Greetings, and welcome to the Federated Investors First Quarter 2015 Analyst Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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, Mr. Hanley. You may now begin.

Good morning and welcome. As mentioned, we've some brief remarks and then we’ll open it up for your questions. 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 is Debbie Cunningham, our Chief Investment Officer for Money Markets. During today’s call we may make forward-looking statements and we want to 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 and Federated assumes no duty to update any of these forward-looking statements. And with that, I’ll turn it over to Chris.

Thanks, Ray and good morning all. I will briefly review Federated’s business performance and then Tom will comment on our financial results. I will begin by reviewing another strong quarter for our equity business. Total equity managed assets grew by 5% from the prior quarter and were up 18% from the first quarter of 2014. We had our best quarter yet for gross equity sales with sales of $4.5 billion and our third best quarter for net equity sales of $1.6 billion. These figures of course include a combination of both the mutual funds and the separate account sales and net sales figures. Looking specifically at Federated’s equity fund organic growth rate, we see it was 11% for the first quarter annualized and again this was among the best in the industry. Based on strategic insights data, our first quarter equity net flows are just under $900 million ranked in the top 3% of the industry. Equity sales results were solid in a number of different strategies and believe we are well positioned for continued growth. Our equity success comes from years of focus and investment, leading to a diversified mix of high quality teams and strategies delivered through effective and growing intermediary-based distribution. Performance continues to be solid, using Morningstar data for rank funds as of yearend seven federated funds or 27% were in the top deciles for trailing three years. We had 11 funds, which is 42% in the top quartile and over three forth of our funds in the top half for the trailing three years. Looking at the one year rankings, eight funds or 31% were in the top quarter and 62% were above median. Performance highlights include the Kaufmann Large Cap Fund in the top 4% or better for the trailing one, three and five…

Thank you, Chris. Revenue was up $3 million from the prior quarter due mainly to lower money fund yield waivers which added nearly $6 million and higher equity assets, which added $4 million. These increases were partially offset by the impact of two fewer days in Q1 which negatively impacted sequential quarterly revenues by more than $7 million. Revenue increased from Q1, 2014 by $9 million due largely to growth in equity assets. Equities contributed 46% of Q1 revenues again the highest percentage among the various asset classes. Combined equity and fixed income revenues were just under 70% of the total. Before commenting on expenses, I’d like to note that we moved certain sales commission related expenses previously included in other -- in the other line items into distribution expense. The amount reclassified for Q1 2015 was $4 million for Q1 2014, it was $2.6 million and for Q4 2014, it was $3.8 million. The operating expenses were up from prior quarter due mainly to higher comp and professional service expense. Comp increased due to seasonally higher payroll tax and benefit cost as well as stock comp expense. Professional service fees were up due to an increase in legal expenses. Sequential quarter distribution expense was impacted by fewer days in the quarter, which reduced these expenses by $2.5 million offset by the impact of lower money fund yield waivers. As we pointed out last quarter, the reduced number of days impacted our operating income by about $5 million, which impacted the operating margin by 1.2%. Comp increased from Q1 of last year due to higher incentive comp expense and wage increases. The impact of money fund yield waivers of $27 million was down from the prior quarter and year-over-year. Based on current assets and assuming overnight repo rates for treasury…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is coming from the line of Michael Kim with Sandler O'Neill. Please proceed with your question.

Hey guys, good morning. First just as it relates to sort of reshaping your money market funds to align with the upcoming regulatory changes. Just wondering what the long-term impact on yields could be as some of your institutional prime money market funds convert to 60-day funds and whether you think that could have any impact on market shares across the industry?

Well let’s divide that into two questions. One what’s the impact on yield might be as people move from prime to govi in some cases or move into the 60-day range and then as relates to market share. I will handle the second part and will let Debbie comment on the first part. So on the market share what I expect to happen over the longer term is that in a post October 16 environment, Federated will see increases in assets in the money market fund area because the dust will settle, all of the education will have occurred on the efficacy of the new product offerings and the things that exist in the marketplace now to encourage more cash use will continue, for example banking regulations that causes certain customers to not be favored as deposit customers. The increase still in amount of money being credit by the government is part of normal operations. The regular use of cash by customers, the fact that corporations, there use to be pretty near half of the corporation use money funds. Today that number is closer to 20% and I think they will come back in. So overall I think we will begin to see increases in assets, which I think will turn back to increases in market share for our offerings. And now I'll let Debbie comment on the potential rate impacts of some of these changes.

Good morning, Michael and thanks Chris. From an historic perspective if you looked at the grow yield differences between the traditional prime fund and by tradition I mean one that can use all of the allowances under 2A7, so out of 397 days on a final maturity basis and 60 days on win basis. And historically that’s produced about a 12 basis point yield differential between prime and government funds. Our expectation is that a 60 day type product will fit right into the middle of that particular spread. So if it remains at 12 basis points somewhere in the six basis point neighborhood, our real thought though in the context of how this all works out is that there will likely be some swell of assets that initially takes the easy path and that easy path would be going into a government fund from a prime fund. And effectively abandoning their allowances to go into the prime market and so what does that do? That generally speaking would cause supply demand differences in the marketplace that would probably cause that 12 basis point spread on historic basis to go a little bit wider and how much wider? 20 basis points, 30 basis points, 40 basis points, you pick the number. But at some point there will be a time then that for those investors that did choose the easy path and went into the government institutional marketplace yet have the allowances to go back into prime at that point. There will be a point at which they then look at whatever that spread differential is and think it’s fairly attractive and what we think will be the case is that there will be sort of reverse swells that go back in the other direction probably over a longer period of time, but with less volume in each one of them. And again throughout this entire period and continuing as we have these products up and running post the 2016 time period prime versus government versus 60 day is going to show that 60 day prime probably right smacked up in the middle of where that prime govi growth yield differential is.

Great, that’s very helpful. And then, it just seems like the pending regulatory changes are increasingly foreseeing smaller players to exit the money market fund business, so just wondering how big of a roll up opportunity you think that can be. And then related to that does that shift your capital management approach at all as you think about the mix between these types of opportunities versus share purchases and dividends?

Well since it’s a general rule for money market funds we don’t use capital upfront to pay for the transactions. There will be no impact on capital. As regards to roll up activity, as I’ve said on these calls before, before the '08 timeframe, there were over 200 firms offering money funds. Today if you look at the list there are 80 and the bottom 25 or so don’t have enough of assets to really make a third-party gain of it. And so increasingly you see one at a time type things like Touchstone or like Reich & Tang or others that we’ve done come along. So it’s not exactly a catalyst. If you look at the whole picture of it you would say gee with '08 caused people to leave the money funds the '010 amendments caused others to leave. The '14 amendments will cause still others to leave, the actual implementation date in '16 will cause others and so it is more or less a steady March, but it is without a sudden catalyst.

Got it and then maybe just one last one for Tom, any color in terms of how we should be thinking about comp and expense growth more broadly just as we look out to the rest of the year particularly in light of some of the seasonality in the first quarter?

Yeah well of course, the first quarter was up and would probably give a range of comp and related from next quarter of between $74 million and $75 million. We keep looking at increased sales, which is one of my old success items we’re happy when that expense goes up, because it means we’re getting more assets.

Okay. Great. Thanks for taking my questions.

Thank you. Our next question is coming from the line of Surinder Thind with Jefferies. Please proceed with your question.

Good morning, guys. I was hoping you can just kind of walk me through some of the underlying trends that you’re kind of seeing in the institutional business and maybe kind of investor appetite for let's say equities versus fixed income and how that dynamic is changing?

What we’re seeing in terms of RFP activity, which I mentioned in the remarks, is a pretty good increase when the number of RFPs were successfully responding to that we win but if we have a real good chance have doubled. And so what this is simply the result of the lot of good mandate. It isn’t any one mandate that’s driving the truck. So we’re seeing it in a number of mandates whether it is international leaders, increased interest in MDT which is quite obviously a strategic value dividend. Kaufman Enterprise, Clover Small Cap and it isn’t necessarily the story of a complete re-risking in the marketplace although it continues to move ahead. All these various market moves have encouraged people and we are seeing some aspects of an increasing willingness to take on more types of risk. But it is not a big accelerant and it doesn’t push the needle all the way to the other side. But we do see it moving, but what mostly is being rewarded is long-term basic blocking and tackling and producing the kinds of records and then the numbers of mandates that I talked about in the call. That is the real trend.

And Surinder its Ray. I’d just add, it is multiple strategy as we went through. There is no un-notable increase in the international component both the international dividend strategy that we have and the ease of large foreign blend strategy. We’re seeing a pretty good step up on both of those fronts.

Well that’s helpful. And then maybe just touching base I think you mentioned that there’s going to be a number of new announcements regarding kind of your new product set for the money market reform. When should we -- is that more about just product starting to being launched starting around 3Q and stuff or when should we expect to see that you’ll kind of have all of your products in place?

What we've said is that at the fund Board meetings, which is mid-May so that’s coming up in a couple of weeks here, we will go to the Board with the proposals as to which funds will end up in which category. We have already announced the types of buckets and the types of funds that we will have and so we’re sticking with that and now we’re putting the finishing touches on getting clearance from the Boards that this particular fund will be a retail fund, this particular fund will be an institutional fund, this fund will be a 60-day fund etcetera. And I won’t commit to a time right now, but it will be sometime after that Board Meeting when will say which funds are going to be going in which direction and it maybe that there are more than one announcements that come out. In addition, we have a large proxy that we’re working on for our one fund that has several portfolios in it equal to 175 or so billion of our money fund assets and so that is a big effort to get that proxy statement done and that will be occurring. We’ll also have seven or so fund mergers and will probably spawn 20 or 22 new classes. So there will be a lot of those kinds of changes and they may take enough time that we go through and have more than one announcement about what’s going on and the proxy statement of course itself will be a large and substantial public announcement.

Okay, that’s helpful. That’s it from me guys. Thank you.

Our next question is from the line of Ken Worthington with JPMorgan. Please go ahead with your question.

Hi, good morning. So little twist on Michael’s earlier question, so observing the shift from prime to govi I guess this is for Debbie, how much do you expect the shift will impact short-term rates and how big a gap starts to emerge between fed funds in very short term rates? Does that dynamic actually start to pop out that spread between the two?

Well, first of all I do think it all be occurring at a point in the time when the Fed is in play from an increasing rate environment. So that’s always a helpful time and a helpful undertaking. So it's not as if we’re thinking that government yields will go yet further lower while prime yields shoot out. We in fact think that all types of yields will be increasing at that point in time, but with perhaps the prime side increasing a little bit more. We do think that the supply on the government side is beneficial for keeping those rates in a positive trajectory certainly what we have been looking at in the context of treasury supply is pretty positive. There is a huge amount of coupon that’s rolling into one year maturities in 2015 and 2016 so that’s a big positive for supply. In addition to the treasury itself, expecting increases in the bill supply and in the treasury floater supply. So those are all be helpful in keeping governments going in the right direction. From a spread differential perspective between prime and government like I said before, it's definitely going to increase. I can’t think unless assets don’t move unless there is enough client education and comparability with the product mix as it changes in 2016 leading up to in post the October implementation time period then we’re going to see spreads increasing in some way, shape or form. From 12 to 20 to 40, I don’t know exactly where it stops, but at some point there is a trade off that customers who chose to go into the government option then don’t need to will want to rethink and relook at their other options in the marketplace because the differential is now large enough. Historically that’s been somewhere in the 20, 25 basis point range but, could be different and certainly in the context that we've been at zero for so long, who knows what holds going forward. But it's not that we think that there will be government yields going in one direction while prime goes in the other. We do think that they will both be listing but with a spread differential that probably favors prime going up a little bit higher.

Okay. And then can the Fed, use reverse repos to may be better narrow any spread that emerges between and I was thinking more like treasuries in Fed funds as opposed to CP in Fed funds, but really on the government side and the dynamics that could play out there, like is there potential there to not buy that.

Yes, no, absolutely we think that that’s the other big positive in the supply, on the supply side of the equation. As I said treasury issuance and rolling in a coupon that is a positive but the reverse repo available from the New York Fed is also a huge one. Currently it’s capped at $300 billion in total on overnight and they’ve offered somewhere in the $100 billion to $300 billion range at various points in time on term. They’ve $4 trillion supply on their balance sheet. So there is very -- we expect that there will be upward movement and that that will indeed help satisfy and keep any dislocations out of the marketplace. When we think of a rising rate environment traditionally, we think as the Fed funds rates going up and everything adjusting by 25 basis points. In this case what we think we’re going to see when the Fed does begin to raise rates is something that keeps reverse repo at the bottom of that range. So let's say they go to a 25 to 50 basis point range probably puts reverse repo from the Fed at five basis points, term reverse repo and Fed funds at about 10 basis points. Interest on excess reverses at the top of the list at 25 basis points and all right, at 50 basis point and all of that I think is being coordinated by those various tools from the Fed. The largest of which seems to be at this point the reverse repo facility.

Okay, great thank you. And then may be for Chris, assuming I did the math correct, on the management fee rate, if I back out the negative impact to fee waivers and I count for days, it looks like the management fee rate went down. Given mix towards equities, I would have expected it to go up again assuming I did this correct, what’s going on behind that scenes to drive that decline?

Hi, Ken its Ray. On the blended fee rates for and taking the money funds out of it and on equities it looks like the decrease was something like half of a basis point and that would just be mix. Talking about things like the SMA growth and the separate accounts and here I’m just talking about the fund portion, within the funds we would have had a slight decrease on an overall basis looking for the number here. Yeah, not really much change and so it’s really just a mix of products, it's not anything more complicated than that.

Okay, but on the mix well at least I’m looking at the assets classes, the equity bucket increased more than the fixed income in money market bucket on an average basis. So I would think that mix would have helped not hurt unless there was a massive shift within each bucket. You had mentioned before about not capturing all of the fee waiver recovery. I was thinking maybe there was something there that it already started to shift within money market fund rates any merits there or…

No nothing there because that’s really predicated on rates increasing more than they did in Q1. Looking at the equity blended rate, it was three tenths of a basis points. So, it's just not much of a move and that was downward three tenth. So even though equity was higher, it came in a little bit.

Okay. I'll work with you offline on it. Thank you very much.

Our next question comes from the line of Patrick Davitt with Autonomous Research. Please go ahead with your question.

Okay. Good morning, guys. Thanks. Since announcing last quarter, the large renegotiation on the distribution side, have you see any other large clients approach you about negotiating similar deals and/or are you concerned about that and I guess more publically out there?

No and no.

Fair enough. Thank you.

Our next question is from the line of Robert Lee with Keefe, Bruyette & Woods. Please proceed with your questions.

Great, thank you and good morning guys. Just Tom, if you could just clarify from which I understand it there was some distributional related was it comp that moved from other expenses to distribution?

Commissions, commissions that we had in other and I guess just help. We just started better, better understandable in distribution line.

Okay, so how did those commissions differ from, you mentioned comp guidance, for second quarter I guess it was 74, 75 partially due to better sales, I was just trying to understand why there is some commissions at both the distribution some that go through comp and that both seem to sales related.

Didn't have anything to do with comp Rob. Its commissions that we paid to the intermediaries, nothing to do with compensation.

Okay, so all right. I was mixing two. Okay. Let’s see okay and I guess another question just kind of I guess hypothetically, so it's tough to do hypothetical, but when the fee waivers start to move away obviously start to recapture, not recapture, but possibility starts to improve. So should we be thinking that when that in the starts to occur that because overall foreign profitabilities going to expand that will also see some offset, partial offset against that in comp just as kind of maybe comp pools if it takes something maybe based on kind of pretax operating income or something will expand as well maybe not unlock that, but we could see compensation expenses rise as well?

Yes Rob, the investment management pools aren’t really related to that. The sales incentive pools aren’t really related to that. The kind of the rest of the company does have a -- how is the company doing? So if the company is doing better i.e. there are less waivers and we’re earning more, I would expect that that would get reflected in incentive comp for kind of the rest of this flood.

Okay.

And we will reflect that every quarter because we have to put an estimate in every quarter in what we think our compensation levels are going to be and they raise rates we will look at what we think comp will be and you will see right away.

Okay, thanks. And one last question maybe for Chris, talked about some of the RFP activity in the separate account business, I guess unless I missed the comments I know you were pretty focused on the equities business, which is doing well and you had some success in fixed income, but I guess it seems that there was less commentary at least this quarter around that business. So can you maybe update us unless I missed the kind of how pipelines are in the fixed income separate count business kind of what you’re seeing there?

Rob we did announced the West Virginia win which is a $1.2 billion we will be funding here in the third quarter. On the high yield side, we have had some good success internationally and are commencing a road show over there with the new client on high yields, so that’s a pretty good thing. So there are activities in the fixed income side and I did comment on some of them in the remarks.

And Rob we still see elevated activity on the total returned side. RFP activity as well as fund flows and some institutional activity there that ends up coming into on the fund side of the product line things like consultants recommending us to their clients where we’re still working through what we expect to continue to see some elevated flows as we’re seeing over the last several quarters.

Okay, thanks and then I lied, I do have one last question. I guess the SEC recently released its responses to frequently asked questions as it relates to the money fund reform and just curious if there was anything in their responses that you thought was a surprise or made you making kind of go back and rethink or re-jigger some of your good plans of reshaping the product line?

Well one of the reasons Debbie is on the phone here is because she is in Washington with ICI and SEC people in order to go over this. As you know this came out couple of days ago, so there is still some work to be done. At this point, I don’t see anything in changing what we have determined we are going to do in terms of the kinds of funds that we’re going to offer. In other words we’re still going to offer 60 day funds and as I mentioned we’re going to work on private funds, we’re looking separate accounts and we’re going to have material way funds that’s what I call, institutional prime funds and have a floating net asset value that are greater than 60 days. So we’re going to score on all those streets. When you say well what we’re some of the surprises well we were involved in asking a lot of those questions although the SEC puts some of their own questions in, there really weren’t a lot of surprises, it didn’t surprise us to make the prime government securities to include the fed repo program and trade receivables that you have when you’re selling governments and further as they continued an SEC policy of not including the 250,000 of FDIC insured CDs as a government security. Okay so there were no surprises there. On the definition of natural person and how it works in the retail fund, I don’t know whether it was surprising or not that if you’re dead, you are still a natural person but nonetheless that's your decision. They did get into some sticky situations in terms of further commenting on beneficial owner and what that meant and that has to be sorted out. We were very happy…

No, you hit on the highest priority ones, Chris. There were some disclosure on what is considered financial support and would be required to be reported on the website and telegraphed out to client and what if not being operational errors, not being fund mergers that are topped off in order to make the NAV that those merging products the same, that was all as expected. Some clarification around the stress testing and some of the inconsistencies about different parts of implementation periods, all of which had been I think pretty much expected.

Great. Thanks for taking my questions. Appreciate it.

Our next question is from the line of Bill Katz with Citigroup. Please proceed with your question.

Okay thanks so much. Just staying on the money markets, I want to come out a little bit differently. Can you give us an update sense of what percentage of the assets likely could be in motion as we work through the implementation process and you have a little bit more visibility to type of products that are out there and then what do you think would be the normalized yield adjusting for few waivers. So putting fee waivers aside and adding them back just giving what would likely be a shift of the product mix and then little more broad and maybe little more uncertain with the Department of Labor coming out with their fiduciaries reform discussion a week or so ago, can you talk about what kind of risk there might be to money market business broadly where a distribution closed somewhere in the high side relative to the management fee?

Let’s deal with -- I think there are at least three questions baked in that and I'll deal with the last one first, which is what about the DOL definition of fiduciary and how will that impact money market funds specifically? And the DOL definition of fiduciary we don’t think will affect the money market fund as we see it and right, you can get into the question inside both the lawsuits that are going on in this area and inside what is the best interest of shareholders as compared to suitability. But I think that you’ll be able to see at least we will -- have been able to see that not much will change in terms of intermediary payments and activity here. I think what will happen in this industry and this is something that we’ve been in favor of for some considerable amount of time. Is it intermediaries who are receiving various payments for various services on money funds whether it is for a retirement account or not, ought to be thinking about how they justify and allocate their own expenses in terms of receiving those amounts in any event. And I think that this effort will accelerate that as a response from various people in the marketplace, because it is very expensive for the intermediaries to handle the accounts especially on the cash management side. So, at this point even though it’s early on in the sequence and even though the dust hasn’t settled on its implementation, that’s how I would look at that. In terms of amount of money in motion from an industry standpoint, on the money fund side, we’ve heard estimates from $100 billion to $500 billion of money moving from prime to govi on an initial basis. And I can’t really put my finger on either side of that or come up with a good estimate myself. In terms of our own clients I will comment and then I'll let Debbie comment and let her handle the rate part of your question. But what we’ve been having discussions with some of our larger clients is an increasing balances because of the Basel III impact of non-operational deposits being unflavored by the banks and so that factor has been very large. In terms of clients they’re waiting to see how the dust settles. So I’m not able to say what exactly our client base will do and believe me we talk to them quite often, but they look at cash management as something that’s simple and that’s done and they’ll decide when they have to. So I don’t have a precise answer on what amount of our clients will go in which direction. Debbie?

I think in the hundreds of conversations with individual clients that I’ve had and obviously continuous discussion and dialogue around it with our sales people, I would say that from a retail prime perspective, that there will be something on the order of maybe 10% of those assets from a Federated standpoint shifting into something other than where they are now in that prime retail category. And it mostly has to do with broker-dealer sweep and the context of the fees engaged potentially being an impetus for them to move into a product that doesn’t have fees engaged. The vast majority of our intermediaries that offer that service won’t have an issue with it, but we found a few that likely could. On the higher side so that's sort of the low end of estimation of assets switching and money in motion. On the higher end, we’re probably up in the third of the assets that would be and what would be our true institutional clients most of them retaining the capability. To me - to stay in an institutional prime fund both with regard to the floating NAV as well as with regard to the gates and fees but perhaps wanting to take a little bit of a hiatus and see what happens as that money is in motion as the impact in the broader short-term markets is assessed utilizing the Fed river program looking at what happens from a supply perspective? Does it increase enough in the govi side? Is it stagnant or decreasing on the prime side. How does that all hold out? So I think we have a variation depending upon the types of clients and I think that’s probably ranging somewhere in the 10% up to 30%, 35%, 40% range with the initial money in…

Thanks. My question on the yield I’m sorry I may have misstated, I’m really more concerned, more interested in what do you think happens to the revenue? The management fee rate for Federates pro forma money market business once all the other products in money motion settle out, left about the market spread, I understand that concept ever since how it works the pricing for your business model?

Well Bill, that’s kind of hard to predict that far into the future. We’ve looked at as we thought about the private accounts we’ve thought about those being priced comparable to the money market funds. I don’t know that we see coming out of reform and the product changes coming out of reform as being an impetus for pricing changes.

Okay. And just one other one for me, just we have little time, you mentioned in your remarks Chris that Q2 fixed income is slightly negative due to some seasonal pressure from the ultrashort, what gives you confidence that this is just a seasonal dynamic? Because I would think if expectation will start to go up, that might to able to relatively size negative for the bucket itself?

Bill its Ray. I’ll just point out the -- we saw just about the exact same thing last year in particular with the muni ultrashort fund, which of course has a lot of clients who use it as an expansion of their cash management beyond money funds and those are wealthier folks who are paying taxes and pay it out of that municipal fund. So the dynamic is the same as we’ve seen in particular last year as tax payments went up though that product in particular was affected more broadly on rising rates Chris do you want to comment on that.

Well most of the products on the broad fixed income side are well aware of what the Fed is thinking about and going through, but yet there’re still people quite interested in high yield total return bond fund etcetera. And as Ray was saying, the ultrashort funds are a seasonal long cash type investment by the certain individuals and it is the flip side of what happens on the money market funds on the money market separate accounts with a gain on that on the other side of that. So those will be my comments.

Okay. Thank you.

Our next question is from the line of Craig Siegenthaler with Credit Suisse Group. Please proceed with your questions.

Thanks. In you prepared remarks, I heard you reiterate the 10 basis points, 40% fee waiver guidance, but I didn’t hear that 25 basis points, 65% guidance from last call, has you view here at all changed?

That was the same guidance Craig. There was no change there.

Got it and then, this may be new or may not be, but I heard your comments on the swell in government money market AUM and the spread between T-bills and reverse repos in fed funds, would that actually impact your guidance as the spread through wide with short term rate increasing.

Yeah, we put in the numbers and if the -- we put in 9 to 12 basis points on mortgage backs and two to 10 basis points on the T- bills, which were three to six months if those go up, it will be better. I think what you want to think about here is that the bulk of the waiver recovery happens pretty quickly and so what Debbie is talking about longer term trends out into '16 and '17 and spreads widening and then coming back in, our expectation will be that we will have been past certainly the first ten basis points, 25 basis points or more by then and so the vast majority of the waivers will have been -- will not be a factor at that point.

And then if I look at the margin on the fee waiver, it's about 31% today, but if you look at the improvement over last year, the incremental margin on the improvement in revenue was much lower 23%, do you know why this was? Was it maybe mix shift or was there some maybe early fee concessions there with the intermediaries I just want to hear what you've got.

While we've said that the recovery is not linear, each product has a different profile and so that will be kind of difficult analysis to go through here, but that would be something I would be happy to talk to you about offline.

Got it and just one quickly asked question, how are flows tracking quarter data, could you actually give us a number or kind of a rough feel and maybe I missed that earlier in the call.

Well, yes we did. We are very, very happy with equity flows at this point in the second quarter and I’m trying to see.

So equities are positive?

What I said was that they were solidly positive in the second quarter and there is over a $100 million through April 17 and it’s basically the same mostly, the same strategies that were leading the pack in Q1 and then on the fixed income side to repeat, they were negative primarily driven by that ultra-sort discussion we just had.

Got it and combined do we know if it’s positive or negative?

Combined the fixed income is more negative than the equity again with -- we’re looking at numbers through April 17, so we’re at the kind of the peak of the tax impact.

Great, thanks guys for taking my questions.

Our next question is from the line of Michael Carrier with Bank of America Merrill Lynch. Please go ahead with your questions.

Thanks guys. Just have two quick ones, first when you guys give the, what you can recoup in the waiver like the 75%, I think we're all kind of doing the math on are the new products going to have similar fees and what will shift from prime to say government. And obviously a lot of that's in motion and we'll find out over the year or so, but in terms of the conversations with the client on fees, has most of that on the current price, has most of that taken place, so you’re pretty good with that 75% ex some big shift happening in the types of assets or other comparative pressures.

We're pretty comfortable with that. We run through it on two calls now, so we've two big chances to decan it and that’s where we are.

Okay, alright that’s good. And then on the equity side of the business, so I think you mentioned in terms of where your flows are in the organic growth relative to the industry, things are really strong. You guys have done a lot on the distribution side over the past couple years, in terms of expanding that. Do you see more that can be done when you look at the different channels and how you’re stacking up either to some of the competition given the demand that you’re seeing in the products because there is more in the pipeline or do you feel like a lot of those investments are in the distribution side are in place and we’re seeing the benefits now?

I think that as some of those sales people that were added mature you’re going to see more growth coming out of them as they move up to the accomplishments which we had planned. What we’ve seen just recently quarter-to-quarter is basically a 1,000 -- an increase in a 1,000 financial advisors, FAs doing business with us so that -- you’re beginning to see that. And I think there are also expansions available not just in who we do business with, but going from one product to two products to three products. It’s not unlike same-store sales and you can see plenty of room for growth there as well. Now we have taken the sales force up to where it’s now about 211 people and we don’t have any current time to add dramatically to that. We recently added as I had mentioned on previous calls an individual for Latin America and we did add the people in -- two individuals in Canada and we’re seeing very good growth in Canada where the assets are now about a $1.5 billion and say in the end of '13 that were a little over $1 billion and in '12, they were at about $600 million. So we’re looking for some pretty good growth there which is why we’re putting that new fund together. So that’s where I view, we don’t have any big plans on a whole lot of new sales people to add at this point.

Okay. Thanks a lot.

Our next question is from the line of Jonathan Casteleyn with Hedgeye Risk Management. Please go ahead with your question.

Hi good morning. I just wanted to zoom out for a second and just assuming that your fee waivers burn off and obviously you adjust your comp higher over time, what do you think normalized operating margins are for the business say 12 months plus out?

Well. Yes adjusted comp up remember it’s not going to be a sales incentive comp change. It’s not going to be investment management and so it can’t really a big adjustment that we’re talking about. And in terms of the margins the way that I would look at that is once the -- you do the margin on a little chart that we gave in the press release and so it will help the margin.

What are your operating margin targets for fully-loaded Federated? Are they -- can we get to 30%, 35% I’m just curious as to longer term what you think the operating margin opportunity is for the company?

The industry is certainly higher than 30 and why shouldn’t we have an industry-like margin? So we've been -- it's been difficult with the waiver situation to maintain that, but we think we certainly ought to have a higher margin and the growth in the equity ought to carry the data when things return to normal on interest rates.

Okay. And then some of the money center banks have been talking about non-core deposits being deemphasized, they're taken off regulatory charges over time, JPMorgan put out a $100 billion number as far as a non-core deposit emphasis and they have about 10% market share. So that would gross up to about a trillion dollar opportunity. Is that pool of money an opportunity for money funds as you see it and if so how are you preparing for it?

Yes it is. In fact I have made the comment various times that I felt the reason that the Fed wanted to deal with money funds first before they dealt with their LCR rules was because they knew that the money funds would be a very worthy home for some of this money. And so yes it is and as I mentioned earlier in some of the responses to questions, some of the meetings we had with some of the larger clients have been on exactly this issue. So now it becomes a question as to when that money has moved out and that’s based on each individual client and each individual bank as they look at the timing and their relationship with each of those clients and the extent to which they want to deal with them and that’s all based on their time. I can’t comment on how you got the trillion dollars. I think it’s big in terms of an opportunity. But don’t forget that those banks are going to be doing everything they can to somehow keep that money in the family in some way meaning their own family that doesn’t negatively impact their capital, the ratios or how they run their business. So they’re going to want to try to keep it so, and they already have it, but on the other hand that’s why they’re talking to us, because we’re a warm and loving home. So I can’t put a number on what we’ll get. But there is a substantial opportunity and that’s why I said at one point that I believe in the post 2016 environment you will see up assets in money funds as Federated.

Understood and then thanks. Lastly for Debbie, I mean everyone seems to be a Fed head and analyzing docs etcetera I’m just curious, because you deal in the short-term rate environment everyday as to what you think participants are baking on as far as timing from the Fed i.e. when do you think that the first move will come as expressed by market participants that you deal with everyday?

We're in the fall camp, the September-October timeframe from an FOMC meeting standpoint. That’s pretty much in agreement with what we have seen in the marketplace generally with Fed fund future or as treasury future that sort of thing. If you look thought over the last quarter and really year-to-date over 2015 we’ve already gained eight basis points in steepness essentially from overnight out to a year. And what that means is we’re seeing higher yields already in anticipation and eight basis points is not a move, but it’s a third of a move and the answer is from the 12 months part of the curve. But other the six month part was up five basis points and the shorter up a little bit less. But I sometimes gauge these things and what the market is expecting by what’s happening from our trading room personnel and essentially they’re smiling at this point, because every additional dollar that they get to invest, every additional maturity that they have that needs to be reinvested, they’re putting it to work in a marketplace that gives them a positive benefit over what just was maturing off in the portfolio. So they’re adding value. They’re increasing yields as they do their daily business of keeping these funds 100% invested. So even though the Fed is delayed and our initial thought six months ago would have been that in June was when we would have seen the first lift off. We’re still at least seeing the expectation of it positively accrue to the yields of the funds at this point.

Great. Thanks for your time. Appreciate it.

Thank you. At this time I’ll turn the floor back to Mr. Ray Hanley for closing comments.

Well, that concludes our call and we thank you for joining us today.