Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
2008 09 17 Document Was First Given By Board Member Fair
Date: September 17, 2008 THE FOLLOWING DOCUMENT WAS THE FIRST GIVEN OUT DURING THE SPECIAL MEETING BY BOARD MEMBER MARIA FAIR Stock Report ~ September 13, 2008 ~ NYS Symbol: FII ~ FII is in the S&P 500 federated Investors Inc. STANDARD &FOOR'S S&P Recommendation GICS Sector Financials Sub-Industry Asset Management & Custody Banks Kl~y StdEk'I~fAf4iarw~a~wrlr.~atd 52-Wk Range 545.01-29.27 Trailing 12-Month EPS 5211 Trailing 12-Month P/E 148 510K Invested 5 Yrs Ago 513,381 S&P Oper. EPS 2008E S&P Oper. EPS 2009E P/Eon S&P Oper. EPS 2008E Common Shares Outstg. IM- 30-Week Mov. Avg. • • • 10-Week Mov. Avg.- • GAAP E:amlrps vs. Provlous Year Volurr» Above Avg.G~d~l STARS 12-Mo. Target Price Relative Strength - ~ Up ~ Down ~ No Change eebw Avg. II~II,I f 40 hh,,~~ . ~ ~.~ 30 .. va. Mil. 6 4 2 0 5 3* Z* 9* 41tf 3*..:.. t A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N DJ F M A M J J A S O N 2005 2006 2007 2008 Analysis prepared by Matthew Albrecht on July 29, 2008, when the stock traded at 532.37 Options: ASE, CBOE - Federated has benefited from recent volatility in - We view a slightly discounted valuation on the the markets, as money market and ultra-short term bond products saw strong flows from in- vestors.Second quarter outflows from those funds suggest that the company will be chal- lenged to retain money market assets when in- vestorsagain look to invest in equity and debt products. We expect continued pressure on management fee rates as equity market weak- ness and the strong money market flows over the past year likely resuh in an unfavorable as- setmix in 2008. We look for growth in assets under management of nearly 20% in 2008, but we expect a decline in 2009 as the company struggles to retain money market assets. - We forecast a mostly flat pretax margin in 2008, as continued inflows should result in an in- crease in marketing and distribution costs, but an improved management fee rate should help margins expand in 2009. We anticipate that compensation costs will maintain about 20% of revenues on a percentage basis for the fore- seeable future, while other costs should come down marginally. - We forecast earnings of 52.34 in 2008 and 52.51 in 2009, aided by modest share repurchases. shares relative to peers as appropriate, given the firm's focus onlower-margined money mar- ketfunds. We view favorably the company's di- rectsales force and strong relationships with wholesalers and intermediaries in our valua- tion. We also applaud the recent moves to in- crease FII's exposure to equities, which should help margins. We have a positive view of the company's common share repurchase pro- gram, which we estimate could exceed 4 mil- lion shares per year. - Risks to our recommendation and target price include potentially increased competition, low- er short-term interest rates, and weaker equity fund performance. From a corporate gover- nance perspective, we would like to see a greater percentage of independent directors on the board. - These shares have benefited from market volatility, which has investors seeking safe havens for their cash, and have outperformed the peer group year to date. They recently trad- ed at about 13.7X our 2008 EPS estimate. Our 12-month target price of 537 is equal to 15.8X our 2008 EPS estimate, a discount to peers. r~.. a ^ Y 53.236 Beta 0.76 3.00 S&P 3-Yr. Proj. EPS CAGR(%) 8 50.96 S&P Credit Rating NA LOW MEDIUM Our risk assessment reflects the company's relatively narrow product offering and significant competition from larger, more diversified fund management companies. S&P Duality Ranking A D C B- B 8+ A- A+ Relative Strength Rank MODERATE LOWEST - 1 HIGHEST = 99 . 'si'' Revenue (Million 51 1D 2D 3D 4D Year 2008 305.7 310.3 -- -- -- 2007 264.4 276.5 286.0 300.3 1,128 2006 238.8 236.4 243.9 259.1 978.9 2005 205.4 220.7 241.4 241.8 909.2 2004 220.7 213.1 205.2 208.1 847.0 2003 194.1 202.5 210.0 216.8 823.3 Earnings Per Share ISl 2008 0.55 0.55 E0.64 E0.60 E2.34 2007 0.50 0.54 0.57 0.52 2.12 2006 0.43 0.44 0.43 0.51 1.80 2005 0.07 0.35 0.61 0.48 1.51 2004 0.46 0.44 0.43 0.29 1.62 2003 0.43 0.44 0.46 0.38 1.71 Fiscal year ended Dec.31. Next earnings report expected: Late October. EPS Estimates based on S&P Operating Earnings; historical earnings ere es reported. W t F l i~ i ~A~!! ~+ 1 Amount Data Ex-Dir. Stk. of Payareat ISI Dscl. Date Record Dsa 0.210 01/24 02/06 02/08 02/15/08 0.240 04/24 05/06 05/08 05/15/08 0.240 07/24 08/06 08/08 08/15/08 2.76 Spl. 08/19 09/05 09/09 09/15/08 Dividends have been paid sinc e 1998. Source: Comparry reports. Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution or reproduction is prohibited without written permission. Copyright ®2008 The McGraw-Hill Companies, Inc. Price 12-Mo. Target Price Imestmeirt Style $32.041as of Sep 12, 2o0g) 537.00 Large-Cap Growth Summary This leading U.S. investment management company has a~strong market share in money market products. 2.34 Market Capitalization(B) 2.51 Yield (%) 13.7 Dividend Rate/Share 101.0 Ps¢e 1 of 9 Stock Report ~ September 13, 2008 ~ NYS Symbol: FlI Federated Investors Inc. Busiae~ Saaarary July 29, 2008 CORPORATE OVERVIEW. A leading provider of investment management products and related financial ser- vices, Federated Investors (FlI- has been in the mutual fund business for more than 40 years. The company is one of the largest mutual fund managers in the United States, based on assets under management. As- sets under management at the end of 2007 totaled $302 billion, up from $237 billion at the end of 2006. Federated manages assets across a wide range of asset categories, including increasing participation in fast-growing areas such as equity and international investments. It is among the industry leaders in money market funds, based on assets under management, and offers one of the industry's most comprehensive product lines. Assets under management by class at the end of 2007 included money market (78% of total, equity (14%-, and fixed income 18%I• Byproducttype, mutual funds represented about 87% of total assets under management, with the balance held in separately managed accounts. CORPORATE STRATEGY. Over the past several years, federated has added several investment profession- als and strengthened its equity and fixed-income product portfolio, in our opinion. The company has more than 170 investment professionals, which includes portfolio managers, analysts and traders. The company ended 2007 with 148 mutual funds and various separately managed accounts. FII has managed institutional separate accounts since 1973, and is focused on growing its managed account business for high- net-worth individuals with investable equity assets of $100,000 or more. Federated believes that it benefits from a developing industry trend toward intermediary assisted sales (sales of mutual fund products through a financial intermediary, driven by the wide array of options now available to investors, and by a need for financial planning advice that has resumed from a recent increase in the average household's financial assets. Federated's distribution strategy is to provide products geared toward financial intermediaries, primarily banks, broker/dealers, investment advisers, and directly to institutions. Federated has developed relation- shipswith more than 5,000 intermediaries, and sells products directly to corporations and government en- titiesworldwide, through its trained sales force of 165 wholesalers. The company offers a wide array of pricing options for its load funds, sold by more than 2,000 national, regional and bank broker/dealers. No- load products are sold primarily to and through bank trust departments, insurance companies, investment advisers, government entities, and corporate and advisory firms. CORPORATE GOVERNANCE. Ahhough the board of directors at federates only consists of seven members, we are please with its independence. The board has anon-executive chairman, and directors are re- elected each year. Executive officers and current directors own 14.4% of the outstanding shares, which we also view as a positive. Its committees meet on a regular basis, and are comprised entirely of indepen- dentdirectors. Compensation policies tie pay to performance, which we view positively, and are generally in line with competitors, we believe. Overall, we have a positive view of Federated's corporate governance policies. FINANCIAL TRENDS. We are encouraged that Federated reached settlements with regulators in Novem- ber 2005 regarding previously disclosed mutual fwid trading issues and is fully reserved. We think that gross sales, spurred on by investors seeking safe havens amid extreme volatility and a poor economic otrt- look, will continue to gain momentum in the year ahead, aided by improving fund performance. We expect fee reductions to make certain funds more competitive, but marketing and distribution costs associated with strong fund flows will likely prevent any outsized growth to the pretax margin. In late 2005, the compa- ny resumed its share repurchase program, which we think could exceed 4 million shares per year. aedistribution or reproduction is prohibited without written permission. Copyright ®2008 The McGrew-Hill Companies, Inc. STANDARD & POOR'S .. ., .. -, Investor Contact R. Hanley (412-288-1920) Office Federated Investors Tower, Pittsburgh, PA 15222-3779. Telephone 412-288-1900. Fax 412-288-6823. Email investors®federatedinv.c om Webaite blip://www.Federatedl nvestors.com Officers Chrmn ice Chrmn, EVP, Secy J.F. Donahue & General Counsel J.W. McGonigle Pres & CEO J.C. Donahue CFO & Trees T.R. Donahue ice Chrmn R.B. Fisher Board Members L E. Auriana J. F. Donahue J. C. Donahue M.J. Farrell R. B. Fisher D. M. Kelly J. W. McGonigle J. L Murdy E. G. O'Connor Domicile Pennsylvania Founded 1955 Employees 1,270 Stockholders 41,979 Paee 2 of 9 Local Government Investment Pool -Fund A holdings Report Date as o(August 7, 2009 Security Name QS ©-F G~ mr-r-tt~ss ' t~-~ /Yll-z~ $ -~ 3 ~ L~~' Security Classf8cation CUSP Cpn/D4+ Maturity Rate Reset Par American Express Centuri, 9/17/2008 ~ ~- VARIABLE RATE BANK NOTE 02581 FYFO 2.71 9/17/2008 Amerlt:en General Finance, Series J, 9/1812008 BP, ~j~na,ari -f- VARIABLE MEDIUM TERM NOTE 02835PTN3 3.08 9!18!2008 Bank of America Trlparty Repo Overnight Fixed A i ~r,ac+a h U L REPO TRIPARTY OVERNIGHT FIXED 070994009 2.03 8/8/2008 Bear Steams Cos., inc., Dec 14, 2008 ~ ~(~. ~ / 5 t~IV VARIABLE RATE TERM NOTE 073902ND8 2.80 12!14!2008 Bear Stearns Cos., Inc., Dec 15, 2008 ~ ~. -/j~,~p~ ~. VARIABLE RATE TERM NOTE 073902JJ8 2.82 12/15/2008 CaterpNlarFinanciai SeMces Corporatbn, Jan 08, 2009 ~ I~~VARIABLE RATE TERM NOTE 14912L302 2.43 1/8/2009 Dreylus Government Cash Managemen Fund OVNMF OVERNIGHT MUTUAL FUND 2.08 8!8/2008 Florida Hurricane Catastrophe Fund Finance Corp., Dec 12, 2008 VARIABLE RATE TERM NOTE 34074GAZ7 2.87 12112/2008 Genworth Global Funding Trust 2008•F, Sep 15, 2008 ~ VARIABLE RATE TERM NOTE 37247XAM4 2.44 911512008 HSBC Finance Corp., Oct O8, 2008 R ~ j ,~j' FLIb~G VARIABLE RATE TERM NOTE 40429CDW9 2.47 10/6/1008 HSBC Finance Corp., Sep 24, 2008 ~ ~ ~ l $ ~ t0 ~ ~ VARIABLE RATE TERM NOTE 40429CBJ0 2.52 9/24/2008 Hartford Lice Glopal Funding Trust, Sep 15, 2008 Q, VARIABLE RATE TERM NOTE 41659EDF1 2.48 9115!2008 Lehman Brothers, Inc. Repo Triparty OvemlgM Fixed J 'p REPO TRIPARTY OVERNIGHT FIXED 525180008 2.03 818/2008 MacOuarle Benk Ltd. 18 NT, Aug pe, 2008 Np1zq~ VARIABLE RATE COMMERCIAL PAPER 55807NAT7 2.78 818!2008 Marshall 8 Ilsley Bank, Milwaukee, Sep 25, 2008 ~ VARIABLE RATE BANK NOTE 55259AEY1 2.45 912512008 VARIABLE RATE TERM NOTE Merrill Lynch $ Co., Inc., Dec 12, 2008 590188288 2.48 12/12/2008 t McMll Lynch 6 Co., Inc., Oec 17, 2008 ~.cra-~ ~ c~ VARWBLE RATE TERM NOTE 59022CAZ8 2.80 12/17/2008 McMll Lynch b Co., Inc., Dec 23, 2008 VARIABLE RATE TERM NOTE 5901885K0 2.80 12123!2008 Merrill Lynch Government 3ecuritles Repo Triparty Ovemlght Fixed REPO TRIPARTY OVERNIGHT FIXED 590997003 2.03 818!2008 Morgan Stanley, Dec 03, 2008 ,Q+ VARIABLE RATE TERM NOTE 817446UJR 2.81 12/312008 Morgan Stanley, Dec 15, 2008 ,¢ -i~ VARIABLE RATE TERM NOTE 817448PL7 2.58 12/15/2008 IYatlottai Rural UtlAtlea CooparaUlre Finahce Corp:; Oct 01, 2008 A./~~iYARU1BLE RATE TERM NOTE 837432DW2 2.47 10/1!2008 National Rural Utilities CooperaWe Finance Corp., Oct 04, 2008 ~ f~t? VARIABLE RATE TERM NOTE ~ 837432GC3 2.47 10/4/2008 /~,~jLVAR1ABLE RATE TERM NOTE Natlortai Ruual lRltltlea Coopersthre Finance Corp., Sap 01, 2008 "" 837432JU0 2.88 911/2008 VARIABLE RATE TERM NOTE Southern Co., Sep 19, 2008 A (•." 842587AH0 2.81 9119/2008 Wells Fargo b Co., Jan 18, 2009 A A ~ VARIABLE RATE TERM NOTE 94974BCE8 2.42 1/1612009 8!18/2008 $ 45,000,000 911812008 $ 215,000,000 $ 1,100,000.000 8!1412008 $ 250,000,000 8/15/2008 $ 278,000,000 8182008 $ 50,000,000 $ 295,492,248 8/15/2008 $ 452,500,000 8115/2008 $ 290,000,000 9/&2008 $ 150.000,000 8!25/2008 $ 280,000,000 8/15/2008 $ 100,000,000 $ 90o,aoo,ooo 818!2008 $ 125,000,000 8!25+2008 $ 130,000,000 8/15/2008 S 100,000,000 8!19/2008 $ 250,000,000 8/25/2008 $ 190,000,000 $ 400,000,000 9/312008 $ 321,750,000 8/15/2008 $ 263,750,000 9!2!2008 $ 211,000,000 9/42008 $ 210,000,000 911!2008 $ 200,000,000 9/19/2008 $ 95,000.000 8/18!2008 S 95,000,000 ~~ $ 8,997,492,248 Curren) Ykld ~murtCustj3~ MkfValue~~t A 1 v jr Cam' t~7 I~- - _• 2.49 $ 45,000,000 $ ~ 44,958,960 /t')lt.fllr'~c;7 3.11 $ 215,000,000 $ 214,523,580 /y) A>turC f~ 2.08 $ 1,100,000,000 $ 1,100,000,000 2.83 $ 250,000,000 $ 249,125,500 2.50 $ 277,982,838 $ 277,047,850 2.47 S 50.000.000 $ 49,923,450 2.11 $ 295,492,248 $ 295,492,248 Ban 1l 0 ~ 0.r ~ ~ ~ + 2.70 $ 452,483,825 $ 452,500.000 2.47 $ 290,000,000 $ 289,820,970 ~}y~-e.~.j 2.51 $ 150,000.000 $ 149,917,050 2.55 $ 280,001,501 $ 279,951,000 2.52 $ 100,000,000 $ ~ p 99,984,40() Yh 0..tut'•~d 2.06 $ sao,aoo.ooo $ 9oO,ooo,ooa Fi (rci ~unkro.('~ 2.80 $ 125,000,000 $ 125,000,000 ma}t,~~c~l C~1 2.47 $ 13D,000,000 $ 129,843,610 2.49 $ 100,000,000 $ 99,241,000 tdbecn••-~ 2.64 $ 250,000,000 $ 247,989,250 ~ ~ i/ ~ 2.84 $ 190,000,000 $ 188,408.090 2.08 $ 400,000,000 $ 400,000,000 2.49 $ 321,738,151 $ 320,430,182 2.82 $ 263,748,449 $ 262,823,524 2.49 $ 211,000,000 $ 210,790,899 2.48 $ 210,000,000 $ 209,912,010 2.73 $ 200,000.000 S 199,931,800 -JV(µ'Ll~-+PI 2.85 $ 95,000,000 $ 94,940,150 2.45 $ 95.000,000 $ 94,705,595 $ 8,997,448,812 $ 8,986,858,897 (1) Market values of the porttollo securkles are provided by the Custodian and the Manager has no responsibility for the accuracy thereof. The Manager acknowledges that k Is the source for other data contained herein, (2) Amortized cost Is calculated using a straight-line method. Note: The data Included In this report is unaudited. C,~ r-e,--~ fi Local Government Investment Pool Data as of September 11, 2008 security Name Security Classitintlon Cpn/Dis Maturity Rate Reset par Current American Express Centuri, 9/17/2008 f~ * VARIABLE RATE BANK NOTE Yield Amort Cost ~" Mkt Value ~~' Art~iCan Gtmerel Finance. Series J, 9/1812008 8~8 VARIABLE MEDIUM TERM NOTE 2.72 09/17/2008 09/17/2008 $ 45,000,000 2.50 $ 45,000,000 $ 44.998 650 Bank of America Triparty Repo Overnight Fixed 4. A.. REPO TRIPARTY OVERNIGHT FIXED 3'~ 08/18!2008 09/18x2008 $ 215,000,000 3.11 S 215,000,000 $ , 214,971,190 Bear Steams Cos., Inc., Dec 14, 2008 /~ ~" VARABLE RATE TERM NOTE 2.10 09/12/2008 $ 960.000,000 2.13 $ 960.000,000 $ 960,000 000 Bear Steams Cos., Inc., Dec 15, 2008 /~- ~ - VARIABLE RATE TERM NOTE 2.60 12/14x108 09HSx1008 S 250.000,000 2.84 ~ 0 . Caterpillar Flnarit~ Services Corporation, Jan 08, 2009 A VARABLE RATE TERM NOTE 2.63 12/15/2008 09/15/2008 $ 278,000,000 0.51 $ ~,987,3 12 E 277,9 990 Dreyfus Government Cash 6lanagement Fund OVNMF OVERNIGHT MUTUAL FUND 2 ~ 0108x1009 1008/2008 $ 50,000,000 2.49 $ 50,000,000 $ , 49,941 200 Fkxkla Hurtk;arie Catastrophe Fund Finance Ctxp., Dec 12, 2008 VARIABLE RATE TERM NOTE 2.:3 09/12/2008 $ 7,448,005 2.17 $ 7,448,005 S , 7,448 005 Genworth Global Funding Trust 2006-F, Sep 15, 2008 VARIABLE RATE TERM NOTE 2'~ 1y1 ~1~2~ S 452,500,000 2.71 $ 4~ 488.E S , ~ ~ ~ HSBC Finance Corp., Oct 06, 2008 ~ ~ _ VARABLE RATE TERM NOTE 2.45 09/15!2008 09/15/2008 $ 290,000,000 2.48 $ 2gp 000,0 $ 289 906 620 HSBC Finance Corp., Sep 24, 2008 ~} fi. w VARIABLE RATE TERM NOTE 2.50 16108x1008 tU108/ZOpg i 150.000.000 2.53 S 150,000.000 S . , 149.969 700 Hartfdrd Life t3lobel Funding Trust. Sep 15, 2008 f} VARIABLE RATE TERM NOTE 2.53 09/24/2008 09/24/2008 $ 280,000,000 2.56 $ 280,000,407 $ . 27g,g89 ~0 Marshall 8 Ilsley Bank, Milwaukee, Sep 25, 2008 ~}• VARIABLE RATE BANK NOTE 2.49 09HSx1008 09V15x1008 $ 100,000,000 2.53 S 100.000,000 $ , 100.000 000 McMll Lynrh 8 Co., pic., Decl2.2008 VARABLE RATE TERM NOTE.. 2.46 09/25/2008 09/25/2008 $ 130,000,000 2.48 $ 130,000,000 $ . 129 966 590 Merrill L ynch 8 Co ,Inc., Dec 17, 2008 ~{ ~(} ~ VARIABLE RATE TERM NOTE 2.4T 12/12/'1008 09115/2008 S 100.000,000 2.50 $ 100,000,Q00 S , , 99 395 700 Merrill Lynch 8 Co., kic., Oec23, 2008 VARIABLE RATE TERM NOTE 2.61 12/17/2008 09/19/2008 $ 250,000,000 2.65 $ 250,000,000 $ . . 248,377 000 Menill Lynch Govtunment Securities Repo Triparty Overnight Fixed REPO TRIPARTY OVERNIGHT FIXED 2.81 12!2312008 09/25x1008 $ 190.000.000 2.85 s 190'000,000 $ , 188,890 330 Morgan Stanley 8 Co., inc. Triparty Repo Overnight Fixed REPO TRIPARTY OVERNIGHT FO(ED 2,11 09/12/2008 $ 350,000,000 2.14 $ 350,000,000 $ , 350,000 000 Morgan Stanley, Dec 03, 2008 A, f VARIABLE RATE TERM NOTE 2.12 09/12/2008 = i'~5'~~~ 2.15 $ 1,825,000,000 $ 1 , ,625 000 000 Megan stanley, Dec 15, 2008 ~ a. VARIABLE RATE TERM NOTE 2.64 12/03/2008 10/03/2008 $ 321,750,000 2.51 $ 321,741,665 $ , , 320,750 966 National Rural Utilities Cooperative Finance Corp„ Oct 01, 2008 A. VARIABLE RATE TERM NOTE 2.59 12/15lZ008 09!1512008 $ 2831750,000 2.83 $ 283,748,887 $ , 282 855 888 NaBortd Rtirai 118R8es Cooperative Fttlanoe Corp„ Oct 04, 2008 A /t' VARUI6LE RATE TERM NOTE" 2.50 10/01/2008 10/01!2008 E 211,000,000 2.51 $ 211,000,000 S , , 210 935 434 Southern Co., Sep 19, 2008 ~ VARIABLE RATE TERM NOTE 2.50 10x04/2008 1 004/2008 $ 210,000,000 2.50 $ 210,000,000 $ , , 209 989 550 We9s Fargo 8 Co., Jan 18.2009 A /f"'* VARIABLE RATE TERM NOTE 2.81 09/19/2008 09/19/2008 $ 95,000,000 2.85 $ 95,000,000 $ , , 94 994 965 2.43 01/18/2009 09J18P2008 S 95.000,000 2.48 , i 95.000.000 $ , , gq,770~gp $ 8, 919,448,005 $ 6,919,414,539 E 6,913,257 578 (1) Market values of the portfolio severities are provided by the Custodian a nd the Manager has rto responsibility for the ac , (2) Amortized cost is calculated using a straighNine method. curacy thereof. The M anager acknowle dges that ft is the source fo r other data contained her ein. Note: The data induded in this report is unaudited. Local Government Investment Pool -Fund A Summary Report Data as of September 11, 2008 Top Holdings(excluding Repurchase Agreements Morgan Stanley 8.5 Menill Lynch 8 Co., Inc. 7.8 Bear Steams Cos., Inc. 7.6 Florida Hurricane Catastrophe Fund Finance Corp. 6.5 HSBC Holdings PLC 8.2 National Rural Utilities Cooperative Finance Corp. 6.1 Genworth Financial, Inc. 42 American Generel Finance. 3.1 Marshall 8 Ilsley Corp. 1.9 Hartford Financial Services Group, Inc. 1.4 Total % of PoMolio: 53.4 SSP Credft Quality Compositlon(at least 507L A•1+) q_t+ 89.9 A-1 30.1 Total % of Portfolio: 100.0 Local Gov~rMn~M Drv~san~M PnM ~ A flnM Mmrrhy Drnel~ ~~ Ae of Sgr~mU~r 11. ION -e~-GmMwh~ ss.am ......ayx.----- ---°---------°---°--° .................................. i s~.ooD ---- --°---------•------° ................................••-•----------~ x,... ss.aao ---- ------~-~--°------- .................•---•--•-- -°-------° >f Ax0 .... .-.-.-..-...3n ............................... ..-.. _...... om~ >o 3M xxe M 1000 ebv ]000 Dec 7008 J rnr unevry n rns,nn breaea arcoerwa •n av moeM'oorms ors rnoox~avo trope aomc eo.os Portfolio Composition Portfolio Composition Asset Backed Commercial Papa -Fixed 0.0 Asset Backed Commercial Paper -Floating 0.0 Bank Instrument -Fixed 0.0 Bank InsWment -Floating 2.5 Corporate CP • Fixed 0.0 Corporate CP -Ebeling 0.0 Corporate Notes - Foaling ~ 54.9 Mutual Funds -Money Market 0.1 Repo 42.4 Total % of Portfolio: 100.0 Effective Average MaturHy(can't exceed ti0 days) 9.6 Oays Effective Maturity Schedule Eft Final 1a day: 72.7 s1 s 8-30 days 23.7 15.6 31-9O days 0.0 4.6 91-180 days 3.6 27.9 181+days 0.0 0.0 Total % of Portfdb: 100.0 100.0 Illlaufd Securities(t:anY exceed 1t1%1 Portfolio holdings are shown as of the date indicated. Since market conditions fluctuate suddenly and frequently, the poRfolio holdings may change and this list is not indiptive of future portfolio composition. These portfolio holdings are not intended to be and do not constitute recommendations that others buy, sell, or hold arty of the securities listed. Past performance is no guarantee of future results. An explanation of the signficance of such ratings may be obtained from the companies furnishing the ratings. The ratings reflect only the view of such organizations at the time such ratings were given and Federated does not make any representation as to the appropriateness of the ratings. There is no assurance that such ratings will continue for any given period of time or that they will not be revised downward or withdrawn entirely by said rating companies, if in the judgment of said rating companies, circumstances so warrant. Any such downward revision or withdrewal of such ratings may have an adverse effect on the market price on the Investments. Note: The data included in this report is unaudited 0.00% FOR IMMEDIATE RELEASE DATE: September 17, 2008 (restated) CONTACT: Dennis MacKee PHONE: 850-413-1251 E-MAIL: dennis.mackee@sbafla.com UPDATE ON STATE BOARD OF ADMINISTRATION'S (SBA) FINANCIAL SECTOR INVESTMENTS The SBA and its fiduciary investment managers continue to closely monitor rapidly evolving financial market events involving Lehman Brothers, AIG, Merrill Lynch, Washington Mutual, Bank of America and other prominent financial institutions. Today's press reports are describing various private sector and government proposals to address these firms and general financial market turbulence, but without concrete information it would be premature to speculate on the effects on the SBA's investment portfolio and individual business arrangements. The overwhelming majority of the assets managed by the SBA are conservatively invested for the long term in highly diversified portfolios. The SBA's professional investment staff and external investment managers have exercised their fiduciary duties to prudently steward trust assets during a number of historical periods of financial stress. Further, they recognize that such periods will continue to occur due to the normal ebb and flow of global economic and financial forces. Despite very sharp declines in global stock markets in 2001 and 2002 our conservative, diversified approach has continued to keep the FRS Pension Plan extremely healthy. In fact, the FRS Pension Plan is estimated to be in a surplus situation as of July 1, 2008; i.e., the FRS Pension Plan has assets exceeding future benefit payments by about 106% or $6.9 billion. Under the SBA's stewardship, the FRS is one of only a handful of public pension systems to maintain full funding. Additionally, under Florida law, accrued FRS Pension Plan benefits are guaranteed to be paid regardless of investment performance. We are also actively reviewing relevant relationships and investments to ascertain any potential impact on the principal or liquidity of any of the non-FRS trust funds under SBA stewardship. Table 1 identifies recent SBA investments in several firms experiencing financial stress: 1) Lehman Brothers total holdings equal $323 million (0. 22% of total SBA assets); 2) Washington Mutual total holdings equal $164 million (0.11 % of total SBA assets); 3) AIG total holdings equal $130 million (0.09% of total SBA assets); Bank of America total holdings equal $1,070 million (0.72% of total SBA assets); and Merrill Lynch total holdings equal $939 million (0.63% of total SBA assets). In total, these investments equal $2,625 million or 1.76% of total SBA assets. Table 1: Recent Market Values and Unrealized Ciains/Losses of Select State Roard of Adminictratinn invectmentc in the Financial Rectnr Fund Lehman WaMu 3 AIG BoA Merrill Lynch Market Value Totals Unrealized GainslLosses FRS Pension Plan E uities $ 12,608,540 $ 6,572,572 $ 83,375,628 $ 440,237,641 $ 80,829,791 $ 623,624,172 $ 677,358,107 Fixed Income $ 215,880,422 $ 65,457,159 $ 43,513,960 $ 535,095,031 $ 216,873,262 $ 1,076,819,835 $ 82,044,657 CAMP E uities $ 89,262 $ 67,517 $ 517,884 $ 2,842,985 $ 433,735 $ 3,951,383 $ 4,023,816 Fixed Income $ 1,687,877 $ 150,649 $ 206,779 $ 506,323 $ 984,642 $ 3,536,270 $ 439,225 CHILES Endowment E uities $ 331,325 $ 196,381 $ 2,248,925 $ 10,830,628 $ 1,302,620 $ 14,909,879 $ 16,535,859 Fixed Income $ - $ - $ - $ - $ - $ - $ _ CAT Fund E uities $ - $ - $ - $ - $ - $ - $ _ Fixed Income $ 87,406,866 $ 91,452,356 $ - $ 75,472,266 $ 95,593,989 $ 349,925,477 $ 37,000,697 LGIP uities $ - $ - $ - $ - $ _ $ _ $ _ Fixed Income $ - $ - $ - $ - $ 537,538,706 $ 537,538,706 $ 3,498,670) Health Ins Subsid IS E uities $ - $ - $ - $ - $ _ $ _ $ _ Fixed Income $ 4,984,131 $ - $ - $ 5,031,484 $ 5,007,557 $ 15,023,172 $ 63,000 Subtotals E ui $ 13 029127 $ 6 836,470 $ 86142 436 $ 453 911,255 $ 82 566,146 $ 642,485 435 $ 697,917 782 Fined Income S 309 959,296 $ 157 060,164 $ 43 720 739 $ 616,105,104 S 855 998 156 $ 1,982 843 459 $ 123,046,249 Grand Totals $ 322 988 423 $ 163 896,634 $ 129 863176 $ 1 070 016 359 $ 938,564,302 $ 2 625,328 94 $ 820 964 031 of Total Assets 0.22% 0.11% 0.09% 0.72% 0.63% 1.76% -0.55% 1/Does not include Securities Lendin Pro or commie led accounts 2/ Recent market values are as of Se [ember 12 2008 exc t Lehman and WaMu which are as of Se [ember 10, 2008 3/ LGIP holds 5215 million of American General Finance, Corp. (AGFC) which was downgraded on Monday September 15, 2008. This note will mature on September 18.2008. AIG is American General's parent. 2 Local Govermnent Investment Pool -Fund B Holdings Report Data as of August 7, 2008 ~~,.,~ /~ rt~ ;-~ S~tiurify Name Axon Financial Funding LLC, Dec 31, 2008 ~~F t,,t, Dreyfus Oovemment Cash Management fund OVNMF Florida East Funding LLC, Mar 25, 2010 ry~~ Florida West Furtdinfl LLG, Mar 25, 2010 N/R. Issuer Entity LLC (Ottimo), Dec 31, 2048 Type CUSiP Cpn/Db Maturity Rate React Pur ~; ~~ t Amurt Coatrl' i 11kt Value°~ (V LI ~'~ , ~~ARIABLE RATE COMMERCIAL PAPER 05482NAD1 2.48 1213112008 8/25!2008 $ 175,000,000 2.50 $ 174,997,381 $ 99,750,000 [jd,~( yyls:i'I S~(~~., OVERNIGHT MUTUAL FUND 2.08 8/812008 $ 74,774 2.11 $ 7A,774 $ 74,774 ~ILOG N `(- /~ *' VARIABLE RATE TERM NOTE 999A50588 3.48 3/25/2010 8/28/2008 $ 147,196,685 3.52 $ 147,196,885 $ 124,278,944 ~ t„t,5~yt~k..rt.c(/ k VARIABLE RATE TERM NOTE 999A50578 3.48 3/2512010 8!28!2008 S 308,311,854 3.52 $ 30t1,311,854 $ 235,154.774 ~YO,Y7 F~k~ J ~ ~~ VARIABLE RATE COMMERCIAL PAPER 999A49941 3.38 12131/2049 3/2512008 $ 164,835,429 3.35 $ 184,835,429 $ 84,553,273 $ 795,418,542 $ 795,415,923 $ 543,811,765 (1) Market values of the portfolio securities are provided by the Custodian and the Manager has no responsibility for the accuracy thereof. The Manager acknowledges that it Is the source for other data contained herein. (2) Amortized cost is calculated using a stralgM-Ilne method. Note: The data Included In this report Is unaudited. Notice to LGIP B Participants Regarding KKR Restructuring April 9, 2008 Senior Noteholders' negotiations with KKR Financial Holdings have been completed. SBA and other members of the Noteholder Committee have been in discussions with KKR Financial over the past several weeks and appreciate KKR Financial's work to find a constructive resolution in this very challenging market. On behalf of its clients, the SBA has received its proportionate share of AAA- rated private residential mortgage-backed securities ("KKR collateral") and an additional $12.9 million from KKR Financial Holdings at closing that will be contributed as a paydown of par, of which $5.1 million is attributable to LGIP B. Federated Investors will actively manage all of the KKR collateral in order to maximize the present value of distributions to SBA clients invested in the original KKR Atlantic and KKR Pacific asset backed commercial paper programs. These will appear on holdings reports as Florida East Funding LLC and Florida West Funding LLC, respectively. At the time of the transfer of the KKR collateral: • The total outstanding par value of Florida East and Florida West notes in LGIP B subsequent to the restructuring equaled $483.3 million. This is equivalent to the outstanding par of the KKR notes prior to the restructuring and after March's monthly principal paydown, less the $5.1 million supplemental pay down. • LGIP B will receive payments from the KKR collateral based on monthly principal and interest collections and KKR collateral sales by Federated Investors. • The transferred KKR collateral has a total par value of $510.6 million, reflecting an effective collateralization rate of 105.6. • According to a third-party pricing source, the current market value of the collateral is $442.9 million, reflecting the unusually high stress currently seen in the marketplace for mortgage-backed securities in general. Stock Report I September 13, 2008 I NYS Symbol: KFN KKR Financial Holdings LLC S&P Recommendation ~ r ©©© STANDARD &POOR'S Price 12-Mo. Target Price $8.851es of Sep lz, 20081 $12.00 GIGS Sector Financials Sub-Industry Specialized Finance ~~K~oe~ , Summary KFN is an externally managed speciahy finance company that invests in muhiple asset classes, including corporate loans and public and private equity securities. Central to the company's financing strategy is the use of leverage. _. _" .:,< ..,.x:, 52-Wk Range $18.25-8.61 S&P Oper. EPS 2008E 1.45 Market Capitalizationl6) Trailing 12-Month EPS $-1.30 S&P Oper. EPS 2009E 2.25 Yeld 196) Trailing 12-Month P/E NM P/Eon S&P Oper. EPS 2008E 6.1 Dividend Rate/Share $10K Invested 5 Yrs Ago NA Common Shares Outstg. (M) 150.9 Prfcs Frafontiaaa , : .; ~, _ ;. 34Week Mw. Avg. • • • 14Week Mw. Avg.- - GAAP Eamlrgs va. Prwlous Year Volume Above Avg.lllll,l STARS 12-Mo. Targel Price Relative Strength - ~ Up ~ Down ~ No Change Below Avg. 111161 J~ _ - __ 1s ~ -:>/ 10 ..,, va. Mil. 14 41 ~ III I IIII~II I lJlllllll II ~ o IIIIIIIIuJII~IIIII~hIHHh,IIIItIIIIIIIIIIIIIII~I dllultuddl~Il~h6md1l~~~~I~~I~IIII 1~ ~~II ~~Il~l~l~l~~~l~lltl~) II IIIIJI~I~I~~~~~I~III._._^__. 5 9 7} ~ 4r* ~~3 71P 1 A M J J A S O N D J F M A M J J A S ON DJ F M A M J J A S O N DJ F M A M J J A S O N 2005 2006. _ _2007. _.2008 ___ Options: CBOE, P, Ph Analysis prepared by Cathy A. Seifert on August 13, 2008, when the stock traded at $10.00. - KFN has taken steps in recent periods to re- structure its balance sheet and investment portfolio following significant declines in the value of its residential mortgage holdings. It has refocused on corporate loans and equity secu- rities, areas we view as more in line with its core competencies. At June 30, 2008, the'eco- nomic" investment portfolio totaled $7.7 billion, of which 84% was in corporate loans, l l % in corporate securities, 4% in residential mort- gage-backed securities, and 1% in other secu- rities. - First half 2008 results were adversely affected by sharply higher investment losses, which off- set a 65% rise in net investment income. As a result, net income from continuing operations declined 53%. Although our outlook is tempered by a more challenging investment environment we see continuing throughout 2008, we believe KFN's corporate loan portfolio is performing relatively well from a credit standpoint - We see operating EPS from continuing opera- tions of $1.45 in 2008 and $2.25 in 2009. Our esti- mates exclude discontinued operations related to residential mortgage holdings. lMtponalialt - Despite the challenges of unwinding its resi- dentialmortgage portfolio, we expect KFN to continue increasing its corporate debt invest- ments,and we see improved returns on these assets moving forward as yields trend higher. The conversion to an LLC should allow KFN to deploy its capital more efficiently by focusing on its core strengths of corporate credit analy- sis,and should allow more balance sheet flexi- bility. While losses on the residential portfolio have hurt book value, we believe KFN has am- ple capital to navigate the difficuh environment, and the company does not face any near-term funding issues, by our analysis. - Risks to our recommendation and target price include KFN's external management structure, increased funding costs, and higher- than-expected losses on its investment portfo- lio. - Our 12-month target price of $12 represents a slight discount to our estimate of KFN's 2008 book value. This muhiple is close to the current peer average, but at the low and of the compa- ny's historical price/book muhiple range. $1.335 Beta p.59 22.15 S&P 3-Yr. Proj. EPS CAGRI%) 7 51.96 S&P Credit Rating NA ts_.; LOW MEDIUM , Our risk assessment reflects the cyclical nature of the commercial finance market, as well as KFN's exposure to ahernative investments. In addition, the company was formed in July 2004 and has a limited operating history. ~~, ~ ~~ ~.., :.`S~ '"ant SbP Oluality Ranking NR D C B- B B+ A- A A+ Relative Strengtlt Rank WEAK 27 LOWEST= 1 HIGHEST.9g :~: 4;. Revenue (Million $) 1 D 2D 301 401 Year 2008 25.06 39.99 -- -- -- 2007 106.4 152.9 221.7 246.5 727.5 2006 209.5 231.3 259.6 270.5 970.8 2005 36.38 70.89 118.5 181.8 403.4 2004 -- -- -- -- -- 2003 -- -- -- -- -- Earnings Per Share ISI 2008 0.08 0.26 E0.45 E0.60 E1.45 2007 0.39 0.77 -0.65 0.55 2.34 2006 0.38 0.44 0.41 0.47 1.71 2005 0.15 0.21 0.24 0.28 0.92 2004 -- -- -- -- -- 2003 -- -- -- -- -- Fscalyear ended Dec. 31. Next earnings report expected: Mid November EPS Estimates based on S&P Operating Earnings; hisrorical earnings ere es reported. I 4.,, - Amount , Doh Ex-Div. Stlc. of Parnsm ISI Dxl. Deh Record Date 0.500 11/01 11/13 11/15 11/29/07 0.500 02/01 02/13 02/15 02/29/08 0.400 05/01 05/13 05/15 05/30/08 0.400 08/07 08/13 08/15 08/29/08 Dividends have been paid since 2005. Source: Comparry reports Please read the Required Disclosures and Analyst Certification on the last page of this report. Redistribution ar reproduction is prohibited without written permission. Copyright ®2008 The McGraw-Hill Companies, Inc. Pace 1 of 9 Stock Report ~ September 13, 2008 ~ NYS Symbol: KFN KKR Financial Holdings LLC STANDARD &POOR'S Basiaass Sttmtmsp August 1$,2006 CORPORATE OVERVIEW. KKR Financial Holdings (KFN) is a specialty finance company that invests in mul- tipleasset classes including corporate loans and debt securities; commercial real estate loans and debt securities; asset-backed securities; and other investments, including marketable and non-marketable eq- uity securities. As of December 31, 2007, 99% of KFN's portfolio was in corporate loans and debt securities, with 0.9% invested in equity and preferred securities. KFN is externally managed and advised by KKR Financial Advisors (KKRFA) under a management agree- mentthat expires on December 31, 2008, but is automatically renewable for aone-year term on each an- niversarydate thereafter. Terms of the management agreement call for a base fee of 1.75% of KFN's total equity, on an annual basis, plus potential incentive fees of 25% of profits earned above a certain hurdle rate. KKRFA is responsible for the company's operations and performs all services and activities relating to the management of its assets. All of KFN's executive officers are employees of KKRFA or one or more of its affiliates. CORPORATE STRATEGY. KFN's stated investment objective is to provide competitive returns to its in- vestors through a combination of capital appreciation and dividends. Like many other specialty finance companies, KFN has indicated that it will opportunistically invest in equity securities of public and private companies in orderto boost its investment returns. While we believe KFN's broader investment approach offers it mare flexibility and the potential for greater returns than many of its peers, we think it also creates more potential risk. We view KFN's ability to source transactions through its relationship with KKRFA as one of the company's key advantages over other specialty finance companies. We believe KKRFA's reputation and private equity investment experience allow it to see a wide array of potential transactions, which we think benefits KFN's origination pipeline. COMPETITIVE LANDSCAPE. We believe the markets for commercial lending and equity investing have been highly competitive due to an influx of capital and the need to put this capital to work. As the supply of capital has increased, the competition for investments has accelerated, meaning that investors such as KFN have been forced to compete, we think, more aggressively on the basis of transaction pricing, terms, and structure. This increased competition has meant lower spreads and risk-adjusted returns. Looking for- ward, we expect the high number of transactions in the corporate debt pipeline and the current market dislocation to lead to more attractive spreads over the coming months, alleviating some of the pressure on KFN's margins. IMPACT OF MAJOR DEVELOPMENTS. On Apri18, 2008, KFN said it received net proceeds of some 5383.5 million from the public sale of 34.5 million common shares lincluding over-allotments) at511.85 a share. In late August 2007, KFN announced a 5230 million equity investment from seven institutional investors with the sale of 16 million shares at 514.40 each. It also initiated a rights offering at 514.40 for all shareholders to raise up to an additional 5270 million. This offering was completed in late September with approximately $213 million being raised from existing shareholders and approximately 557 million from principals of Kohlberg Kravis Roberts & Co. L.P. FINANCIAL TRENDS. With its conversion from a REIT to an LLC in early May 2007, we believe KFN will mi- grate agreater portion of its portfolio tohigher-yielding corporate and equity investments, which we ex- pectto improve the company's net investment margin and its return on equ'Ity, which currently stand well below many of its peers, in our opinion. As of December 31,2007, we calculate KFN's debt-to-equity ratio was 8.1X, well below levels in the first half of 2007. We expect lower leverage levels moving forward as the company reallocates its investment portfolio and takes a mare defensive position given current market volatility. We are comfortable with KFN's near-term liquidity position and believe it possesses capital to continue to grow its investment port- folio. For 2007, the company paid dividends to common shareholders totaling 52.16 per share, or approximately 60% of its net income plus share-based compensation. We think KFN will target a 75%-95% payout ratio following its conversion to a limited liability company. ..~ . Investor Contact L Poggi1415-315-3718) Office 555 California St FI 50, San Francisco, CA 94104-1701. Telephone 415-315-3820. Webaite httpJ/www.kkrkfn.com OMcers Chrmn P.M. Hazen Pros ri CEO S.S. Fanlo CFO ri< Chief Acctg Officer J.B. Van Horn C00 D.A. Netjes Board Msmbsrs W. F. Aldinger, III T. L Collins S. S. Fanlo V. P. Finigan P. M. Hazen R. G. Hubbard R.J. Kari E. L Licht D. H. McAneny S. C. Nuttall W. R. Strothotte Domicile Maryland Founded 2004 Stockholders 28 Redistribution or reproduction is prohibited without written permission. Copyright ®2008 The McGrew-Hill Companies, Inc. . ~~~ .. Ps¢e 2 of 9 Standard & Poor s -Ratings On Ottimo Funding Ltd. Extendible ABCP Notes & Subordi... Page 1 of 2 STANDARD &POrJR'S Press Room Ratings On Ottimo Funding Ltd. Extendible ABCP Notes & Subordinated Term Notes Lowered To 'D' Back Publication Date: Nov 09, 2007 16:01 EST Ratings On Ottimo Funding Ltd. Extendible ABCP Notes & Subordinated Term Notes Lowered To 'D' Primary Credit Analysts: M. Scott Sehnert, New York (1) 212-438-2603; m_scott Sehnert®standardandpoors.com James Halprin, New York (1) 212-438-5048; fames halprin~standardandpoors.com Media Contact: Adam M Tempkin, New York (1) 212-438-7530; Publication date: 09-Nov-07,16:01:20 EST adam tempkin~standardand~oors.com Reprinted fromRatinosDirect 4 Current ~atirgs NEW YORK (Standard & Poor's) Nov. 9, 2007--Standard & Poor's Ratings Services today lowered its rating on the extendible asset-backed commercial paper (ABCP) notes issued by Ottimo Funding Ltd. to 'D' from 'C'. At the same time, Standard & Poor's also lowered its rating on the subordinated notes to 'D' =rom 'CCC' (see list). Due to the recent market volatility for U.S. residential mortgage-backed securities (BMWs), Ottimo breached certain credit enhancement tests, which led to an event of default on the ABCP and subordinated notes. As a result of the event of default and pursuant to the program documentation, the collateral agent conducted an auction of Ottimo's collateral (all 'AAA' rated Alternative-A U.S. RMBS) to generate funds to repay the notes. The details surrounding the auction have not been made publicly available; however, Deutsche Bank Trust Co. Americas (the collateral agent and trustee) has informed Standard & Poor's that the auction did not generate cash proceeds to repay the ABCP and subordinated notes. RATINGS LOWERED Ottimo Funding Ltd. Series Rating To From Extendible ABCP notes D C/Watch Neg 2007-A notes D CCC/Watch Neg 2007-B notes D CCC/Watch Neg 2007-C notes D CCC/Watch Neg hm,•//~snvtz~7 ct~nrl~rrlar~~nnnm l~1~i11IT/lT't'a~IC1fPIC11IPil/17C~TAOP ATtI(`~P print/4 5 S 1 .1 148449___ 9/17/2~A