Market Overview
Domestic equity markets declined significantly during the quarter as evidenced by the -11.32% return on the Russell 3000® Index. Mid cap companies had the best results with the Russell Midcap® Index returning -9.88%, followed by small and then large cap companies with the Russell 2000® Index returning -9.92% and the Russell Top 200® Index returning -12.07%. In terms of investment style, results for value companies exceeded those of growth companies with the Russell 3000® Value Index returning -11.09% as compared to the -11.55% result for the Russell 3000® Growth Index.

Sluggish economic results, a credit crisis in Europe and the Gulf of Mexico oil spill all weighed heavily on credit-related bond markets while sparking a rally in Treasury securities. Lower-quality bonds performed the worst during the quarter, while yields on Treasury instruments finished 40 to 90 basis points lower. For the period the Barclays Capital U.S. Aggregate Bond Index returned 3.49%. Real Estate Investment Trusts (REITs) had a strong quarter relative to other equity instruments, with the S&P BMI U.S. REIT Index returning -4.85%. International equity returns trailed those of the domestic market during the period with the Morgan Stanley Capital International EAFE Index returning -13.97%.

Fund Performance
Federated MDT Balanced Fund (Institutional Shares) returned -8.71% in the second quarter, trailing its benchmark, the Lipper Balanced Fund Index, which returned -6.26%. Domestic equities, the fund’s largest allocation, were the most significant negative contributor to relative performance as the return on these investments trailed that of their benchmark, the Russell 3000® Index. REIT investments contributed positively to relative results as valuations responded better to signs of economic uncertainty than the broader market. A reduced allocation to international equities helped modestly as these investments underperformed during the period. The fixed income portion contributed positively to relative results as these investments outperformed equity investments, but lagged the returns on the fixed income benchmark due primarily to an overweight position in spread products and an underweight in Treasury securities.

Performance data quoted represents past performance which is no guarantee of future results. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than what is stated. Other share classes may have experienced different returns than the share class presented. To view performance current to the most recent month-end and for after tax returns, click on Performance to the left.

Also click Performance on the left for standard fund performance.

Positioning and Strategy
The overall equity allocation decreased by approximately 6.8% during the period, as fixed income, cash and REIT investments were increased. Within the equity allocation, both domestic and international equities were reduced. As of the end of the quarter, domestic and international equity investments accounted for 56.5% and 3.7% of the portfolio, respectively. Fixed income and cash investments represented 30.5% and 4.2%, while REITs made up 5.1%. Domestic equity investments continue to favor value stocks over growth, with Financials and Energy the most significant sector overweights.