Executives: Raymond Hanley - President, Federated Investors Management Company Christopher Donahue - President and Chief Executive Officer Thomas Donahue - Chief Financial Officer

Analysts: Ken Worthington - JP Morgan Michael Carrier - Bank of America William Katz - Citi

Operator: Greetings and welcome to Federated Investors Fourth Quarter 2016 Analyst Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. Ray Hanley, President of Federated Investors Management Company. Thank you, you may begin.

Raymond Hanley: Good morning and welcome. Leading today’s call will be Chris Donahue Federated’s CEO and President, and Tom Donahue, Chief Financial Officer. During today’s call, we may make forward-looking statements and we want to note that Federated’s results may be materially different than the results implied by such statements. We invite you to review the risk disclosures in our SEC filings. No assurance can be given as to future results and Federated assumes no duty to update any of these forward-looking statements. Chris.

Christopher Donahue: Thank you, Ray, and good morning, all. I will briefly review Federated’s business performance and then Tom will comment on our financials. Looking first at equities, while Q4 was the second equity outflow quarter for Federated over the last 13 quarters. Full-year net equity sales were a record $5.8 billion. The strategic value dividend strategies both domestic and international for combined funds and separate accounts produced positive net sales for the fourth quarter, though at a reduced amount compared to prior recent quarters. The domestic strategic value dividend strategy produced another year of solid performance in 2016. The funds strategy return 10.4% for the year in line with its five year annual return of 10.8% and substantially higher than 10 year annual return of 5.2%. The fund rank in the top 13% of its assigned Morningstar category on a trailing three year basis at year end, while its one and five year of ranking within the 89th percent high. Though not a value fund Morningstar included in the Large Cap Value Style Box category with many funds that are pursuing much different strategies. Its Morningstar defined peers are often seeking undervalued stocks. In contrast, our strategies’ objective is to provide a high and rising income stream from high quality dividend paying companies and does not change with fluid market or investor preferences that can drive short-term market performance. Given the category, miss match the fund’s relative rankings varied significantly. Over the last calendar years and for its one year, ranking the funds finished in the top 1% twice and the top third once. The other five years saw the fund in the bottom quartile. Yet the fund produced positive net sales in seven of the eight years and produced cumulative net sales of nearly $10 billion. We believe that the intermediaries and the investors look beyond Style Box ranking against many to similar funds and we are attracted to our solutions strategy, offering the potential for high and growing income from high quality businesses. We continue to expand strategic value distribution in the fourth quarter, adding separate account mandates including two wins for about 50 million and map over’s including a 100 million from a broker dealer. Interestingly the fund strategy was repeating the same pattern top 2% of the Morningstar Style Box in December and in the fourth quarter so far in January. Also, through the first three weeks of January, the funds’ pace of net redemptions or running at about half of the month of December’s amount. Other strategies with positive net sale in the fourth quarter include MDT Small Cap Core, MDT Small Cap Growth and Muni Stock Advantage Funds. Using Morningstar data for rank funds at the end of the fourth quarter, four Federated funds 13% were in the top decile for trailing three years. We had nine funds or 30% in the top quartile and 43% in the top half for trailing three years. In addition to strategic value dividend over top decile or quartile trailing three-year, equity strategies at quarter end include MDT Small Cap Core, MDT Small Cap Growth, Muni and Stock Advantage all of those just mentioned we are in the top decile. Kaufmann, top 21% and Kaufmann Small Cap plus 25%. Three weeks into the first quarter, net sales of equity funds and SMAs combined are negative 245 million. Turning now to fixed income. Overall Q4 net sales were positive 274 million, while the full-year saw net out flows of 1.7 billion. Net fund sales in the fourth quarter were lead by Ultrashort funds, the institutional High-Yield fund and the Floating rate fund. Our fixed income business has a variety of strategies that are performing well. at quarter end, the institutional High-Yield Bond fund was top decile for trailing 3, 5 and 10 years. And the Total Return Bond Fund was top quartile for the trailing one, three and 10 years, 27% for the five years. In all, we had nine fixed income strategies with top quartile three-year records at quarter end including Floating Rate, Strategic Income, and Ultrashort Bonds. Fixed income sales for Funds are positive early in the first quarter 141 million led by Ultrashort Bonds Funds, High Yield-Funds and the and Floating Rate Funds. Now looking at Money Markets. Total assets in Funds and Separate Accounts increased by $4 billion from Q3 and were down $4 billion from the end of 2015. Money Market Mutual Fund assets decreased by $3 billion from Q3 and $15 billion from Q4 of 2015, while separate accounts added $7 billion from the prior quarter and $11 billion for the full year. The post October 14th reform driven shift from Prime and Muni money funds into Government Money Funds didn’t change much through the year. We expect that as spreads widen investors who exited Prime Funds will we consider their options overtime, including our newly launched Private Prime and Collective Prime Funds. We also expect a rising rate environment will be positive for money funds generally and in particular as compared to banks deposit alternatives. Taking a look now at our most recent asset totals, as of January 25. Managed assets were approximately 363 billion, including 249 billion in money markets, 63 billion in equity, 51 billion in fixed income. The Money Market Mutual Fund assets were a 199 billion and the January average Money Market Fund assets are running about 200 billion. Looking at Distribution. Q4 was another solid sales quarter for our SMA business with over 2 billion in gross sales and 600 million in net sales. Total SMA assets ended the quarter at 23.6 billion, an increase of nearly 7 or 40% for the year 2016. SMA assets nearly doubled over the past three years. Federated ranks fifth in the rankings of the Largest SMA Managers at the end of the third quarter. In the Institutional Channel, we began 2017 million with 250 million in Separate Account wins that are yet to fund. RFP activity continues to be solid and diversified with interest in value, dividend strategies for Equities and High-Yield and Short Duration for fixed income. We continue to prepare for the April 10th 2017 effective date of the new DOL fiduciary rule, though we would both expect and recommend that it would be at least delayed. We more than doubled the number of funds with R6 pricing to 19 in 2016 and plan to increase to 25 funds in 2017. We have also begun the process of creating T-shares with initial filing and expect to have them in place for 33 strategies before the rules, current listed effective date. The reason SEC know action letter in regard to so called clean shares and section 22 D as outlined in our call last quarter, were a welcome development. We will also highlight our $23 billion SMA business with 14 equity strategies and eight fixed income strategies. We believe SMA's work well and level fee wrap account structures and provide transparency and potential tax advantages. As we have mentioned before, we believe that Federated will have a competitive advantage in working with intermediaries to help them navigate the new fiduciary rules whatever and whenever they are. Our long history with banking [indiscernible] departments and extensive resources both in-house and with leading industry experts presents an opportunity to add significant value for our clients. On the International side, we continue to rollout the new Canadian-domiciled Strategic Value Dividend Fund product, which fourth quarter combined at net sales at just under a 100 million in SMA's and the new fund Canadian assets are now approaching $2 billion, up from $1.6 billion at the end of 2015. We also continue to seek alliances, acquisitions and other activities to advance our business in Europe and Asia PAC region as well as in the U.S. and the rest of the Americas. Tom.

Thomas Donahue: Thank you, Chris. Revenue was up 19% compared to Q4 of last year due to lower money fund yield waivers. Revenue decreased 2% from the prior quarter due to lower money market asset and related revenue. Q4 revenues include the impact of approximately $3 million related to a non-recurring fee credit from a fund service provider, which resulted in reduced regular fund fee waivers. Revenue increased 23% for 2016 compared to 2015 driven by improvements in money fund waivers and equity related revenue. Equities contributed 39% of Q4 revenues and combined equity and fixed income revenues were 56% of the total. Operating expenses increased 23% compared to Q4 of last year and decreased slightly from the prior quarter. The increase from 2015 was due mainly to higher Money Market Fund distribution expense as a result of the lower waivers. The sequential decrease was due mainly to lower cost and related expenses reflecting changes to incentive compensation accruals. Distribution expense includes a $2 million expense to correct certain under payments of past distribution costs. The previously discussed change in one of our customer relationship is expected to be completed today. For Q1, the reduction to our pre-tax income is expected to about $1 million compared to Q4’s run rate and $2 million on a full quarter basis for future quarters. The pre-tax impact of Money Fund yield waivers of 3.4 million was down from the prior quarter’s number of 4.2 million and Q4 of last year's number of 16.4 million. The decreases were due mainly to higher fund growth yields. Based on our current assets and yields, and with the expected customer change, we expect the impact of these waivers on our pre-tax income in Q1 to be about $1 million, dropping down to about $350,000 in Q2 and if there are further Fed rate increases, these numbers should go immaterial level. For Q1, it is important to remember that the fewer number of days will impact revenue, which is largely earned on our per day basis that's for Q1. Based on Q4 average asset levels, we expect the impact of fewer days to reduce revenues by about 6.6 million and reduce related distribution expense by about 2.3 million. Seasonality around payroll taxes and benefit expenses will impact compensation and related expense in Q1, and we expect to have higher incentive comp accruals. An early estimate of Q1 comp and related expense is about 75 million up from the 69 million in Q4. The combined impact of fewer days and higher estimated comp and related expense is about $10 million in lower operating income compared to Q4 all else being equal. Federated paid the $1.25 per-share dividend in Q4, which included of $1 special dividend. This marks the fourth special dividend since 2008 for a total of $6.53 per share in special dividends. The special dividend resulted in a decrease in diluted earnings per share for the fourth quarter of approximately $0.2 due mainly to the application of the two-class method of calculating earnings per share. The effective tax rate for Q1 was about 33%. As we have been reporting in our SEC filings, we adopted a new accounting standard update in the second quarter of 2016 that requires all excess tax benefits and efficiencies including a tax benefits from dividends on unvested restricted stock to be recognized in the income tax provision on the income statement, instead of any equity on the balance sheet. While our tax rate was marginally lower in Q2 and Q3 due to this adoption, the special dividends and employee stock vesting that occurred in the fourth quarter reduced our tax provisions by approximately $2 million. Looking just at Q1 2017, we do not expect this adoption to have a significant impact on our special tax rate and anticipate the tax rate will be closer to 37%. At quarter end, we had cash and investments of 301 million, of which 266 million is available to us. We continue to be active on the share repurchase front purchasing 706,000 shares in the fourth quarter. And that completes our prepared remarks. Audrey, we would now like to open the call up now for questions.

Operator: Thank you. At this time, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ken Worthington with JP Morgan. Please proceed with your question.

Ken Worthington: Hi good morning. I guess, first of that, the passport relationship just to level set us. If there were not voluntary fee waivers for the low rate environment, what would the change in the relationship do to quarterly revenue? Previously I think in the K that was six, last quarter relative to the third quarter run rate, which included a bunch of fee waivers, it was three. I think you said kind going forward its two, may be just a kind of level set, because again fee waivers are moving all around, I think that impacts the numbers we are getting. If there were no fee waivers, what would the quarterly impact be?

Thomas Donahue: Yes, Ken you have the progression of the numbers right going back over the two years that we have raised this. The only thing I would correct is that that’s expressed as impact to our pre-tax income not revenue.

Ken Worthington: Got it okay, thank you. I guess secondly you have launched a number of the non-40 funds, I think a private fund in the separate accounts. What did flows look like this quarter in those newer products? And I think 4Q is seasonally a good quarter for the State and Muni pool plans. How much of the increase in the separate accounts assets were from the kind of the tax pool and the other pools versus what is going into these newly launched products?

Thomas Donahue: Sure, Ken the vast majority of the separate account money market inflows would have been from our existing separate accounts to State pool business as you mentioned. We talk about seasonality in that business runs along the tax collection and the State spending cycle. So typically Q4 and Q1 into the first part of Q2, we see inflows and outflows over the subsequent two quarter as money is being utilized by the State. We did have positive flows in the private prime fund, they would have been fairly nominal at this point, but there is a considerable amount of the interest, there is a long runway to putting that kind of - to having our client adopt the agreements necessary to use that kind of fund. It is structurally much different than a mutual fund, but we did add customer relationships in the fourth quarter to the private fund and we have a good pipeline of interest and agreements in process now.

Christopher Donahue: Ken, I would add to that that what the clients were doing as we have mentioned before and I think that’s been true across the industry, is clients were really looking and seeing what the lay of the land was going to be, how things were going to work, play it safe in [gov’s] (Ph), check out and see how the new products work, how much spread is there going to be and buy their time as they come into 2017. And I think that’s what is going to happen, it isn’t going be any kind of sudden movement, it will be something that occurs overtime.

Ken Worthington: Okay, great thank you. And then, lastly Tom just a clarification, can you go through the fee credit that you mentioned for this quarter, I didn’t quite get it?

Thomas Donahue: The fee credit?

Ken Worthington: You mentioned the credit.

Thomas Donahue: Yes, we had a credit about $3 million from a fund service provider that had a long-term underpayment to many, many clients in the industry and that was our portion that came to so it's basically a one-time $3 million.

Ken Worthington: And where did it hit in the P&L, was it like a boost to revenue or reduction to expense where did it hit?

Thomas Donahue: The $3 million is revenue.

Ken Worthington: Revenue. Okay, great. Thank you very much.

Operator: Thank you. Our next question comes from the line of Michael Carrier with Bank of America. Please proceed with your question.

Michael Carrier: All right, thanks a lot. I guess maybe Chris just on the long-term flows in the outlook, you gave some helpful color on strategic value dividend just when you look at what is going on the different distribution platforms and what your wholesalers are saying. Just wanted to get some sense on if that is a little bit less in favor - there are products that are you are seeing increasing demand and I guess on the fixed income side just given that the environment is changing. If you can size in a rising rate environment the project that you tend to see more some interest versus those that you could see less maybe on the main side of tax if you get tax reform?

Christopher Donahue: I will get to the equity in second reversing your question. On the fixed income side the quarter returns on fund performance has been simply outstanding and so that remains a very, very good steady fund, its average maturity is in the 4.5 to 6.5 year range. So as clients become more interested in what is going to happen with interest rates that brings about our whole array of shorter term type products, intermediate funds et cetera. And we have a very, very excellent array of those funds for our clients. We are seeing that people want to play it both ways in the Muni Stock Advantage Fund both in terms of performance and in terms of growth sales and net sales. So we think we are in pretty good shape right down the yield curve all the way down into the Ultrashorts, which we of course we are seeing some decent flows in their as well. On the equity side, the reason we go through all that performance jazz on strategic value dividend is to try and repeat the message that this fund is a solutions oriented product for those clients looking for growing income and that really isn’t going to change a whole or heck of a lot. Yes, in the first part of last year with some very robust Style Box oriented performance, other investors were attracted to this product. The core of the product though is as I have said. So that solutions product still remains a very, very strong. But you are seeing interest in the MDT type products which are the small cap offerings and people are cheering the fact that the Kaufmann enterprises are back in the top quartile for their performance as well. So we think we are in pretty good shape there and when you talk about what broker dealers are saying, especially the bigger firms, it's always at today’s day and age punctuated by what is going on or could go on with the DOL. And we think that as some of these broker dealers go through their selection as to which are the funds into the future, they will choose to monitor our funds, our large funds with large assets and good performance and good relationships and good money to the individual clients put us in excellent position for the future.

Michael Carrier: Okay thanks, and then, Tom just a little bit more clarification on some of the items that you mentioned on the P&L. So just two on that $3 million fee credit, I guess did you say which line item on the revenues that was in?

Thomas Donahue: It comes in as a reduced waiver line. I don’t know the line item of that. Okay it's reduced advisory fee net line.

Christopher Donahue: Reduced waiver, so there were more advisory fees.

Michael Carrier: Got okay, and then on the distribution expense, I think you mention something about a 2 million past items. Just wanted to find out on that distribution expense. Was that a benefit to the expense line or was that an increase in that line?

Thomas Donahue: That was an expense, that’s something that we hadn’t paid out and then we had to pay it out.

Michael Carrier: Okay, got it, so those somewhat offset each other meaning the quarter.

Thomas Donahue: Correct.

Michael Carrier: Okay. All right, thanks a lot.

Operator: [Operator Instructions] Our next question comes from the line of Bill Katz with Citi. Please proceed with your question.

William Katz: Okay, thanks very much. Okay so if I look at your average assets year-over-year, it looks like its slightly up, within that equity has risen as a percent you total AUM, the fee waiver is down and yet your margins are down by about 200 and some odd basis points year-over-year. I knows there is a little bit of noise in this quarter, but it looks like it sort of rounds against each other. Can you sort of talk about as you think about on a go forward basis, so the dynamic between fee rates, volumes and margins for the franchise, because, you would think all as being equal, margins will be higher and not lower. I just want to get my hands around what is going on underneath the overall margin print?

Thomas Donahue: Yes Bill, the first comment is when we reinstate the last portion of the waivers, we actually reduced our margin. So if you go back in and calculate the changes, it hurts our margins. So its anomalous position of we get more operating income and it comes in at a reduced margin. So we are quite happy with it and then we get to go back and say, how come - we got a grower margin again too. And that’s the primary driver there.

William Katz: Okay, maybe as a follow-up then, I think Chris you mentioned a couple of different classes of shares, R and T win there. As you look ahead between mix within maybe equity or fixed income or mutual funds versus SMA, or even in the share class. What you think the trend is for the fee rate for the company against that?

Christopher Donahue: Well I will talk about the trend in the assets then we can talk about how that gets to the rate, which it obviously does. The trend is going to be increasing SMA and the SMA's are roughly half of what the fund is. The reason for that is that as I mentioned in my remarks, it works very well on a fee oriented wrap type account and is very consistent with how the DOL is currently structuring things. In terms of the various share classes, whether it is an R class, an R6 class, a T class, A-share with low waived or a clean shares per the SEC recent permission slip. Our investment advisory fee under all of those circumstances is the same. What you are talking about in all of those circumstances is changing, how the distributor and the broker dealer administrator, et cetera, is being compensated and I think you are well aware the fact that that would be tightly analyzed under a fiduciary situation. So what we are trying to do with all of those is deal with this transition period. Down the road when you ask about the future, I think the A-share is going to basically not exist, being either replaced by a T-share or by an R6 or a clean share, which is sold across the board. So there will be a little noise here until we figure out where the market is going and where the regulation are going to fall, but that's what we are looking for.

William Katz: Okay and then just one last one. Thanks for taking the questions. Just about the comments around rising rate backdrop. Is there anything different in this particular cycle? I guess the reason I ask is, one, it seems like a prime’s percentage of governments is lower and then, two, within government it has been sort of a shifted as the rule changes that sort of narrows the duration a little bit. So would you think you would have the same uplift of volume all those being equal this cycle or might be more tempered relative to prior cycles. What is obviously seen there?

Christopher Donahue: I think that basically when you have rates going up, when you look at the on slot that money funds have suffered over these many, many years. There is a great desire to have the final end product, i.e. duly liquidity of par. And so as rats go up, I think you will see increasing amounts of money coming into the business. Then as you point out, because they have put a few dents on the prime product maybe more than dents. Those receptacles aren’t there and so the spreads are going to be a key factor and once they get to 50 basis points or so, I think you will see more movement occurring there around 40 or so right now and I think people will be digesting that and seeing what to do. I also think there are some at least we are working on it, trying to change these products and get them back to the way they were in 2010. And there are lot of different angles on that as well. And finally, I would add that it also depends on when these rates come through. Our house view is that we think two more are likely and more than likely get coming in March and September rather than June and December and than that would leave open yet another possibility in December.

William Katz: Okay. Thank you for that and thanks for taking all the questions from me.

Operator: At this time there are no further questions. That does conclude our question-and-answer session. I will now turn it back to Mr. Ray Hanley for closing remarks.

Raymond Hanley: Okay, well than that will conclude our call and we thank you for joining us today.

Operator: This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.