Greetings and welcome to Federated Investors Third Quarter 2016 Analyst Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is my pleasure to introduce your host, Mr. Raymond Hanley, President, Federated Investors Management Company. Thank you, you may begin.

Good morning and welcome. Leading today’s call will be Chris Donahue Federated’s CEO and President, and Tom Donahue, Chief Financial Officer. And joining us for the Q&A will be Debbie Cunningham, our Chief Investment Officer for the Money Markets. During today’s call we may make forward-looking statements and we note that Federated’s actual 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. Federated assumes no duty to update any of these forward-looking statements. Chris?

Thank you, Ray, and good morning, all. I’ll briefly review Federated’ s business performance and then Tom will comment on our financials. Looking first at equities. Q3 was another quarter of positive net equity flows for Federated. Total Q3 equity net flows were 1.8 billion which represents an annualized organic rate of about 12%. We have had positive equity net flows in 11 of the last 12 quarters. Federated ranked in the top 8% in the industry for Q3 net equity fund flows as measured by strategic insight. Net sales in Q3 were led by strategic value dividend strategies, both domestic and international, and in SMAs. Other strategies with positive net flows include Muni Stock Advantage, two of the MDT Small Cap Funds and strategic value dividends net sales, though, were lower in the third quarter than in the first part of the year. Now this strategy seeks a high and rising income stream from high-quality assets. The Fund’s sectors and stocks were not in favor in Q3 as market leaders were low-yielding, high-beta, low-quality stocks. With examined periods like this before and have seen solid demand for the product even as dividend paying stocks were out-of-favor in the marketplace. For example, in 2013 the Fund closed the year in the bottom decile of relative performance for that year. The next year the fund had net sales of 1.3 billion. Over the longer term, the Fund has been successful in achieving its primary mandate. At quarter end, the Fund ranked in the top 10% of its Morningstar category even though that is not the best fit for this fund. And it ranked there for the trailing one year and in the top 2% for the trailing three years. We believe that the success that these time frames offer is important…

Thanks, Chris. Revenue was up 26% compared to Q3 of last year and 3% from the prior quarter. Improvement in money fund waivers drove the gain from 2015, higher equity-related revenue and to a lesser extent, higher fixed income revenue led to the sequential quarter increase, which included the benefit of one additional day. Equities contributed 39% of Q3 revenues and combined equity and fixed income revenues were 55% of the total. Operating expenses increased 29% compared to Q3 of last year and 3% from the prior quarter, due mainly to higher Money Market Fund distribution expense as a result of the lower waivers. The sequential increase was also due to the recognition in Q2 of proceeds from an insurance claim which reduced expenses by $3.5 million, mostly in professional service fees. An earlier estimate for Q4 comp and related expense is about $75 million. As we’ve previously discussed the impact of the change in one of our customer relationships will reduce pretax income when fully implemented in late 2016. As we have consistently said, the actual reduction would vary based on asset levels and yields at that time. Looking ahead to Q1 and assuming that the changes occur by year end as expected, the reduction to our pretax income would be about 3 million compared to Q3’s run rate. The pretax impact of Money Fund yield-related fee waivers of 4.2 million was down from the prior quarter’s 5 million and from Q3’s last year’s number of 20 million. The decreases were mainly due to higher fund gross yields. Based on current assets and yields, we expect the impact of these waivers on pretax income in Q4 to be just under 4 million. For Q1, 2017, assuming the customer relationship change is completed, an increase in yields of 25 basis…

[Operator Instructions] Our first question comes from Surinder Thind with Jefferies. Please proceed with your question.

I just wanted to start with the Strategic Value Dividend product. You mentioned that gross sales were down quarter-over-quarter versus earlier in the year. Any color around the magnitude of that?

Yes. The magnitude of that was -- it was about 1.25 in the first quarter come about 1.3 or 1.4 in the second quarter, and it is now, let me see. Here, the net flows were, first quarter was 1.4 billion, second quarter was $1.5 billion, the third quarter was $1.25 billion. Those are the net flows of that Fund in 2016.

I apologize. I was asking about gross sales. So, did I…

Surinder, it’s Ray. The growth was actually increased in Q3 versus Q2. They there were up about $100 million. The redemptions increased as well, resulting in the lower net that Chris mentioned.

So it was more of a redemptions issue than a gross sales issue.

Both were up.

Maybe just changing the question around little bit. Given the size of that product, I want to say it should be roughly $35 billion, $36 billion in AUM, or actually even a little bit larger than that. Are you guys becoming overly reliant on that product or is it maybe too easy to sell that product versus trying to push the sales of other products?

As you know from my previous answers, we love all our children, especially those that are doing quite well. And so, overly reliant, I would not say that. But easy to sell. There are a lot of products with a lot of good records that do not have good positive sales. I think the real story is that when people in this economy are looking for some participation in the market and a continuing growing dividend that no matter what the Morningstar value category is doing inside the sectors, people are still going to be looking for this kind of a mandate. The next point I would make is that if you are going to have a big fund, of all the different big funds that I can think of, this would be about the best one to have where you have high-quality, dividend-paying companies that you are relying on. It is not a black box magic thing or trying to get the market right at various times. That having been said, as you can see from my remarks, we have peppered the story with a lot of other good product, a lot of other good performance and a lot of good other funds that have positive sales as well, but certainly not on the scale of the Strategic Value Dividend Fund. When you say the fund is $35 billion or $36 billion, that is the total both the SMA and the Fund. The fund is about $15 billion and then the SMAs are the rest of that number. Just wanted to make sure you got that little point.

And then one quick question on Money Markets here, it seemed like you provided a good amount of color in terms of the flow picture leading up to -- and when we look at the implementation deadline for reform in mid-October, it seemed like flows were generally weak but then post that, it seemed like within the retail funds -- or the open end funds, flows turned sharply positive. Any color around the dynamic around there?

I do not know about the weak part. We had some movement during the course of the year and we went through -- some of that was one-offs related to specific actions that clients took that had some relationship, over a long horizon, to the reform. But the other point I would make is we were among the later companies in terms of shifting to the floating net asset value. We had our funds stay in the old model right up until the deadline. So again the timing of transitions that our clients made may have been different than what other clients have made. Since October 14th, yes, we have gained a couple billion dollars back into our money funds.

I actually think -- this is Debbie. I think that the fourth quarter will be a period of variability. There are so many clients that ultimately did not want to be in the product as it was shifting and making it’s changes because these were pretty big operational changes to be undertaken by the fund companies as well as the clients themselves. And I think the fourth quarter will be a period of transition where people watch and make sure that all the plumbing is correct and that everything flows and works the way it is supposed to. I would expect that you will continue to see some movement in the fourth quarter but 2017, with that calendar flip, will be the time when people start to re-address where they are and what they are using, from a money market standpoint.

Our next question comes from Patrick Davitt with Autonomous Research. Please proceed with your question.

I have a follow-up on the market share question, I understand a lot of what we see in the mutual fund data is related to Separate Accounts. But it does look like, at least year-to-date, that the really, really large diversified players, be it banks or diversified asset managers, are taking a lot of share, even last week in the reversal back to positive. What are they doing competitively to take that share and are you worried that is it a longer-term trend?

First off all, sometimes as owner operators, we like to look at the share numbers in terms of share of revenue. I know the marketplace only looks at it as market share but I always like to make that comment first. What is distorting some of this share data is that you had a lot of forced conversions where you had people move money from their own Prime Funds into their own Government Funds so that was one factor that was going on. Now when you look at the overall business, yes, we have lost share and I tried to explain in my remarks that about half of that was made up of clients who are moving to Separate Accounts and to some of our other products. Your question is, what are they doing competitively? I would say I cannot remember a time, during the decades we have been doing Money Funds, wonder isn’t at least one player out there who is chopping at yields in order to gain market share. And there are guys always doing this and there are guys doing this today. And so we evaluate that as we move along and it is just part of life.

Our next question comes from Ken Worthington with JPMorgan. Please proceed with your question.

I wanted to dig into fee rates, maybe excluding the impact of rate-driven fee waivers. What is the net fee rate on Prime Funds versus the net fee rate on Government Funds? And I think, Chris, you mentioned there was some movement between money market funds and separate accounts in the money market area. How do the fee rates compare between those?

Ken, it’s Ray. In terms of Prime and Government, without waivers the net fee would be right around 12 basis points and there wouldn’t be much variability between the two, a little bit but not much. In terms of Separate Accounts, as I think you know, irrespective of asset category, Separate Account advisory rates tend to be about half of what the mutual fund rates are. Ours, probably even a little bit lower than that. You recall, our Separate Account businesses is dominated by our industry-leading presence with some of the large state pools and so those would not be typical Separate Accounts in the tens of billions of dollars. At the end of the day, the separate account rates are really determined on a client-by-client basis.

In terms of Edward Jones, I think you guys had mentioned before, I know it’s in the K, about a $6 million quarterly impact from the change in that relationship. Did you guys mentioned that the change going forward is $3 million a quarter? I did not quite get it. And if the impact of that has changed, why is it changing?

Ken, yes, we did to $3 million when you compare what we think Q1 looks like now compared to what actually happened in Q3. And that is really -- you may recall, we have mentioned the $6 million almost 2 years ago based on -- and that would have implied that waivers had been fully recovered. They have not, even though we’re getting down to low numbers and so really the yields would account for the difference.

If your waivers were fully recovered, is the $6 million still valid or is it the $3 million if waivers were fully recovered?

Between now and late December, even if the Fed moves in December we are not have a situation where the yields would be fully recovered. Hypothetically, yes, if the $6 million implied full waiver recovery, back when, as we use that number over the last several quarters.

Right. But, Ken, today in my comments we’re saying in Q1 it is $3 million off of Q3’s pretax earnings number. So the $6 million is gone, it is $3 million.

Our next question comes from Robert Lee with KBW. Please proceed with your question.

My question is -- just going to capital management. I think certainly to me at least, the special dividend was a bit of a surprise so how should we be thinking, now that most of the fee waivers have been eliminated, not completely but mostly, and you’ve got a lot more cushion on your normal dividend payout ratio. And it looks like there was a little bit of a pop up in your share repurchase, similar to last quarter, last couple quarters maybe running a tad higher than it had for a while. So should we expect that you may be getting back to a more regular pattern of annual regular dividend increases and that maybe share repurchase from here could, a little bit more consistently run at what the recent trends have been?

We tend to look at the so-called regular dividend next year in terms of making moves on that. But the special, I am glad to hear that it was a surprise which means it was kept quiet, but it cannot possibly be viewed as a shock, given our heritage of having done this in the past. The way we looked at it was, we said, hey, October 15th is past and we think we’re in very good shape with the future, with our Money Fund business, and if you look through the cash flow pictures internally, We felt we could steer a very good course to maintaining substantial availability and yet returning money to shareholders that currently wasn’t being called for. And so that is how we came to that. In terms of future activity, we have put in another share buyback program because we more-or-less completed or are in the process of completing the first one. And we want to remain ready, willing and able to take advantage of that when our internal numbers, which I am not going to tell you about, tell us that buying the stock we think is a good deal based on how we look at the cash flow returns.

One more thing, we approved the last program, I believe last January or February of 2015, and as Chris said we are wrapping that program up so that is completing 4 million shares in a roughly 2 year period, so it is another 4 million shares.

Thanks. Maybe just a follow-up. And this probably really a little bit more of a broad industry question. You mentioned about the DOL rule, possibly the industry coming up with more kind of a fund structure where, if I understood it correctly, the advisor can put their commission on it and others have suggested things like that. I guess I’m trying to understand, what SEC rule allows you to do that? My understanding was, there was a long-standing SEC rule, I don’t -- forget the number, that didn’t really allow that kind of customized pricing on mutual funds and that somehow the SEC was going to have to waive that rule or change it. Am I understanding that correctly? Or is the SEC actually indicating that they would be willing to address that issue?

If I can quibble with some of your words but not with the substance of what you said. For example, you should be using the word broker not advisor in order to fit directly under how we are seeing Rule 22. Basically, the practice in my whole lifetime has been as you described but there are a series of no-action letters where certain exceptions were granted and there are some efforts to enable brokers to treat these mutual funds simply as brokerage transactions and not take a position as a dealer and therefore perhaps not be subject to the rule. I know that people are talking to the regulators about this. And the overall point here is, that the puck has moved. The DOL has moved the puck and the game over to another area and so something, though it has worked well for -- since the ‘40-act came out, it may be time to change it rather them proliferate thousands and thousands of new classes and give the individual brokers the ability to meet the DOL requirements of a level commission structure and proceed with their business. And one other factor here too, that -- most people’s businesses, at least 40% or something like that, related to retirement, whether it is IRA rollovers or the 401(k) themselves. And then you have your other business that is not exactly retirement. Well, a lot of firms are going to look at it and think that they want to have one overall methodology and pricing structure for their clients. And so this could impact the business even broader than simply in the retirement world. So to me the poetry is in using the R-6 share class, which is stripped-down, and enable the brokers with any fund group to put the commissions on and the charges that they have determined themselves to be reasonable, which is the standard under the DOL rule.

There are no further questions. At this time I would like to turn the call back to Mr. Raymond Hanley for closing comments.