
[Federal Register: July 8, 2009 (Volume 74, Number 129)]
[Notices]               
[Page 32653-32655]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy09-113]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28806; File No. 812-13421]

 
Federated Core Trust III, et al.; Notice of Application

June 30, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from section 22(e) of 
the Act and rule 22c-1 under the Act.

-----------------------------------------------------------------------

SUMMARY:  Summary of Application: Applicants request an order to permit 
a series of a registered open-end management investment company whose 
outstanding securities are owned exclusively by persons who are 
qualified purchasers, as defined in the Act, to operate as an extended 
payment fund.

Applicants: Federated Core Trust III (``Trust'') and Federated 
Investment Management Company (``Adviser'').

DATES:  Filing Dates: The application was filed on August 31, 2007 and 
amended on November 15, 2007, July 21, 2008, September 8, 2008, 
November 21, 2008, and June 29, 2009.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on July 24, 2009, and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: 5800 Corporate 
Drive, Pittsburgh, Pennsylvania 15237-7000.

FOR FURTHER INFORMATION CONTACT: Courtney S. Thornton, Senior Counsel, 
at (202) 551-6812, or Mary Kay Frech, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or for an 
applicant using the Company name box, at http://www.sec.gov/search/
search.htm, or by calling (202) 551-8090.

Applicants' Representations

    1. The Trust was organized as a Delaware statutory trust on August 
29, 2007, and filed Form N-8A on July 21, 2008. On July 22, 2008, the 
Trust filed Form N-1A to register its non-diversified series, Federated 
Project and Finance Core Fund (the ``Fund''), under the Act.
    2. The Adviser, a wholly-owned subsidiary of Federated Investors, 
Inc., is an investment adviser registered under the Investment Advisers 
Act of 1940. The Adviser will serve as investment adviser to the Fund.
    3. The investment objective of the Fund will be to provide total 
return comprised primarily from income arising out of investment in 
trade-finance and related securities and instruments. The Fund will 
invest primarily in trade, structured-trade, export and project finance 
or related assets of companies or other entities (including sovereign 
entities) located in developed markets as well as emerging markets. 
Applicants expect that a substantial portion of the Fund's assets will 
consist of a variety of trade finance securities and instruments that 
may not be readily sold and converted to cash within seven days. The 
Fund's investments, however, although less liquid than permissible for 
an open-end investment company in the absence of exemptive relief, will 
not be illiquid on a relative basis.\1\ The board of trustees 
(``Board'') of the Fund will approve written procedures reasonably 
designed to ensure that the Fund's portfolio assets are sufficiently 
liquid so that the Fund can comply with its fundamental policy on 
redemptions, taking into account current market conditions and the 
Fund's investment objectives. The Board will review the procedures and 
the overall composition of the portfolio at least annually.
---------------------------------------------------------------------------

    \1\ At least 85% of the Fund's assets will be invested such that 
(a) the Fund reasonably believes that an asset can be sold or 
disposed of in the ordinary course of business at approximately the 
price used in computing the Fund's net asset value (``NAV''), in a 
period equal to the Fund's period for paying redemption proceeds 
(the period between tender and the Redemption Payment Date, as 
defined herein), or (b) an asset must mature before the next 
Redemption Payment Date.
---------------------------------------------------------------------------

    4. Shares of the Fund will not be registered under the Securities 
Act of 1933 (the ``1933 Act''); they will be offered and sold only in 
private

[[Page 32654]]

placement transactions to ``accredited investors,'' as defined in 
Regulation D of the 1933 Act, that are also ``qualified purchasers,'' 
as defined in section 2(a)(51) of the Act and the rules thereunder 
(``Qualified Purchasers''). Applicants anticipate that the Fund will 
serve initially as a ``core fund'' that would provide access to this 
asset class to other registered investment companies both within and 
outside the Federated group of investment companies. The Fund will 
adopt a policy to permit the transfer of its shares only to other 
Qualified Purchasers.
    5. Applicants have determined to register the Fund under the Act, 
rather than rely on section 3(c)(7) of the Act, in order to offer the 
Act's protections to the registered funds and other investors that will 
invest in the Fund. Applicants will register the Fund under the Act as 
an open-end, rather than as a closed-end, investment company, because 
the Fund's portfolio will be liquid enough to accept redemption 
requests daily and pay redemption proceeds within 31 days thereafter. 
Applicants state that a closed-end fund would not be able to offer 
redeemable securities and could tend to trade in the aftermarket at a 
discount to NAV.
    6. The Fund seeks exemptions from section 22(e) of the Act and rule 
22c-1 under the Act to the extent necessary to permit the Fund to 
operate as an extended payment fund. As such, the Fund will accept 
redemption requests daily, price shares tendered for redemption 24 days 
after receipt of the tender (the ``Redemption Pricing Date''), and pay 
redemption proceeds within thirty-one days after a redemption request 
(the ``Redemption Payment Date'').\2\ Shares tendered for redemption 
will participate proportionately in the Fund's gains and losses during 
the period of time between the notice of tender for redemption and the 
Redemption Pricing Date.
---------------------------------------------------------------------------

    \2\ If the Redemption Pricing Date falls on a weekend or a 
holiday, the price of the redeemed shares will be determined as of 
the closing NAV of the Fund on the preceding business day.
---------------------------------------------------------------------------

    7. The Fund will adopt a fundamental policy specifying its 
redemption procedures, including the timing of key redemption dates. 
This policy will be disclosed in the Fund's offering memorandum. 
Modification of this policy will require authorization by the vote of a 
majority of the Fund's outstanding voting securities and approval by 
the Commission or its staff.

Applicants' Legal Analysis

    1. Rule 22c-1 under the Act generally requires a registered open-
end investment company to sell, redeem, or repurchase its securities at 
the price based on the current NAV of such security next computed after 
receipt of a tender of such security for redemption.\3\ Applicants 
state that rule 22c-1 was designed primarily to address the practice of 
``backward pricing'' of fund shares. That practice involved pricing 
fund shares for purchase or redemption based on the NAV determined 
prior to the purchase or redemption request. This pricing mechanism 
enabled a fund's insiders to engage in ``riskless trading'' by buying 
shares at an NAV that they knew was likely to increase because of 
market action after the shares were priced. Applicants assert that, in 
effect, backward pricing created the possibility that some investors 
could trade fund shares at the expense of non-redeeming shareholders. 
Rule 22c-1 eliminates this problem by requiring ``forward pricing,'' or 
pricing fund shares at the close of the market after a purchase or 
redemption request is received. Under rule 22c-1, an open-end equity 
fund typically computes the value of shares tendered for redemption on 
any given day at 4 p.m. on that day.
---------------------------------------------------------------------------

    \3\ The Fund will value its securities consistent with the 
requirements of section 2(a)(41) of the Act. Section 2(a)(41) 
defines value with respect to assets of a registered investment 
company (a) with respect to securities for which market quotations 
are readily available as the market value of such securities, and 
(b) with respect to other securities and assets as fair value 
determined in good faith by the board of directors of the investment 
company. The Fund will calculate its NAV daily and will sell its 
shares at the NAV per share next calculated after a purchase request 
is received.
---------------------------------------------------------------------------

    2. Applicants propose that the Fund redeem shares at the NAV per 
share calculated 24 days after the shares are tendered. Applicants 
assert that their proposal does not raise the concern of ``backward 
pricing'' because shares will be priced only after a tender for 
redemption is received. Applicants state that the Fund's pricing 
timeline will be clearly disclosed and is consistent with the Act 
because it will treat all investors equally and not dilute non-
redeeming shareholders' interests. In addition, all investors in the 
Fund will be Qualified Purchasers, who are capable of understanding the 
risks presented by the Fund's redemption policy.
    3. Section 22(e) of the Act provides that a registered investment 
company may not suspend the right of redemption or postpone the date of 
payment or satisfaction upon redemption of any redeemable security in 
accordance with its terms for more than seven days after the tender of 
the security to the company. Applicants request an exemption from 
section 22(e) to permit the Fund to pay redemption proceeds within 7 
days after the Redemption Pricing Date (or 31 days after the tender of 
shares for redemption).
    4. Applicants state that the primary purpose of section 22(e) is to 
address the abusive practices of early open-end companies that claimed 
that their securities were redeemable, only to then institute barriers 
to redemption. Applicants represent that the Fund's policies will not 
raise the possibility of such abuses. The Fund's redemption policy will 
be a fundamental policy changeable only by a majority vote of its 
shareholders and the approval of the Commission or its staff. 
Applicants undertake to disclose the Fund's redemption policy on the 
cover page of its offering memorandum and in any marketing materials, 
and to refrain from holding itself out as a ``mutual fund.'' Most 
importantly, the Fund will limit its investors to Qualified Purchasers, 
who are highly sophisticated investors capable of understanding the 
Fund's redemption policy and its associated risks.
    5. In 1992, the Commission proposed rule 22e-3 under the Act that 
set forth an ``extended payment fund'' structure identical to that 
proposed for the Fund. The Commission's proposal was designed to permit 
a registered investment company that could both offer redeemable 
securities and invest in assets, including less liquid foreign 
securities, that did not meet the seven-day liquidity standard for 
traditional open-end funds.
    6. Under proposed rule 22e-3, an open-end fund could make payment 
upon redemption of its securities up to 31 days after tender of the 
securities to the fund at NAV determined on the next redemption pricing 
date following the tender, provided that: (a) The fund did so pursuant 
to a fundamental policy, setting forth the number of days between a 
tender and the next redemption pricing and payment dates, changeable 
only with approval of a majority of the fund's outstanding voting 
securities; (b) at least 85% of the fund's assets consisted of assets 
that either (i) may be sold in the ordinary course of business at 
approximately the price used to compute the fund's NAV, within the 
period between the tender and the next redemption payment date, or (ii) 
mature by the next redemption payment date; and (c) the fund does not 
hold itself out to investors as a mutual fund. The Fund will comply 
with these requirements.
    7. Section 6(c) of the Act permits the Commission to exempt any 
person or transaction from any provision of the

[[Page 32655]]

Act if the exemption is necessary or appropriate in the public interest 
and consistent with the protection of investors and the purposes fairly 
intended by the policies of the Act. Applicants believe that the relief 
is appropriate because the Fund can provide a convenient and cost-
effective means of accessing certain asset classes that provide 
potentially favorable returns and can produce administrative and other 
efficiencies and diversify risk across a number of investments. 
Applicants also believe that the requested relief is consistent with 
the protection of investors because shares of the Fund will be 
available only to Qualified Purchasers. Finally, applicants state that 
the relief is consistent with the purposes intended by the policies of 
the Act because, as discussed above, it does not raise the concerns 
addressed by section 22(e) of the Act and rule 22c-1 thereunder.

Applicants' Conditions

    Applicants agree that any order granting the requested relief will 
be subject to the following conditions:
    1. The Fund's outstanding securities will be owned exclusively by 
persons who are Qualified Purchasers, as defined in section 2(a)(51) of 
the Act and the rules thereunder.
    2. The Fund will adopt a fundamental policy, which may be changed 
only by a majority vote of the outstanding voting securities of the 
Fund and only upon approval by the Commission or its staff, that will 
specify the circumstances in which the Fund will redeem its shares, 
such that (a) the Fund will have a 31 day rolling deadline to pay 
redemptions after a shareholder has requested redemption, and (b) will 
calculate its NAV applicable to a redemption request on the next 
Redemption Pricing Date following a redemption request, which will be 
24 days after a shareholder has requested redemption.
    3. At least 85% of the assets of the Fund will consist of assets:
    (a) That the Fund reasonably believes may be sold or disposed of in 
the ordinary course of business, at approximately the price used in 
computing the Fund's NAV, within the period between a tender of shares 
and the next Redemption Payment Date, or
    (b) That mature by the next Redemption Payment Date.
    4. The Board of the Fund, including a majority of the disinterested 
trustees, will adopt written procedures designed to ensure that the 
Fund will comply with the terms and conditions of the requested order. 
The Board will review these procedures at least annually and approve 
such changes as it deems necessary.
    5. The Fund will not hold itself out as a ``mutual fund.'' The Fund 
will disclose its redemption policy on the cover page of its offering 
memorandum and in any marketing materials.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-16000 Filed 7-7-09; 8:45 am]

BILLING CODE 8010-01-P
