidated Financial Statements of Federated. See Management’s Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements which follow.

Years Ended December 31,		2002			2001			2000			1999			1998
Statement of Income Data
Total revenue		$	711,069		$	719,763		$	664,942		$	583,527		$	515,116
Less:  Certain B-share-related distribution fees1			0			48,070			63,792			54,561			39,335
Adjusted total revenue		$	711,069		$	671,693		$	601,150		$	528,966		$	475,781
Operating income1,2			331,630			314,190			271,084			219,375			175,407
Income before income taxes1,2,3			315,714			263,035			242,522			194,881			145,934
Net income1,2,3			203,760			168,447			155,360			124,020			92,369
Operating margin1,2			47	%		44	%		41	%		38	%		34	%
Share Data4
Basic earnings per share		$	1.81		$	1.46		$	1.32		$	0.99		$	0.73
Diluted earnings per share		$	1.74		$	1.40		$	1.27		$	0.96		$	0.71
Book value per share at period end		$	3.03		$	2.06		$	1.26		$	0.97		$	0.69
Cash dividends per share		$	0.2170		$	0.1750		$	0.1387		$	0.1093		$	0.0898
Weighted-average shares outstanding – basic			112,375			115,012			117,557			125,238			126,257
Weighted-average shares outstanding – assuming dilution			117,304			119,992			122,295			129,086			129,875
Balance Sheet Data at Period End
Total assets5		$	530,007		$	431,553		$	704,750		$	673,193		$	581,656
Long-term debt—recourse3			1,385			0			70,174			84,446			98,698
Long-term debt—nonrecourse5			57,858			54,954			323,818			309,741			272,850
Total liabilities and minority interest			189,290			194,456			556,882			554,381			492,950
Shareholders’ equity			340,717			237,097			147,868			118,812			88,706
Managed and Administered Assets (in millions)
As of period end:
	Managed assets	$	195,353		$	179,687		$	139,584		$	124,820		$	111,553
	Administered assets		34,827			44,684			39,732			41,234			28,165
Average for the period:
	Managed assets		189,242			160,593			128,394			117,573			101,036
	Administered assets		38,032			41,982			41,966			35,079			53,136

1	Revenue, operating expenses and nonoperating income (expenses) for the years ended December 31, 2001, 2000, 1999 and 1998 included certain Class B share distribution- and financing-related income and expenses. Beginning in 2002, as a result of Federated’s sale in 2001 of its retained interest in residual cash flows under the B-share sales program, Federated no longer recognizes such B-share distribution- and financing-related income or expenses. See Note (7) to the Consolidated Financial Statements for information concerning the accounting impact on 2002 of the sale of the B-share retained interest.
2	Beginning January 1, 2002, Federated no longer amortizes goodwill in accordance with the provisions of Statement of Financial Accounting Standards No.142, “Goodwill and Other Intangible Assets” (SFAS 142). See Note (4) to the Consolidated Financial Statements for pro forma information for 2001 and 2000 that assumes SFAS 142 was adopted as of January 1, 2000.
3	See Note (6) to the Consolidated Financial Statements for information concerning the early retirement of recourse debt in 2001.
4	The share data presented as of and for the years ended December 31, 1999 and 1998 has been restated to reflect the three-for-two stock split paid in 2000.
5	The declines in total assets and long-term debt – nonrecourse in 2001 as compared to 2000 are primarily the result of the reversal in 2001 of the deferred sales commissions and long-term debt – nonrecourse balances relating to distribution fees sold under the B-share sales program. See Note (7) to the Consolidated Financial Statements for information concerning the accounting impact of the sale of the B-share retained interest.

18

MANAGEMENT’S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements appearing elsewhere in this report.

General

Federated Investors, Inc. (together with its subsidiaries, “Federated”) is one of the largest investment management companies in the United States with over $195 billion in managed assets as of December 31, 2002. The majority of Federated’s revenue is derived from advising and administrating Federated mutual funds, separately managed accounts and other Federated-sponsored products, in both domestic and international markets. Federated also derives revenue from administrating mutual funds sponsored by third parties and from providing various other mutual fund-related services, including distribution, shareholder, transfer agency, fund accounting, trade execution and clearing and retirement plan recordkeeping services (collectively, “Other Services”).

Investment advisory, administrative and certain Other Services fees, such as distribution and shareholder service fees, are contract-based fees that are calculated as a percentage of the net assets of the investment portfolios that are managed or administered by Federated. As such, Federated’s revenue is primarily dependent upon factors that affect the value of managed and administered assets including market conditions and the ability to attract and maintain assets. Rates for Federated’s services generally vary by asset type and investment objective and, in certain instances, decline as the average net assets of the individual portfolios exceed certain threshold levels. Generally, rates charged for services provided to equity products are higher than rates charged on money market and fixed-income products. Accordingly, revenue is also dependent upon the relative composition of average assets under management or administration. Federated pays a significant portion of its distribution and shareholder service fees to financial intermediaries who sell Federated-sponsored products to the public on its behalf. These payments are generally calculated as a percentage of net assets attributable to the party receiving the payment and are recorded as reductions to revenue earned by Federated on the Consolidated Statements of Income.

Federated’s remaining Other Services fees are based on fixed rates per fund, account, transaction or retirement plan participant. Revenue relating to these services will vary with changes in the number of mutual funds, accounts, transactions and plan participants which are impacted by sales and marketing efforts, competitive fund performance, introduction and market reception of new products and acquisitions.

Federated’s most significant operating expenses include compensation and related costs, which represent fixed and variable compensation and related employee benefits, and marketing and promotional costs.

Asset Highlights

Managed and Administered Assets at Period End

in millions as of December 31,				2002		2001		Percent Change
Managed Assets
By Asset Type
		Money market		$	150,745	$	136,034		11	%
		Fixed-income			26,541		21,055		26	%
		Equity			18,067		22,598		(20	)%
			Total managed assets	$	195,353	$	179,687		9	%
By Product Type
	Mutual Funds:
		Money market		$	136,374	$	135,092		1	%
		Fixed-income			22,169		17,378		28	%
		Equity			16,240		20,760		(22	)%
			Total mutual fund assets		174,783		173,230		1	%
Separate Accounts:
		Money market			14,371		942		1,426	%
		Fixed-income			4,372		3,677		19	%
		Equity			1,827		1,838		(1	)%
			Total separate account assets		20,570		6,457		219	%
			Total managed assets	$	195,353	$	179,687		9	%
Administered Assets				$	34,827	$	44,684		(22	)%

Federated Investors 2002 Annual Report 19

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

in millions for the years ended December 31,											2002		2001		2000		2002 vs. 2001			2001vs.  2000
Average Managed Assets
By Asset Type
						Money market					$	145,288	$	118,622	$	86,774		22	%		37	%
						Fixed-income						23,673		19,466		17,780		22	%		9	%
						Equity						20,281		22,505		23,840		(10	)%		(6	)%
										Total average managed assets	$	189,242	$	160,593	$	128,394		18	%		25	%
By Product Type
	Mutual Funds:
					Money market						$	135,506	$	117,784	$	86,406		15	%		36	%
					Fixed-income							19,773		15,859		14,713		25	%		8	%
				Equity								18,483		20,682		22,107		(11	)%		(6	)%
									Total average mutual fund assets			173,762		154,325		123,226		13	%		25	%
Separate Accounts:
			Money market									9,782		838		368		1,067	%		128	%
			Fixed-income									3,900		3,607		3,067		8	%		18	%
		Equity										1,798		1,823		1,733		(1	)%		5	%
								Total average separate account assets				15,480		6,268		5,168		147	%		21	%
							Total average managed assets				$	189,242	$	160,593	$	128,394		18	%		25	%
Average Administered Assets											$	38,032	$	41,982	$	41,966		(9	)%		0	%

Changes in Federated’s average asset mix year over year have a direct impact on Federated’s total revenue due to the difference in the fees per invested dollar earned on each asset type. Equity products generally have a higher management fee rate than fixed-income or money market products. The following table presents the relative composition of average managed assets and the percent of total revenue derived from each asset type over the last three years:

	Percentage of Total Average Managed Assets									Percent of Total Revenue
	2002			2001			2000			2002			2001			2000
Money market assets		77	%		74	%		68	%		47	%		41	%		34	%
Fixed-income assets		12	%		12	%		14	%		18	%		18	%		19	%
Equity assets		11	%		14	%		18	%		29	%		35	%		38	%
Other activities		—			—			—			6	%		6	%		9	%

Federated grew total and average managed assets in 2002 and 2001. Period-end managed assets increased 9% in 2002 and 29% in 2001. Average managed assets grew 18% in 2002 and 25% in 2001. Federated benefited from the quality and performance of its products, the strength of its relationships with intermediaries and institutions, and an increase in cash-management relationships with corporations, government entities and other institutions. These increases in total and average managed assets during 2002 and 2001 reflect strong sales of money market and fixed-income products in each year. Net sales of fixed-income fund assets grew 43% in 2002. This growth was reflective of a shift toward short-term bond funds during the year as interest rates and yields on money market funds continued to fall. Money market average assets grew 22% in 2002 and ended the year with more than $150 billion in assets. This strong growth included the addition in the second quarter of 2002 of $13.2 billion in money market assets for TexPool, Texas’ local government investment pool. In 2001, money market products led in average asset growth with a 37% increase over the prior year. Average equity assets declined in both 2002 and 2001 primarily as a result of market depreciation, although net equity sales were positive for 2002.

20

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

Components of Changes in Equity and Fixed-Income Fund Managed Assets

in millions for the years ended December 31,				2002			2001			Percent Change
Equity Funds
	Beginning assets			$	20,760		$	20,641			1	%
		Sales			5,817			5,338			9	%
		Redemptions			(5,770	)		(5,994	)		(4	)%
			Net sales (redemptions)		47			(656	)		107	%
		Net exchanges			(191	)		(189	)		(1	)%
		Acquisition related			41			3,383			(99	)%
		Other1			(4,417	)		(2,419	)		(83	)%
	Ending assets			$	16,240		$	20,760			(22	)%
Fixed-Income Funds
	Beginning assets			$	17,378		$	14,268			22	%
		Sales			14,701			8,809			67	%
		Redemptions			(10,771	)		(6,067	)		78	%
			Net sales		3,930			2,742			43	%
		Net exchanges			188			27			596	%
		Other1			673			341			97	%
	Ending assets			$	22,169		$	17,378			28	%

1 Includes primarily changes in the market value of securities held by the funds, reinvested dividends and distributions and net investment income.

Federated’s investment products are primarily distributed in four markets. These markets and the relative percentage of managed assets at December 31, 2002 attributable to such markets are as follows:  trust market (52%), broker/dealer market (23%), institutional market (14%) and international market (1%).

Results of Operations

Federated reported net income of $203.8 million or $1.74 per diluted share in 2002 as compared to $168.4 million or $1.40 per diluted share in 2001 and $155.4 million or $1.27 per diluted share in 2000. Federated’s results of operations for the years ended December 31, 2002, 2001 and 2000 were affected by the following significant transactions and accounting developments (the “Significant Transactions and Accounting Developments”). To simplify the year-over-year comparisons of revenue, operating expenses and nonoperating income (expenses), certain amounts reported in 2002, 2001 and 2000 have been adjusted to reflect the effects of the following Significant Transactions and Accounting Developments. 

Significant Transactions and Accounting Developments

Asset Impairment. In 2002, Federated determined that the carrying value of certain assets, primarily software related, used in connection with its retirement services operations were not fully recoverable. As a result, Federated recorded a $2.1 million pretax impairment charge in “Operating Expenses – Other” in the Consolidated Statements of Income to write-down the carrying value of the assets to fair value. See Note (5) to the Consolidated Financial Statements.

CBO Impairments. In each of 2002, 2001 and 2000, “Loss on securities, net” in the Consolidated Statements of Income included pretax impairment charges of $1.8 million, $14.1 million and $2.9 million, respectively, to recognize other-than-temporary declines in the fair values of Federated’s collateralized bond obligation (CBO) investments. See Note (3) to the Consolidated Financial Statements.

Performance Seed Investment Losses. In 2002, 2001 and 2000, Federated recorded pretax losses of $0.2 million, $7.5 million and $0.1 million, respectively, on its performance seed investments. The losses were recorded in “Loss on securities, net” in the Consolidated Statements of Income and represented realized losses resulting from declines in the fair values of certain performance seed investments. See Note (3) to the Consolidated Financial Statements.

Goodwill Amortization. Beginning on January 1, 2002, with the adoption of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” Federated no longer amortizes goodwill. Amortization expense for goodwill recorded in 2001 and 2000 was $5.9 million and $2.9 million, respectively. See Note (4) to the Consolidated Financial Statements.

Extinguishment of Recourse Debt. In 2001, Federated prepaid the remaining balance of $70.0 million of its recourse debt utilizing existing cash and recorded a $6.6 million pretax make-whole charge. The make-whole payment was classified as an extraordinary loss, net of tax, in the prior year Consolidated Financial Statements. The amount was reclassified in the current year to “Debt expense

Federated Investors 2002 Annual Report 21

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

– recourse” in the Consolidated Statements of Income in accordance with the provisions of Statement of Financial Accounting Standards No. 145. See Notes (1)(v) and (6) to the Consolidated Financial Statements.

Sale of B-Share Retained Interest. In 2001 and prior, revenue, operating expenses and nonoperating expenses included certain Class B share distribution- and financing-related income and expenses. On December 31, 2001, Federated sold its retained interest in residual cash flows that existed under one of its B-share sales programs to an independent third party. As a result of the sale, Federated recorded a $9.0 million pretax gain in “Nonoperating Income (Expenses) – Other, net” in the Consolidated Statement of Income for the year ended December 31, 2001. Beginning January 1, 2002, Federated no longer recognizes such B-share distribution- and financing-related income or expense in its Consolidated Statements of Income. “Other service fees, net-affiliates,” “Amortization of deferred sales commissions” and “Debt expense – nonrecourse” for the years ended December 31, 2001 and 2000, included $48.1 million and $63.8 million, $26.3 million and $37.6 million and $19.1 million and $22.4 million, respectively, recorded in connection with the B-share-related distribution fees. See Note (7) to the Consolidated Financial Statements for more information regarding Federated’s B-share sales programs and related accounting.

Revenue
Federated reported total revenue of $711.1 million for 2002 as compared to $719.8 million and $664.9 million for 2001 and 2000, respectively. Revenue adjusted for the effects of the Significant Transactions and Accounting Developments for the three years ended December 31 is set forth in the following table:

(in millions)	2002		2001		2000		2002 vs. 2001			2001 vs. 2000
Adjusted revenue from managed assets1	$	667.2	$	621.1	$	547.5		7	%		13	%
Revenue from sources other than managed assets		43.9		50.6		53.6		(13	%)		(6	)%
Adjusted total revenue1	$	711.1	$	671.7	$	601.1		6	%		12	%

1 2001 and 2000 amounts are adjusted to give effect to the Sale of the B-Share Retained Interest as though it occurred prior to January 1, 2000.

Adjusted total revenue increased $39.4 million in 2002 and $70.6 million in 2001 as a result of increased revenue from managed assets. Adjusted revenue from managed assets, which includes investment advisory, administrative and other service fees and commission income earned in connection with investment portfolios managed by Federated, increased in both 2002 and 2001 over the prior year. These increases reflect significant asset and sales growth in money market and fixed-income products in 2002 and 2001, which more than offset the decreases in the market value of equity assets. Adjusted revenue from managed assets grew year over year in 2002 and 2001, but to a lesser degree than growth in average assets each year due to a higher composition of money market and fixed-income products.

Revenue from sources other than managed assets decreased $6.7 million in 2002 and $3.0 million in 2001. The decreases were due largely to certain bank customers internalizing administrative services previously provided by Federated as well as other changes in services provided to bank customers.

Operating Expenses
Federated reported total operating expenses of $379.4 million for 2002 as compared to $405.6 million and $393.9 million for 2001 and 2000, respectively. Operating expenses adjusted for the effects of the Significant Transactions and Accounting Developments for the three years ended December 31 are set forth in the following table:

(in millions)	2002		2001		2000		2002 vs. 2001			2001 vs. 2000
Compensation and related	$	177.8	$	173.5	$	162.3		2	%		7	%
Marketing and promotional		75.3		68.1		62.0		11	%		10	%
Adjusted amortization of deferred sales commissions1		14.5		17.6		21.4		(18	) %		(18	)%
Adjusted amortization of intangible assets2		11.3		11.2		4.7		1	%		138	%
Adjusted other3		98.4		103.0		103.0		(4	) %		0	%
Adjusted total operating expenses1,2,3	$	377.3	$	373.4	$	353.4		1	%		6	%

1	2001 and 2000 amounts are adjusted to give effect to the Sale of the B-Share Retained Interest as though it occurred prior to January 1, 2000.
2	2001 and 2000 amounts are adjusted to exclude the effect of Goodwill Amortization.
3	2002 amount is adjusted to exclude the effect of the Asset Impairment.

Adjusted total operating expenses for 2002 increased 1% over 2001. The 11% increase in marketing and promotional expense primarily reflects increases in marketing allowances due to significant increases in the cost of marketing our products to intermediaries

22

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

during the year and increased assets. Adjusted amortization of deferred sales commissions decreased in 2002 as net asset values of and cash flows from equity fund assets decreased. All other expenses remained relatively flat year over year.

Adjusted total operating expenses for 2001 increased 6% over 2000. The 7% increase in compensation and related expense primarily reflects increased base salary and variable-based compensation as a result of the acquisition of substantially all of the business of Edgemont Asset Management Corporation (Edgemont Acquisition) in 2001. The increase in marketing and promotional expense reflects increases in marketing allowances due mainly to significant asset growth during the year. Adjusted amortization of deferred sales commissions decreased in 2001 as net asset values of and cash flows from equity fund assets decreased. Adjusted amortization of intangible assets increased as a result of the Edgemont Acquisition. All other expenses remained relatively flat year over year.

Nonoperating Income (Expenses)
Federated reported total net nonoperating expenses of $5.1 million for 2002 as compared to $40.3 million and $18.4 million for 2001 and 2000, respectively. Nonoperating income (expenses) adjusted for the effects of the Significant Transactions and Accounting Developments for the three years ended December 31 are set forth in the following table:

(in millions)	2002			2001			2000			2002 vs. 2001			2001 vs. 2000
Interest and dividends	$	2.4		$	9.7		$	19.0		$	(7.3	)	$	(9.3	)
Adjusted loss on securities, net1		(0.5	)		(0.6	)		0			0.1			(0.6	)
Adjusted debt expense – recourse2		(0.5	)		(6.6	)		(8.3	)		6.1			1.7
Adjusted debt expense – nonrecourse3		(4.3	)		(4.0	)		(3.5	)		(0.3	)		(0.5	)
Adjusted other, net3		(0.2	)		(0.5	)		(0.2	)		0.3			(0.3	)
Adjusted total nonoperating income (expenses)1,2,3	$	(3.1	)	$	(2.0	)	$	7.0		$	(1.1	)	$	(9.0	)

1	2002, 2001 and 2000 amounts are adjusted to exclude the effects of the CBO Impairments and the Performance Seed Investment Losses.
2	2001 amount is adjusted to exclude the effect of the Extinguishment of Recourse Debt.
3	2001 and 2000 amounts are adjusted to give effect to the Sale of the B-Share Retained Interest as though it occurred prior to January 1, 2000.

Adjusted total nonoperating expenses, net for 2002 increased $1.1 million as compared to 2001. Interest and dividend income decreased in 2002 due mainly to lower investment yields. Recourse debt expense decreased in 2002 as a result of lower levels of outstanding debt due to the early retirement of Federated’s 7.96% Senior Secured Notes in the fourth quarter of 2001. Adjusted total nonoperating income (expenses) decreased $9.0 million in 2001 as compared to the prior year primarily as a result of a decline in interest and dividend income in 2001 due to lower investment balances as a result of cash used to complete the Edgemont Acquisition in the second quarter 2001 and decreased investment yields in 2001.  

Income Taxes
The income tax provision for 2002, 2001 and 2000 was $112.0 million, $94.6 million and $87.2 million, respectively. The provision increased in 2002 and 2001 over the prior year primarily as a result of the increases in the level of income before income taxes. The effective tax rate was 35.5% for 2002, 36.0% for 2001 and 35.9% for 2000.

Federated Investors 2002 Annual Report 23

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

Liquidity and Capital Resources
At December 31, 2002, liquid assets, consisting of cash and cash equivalents, the current portion of marketable securities and receivables, totaled $182.1 million as compared to $110.7 million in 2001. The balance at the end of 2002 was higher than the balance at the end of 2001 as a result of cash generated by operations during 2002. Federated also had $150.0 million available for borrowings under its credit facility as of December 31, 2002 (see Note (6) to the Consolidated Financial Statements).

Operating Activities.  Net cash provided by operating activities totaled $222.3 million for 2002 as compared to $280.6 million for 2001. This decrease is primarily attributable to the effects of certain cash payments made in 2002 and the elimination of CDSCs received on Class B shares of Federated’s mutual funds as a result of the Sale of the B-Share Retained Interest, partially offset by higher profitability in 2002. Cash payments made in 2002 included taxes paid on the Sale of the B-Share Retained Interest and the payment of normal operating expenses accrued as of the end of 2001.

Investing Activities.  In 2002, Federated made a $33.1 million contingent purchase price payment related to the Edgemont Acquisition, paid $7.3 million to acquire property and equipment and to develop internally used software and received $4.7 million from redemptions of available-for-sale securities.

Financing Activities.  In 2002, Federated used $109.2 million for financing activities. Of this amount, Federated used $76.2 million to repurchase 2.7 million shares of Class B common stock in the open market under the stock repurchase programs. As of December 31, 2002, Federated can repurchase an additional 4.4 million shares through its authorized programs.

Federated paid dividends in 2002 equal to $24.8 million or $0.217 per share. In January 2003, Federated’s board of directors declared a dividend of $0.057 per share that was paid on February 14, 2003.

Stock repurchases and dividend payments are subject to restrictions under the Second Amended and Restated Credit Agreement, as amended on January 20, 2003. These restrictions limit cash payments for additional stock repurchases and dividends to 50% of net income from January 1, 2000 to and including the payment date. After considering earnings through December 31, 2002 Federated, given current debt covenants as disclosed in the Subsequent Events footnote (Note (20) to the Consolidated Financial Statements), has the ability to make additional stock repurchase or dividend payments of more than $260 million.

Payments on debt-nonrecourse were significantly lower during 2002 than in 2001 as a result of the Sale of the B-Share Retained Interest in the fourth quarter 2001. Payments on debt-recourse were lower during 2002 than amounts in 2001 due to the early retirement of Federated’s 7.96% Senior Secured Notes in the fourth quarter 2001.

Contractual Obligations, Contingent Liabilities and Future Cash Needs.  The following table presents as of December 31, 2002, Federated’s significant fixed and determinable contractual obligations by payment date. The payment amounts represent amounts contractually due to the recipient and do not include any unamortized discounts or other similar carrying value adjustments.  Further discussion of the nature of each obligation is included in the referenced Note to the Consolidated Financial Statements.

	Payments due in
(in millions)	Note Reference			1 year or less		1-3 years		3-5 years		Over 5 years		Total
Capital leases		(6	)	$	1.1	$	1.6		—		—	$	2.7
Operating leases		(12	)	$	15.8	$	27.8	$	24.7	$	3.4	$	71.7

Federated is a party to various service contracts pursuant to which it receives certain support services including outsourced legal, fund accounting, literature fulfillment and offshore accounting services as well as access to various fund-related databases and tracking systems. Certain of these contracts are noncancelable. The contracts expire on various dates through the year 2005. Costs for such services are expensed as incurred.

Pursuant to various acquisition agreements entered into by Federated in 2001 and 2002, Federated may be required to make additional payments to the seller in each acquisition contingent upon the occurrence of certain events. In 2001, Federated completed the Edgemont Acquisition. In addition to the upfront purchase price paid at the date of the acquisition, the acquisition agreement provides for additional purchase price payments based upon the achievement of specified revenue growth through 2007. Federated could pay an additional $132.3 million between 2003 and 2007 as contingent purchase price if revenue targets are met. In addition, in 2001, Federated signed an agreement with Lincoln Investment Planning, Inc. and Rightime Econometrics, Inc. (Rightime Acquisition) and in 2002, Federated signed an agreement with FirstMerit Advisors, Inc. and FirstMerit Corporation (FirstMerit Acquisition). As a result of these agreements, assets previously managed by Rightime Econometrics, Inc. and FirstMerit Advisors, Inc. were merged into various Federated funds. Pursuant to both agreements, Federated is required to make contingent payments on a periodic basis calculated as a percentage of average assets under management in any Federated fund shareholder account for which the seller is the

24

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

named broker/dealer of record. In the case of the Rightime Acquisition, the payments occur quarterly and could last through first quarter 2007. Contingent payments relating to the FirstMerit Acquisition occur on a monthly basis through third quarter 2005.

In addition to the contractual obligations and contingent liabilities discussed above, management expects that the principal uses of cash will be to advance sales commissions, fund marketing allowances, repurchase company stock, fund new strategic business acquisitions, pay shareholder dividends, pay incentive compensation, fund property and equipment acquisitions and seed new products. Federated has experienced increases in the cost of insurance and management expects these increases, including the assumption of additional risk, to be significant going forward. Management believes that Federated’s existing liquid assets, together with the expected continuing cash flow from operations, its borrowing capacity under the current credit facility, the B-share sales program and its ability to issue stock will be sufficient to meet its present and reasonably foreseeable cash needs.

Alternative Products

Federated acts as the investment manager for two high-yield collateralized bond obligation (CBO) products and a mortgage-backed CBO product pursuant to the terms of an investment management agreement between Federated and each CBO. The CBOs are alternative investment products that were structured using special-purpose entities. As of December 31, 2002, aggregate total assets and aggregate total obligations of the CBOs approximated $1.1 billion, respectively.

The financial condition and results of operations of these CBOs are not included in Federated’s Consolidated Financial Statements as of and for the year ended December 31, 2002, or for any prior period. In each case, there exists a majority owner(s) that is an independent third party from Federated owning at least three percent equity in the CBO. Federated has not guaranteed nor has any recourse related to any of the notes issued by the CBOs. As of December 31, 2002, the remaining $0.6 million carrying value of Federated’s investments in the CBOs represents Federated’s maximum exposure to loss as a result of its involvement with the CBOs.

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” (FIN 46).  The objective of FIN 46 is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will need to consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the VIE’s expected residual returns, if they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation are currently effective upon issuance for all new VIEs and as of July 1, 2003, for all VIEs that existed at the date of its issuance. Management is currently assessing the impact FIN 46 may have on Federated’s results of operations and financial position as it applies to Federated’s investments in the CBOs as well as other aspects of Federated’s business.   

Recent Accounting Pronouncements

In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections,” (SFAS 145).  Among other things, SFAS 145 eliminates the requirement under FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” to report gains and losses from extinguishment of debt as extraordinary items in the income statement.  Similarly, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” has been rescinded.  As a result, gains or losses from extinguishments of debt for fiscal years beginning after May 15, 2002 shall not be reported as extraordinary items and such gains or losses previously reported as extraordinary items shall be reclassified unless the extinguishment qualifies as an extraordinary item under the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”  SFAS 145 also amends FASB Statement No. 13 to require that certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). Federated adopted the provisions of SFAS 145 in 2002. Accordingly, the loss from the extinguishment of debt reported as an extraordinary item in the prior year Consolidated Financial Statements was reclassified to “Nonoperating Income (Expenses) – Debt expense – recourse” in the Consolidated Statements of Income appearing in this report. 

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (SFAS 146). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between SFAS 146 and Issue No. 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that such a liability be recognized when the liability is incurred as opposed to the date of an entity’s commitment to an exit plan, as defined in Issue No. 94-3. Federated adopted the provisions of SFAS 146 in 2002. The adoption of SFAS 146 did not have a material impact on Federated’s results of operations or financial position.

In October 2002, the Emerging Issues Task Force of the FASB reached a consensus on Issue No. 02-17, “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination.”  This issue requires that a company consider all aspects of a

Federated Investors 2002 Annual Report 25

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

customer relationship when determining the fair value of a customer-related intangible asset acquired in a business combination. The consensus is effective for all business combinations occurring after October 25, 2002. Accordingly, Federated’s policy for valuing customer-related intangible assets for any new business combinations will not only consider estimated redemption rates and effects of market appreciation and depreciation but also expected future sales to customers acquired as part of the combination.  

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” (FIN 45). This statement elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued.  It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. As of December 31, 2002, Federated has not issued any guarantees other than on an intercompany basis and as such, does not believe that the adoption of FIN 45 will have a material impact on Federated’s results of operations or financial position.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” (SFAS 148). This statement provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent annual and interim disclosures about the method used to account for stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. Management is currently deliberating whether to adopt the expense recognition provisions of recording the fair value of stock-based compensation under the guidance of SFAS 123 and intends to reach a final decision in 2003.

Critical Accounting Policies

Federated’s Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Management continually evaluates the accounting policies and estimates it uses to prepare the Consolidated Financial Statements. In general, management’s estimates are based on historical experience, on information from third party professionals and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results may differ from those estimates made by management and those differences may be significant.

Of the significant accounting policies described in Note (1) to the Consolidated Financial Statements, management believes that its policies regarding accounting for intangible assets and income taxes involve a higher degree of judgment and complexity (see Note (1) of the Consolidated Financial Statements).

Accounting for intangible assets. Two aspects of accounting for intangible assets require significant management estimates and judgment: (1) valuation in connection with the initial purchase price allocation and (2) ongoing evaluation for impairment. The process of allocating purchase price based on the fair value of identifiable intangible assets at the date of acquisition requires management estimates and judgment as to expectations for profit margins on the assets, asset redemption rates, growth from sales efforts and the effects of market conditions. If actual operating margins or the rate of changes in assets, among other assumptions, differ significantly from the estimates and judgments used in the initial valuation for the purchase price allocation, the intangible asset amounts recorded in the financial statements could be subject to possible impairment or could require an acceleration in amortization expense which could have a material adverse effect on Federated’s consolidated financial position and results of operations.

The level, if any, of impairment of customer-related intangible assets, such as advisory contract intangible assets, is highly dependent upon the level of managed assets acquired in connection with a business combination. Over 80% of the carrying value of Federated’s customer-related intangible assets as of December 31, 2002 relates to a single renewable investment advisory contract with one fund. A decline in the managed asset balance in this particular fund in excess of the estimated rate of change in the acquired assets could have a considerable impact on the underlying value of Federated’s customer-related intangible assets.

Accounting for income taxes. Significant management judgment is required in developing Federated’s provision for income taxes, including the determination of deferred tax assets and liabilities and any valuation allowances that might be required against the deferred tax assets. As of December 31, 2002, Federated has not recorded a valuation allowance on the $6.6 million deferred tax assets relating to Federated’s CBO other-than-temporary impairment losses. Federated considered the following facts in connection with its evaluation of the realizability of the deferred tax asset: (1) the impairment losses do not represent capital losses for tax purposes until the losses are realized, (2) the actual amount of capital loss associated with Federated’s investment in the CBOs will not be known until such time as Federated’s investments are either redeemed by the CBOs or sold by Federated, (3) the carry-forward period for capital losses is five years, and (4) Federated has historically generated capital gains in times of favorable market conditions. Based on these factors, management believes it is more likely than not that Federated will be able to utilize the capital loss carry-forwards in the future. In the event that Federated’s preliminary strategies do not materialize, Federated may be required to record a valuation allowance of as much as $6.6 million for these deferred tax assets.

26

MANAGEMENT’S DISCUSSION AND ANALYSIS (continued)
of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

In the normal course of our business, Federated is exposed to the risk of loss due to fluctuations in the securities market and general economy. Management is responsible for identifying, assessing and managing market and other risks. Federated’s investments are primarily money market funds and mutual funds with investments which have a duration of two years or less. Federated also invests in mutual funds sponsored by Federated (performance seeds) in order to provide investable cash to the fund allowing the fund to establish a performance history. Federated may use derivative financial instruments to hedge these investments. At December 31, 2002, Federated was exposed to price risk with regard to its $0.4 million of investments in fluctuating-value mutual funds. Price risk is the risk that the fair value of the investments will decline and ultimately result in the recognition of a loss for Federated. Federated did not hold any derivative investments to hedge its performance seeds at December 31, 2002.

During 2002, Federated recorded a $1.8 million pretax impairment charge related to an other-than-temporary decline in the fair value of its investment in its mortgage-backed CBO product. Federated’s remaining investment in this product, which totaled $0.6 million at December 31, 2002, is subject to interest rate risk and may be adversely affected by increases in interest rates.  

It is also important to note that a significant portion of Federated’s revenue is based on the market value of managed and administered assets. Declines in the market values of assets as a result of changes in market or other conditions will therefore negatively impact revenue and net income. For further discussion of assets and factors that impact Federated’s revenue see the sections entitled “General” and “Asset Highlights” herein.

Federated Investors 2002 Annual Report 27

MANAGEMENT’S REPORT

Federated Investors, Inc.’s (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 Federated’s operations and financial position.

The financial statements were prepared in conformity with accounting principles generally accepted in the United States and, as such, include amounts based on management’s best estimates and judgments 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 disclosure controls and procedures, including internal controls 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 auditing standards generally accepted in the United States.

FEDERATED INVESTORS, INC.
/s/ J. CHRISTOPHER DONAHUE	/s/ THOMAS R. DONAHUE
J. Christopher Donahue	Thomas R. Donahue
President and Chief Executive Officer	Chief Financial Officer
January 24, 2003

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Shareholders and Board of Directors
Federated Investors, Inc.

We have audited the accompanying consolidated balance sheets of Federated Investors, Inc. and subsidiaries (Federated) as of December 31, 2002 and 2001, 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, 2002. These financial statements are the responsibility of Federated’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federated Investors, Inc. and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
January 24, 2003

28

CONSOLIDATED BALANCE SHEETS
(dollars  in thousands)

December 31,				2002			2001
Current Assets
Cash and cash equivalents			$	149,909		$	73,511
Marketable securities				1,023			4,602
Receivables—affiliates				24,194			26,844
Receivables—other, net of reserve of $275 and $315, respectively				6,991			5,737
Accrued revenue				6,033			6,596
Prepaid expenses				7,335			2,633
Current deferred tax asset, net				1,166			2,025
Other current assets				3,037			361
	Total current assets			199,688			122,309
Long-Term Assets
Goodwill, net				164,944			131,867
Investment advisory contracts, net				58,995			65,409
Other intangible assets, net				11,227			14,617
Deferred sales commissions, net of accumulated amortization of $57,057 and $47,222, respectively				58,606			56,875
Property and equipment, net				33,722			34,521
Other long-term assets				2,825			5,955
	Total long-term assets			330,319			309,244
		Total assets	$	530,007		$	431,553
Current Liabilities
Cash overdraft			$	5,548		$	5,085
Accrued expenses				67,826			58,275
Accounts payable				27,436			29,102
Income taxes payable				708			26,543
Other current liabilities				6,402			6,103
	Total current liabilities			107,920			125,108
Long-Term Liabilities
Long-term debt—recourse				1,385			0
Long-term debt—nonrecourse				57,858			54,954
Long-term deferred tax liability, net				15,065			7,036
Other long-term liabilities				6,482			6,995
	Total long-term liabilities			80,790			68,985
		Total liabilities		188,710			194,093
Minority interest				580			363
Shareholders’ Equity
Common stock:
	Class A, no par value, 20,000 shares authorized, 9,000 issued and outstanding			189			189
	Class B, no par value, 900,000,000 shares authorized, 129,505,456 shares issued			82,374			82,299
Additional paid-in capital from treasury stock transactions				3,610			3,543
Retained earnings				590,418			411,447
Treasury stock, at cost, 16,953,735 and 14,144,515 shares Class B common stock, respectively				(335,699	)		(259,626	)
Employee restricted stock plan				(196	)		(469	)
Accumulated other comprehensive income (loss), net of tax				21			(286	)
	Total shareholders’ equity			340,717			237,097
		Total liabilities, minority interest, and shareholders’ equity	$	530,007		$	431,553

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

Federated Investors 2002 Annual Report 29

CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)

Years Ended December 31,		2002			2001			2000
Revenue
Investment advisory fees, net—affiliates		$	440,600		$	412,417		$	369,823
Investment advisory fees, net—other			13,000			10,563			10,411
Administrative service fees, net—affiliates			123,567			109,519			87,268
Administrative service fees, net—other			17,544			20,845			22,602
Other service fees, net—affiliates			86,738			133,585			137,916
Other service fees, net—other			24,488			27,595			28,440
Other, net			5,132			5,239			8,482
	Total revenue		711,069			719,763			664,942
Operating Expenses
Compensation and related			177,816			173,462			162,284
Marketing and promotional			75,318			68,067			61,979
Systems and communications			27,720			29,142			30,163
Office and occupancy			26,132			27,124			25,331
Professional service fees			22,445			27,205			26,848
Travel and related			12,930			12,993			14,684
Amortization of deferred sales commissions			14,513			43,860			59,041
Amortization of intangible assets			11,266			17,121			7,560
Other			11,299			6,599			5,968
	Total operating expenses		379,439			405,573			393,858
Operating income			331,630			314,190			271,084
Nonoperating Income (Expenses)
Interest and dividends			2,422			9,743			19,042
Loss on securities, net			(2,547	)		(22,269	)		(3,024	)
Debt expense—recourse			(484	)		(13,168	)		(8,317	)
Debt expense—nonrecourse			(4,304	)		(23,121	)		(25,863	)
Other, net			(151	)		8,540			(192	)
	Total nonoperating expenses, net		(5,064	)		(40,275	)		(18,354	)
Income before minority interest and income taxes			326,566			273,915			252,730
Minority interest			10,852			10,880			10,208
Income before income taxes			315,714			263,035			242,522
Income tax provision			111,954			94,588			87,162
	Net income	$	203,760		$	168,447		$	155,360
Earnings Per Share
Net income per share—basic		$	1.81		$	1.46		$	1.32
Net income per share—diluted		$	1.74		$	1.40		$	1.27
Cash dividends per share		$	0.2170		$	0.1750		$	0.1387

Federated’s loss on the extinguishment of recourse debt incurred in 2001 and presented in prior year Consolidated Financial Statements as an extraordinary loss has been reclassified as “Debt expense – recourse” in connection with Federated’s adoption of Statement of Financial Accounting Standards No. 145. See Note (6) for further discussion.

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

30

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
(dollars in thousands)

Years Ended December 31, 2002, 2001 and 2000
										Common Stock			Additional  Paid-in Capital  from Treasury  Stock Transactions			Retained Earnings			Treasury Stock			Employee Restricted Stock Plan			Accumulated Other Comprehensive Income (Loss), Net of Tax			Total Shareholders’ Equity
		Shares
		Class A		Class B			Treasury
Balance at January 1, 2000			6,000		81,714,640			4,622,360		$	75,276		$	0		$	124,653		$	(79,976	)	$	(1,046	)	$	(95	)	$	118,812
Net income			0		0			0			0			0			155,360			0			0			0			155,360
Other comprehensive loss, net of tax:
	Unrealized loss on securities available for sale, net of reclassification adjustment		0		0			0			0			0			0			0			0			(2,596	)		(2,596	)
	Foreign currency translation		0		0			0			0			0			0			0			0			(55	)		(55	)
Comprehensive income																													152,709
Amortization of employee restricted stock plan and other compensation plans			0		0			0			200			0			0			0			310			0			510
Issuance of three-for-two stock split			3,000		39,501,774			3,666,682			0			0			0			0			0			0			0
Dividends declared			0		0			0			0			0			(16,557	)		0			0			0			(16,557	)
Purchase of treasury stock			0		(4,095,605	)		4,095,605			0			0			0			(107,606	)		0			0			(107,606	)
Balance at December 31, 2000			9,000		117,120,809			12,384,647			75,476			0			263,456			(187,582	)		(736	)		(2,746	)		147,868
Net income			0		0			0			0			0			168,447			0			0			0			168,447
Other comprehensive income, net of tax:
	Unrealized loss on securities available for sale, net of reclassification adjustment		0		0			0			0			0			0			0			0			2,510			2,510
	Foreign currency translation		0		0			0			0			0			0			0			0			(50	)		(50	)
Comprehensive income																													170,907
Amortization of employee restricted stock plan and other compensation plans			0		0			0			309			0			0			0			267			0			576
Dividends declared			0		0			0			0			0			(20,456	)		0			0			0			(20,456	)
Stock issuance for business combination			0		315,732			(315,732	)		0			6,683			0			2,237			0			0			8,920
Exercise of stock options			0		693,600			(693,600	)		6,703			(3,140	)		0			4,227			0			0			7,790
Purchase of treasury stock			0		(2,769,200	)		2,769,200			0			0			0			(78,508	)		0			0			(78,508	)
Balance at December 31, 2001			9,000		115,360,941			14,144,515			82,488			3,543			411,447			(259,626	)		(469	)		(286	)		237,097
Net income			0		0			0			0			0			203,760			0			0			0			203,760
Other comprehensive income, net of tax:
	Unrealized loss on securities available for sale, net of reclassification adjustment		0		0			0			0			0			0			0			0			113			113
	Foreign currency translation		0		0			0			0			0			0			0			0			194			194
Comprehensive income																													204,067
Amortization of employee restricted stock plan and other compensation plans			0		0			0			165			0			0			0			101			0			266
Restricted stock forfeitures			0		(146,250	)		146,250			(172	)		0			0			(16	)		172			0			(16	)
Dividends declared			0		0			0			0			0			(24,789	)		0			0			0			(24,789	)
Exercise of stock options			0		14,000			(14,000	)		82			67			0			151			0			0			300
Purchase of treasury stock			0		(2,676,970	)		2,676,970			0			0			0			(76,208	)		0			0			(76,208	)
Balance at December 31, 2002			9,000		112,551,721			16,953,735		$	82,563		$	3,610		$	590,418		$	(335,699	)	$	(196	)	$	21		$	340,717

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

Federated Investors 2002 Annual Report 31

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

Years Ended December 31,			2002			2001			2000
Operating Activities
Net income			$	203,760		$	168,447		$	155,360
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Amortization of deferred sales commissions				14,513			43,860			59,041
Depreciation and other amortization				19,229			25,980			15,803
Minority interest				10,852			10,880			10,208
Gain on disposal of assets				(3,223	)		(5,099	)		(668	)
Provision (benefit) for deferred income taxes				7,654			(18,633	)		2,981
Tax benefit from exercise of stock options				82			6,703			0
Net payment for trading securities				(640	)		0			0
Deferred sales commissions paid				(78,825	)		(69,135	)		(134,115	)
Contingent deferred sales charges received				716			30,872			45,564
Proceeds from sale of certain future revenues				66,766			59,580			13,825
Other changes in assets and liabilities:
	Decrease (increase) in receivables, net			1,396			3,544			(1,496	)
	Decrease in other assets			423			15,128			2,148
	Increase (decrease) in accounts payable and accrued expenses			7,316			58			(1,738	)
	(Decrease) increase in income taxes payable			(25,835	)		18,381			5,297
	(Decrease) increase in other current liabilities			(1,970	)		4,919			(4,160	)
	Increase (decrease) in other long-term liabilities			93			(14,839	)		1,791
		Net cash provided by operating activities		222,307			280,646			169,841
Investing Activities
Proceeds from disposal of property and equipment				116			43			157
Additions to property and equipment				(7,323	)		(7,089	)		(12,314	)
Cash paid for business acquisitions				(33,764	)		(173,375	)		(12,196	)
Purchases of securities available for sale				(414	)		(25,505	)		(35,442	)
Proceeds from redemptions of securities available for sale				4,656			102,321			2,987
		Net cash used by investing activities		(36,729	)		(103,605	)		(56,808	)
Financing Activities
Distributions to minority interest				(10,635	)		(11,055	)		(10,266	)
Dividends paid				(24,789	)		(20,456	)		(16,557	)
Proceeds from exercise of stock options				218			1,087			0
Purchases of treasury stock				(76,224	)		(78,508	)		(107,606	)
Proceeds from new borrowings—nonrecourse				13,675			12,214			114,831
Payments on debt—recourse				(654	)		(84,297	)		(14,251	)
Payments on debt—nonrecourse				(10,771	)		(72,435	)		(100,754	)
		Net cash used by financing activities		(109,180	)		(253,450	)		(134,603	)
Net increase (decrease) in cash and cash equivalents				76,398			(76,409	)		(21,570	)
Cash and cash equivalents, beginning of year				73,511			149,920			171,490
Cash and cash equivalents, end of year			$	149,909		$	73,511		$	149,920
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
	Interest		$	2,279		$	9,581		$	11,223
	Income taxes			132,557			102,241			77,990

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

32

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(December 31, 2002, 2001 and 2000)

(1) Summary of Significant Accounting Policies

(a) Nature of Operations
Federated Investors, Inc. and its subsidiaries (Federated) provide investment advisory, administrative, distribution and other services primarily to Federated mutual funds, separately managed accounts and other Federated-sponsored products in both domestic and international markets. Federated also provides investment advisory and administrative services to corporations, employee benefit plans and private investment advisory accounts.

The majority of Federated’s revenue is derived from investment advisory services provided to mutual funds and separately managed accounts through various subsidiaries pursuant to investment advisory contracts. These subsidiaries are registered as investment advisers under the Investment Advisers Act of 1940 and with certain states.

Federated also derives revenue from providing administrative and other fund-related services to both Federated-sponsored and third party investment products. Other fund-related services include distribution, shareholder, transfer agency, fund accounting, trade execution and clearing and retirement plan recordkeeping services.

Shares of the portfolios or classes of shares under management or administration by Federated are distributed by 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.

(b) Basis of Presentation
The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the financial statements, management is required to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates, and such differences may be material to the Consolidated Financial Statements.

(c) Consolidation
The Consolidated Financial Statements include the accounts of Federated Investors, Inc. and entities in which Federated has a controlling financial interest as determined by voting interests and the extent of substantive participating rights of other shareholders. All significant intercompany accounts and transactions have been eliminated. In determining whether consolidation of Federated’s alternative products is appropriate, Federated considers whether the majority owner of the entity is an independent third party who has made a substantive capital investment in the entity, whether the majority owner has the substantive risks and rewards of ownership and whether the majority owner controls the activities of the entity.

(d) Business Combinations
Business combinations have been accounted for under the purchase method of accounting. Results of operations of an acquired business are included from the date of acquisition. Management allocates the cost of an acquired entity to acquired assets, including identifiable intangible assets, and assumed liabilities based on their estimated fair values as of the date of acquisition. Any excess cost of the acquired entity that exists after this allocation process is recorded as “Goodwill” on the Consolidated Balance Sheets.

(e) Cash and Cash Equivalents
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.

(f) Marketable Securities
Marketable securities include available-for-sale and trading securities held by Federated. Federated’s available-for-sale securities include investments in fluctuating-value mutual funds and asset-backed securities. These investments are carried at fair value based on quoted market prices or, in the absence of quoted market prices, discounted cash flows. These investments are classified as current or long-term assets and are included in “Marketable securities” or “Other long-term assets,” respectively, on the Consolidated Balance Sheets based on management’s intention to sell the investment. The unrealized gains or losses on these securities are included net of tax in “Accumulated other comprehensive income (loss), net of tax” on the Consolidated Balance Sheets. Realized gains and losses on these securities are computed on a specific identification basis and recognized in “Loss on securities, net” in the Consolidated Statements of Income.

On a periodic basis, management evaluates the carrying value of marketable securities for impairment. With respect to its investments in fluctuating-value mutual funds, management considers various criteria, including the duration and extent of a decline in fair value, the ability and intent of management to retain the investment for a period of time sufficient to allow the value to recover and the financial condition and near-term prospects of the investment, to determine whether a decline in fair value is other than temporary. If, after considering these criteria, management believes that a decline is other than temporary, the carrying value of the security is

Federated Investors 2002 Annual Report 33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

written down to fair value through the Consolidated Statements of Income. With respect to Federated’s investments in asset-backed securities, estimates of future cash flows are updated each quarter based on actual defaults, changes in anticipated default rates or other portfolio changes. The carrying values of these investments are written down to fair value at that time, as appropriate. Impairment adjustments are recognized in “Loss on securities, net” in the Consolidated Statements of Income.

Federated classifies an investment as a trading security when it is management’s intent at the time of purchase to sell the security within a short period of time. Trading securities are carried at fair value based on quoted market prices. The unrealized and realized gains and losses on trading securities are recognized in “Loss on securities, net” in the Consolidated Statements of Income.

(g) 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 two to 25 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 are placed out-of-service, the cost and related accumulated depreciation are removed and any residual net book value is reflected as a loss in “Nonoperating Income (Expenses) - Other, net” in the Consolidated Statements of Income.

Management reviews the remaining useful lives and carrying values of property and equipment 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 management include a decrease in the market price of the asset, an accumulation of costs significantly in excess of the amount originally expected in the acquisition or development of the asset, historical and projected cash flow losses associated with the asset and an expectation that the asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. 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 to the probability-weighted 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, the asset is written down to fair value determined based on prices of similar assets if available or discounted cash flows. Impairment adjustments are recognized in “Operating Expenses – Other” in the Consolidated Statements of Income.

(h) Costs of Computer Software Developed or Obtained for Internal Use
Certain internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized. These capitalized costs are included in “Property and equipment, net” on the Consolidated Balance Sheets and are amortized using the straight-line method over the shorter of the estimated useful life of the software or four years. These assets are subject to the three-step impairment test used for other categories of property and equipment described in Note (1)(g).

(i) Intangible Assets
Intangible assets, consisting primarily of goodwill, investment advisory contracts and employment and noncompete agreements acquired in connection with various business combinations, are recorded at fair value determined using a discounted cash flow model as of the date of acquisition. The discounted cash flow model considers various factors to project the present value of future cash flows expected to be generated from the asset. Given the investment advisory nature of Federated’s business and of the businesses acquired over the years, these factors typically include:  (1) an estimated rate of change for underlying managed assets; (2) expected revenue per managed asset; (3) incremental operating expenses; (4) useful life of the acquired asset; and (5) a discount rate. Management estimates a rate of change for underlying managed assets based on a combination of an estimated rate of market appreciation or depreciation and an estimated redemption rate. Expected revenue per managed asset, incremental operating expenses and the useful life of the acquired asset are generally based on contract terms and historical experience. The discount rate is equal to Federated’s weighted-average cost of capital. After the fair value of all separately identifiable assets has been estimated, the cost of the acquisition in excess of the sum of the fair values of these assets is allocated to goodwill.

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” (SFAS 142) which Federated adopted on January 1, 2002, Federated no longer amortizes goodwill but rather tests it for impairment at least annually or when indicators of potential impairment exist. Federated uses a two-step process to test for and measure impairment that begins with an estimation of the fair value of its reporting unit. This first step is a screen for potential impairment, and if impairment has occurred, the second step measures the amount of impairment.

Federated continues to amortize separately identifiable intangible assets using the straight-line method, or an accelerated method if deemed more appropriate, over their estimated useful lives, which range from one to 14 years. Management periodically 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 management 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

34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

undiscounted cash flows, the asset is written down to its fair value determined using discounted cash flows. Federated reverses the cost and accumulated amortization balances for all fully amortized intangible assets.

(j) Equity Investment
Federated owns a 50% interest in a joint-venture company, Federated Asset Management GmbH, which administers separate accounts and distributes Federated offshore fund products in Germany. This joint venture is accounted for under the equity method of accounting. The equity investment is carried at Federated’s share of net assets and included in “Other long-term assets” on the Consolidated Balance Sheets. The proportionate share of income or loss from this entity is included in “Revenue - Other, net” in the Consolidated Statements of Income.

(k) Deferred Sales Commissions and Nonrecourse Debt
Federated pays commissions to broker/dealers to promote the sale of certain mutual fund shares. Under various fund-related contracts, Federated is entitled to distribution and servicing fees from the mutual fund over the life of such shares. Both of these fees are calculated as a percentage of average managed assets associated with the related classes of shares. For certain share classes, Federated is also entitled to receive a contingent deferred sales charge (CDSC) which is collected from redeeming shareholders.

For share classes that offer both a distribution fee and CDSC, excluding Class B shares, Federated capitalizes all or a portion of the upfront commissions as deferred sales commissions. The capitalized portion, equal to 85% or 100% of the paid commission dependent upon expected recoverability rates, is amortized over the estimated period of benefit ranging from one to four years. The distribution and servicing fees are recognized in the Consolidated Statements of Income over the life of the mutual fund share class. CDSCs collected on these share classes are used to reduce the deferred sales commission asset.

For share classes that do not offer both a distribution fee and CDSC, Federated expenses the cost of the upfront commission in “Marketing and promotional” in the Consolidated Statements of Income as it is incurred and credits “Marketing and promotional” for any CDSCs collected.

For Class B shares, Federated sells its rights to receive future distribution fees, servicing fees and CDSCs to independent third parties. For accounting purposes, sales of distribution fees and CDSCs through September 2000 were reflected as financings due to Federated retaining an interest in the residual cash flows under this sales program. Servicing fees sold through September 2000 were also accounted for as financings due to the same retained interest as well as Federated’s ongoing involvement in performing shareholder-servicing activities. As a result, the related upfront commissions paid were capitalized and nonrecourse debt was recorded. On December 31, 2001, Federated sold its retained interest in any residual cash flows under this program allowing sales treatment accounting on the distribution and CDSCs sold through September 2000.

Sales of distribution fees and CDSCs since October 2000 are reflected as sales and the related gains were included in “Other service fees, net - affiliates” in the Consolidated Statements of Income. Sales of shareholder service fees since October 2000 continued to be accounted for as financings. See Note (7) for additional detail on these transactions.

(l) Foreign Currency Translation
Federated’s equity investment in the joint-venture company is translated at the current exchange rate as of the end of the accounting period and the related share of income or loss is translated at the average exchange rate in effect during the period. Net exchange gains and losses resulting from translation are excluded from income and are recorded in “Accumulated other comprehensive income (loss), net of tax” on the Consolidated Balance Sheets. Foreign currency transaction gains and losses relating to Federated’s foreign subsidiaries are reflected in the Consolidated Statements of Income.

(m) Treasury Stock
Federated accounts for acquisitions of treasury stock at cost and reports total treasury stock held as a deduction from total shareholders’ equity on the Consolidated Balance Sheets. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on a specific identification basis. If Federated reissues treasury stock for more or less than the cost of the shares, the “Additional paid-in capital from treasury stock transactions” account on the Consolidated Balance Sheets is credited or debited, respectively.

(n) Revenue Recognition
Revenue from providing investment advisory, administrative and other services (including distribution, shareholder servicing and accounting) is recognized during the period in which the services are performed. Investment advisory, administrative and the majority of other service fees are based on the net asset value of the investment portfolios that are managed or administered by Federated. Federated may waive certain fees for services for competitive reasons or to meet regulatory requirements. Investment advisory fees, administrative service fees and other service fees are recorded net of subadvisory arrangements and third-party distribution and service costs.

Federated Investors 2002 Annual Report 35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

(o) 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, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock-based awards granted through December 31, 2002. Had compensation costs for stock options and employee restricted stock been determined based upon fair values at the grant dates in accordance with SFAS 123, Federated would have experienced net income and earnings per share similar to the pro forma amounts indicated below for the years ended December 31. For purposes of pro forma results, the estimated fair values of the options and restricted stock are recognized as expenses on a straight-line basis over the awards’ vesting periods.

(in thousands, except per share data)		2002			2001			2000
Net income		$	203,760		$	168,447		$	155,360
Add back:  Stock-based compensation expense included in reported net income, net of tax			30			214			144
Deduct:  Total stock-based compensation expense determined under fair value based method for all awards, net of tax			(6,926	)		(6,527	)		(3,801	)
Pro forma net income		$	196,864		$	162,134		$	151,703
Earnings per share:
	Basic earnings per share	$	1.81		$	1.46		$	1.32
	Pro forma basic earnings per share	$	1.75		$	1.41		$	1.29
	Diluted earnings per share	$	1.74		$	1.40		$	1.27
	Pro forma diluted earnings per share	$	1.68		$	1.35		$	1.24

Federated estimated the grant-date fair value using the Black-Scholes option-pricing model with the following weighted-average assumptions for 2002, 2001 and 2000, respectively: dividend yields of 0.72%, 0.53% and 0.68%; expected volatility factors of 28.4%, 29.9% and 30.6%; risk-free interest rates of 4.22%, 5.30% and 6.35%; and an expected life of 6.7 years, 8.3 years and 10.1 years.

Because the vesting schedules for Federated’s stock-based awards vary in length from 0 to 11 years and given that Federated anticipates making additional grants, the effects of applying SFAS 123 on the pro forma disclosures are not likely to be representative of the effects on pro forma disclosures for future years.

(p) Advertising Costs
Federated expenses the cost of all advertising as incurred. Advertising expense for 2002, 2001 and 2000 was $4.5 million, $6.3 million  and $5.4 million, respectively.

(q) 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. Federated recognizes a valuation allowance if, based on the weight of available evidence regarding future taxable income, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

(r) Earnings Per Share
Earnings per share are calculated in accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” which requires that both basic and diluted earnings per share be presented. Basic earnings per share are based on the weighted-average number of common shares outstanding during each period reduced by nonvested restricted stock. Diluted earnings per share are based on basic shares as determined above plus incremental shares that would be issued upon the assumed exercise of in-the-money stock options and nonvested restricted stock using the treasury stock method.

(s) Comprehensive Income
Federated reports all changes in comprehensive income in the Consolidated Statements of Changes in Shareholders’ Equity, in accordance with the provisions of Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income.” Comprehensive income includes net income, unrealized gains and losses on securities available for sale, net of tax, and foreign currency translation adjustments, net of tax.

36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

(t) Business Segments
Federated has not presented business segment data in accordance with Statement of Financial Accounting Standards No. 131, “Disclosure About Segments of an Enterprise and Related Information,” because it operates predominantly in one business segment, the investment advisory and asset management business.

(u) Reclassification of Prior Periods’ Statements
Certain items previously reported have been reclassified to conform with the current year presentation.

(v) Recent Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections,” (SFAS 145).  Among other things, SFAS 145 eliminates the requirement under FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” to report gains and losses from extinguishment of debt as extraordinary items in the income statement.  Similarly, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements” has been rescinded.  As a result, gains or losses from extinguishments of debt for fiscal years beginning after May 15, 2002 shall not be reported as extraordinary items and such gains or losses previously reported as extraordinary items shall be reclassified unless the extinguishment qualifies as an extraordinary item under the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”  SFAS 145 also amends FASB Statement No. 13 to require that certain modifications to capital leases be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). Federated adopted the provisions of SFAS 145 in 2002. Accordingly, the loss from the extinguishment of debt reported as an extraordinary item in the prior year Consolidated Financial Statements was reclassified to “Nonoperating Income (Expenses) – Debt expense – recourse” in the Consolidated Statements of Income appearing in this report. 

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” (SFAS 146). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between SFAS 146 and Issue No. 94-3 relates to its requirements for recognition of a liability for a cost associated with an exit or disposal activity. SFAS 146 requires that such a liability be recognized when the liability is incurred as opposed to the date of an entity’s commitment to an exit plan, as defined in Issue No. 94-3. Federated adopted the provisions of SFAS 146 in 2002. The adoption of SFAS 146 did not have a material impact on Federated’s results of operations or financial position.

In October 2002, the Emerging Issues Task Force of the FASB reached a consensus on Issue No. 02-17, “Recognition of Customer Relationship Intangible Assets Acquired in a Business Combination.”  This issue requires that a company consider all aspects of a customer relationship when determining the fair value of a customer-related intangible asset acquired in a business combination. The consensus is effective for all business combinations occurring after October 25, 2002. Accordingly, Federated’s policy for valuing customer-related intangible assets for any new business combinations will not only consider estimated redemption rates and effects of market appreciation and depreciation but also expected future sales to customers acquired as part of the combination.  

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” (FIN 45). This statement elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued.  It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. As of December 31, 2002, Federated has not issued any guarantees other than on an intercompany basis and as such, does not believe that the adoption of FIN 45 will have a material impact on Federated’s results of operations or financial position.

In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” (SFAS 148). This statement provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require prominent annual and interim disclosures about the method used to account for stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. Management is currently deliberating whether to adopt the expense recognition provisions of recording the fair value of stock-based compensation under the guidance of SFAS 123 and intends to reach a final decision in 2003.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” (FIN 46).  The objective of FIN 46 is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, noncontrolling interests, and results of operations of a VIE need to be included in a company’s consolidated financial statements. A company that holds variable interests in an entity will need to consolidate the entity if the company’s interest in the VIE is such that the company will absorb a majority of the VIE’s expected losses and/or receive a majority of the VIE’s expected residual returns, if

Federated Investors 2002 Annual Report 37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

they occur. FIN 46 also requires additional disclosures by primary beneficiaries and other significant variable interest holders. The provisions of this interpretation were effective upon issuance for all new VIEs and as of July 1, 2003, for all VIEs that existed at the date of its issuance. Management is currently assessing the impact FIN 46 may have on Federated’s results of operations and financial position as it applies to Federated’s investments in the CBOs as well as other aspects of Federated’s business.  

(2) Variable Interest Entities

Federated acts as the investment manager for two high-yield collateralized bond obligation (CBO) products and a mortgage-backed CBO product pursuant to the terms of an investment management agreement between Federated and each CBO. The CBOs are alternative investment products that were structured using special-purpose entities. As of December 31, 2002, aggregate total assets and aggregate total obligations of the CBOs approximated $1.1 billion, respectively.

The financial condition and results of operations of these CBOs are not included in Federated’s Consolidated Financial Statements as of and for the year ended December 31, 2002, or for any prior period. In each case, there exists a majority owner(s) that is an independent third party from Federated owning at least three percent equity in the CBO. Federated has not guaranteed nor has any recourse related to any of the notes issued by the CBOs. As of December 31, 2002, the remaining $0.6 million carrying value of Federated’s investments in the CBOs represents Federated’s maximum exposure to loss as a result of its involvement with the CBOs.

(3) Marketable Securities

Marketable securities as of December 31, 2002 and 2001 included available-for-sale securities only as no trading securities were held at either date. Current and long-term marketable securities (see Note (1)(f)) were as follows:

			Gross Unrealized
(in thousands)	Cost		Gains		(Losses)			Estimated Market Value
Fluctuating-value mutual funds	$	412	$	1	$	(8	)	$	405
Asset-backed securities		618		0		0			618
Total as of December 31, 2002	$	1,030	$	1	$	(8	)	$	1,023
Fluctuating-value mutual funds	$	4,783	$	8	$	(189	)	$	4,602
Asset-backed securities		2,500		0		0			2,500
Total as of December 31, 2001	$	7,283	$	8	$	(189	)	$	7,102

The following table presents gains and losses recognized in connection with marketable securities for the years ended December 31,:

(in thousands)	2002			2001			2000
CBO impairment losses1	$	(1,836	)	$	(14,127	)	$	(2,935	)
Performance seed investment losses		0			(1,092	)		0
Unrealized gain on trading security		105			0			0
Realized gains2		23			245			850
Realized losses2		(839	)		(7,295	)		(939	)
Loss on securities, net	$	(2,547	)	$	(22,269	)	$	(3,024	)

1

In  2001 and 2000, the CBO impairment losses relate to the write down of the two high-yield CBO investments due to other-than-temporary declines in their fair values as a result of the rise in default rates over the two-year period. In 2001, Federated ultimately wrote these investments down to zero. In 2002, an impairment loss was recognized on the mortgage-backed CBO investment due to the significant declines in the value of the underlying securities held by the CBO.

2

Of the 2002 realized gains and (losses), $10 and $(650), respectively, related to the disposal of trading securities previously held by Federated.

38

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

(4) Intangible Assets and Goodwill

Federated’s identifiable intangible assets consisted of the following at December 31,:

		2002							2001
(in thousands)		Cost		Accumulated Amortization			Carrying Value		Cost		Accumulated Amortization			Carrying Value
Investment advisory contracts		$	71,255	$	(12,260	)	$	58,995	$	78,920	$	(13,511	)	$	65,409
Noncompete agreements			15,400		(5,219	)		10,181		15,400		(2,139	)		13,261
Other			1,786		(740	)		1,046		1,780		(424	)		1,356
	Total identifiable intangible assets	$	88,441	$	(18,219	)	$	70,222	$	96,100	$	(16,074	)	$	80,026

Amortization expense for identifiable intangible assets was $11.3 million, $11.2 million and $4.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. Following is a schedule of expected aggregate annual amortization expense for intangible assets in each of the five years following December 31, 2002 assuming no new acquisitions or impairments:

(in thousands)
2003	$	10,457
2004	$	10,347
2005	$	10,136
2006	$	7,785
2007	$	6,827

The balance representing goodwill at December 31, 2002 was $164.9 million as compared to $131.9 million at December 31, 2001. The $33.0 million increase in goodwill predominantly reflects the first contingent purchase price payment for the acquisition of substantially all of the business of Edgemont Asset Management Corporation completed in 2001. The first contingent purchase price payment was made during the second quarter 2002, and represented approximately 20% of the total amount of contingent purchase price available to be paid over the first six years following the closing date of the acquisition, provided certain revenue targets are met. 

The following table presents adjusted net income for the years ended December 31, 2002, 2001 and 2000, reflecting net income and basic and diluted earnings per share as though Federated had adopted the provisions of SFAS 142 on January 1, 2000:

(in thousands, except per share data)	2002		2001		2000
Net income	$	203,760	$	168,447	$	155,360
Add back:  Goodwill amortization, net of tax		0		4,613		2,678
Adjusted net income	$	203,760	$	173,060	$	158,038
Basic earnings per share	$	1.81	$	1.46	$	1.32
Add back:  Goodwill amortization, net of tax		0.00		0.04		0.02
Adjusted basic earnings per share	$	1.81	$	1.50	$	1.34
Diluted earnings per share	$	1.74	$	1.40	$	1.27
Add back:  Goodwill amortization, net of tax		0.00		0.04		0.02
Adjusted diluted earnings per share	$	1.74	$	1.44	$	1.29

Federated Investors 2002 Annual Report 39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

(5) Property and Equipment

Property and equipment consisted of the following at December 31:

(in thousands)		2002			2001
Computer equipment1		$	19,104		$	23,251
Software development			13,744			12,506
Office furniture and equipment			12,185			12,134
Transportation equipment			11,920			11,908
Leasehold improvements			10,727			21,986
	Total cost/fair value		67,680			81,785
	Accumulated depreciation		(33,958	)		(47,264	)
Property and equipment, net		$	33,722		$	34,521

1 Amounts include $2,794 and zero recorded under capital lease arrangements for 2002 and 2001, respectively.

Depreciation expense was $8.4 million for both years ended December 31, 2002 and 2001 and $7.3 million for the year ended December 31, 2000, and included the amortization of assets recorded under capital lease arrangements.

During the fourth quarter 2002, Federated evaluated the recoverability of the assets associated with its retirement services operations, consisting primarily of internally developed software. The implementation date of the internally developed software was significantly delayed as a result of ongoing development efforts. This delay negatively impacted the estimate of future cash flows expected to be generated by the assets. Based on this evaluation, management determined that the assets were impaired and recorded a $2.1 million pretax charge in “Operating Expenses – Other” to write down the carrying value of the assets to estimated fair value as of December 31, 2002.  Fair value was estimated based on expected future cash flows discounted using a risk-free rate.

(6) Long-Term Debt—Recourse

Federated’s total recourse debt balance of $2.3 million and $0.2 million at December 31, 2002 and 2001, respectively, represented liabilities on capital leases. During 2002, Federated repaid all outstanding liabilities on the capital leases held as of December 31, 2001. Federated entered into three new capital leases for computer hardware in 2002. These leases had an average interest rate of 4.27% for the year ended December 31, 2002, and will expire in 2005. The aggregate contractual maturities of the capital leases are:  $1.1 million, $1.1 million and $0.5 million in 2003, 2004 and 2005, respectively. These contractual maturity amounts include executory costs of $0.2 million and imputed interest costs of $0.2 million.

On December 31, 2001, Federated used existing cash to repay the remaining balance of $70.0 million on the Senior Secured Note Purchase Agreements (the Notes), which were scheduled to mature in June 2006. The Notes carried a fixed interest rate of 7.96%. In connection with the early retirement of the Notes, Federated paid a make-whole amount equal to $6.6 million pretax. The make-whole payment was classified as an extraordinary loss, net of tax, in the prior year Consolidated Financial Statements. The amount was reclassified in the current year to “Debt expense – recourse” in the Consolidated Statements of Income in accordance with the provisions of SFAS 145 (see Note (1)(v)).

As of December 31, 2002, Federated was able to borrow up to $150.0 million under the provisions of the Second Amended and Restated Credit Agreement (the Credit Facility), the term of which was scheduled to expire in January 2003. Under this agreement, Federated paid a facility fee of 0.10% on the revolving credit commitment. At December 31, 2002, the outstanding balance under the Credit Facility was zero. The Credit Facility contained various financial and nonfinancial covenants. Federated was in compliance with all such covenants at December 31, 2002. On January 20, 2003, Federated renewed the Credit Facility (see Note (20)) for an additional 364-day term. Several of Federated’s wholly owned subsidiaries guarantee any obligation of Federated that arises pursuant to the Credit Facility.

(7) B-Share Sales Programs

Federated sells its rights to future cash flow streams associated with B-share deferred sales commissions (distribution and servicing fees as well as CDSCs) to an independent third party. For accounting purposes, sales of these distribution fees and CDSCs from inception of the first program in 1997 through September 2000 were accounted for as financings as a result of Federated’s retained interest in any residual cash flows in this program. Sales of servicing fees under the first program were also accounted for as financings due to the same retained interest as well as Federated’s ongoing involvement in performing shareholder-servicing activities. Accordingly, nonrecourse debt was recorded.  As a result, “Other service fees, net – affiliates” in the Consolidated Statements of Income reflected distribution and servicing fees earned on B shares sold through September 2000.  In addition, debt expense associated with the nonrecourse debt, amortization of deferred sales commissions and other program-related expenses were recorded for sales through September 2000.

40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

Beginning in October 2000, pursuant to the terms of a second sales program with an independent third party, Federated accounted for the sales of its rights to future distribution fees and CDSCs as sales.  Sales of Federated’s rights to future servicing fees continued to be accounted for as financings due to Federated’s ongoing involvement in performing shareholder-servicing activities.  Accordingly, nonrecourse debt has been recorded. Total nonrecourse debt at December 31, 2002 and 2001, was $57.9 million and $55.0 million, respectively. The nonrecourse debt carries interest rates ranging from 5.80% to 8.60% with weighted average interest rates of 7.36% and 7.79% at December 31, 2002 and 2001, respectively. The current B-share program allows Federated to sell its rights to future cash flow streams associated with B-share deferred sales commissions through December 2003.

On December 31, 2001, Federated sold its retained interest in the residual cash flows under its first B-share program to an independent third party.  As a result, Federated recognized sale treatment accounting for B-share distribution fees and CDSCs sold under this program. The recognition of sale treatment resulted in a $9.0 million pretax gain, which was recorded in “Nonoperating Income (Expenses) - Other, net” in the Consolidated Statements of Income and the reversal of certain asset and liability balances associated with this program as of December 31, 2001. Beginning January 1, 2002, Federated no longer recognizes revenue and expense items in its Consolidated Statements of Income for these sold distribution fees and CDSCs or the related asset and liability balances. Federated continues to account for the prior sale of rights to future servicing fees as financings.  The following table presents adjusted components of net income for the years ended December 31, 2002, 2001 and 2000 reflecting the effect of the sale of Federated’s retained interest under the first B-share program as though it occurred prior to January 1, 2000:

(in thousands)		2002			2001			2000
Revenue		$	711,069		$	719,763		$	664,942
Deduct:  Distribution fee revenue for B shares			0			(48,070	)		(63,792	)
	Adjusted revenue	$	711,069		$	671,693		$	601,150
Operating expenses		$	(379,439	)	$	(405,573	)	$	(393,858	)
Add back:  Amortization of B-share deferred sales commissions			0			26,275			37,611
	Adjusted operating expenses	$	(379,439	)	$	(379,298	)	$	(356,247	)
Total nonoperating expenses, net		$	(5,064	)	$	(40,275	)	$	(18,354	)
Add back:  Debt expense – nonrecourse			0			19,082			22,379
Deduct:  Gain on the Sale of the B-Share Retained Interest			0			(9,017	)		0
	Adjusted total nonoperating (expenses) income, net	$	(5,064	)	$	(30,210	)	$	4,025

The debt is considered nonrecourse debt for Federated and does not contain a contractual maturity but is amortized dependent upon the cash flows of the related B-share fund assets, which are applied first to interest and then principal. Interest rates are imputed based on current market conditions at the time of issuance.

(8) Employee Benefit Plans

(a) 401(k)/Profit Sharing Plan
Federated offers a 401(k) plan covering substantially all employees. Under the 401(k) plan, employees can make salary deferral contributions at a rate of 1% to 25% of their annual 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 the first 2% that each participant deferred and 50% of the next 4% of deferral contributions. Forfeitures of nonvested matching contributions are used to offset future matching contributions.

Vesting in Federated’s matching contributions commences once a participant in the 401(k) plan has been employed at least two years and worked at least 1,000 hours per year. Upon completion of two years of service, 20% of Federated’s contribution included in a participant’s account 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 deferral contributions. 

Matching contributions to the 401(k) plan amounted to $3.5 million, $3.4 million and $3.0 million for the years ended December 31, 2002, 2001 and 2000, respectively.

A Federated employee 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 may contribute amounts as authorized by its board of directors. No contributions have been made to the Profit Sharing Plan in 2002, 2001 or 2000. At December 31, 2002, the Profit Sharing Plan held 1.8 million shares of Federated Class B common stock.

Federated Investors 2002 Annual Report 41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (cotinued)
(December 31, 2002, 2001 and 2000)

(b) Employee Stock Purchase Plan
Federated offers an Employee Stock Purchase Plan which allows employees to purchase a maximum of 750,000 shares of Class B common stock. Employees may contribute up to 10% of their salary to purchase shares of Federated’s Class B common stock on a quarterly basis at the market price. The shares under the plan may be newly issued shares, treasury shares or shares purchased on the open market. As of December 31, 2002, 56,614 shares were purchased by the plan on the open market since the plan’s inception in 1998.

(9) Other Compensation Plans

Federated’s long-term incentive compensation has been provided for under the Stock Incentive Plan, as amended and subsequently approved by shareholders in April 2002. Stock-based awards are granted to reward Federated’s employees and independent directors who have contributed to the success of Federated and to provide incentive to increase their efforts on behalf of Federated. Under the plan, a total of 20.3 million shares of Class B common stock have been authorized for granting stock-based awards in the form of restricted stock, stock options or other stock-based awards.

(a) Restricted Stock
Under the Stock Incentive Plan and subject to restrictions, Federated has sold shares of Class B common stock to certain key employees. 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. Federated did not sell any shares of Class B common stock under the Stock Incentive Plan in 2002, 2001 or 2000. Forfeitures of 146,250 shares occurred in 2002. There were no forfeitures in 2001 or 2000. Compensation expense related to the Employee Restricted Stock Plan was $0.1 million for the year ended December 31, 2002 and $0.3 million for both 2001 and 2000.

(b) Stock Options
Option and option-related data have been restated to reflect stock splits.

In 2000, 5,476,500 employee stock options were granted, 300,000 options were awarded to executive officers in lieu of a portion of their 1999 earned bonus awards and 4,500 options were awarded to independent directors. In 2001, 45,000 employee stock options were granted, 199,980 options were awarded to executive officers in lieu of a portion of their 2000 earned bonus awards and 12,000 options were awarded to independent directors. In 2002, 430,000 employee stock options were granted, 200,000 options were awarded to executive officers in lieu of a portion of their 2001 earned bonus awards, 315,624 options were awarded to executive and senior management in connection with their 2002 earned bonus awards and 6,750 options were awarded to independent directors. 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 0- to 11-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. In 2002, 14,000 stock options were exercised.

For the years ended December 31, 2002, 2001 and 2000, compensation expense related to stock options was $0.2 million, $0.3 million and $0.2 million, respectively.

42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

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

	Options			Weighted-Average Exercise Price		Options Exercisable		Weighted-Average Exercise Price
Outstanding at beginning of 2000		6,703,200		$	4.29		310,500	$	11.76
Granted		5,781,000		$	24.55
Forfeited		(317,000	)	$	5.74
Outstanding at end of 2000		12,167,200		$	13.88		1,744,500	$	6.54
Granted		256,980		$	29.50
Exercised		(693,600	)	$	1.57
Forfeited		(174,175	)	$	12.09
Outstanding at end of 2001		11,556,405		$	15.00		1,259,880	$	13.07
Granted		952,374		$	28.96
Exercised		(14,000	)	$	15.55
Forfeited		(583,975	)	$	15.13
Outstanding at end of 2002		11,910,804		$	16.11		1,771,254	$	17.37

Additional information regarding stock options outstanding at December 31, 2002, follows:

Range of Exercise Prices	Outstanding		Weighted-Average Exercise Price		Weighted- Average Remaining Contractual Life (in Years)		Exercisable		Weighted-Average Exercise Price
$1.28 to $1.29		2,279,700	$	1.28		2.6		0	$	0.00
$4.00 to $6.20		2,113,875	$	4.47		4.7		450,000	$	6.20
$11.00 to $13.29		2,064,375	$	12.64		6.4		591,150	$	12.50
$17.75 to $25.35		2,321,124	$	24.24		8.6		317,874	$	25.30
$26.95 to $35.00		3,131,730	$	31.01		8.7		412,230	$	30.41
		11,910,804	$	16.11		6.4		1,771,254	$	17.37

Information regarding the fair value of options granted in 2002, 2001 and 2000 follows:

		2002		2001		2000
Exercise price equals market price on date of grant:
	Weighted-average grant-date fair value	$	10.29	$	13.07	$	10.51
	Weighted-average exercise price		28.96		29.50		20.32
Exercise price is more than market price on date of grant:
	Weighted-average grant-date fair value	$	0.00	$	0.00	$	11.65
	Weighted-average exercise price		0.00		0.00		31.25

No awards were granted with an exercise price that was less than the market price on the date of grant in 2002, 2001 or 2000.

(10) Minority Interest in Subsidiaries

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 & Co., L.P. is the limited partner with a 49.5% interest. The partnership acts as investment adviser to two registered investment companies.

Another subsidiary of Federated Investors, Inc. owns a majority interest (90%) in InvestLink Technologies, Inc. (InvestLink), a software developer and marketer of applications for the recordkeeping, administration and servicing of defined contribution plans. Certain key employees of InvestLink own the remaining 10% of the subsidiary.

(11) Common Stock

The Class A common stockholder has the entire voting rights of Federated; however, without the consent of the majority of the holders of the Class B common stock, the Class A common stockholder 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 stockholders, or liquidate or dissolve Federated.

Federated Investors 2002 Annual Report 43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

Cash dividends of $24.8 million, $20.5 million and $16.6 million were paid in 2002, 2001 and 2000, respectively, to holders of common stock. 

In 2002, 2001 and 2000, the board of directors approved various share repurchase programs authorizing Federated to purchase Federated Class B common stock. Under the programs, shares can be repurchased in open market and private transactions through the life of the program. The current program will expire in April 2003. The programs authorize executive management to determine the timing and the amount of shares for each purchase. The repurchased stock will be held in treasury for employee benefit plans, potential acquisitions and other corporate activities. As of December 31, 2002, under these programs, Federated can repurchase an additional 4.4 million shares.

Stock repurchases and dividend payments are subject to restrictions under Federated’s Credit Facility, as amended on January 20, 2003. These restrictions limit cash payments for additional stock repurchases and dividends to 50% of net income earned during the period from January 1, 2000, to and including the payment date, less certain payments for dividends and stock repurchases. As of December 31, 2002, Federated, given current debt covenants as disclosed in Note (20), had the ability to make additional stock repurchase or dividend payments of more than $260 million under these restrictions.

(12) Leases

Federated has various operating lease agreements primarily involving facilities, office and computer equipment and vehicles. These leases are noncancelable and expire on various dates through the year 2011. Most leases include renewal options and, in certain leases, escalation clauses.

The following is a schedule by year of future minimum rental payments required under the operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 2002:

(in thousands)
2003		$	15,858
2004			14,171
2005			13,556
2006			13,121
2007			11,602
2008 and thereafter			3,425
	Total minimum lease payments	$	71,733

Beginning in 2002, Federated subleases certain leased property. As of December 31, 2002, aggregate future minimum rentals to be received under a noncancelable sublease that expires in 2007 totaled $2.7 million.

Rental expenses were $15.6 million, $18.8 million and $17.9 million for the years ended December 31, 2002, 2001 and 2000, respectively.

(13) Income Taxes

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

Income tax expense consisted of the following components for the years ended December 31:

(in thousands)			2002		2001			2000
Current:
	Federal		$	102,022	$	111,729		$	83,165
	State			1,760		984			653
	Foreign			518		508			363
				104,300		113,221			84,181
Deferred:
	Federal			7,654		(18,633	)		2,981
		Total	$	111,954	$	94,588		$	87,162

For the years ended December 31, 2002, 2001 and 2000, the foreign subsidiaries had net income of $4.0 million, $4.4 million and $3.1 million, respectively, for which income tax expense of $1.6 million, $1.7 million and $1.3 million, respectively, has been provided.

44

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

Federated’s effective income tax rate was 35.5%, 36.0% and 35.9% for the years ended December 31, 2002, 2001 and 2000, respectively. Differences between the statutory federal tax rate and the effective tax rate for these years are due primarily to state income taxes and the nondeductibility of certain meals and entertainment expenses and in 2001 and 2000, the amortization of certain nondeductible goodwill.

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities consisted of the following as of December 31:

(in thousands)		2002			2001
Deferred Tax Assets
Unrealized losses and impairment losses on marketable securities1		$	6,948		$	6,066
Capital losses2			3,936			3,670
Intangible assets			3,298			8,468
Other			2,377			2,750
	Total gross deferred tax asset		16,559			20,954
	Valuation allowance for capital loss carry-forwards2		(2,348	)		0
	Total deferred tax asset, net of valuation allowance	$	14,211		$	20,954
Deferred Tax Liabilities
Deferred sales commissions		$	21,928		$	21,197
Costs of internal-use software			3,055			2,842
Other			3,127			1,926
	Total gross deferred tax liability	$	28,110		$	25,965
	Net deferred tax liability	$	13,899		$	5,011

1

$6,614 of this amount represents deferred tax assets generated by the impairment charges recorded to write down the value of Federated’s three CBOs. The amount of actual capital loss associated with Federated’s investment in the CBOs will not be known until such time as Federated’s investments in the CBOs are either redeemed or sold. The five-year carry-forward period will begin in the first tax year after Federated’s CBO investments are disposed. Management believes it is more likely than not that Federated will be able to utilize the capital loss carry-forwards in the future.

2

$2,613 and $249 of this capital loss deferred tax asset will be carried forward and will expire in 2006 and 2007, respectively. A valuation allowance has been recognized on a portion of this deferred tax asset due to management’s uncertainty of realizing the benefit of these capital loss carry-forwards.

(14) Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31:

(in thousands, except per share data)		2002		2001		2000
Numerator
Net income		$	203,760	$	168,447	$	155,360
Denominator
Denominator for basic earnings per share - weighted-average shares less nonvested restricted stock			112,375		115,012		117,557
Effect of dilutive securities:
	Dilutive potential shares from stock-based compensation		4,929		4,980		4,738
Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions			117,304		119,992		122,295
Basic earnings per share		$	1.81	$	1.46	$	1.32
Diluted earnings per share		$	1.74	$	1.40	$	1.27

Federated Investors 2002 Annual Report 45

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

(15) Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss), net of tax, are as follows:

(in thousands)	Unrealized Gain/(Loss) on Securities Available for Sale			Foreign Currency Translation			Total
Balance at January 1, 2000	$	(32	)	$	(63	)	$	(95	)
Total change in market value1		(2,654	)		0			(2,654	)
Reclassification adjustment2		58			0			58
Loss on currency conversion3		0			(55	)		(55	)
Balance at December 31, 2000		(2,628	)		(118	)		(2,746	)
Total change in market value1		(2,072	)		0			(2,072	)
Reclassification adjustment2		4,582			0			4,582
Loss on currency conversion3		0			(50	)		(50	)
Balance at December 31, 2001		(118	)		(168	)		(286	)
Total change in market value1		(1	)		0			(1	)
Reclassification adjustment2		114			0			114
Gain on currency conversion3		0			194			194
Balance at December 31, 2002	$	(5	)	$	26		$	21

1	The tax benefit on the change in market value of securities available for sale was $1, $1,116 and $1,429 for 2002, 2001 and 2000, respectively.
2	The tax benefit on the reclassification adjustment for securities available for sale was $62, $2,468 and $31  for 2002, 2001 and 2000, respectively.
3	The tax (expense)/benefit on the foreign currency translation gain/loss was $(104), $27 and $30 for 2002, 2001 and 2000, respectively.

(16) Disclosures of Fair Value

Estimated fair values of Federated’s financial instruments have been determined using available market information and appropriate valuation methodologies, as set forth below. These fair values are not necessarily indicative of the amounts that would be realized upon exchange of these instruments or Federated’s intent to dispose of these instruments.

Carrying amounts approximate fair value for the following financial instruments due to their short maturities:

• Cash and cash equivalents

• Receivables

• Accounts payable

• Accrued expenses

Marketable securities are carried at fair value (see Note (1)(f)).

Federated’s recourse debt is comprised of capital lease liabilities. The fair value of each capital lease liability is estimated based on the current market rate for debt with a similar remaining maturity. Based on this fair value estimate, the carrying value of capital lease liabilities appearing in the Consolidated Balance Sheets approximate fair value.

With respect to Federated’s nonrecourse debt, based on the nature of the debt and the uncertainty of the amounts and timing of the cash flows, Federated is not able to determine its fair value. (See Note (7) for further information regarding Federated’s nonrecourse debt.)

(17) Commitments and Contingencies

Federated has claims asserted against it that result from litigation in the ordinary course of business. In the opinion of management, after consultation with counsel, it is unlikely that any adverse determination for any pending claim will  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 various Federated products including the Federated group of funds (Federated funds or affiliates). 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.

46

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

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

(19) Business Combinations

In the second quarter 2002, Federated signed an agreement with FirstMerit Advisors, Inc. and FirstMerit Corporation pursuant to which assets totaling approximately $250 million, previously advised by FirstMerit, were merged into Federated funds.

In the fourth quarter 2001, assets of three mutual funds previously advised by Rightime Econometrics, Inc., totaling approximately $148.0 million were merged into Federated Capital Appreciation Fund and Automated Government Cash Reserves in connection with an agreement between Federated, Lincoln Investment Planning, Inc. and Rightime Econometrics, Inc.

In April 2001, Federated completed the acquisition of substantially all of the business of Edgemont Asset Management Corporation, the former adviser of The Kaufmann Fund (Edgemont Acquisition). The purchase price for this acquisition was $182.9 million. This price included cash payments of $174.0 million, including transaction costs, and 315,732 shares of Federated Class B common stock valued at $8.9 million. The acquisition agreement provides for additional purchase price payments and incentive compensation payments based upon the achievement of specified revenue growth through 2007. The purchase price payments are recorded as additional goodwill at the time of payment while the incentive compensation payments are recognized as compensation expense during the periods in which the payments are earned. These contingent payments could aggregate to approximately $200.0 million if revenue targets are met. In 2002, Federated made contingent payments of $40.0 million, $33.1 million of which was recorded as goodwill.

This acquisition was accounted for using the purchase method of accounting and, accordingly, the fair value of the assets acquired, primarily $77.0 million of identifiable intangible assets and $105.7 million of goodwill as of the acquisition date, as well as the results of those assets were included in Federated’s Consolidated Financial Statements beginning on the date of acquisition. The amount assigned to intangible assets represents the fair value of the advisory contract, the noncompete agreement and the workforce as of April 2001. These assets are being amortized on a straight-line basis over their useful lives, which range from four to ten years with a weighted average life of 9 years.

The following unaudited pro forma data for Federated includes the results of the assets purchased from Edgemont Asset Management Corporation, giving effect to the acquisition as if it occurred at the beginning of the periods presented. The pro forma data is based on historical information and does not reflect the actual results that would have occurred nor is it indicative of future results of operations.

		Pro Forma Data for the Year Ended December 31,
(in millions except per share data)			2001		2000
Revenue		$	729.2	$	730.2
Net income			169.6		156.6
Earnings per share:
	Basic		1.47		1.33
	Diluted		1.41		1.28

(20) Subsequent Events

On January 20, 2003, Federated renewed its $150.0 million Credit Facility by signing Amendment No. 2 to the Second Amended and Restated Credit Agreement (the Renewed Credit Facility). The Renewed Credit Facility has a term of 364 days and can be renewed for additional 364-day terms. Under the Renewed Credit Facility, borrowings bear interest, at the option of Federated, at a defined prime rate or at a spread over the Federal Funds rate or the London Interbank Offering Rate. Federated will pay a facility fee of 0.10% on the revolving credit commitment. The Renewed Credit Facility contains restrictions that limit cash payments for dividends and stock repurchases. Cash payments for dividends and stock repurchases are restricted to 50% of net income earned during the period from January 1, 2000, to and including the payment date, less certain payments for dividends and stock repurchases. The Renewed Credit Facility includes financial and nonfinancial covenants, which are similar in nature to the covenants contained in the original Credit Facility.

On January 22, 2003, the board of directors declared a $0.057 per share dividend.

Federated Investors 2002 Annual Report 47

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(December 31, 2002, 2001 and 2000)

(21) Supplementary Quarterly Financial Data (Unaudited)

(in thousands, except per share data, for the quarters ended)		March 31,		June 30,		September 30,		December 31,
2002
Revenue		$	181,620	$	182,381	$	173,235	$	173,834
Operating income			85,671		84,088		83,718		78,153
Net income			52,323		52,611		49,927		48,899
Basic earnings per share			0.46		0.47		0.45		0.44
Diluted earnings per share			0.44		0.45		0.43		0.42
Cash dividends per share			0.046		0.057		0.057		0.057
Stock price per share1
	High		34.62		35.75		36.18		28.51
	Low		30.01		30.05		24.45		23.43
2001
Revenue		$	167,430	$	178,731	$	184,746	$	188,856
Operating income			71,716		75,080		80,739		86,655
Net income			41,644		42,874		43,191		40,738
Basic earnings per share			0.36		0.37		0.37		0.36
Diluted earnings per share			0.35		0.36		0.36		0.34
Cash dividends per share			0.037		0.046		0.046		0.046
Stock price per share1
	High		31.30		32.77		32.80		32.00
	Low		23.31		26.75		24.91		25.65

1 Federated’s common stock is traded on the New York Stock Exchange under the symbol “FII.”

The approximate number of beneficial shareholders of Federated’s Class A and Class B common stock as of February 26, 2003, was one and 16,716, respectively.

48

EX-21

EXHIBIT 21.01

SIGNIFICANT SUBSIDIARIES OF FEDERATED INVESTORS, INC.:

Federated Securities Corp., a Pennsylvania corporation
Federated Investors Management Company, a Pennsylvania corporation
FII Holdings, Inc., a Delaware corporation
Federated Investment Management Company, a Delaware statutory trust
Federated Investment Counseling, a Delaware statutory trust
Federated Global Investment Management Corp., a Delaware corporation
Federated International Management Limited, an Ireland company
Passport Research Ltd., a Pennsylvania general partnership
Federated Services Company, a Pennsylvania corporation
Federated Funding 1997-1, Inc., a Delaware corporation
Federated Investors Trust Company, a New Jersey bank
Federated Administrative Services, a Delaware statutory trust
Federated Shareholder Services Company, a Delaware statutory trust
Retirement Plan Services Company of America, a Delaware statutory trust,
  doing business as “Federated Retirement Plan Services Company” and “Federated Retirement Solutions”
Edgewood Services, Inc., a New York corporation
Federated Administrative Services, Inc., a Pennsylvania corporation
Federated Private Asset Management, Inc., a Delaware corporation
Federated International Holdings B.V., a Netherlands company
InvestLink Technologies, Inc., a Delaware corporation
Federated International – Europe GmbH, a German company

EX-23.1

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. 2000 Stock Incentive Plan of our report dated January 24, 2003, 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, 2002.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
March 18, 2003