In the Matter of   FEDERATED ENHANCED TREASURY INCOME FUND FEDERATED PREMIER INTERMEDIATE MUNICIPAL INCOME FUND FEDERATED PREMIER MUNICIPAL INCOME FUND AND FEDERATED INVESTMENT MANAGEMENT COMPANY

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AMENDMENT NO. 2 TO APPLICATION FOR AN ORDER PURSUANT TO SECTION 6(c) OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “ACT”), FOR EXEMPTIONS FROM SECTION 19(b) OF THE ACT AND RULE 19b-1 THEREUNDER     File No.  812-13743

 

 

Fund		Investment Objective		Summary Strategy
Enhanced Treasury Income Fund, a Delaware statutory trust (7/11/07)   NYSE Listing:  FTT   Total assets as of 4/30/2010: $175,669,323   Outstanding common shares as of 4/30/2010:  9,500,000		To provide current income, with total return as a secondary objective.		Invests at least 80% of its assets in U.S. Treasury securities and may invest up to 20% of its assets in U.S. government agency securities, including mortgage-backed securities.  The Fund will also write call options and/or options on futures of U.S. Treasury securities and U.S. government agency securities and index call options on the value of U.S. Treasury and U.S. government agency securities on a continuous basis on at least 50% to 80% of the value of its holdings of U.S. Treasury and U.S. government agency securities.

 

 

 

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2	All existing Funds currently intending to rely on the requested Order (defined below) are named as applicants.  Any closed-end investment company that relies on the Order in the future will comply with the terms and conditions of this application.

 

 

Fund		Investment Objective		Summary Strategy
Premier Intermediate Municipal Income Fund, a Delaware statutory trust (10/31/02)   NYSE Listing:  FTP   Total assets as of 4/30/2010: $136,525,333   Outstanding common shares as of 11/30/2009:  6,953,476   Outstanding preferred shares as of 4/30/2010:  1,676		To provide current income exempt from federal income tax.		Invests in high-quality, short-term tax exempt money market securities or high-quality tax-exempt securities with relatively low volatility, such as pre-refunded and intermediate-term bonds.  Under normal circumstances, the Fund maintains a dollar-weighted average portfolio maturity of three to ten years and a dollar-weighted average duration of three to eight years.
Premier Municipal Income Fund, a Delaware statutory trust (10/16/02) NYSE Listing:  FMN Total assets as of 4/30/2010: $121,095,135   Outstanding common shares as of 11/30/2009:  6,148,789   Outstanding preferred shares as of 4/30/2010:  1,463		To provide current income exempt from federal income tax.		Invests in high-quality, short-term tax-exempt money market securities and high-quality tax-exempt securities with relatively low volatility, such as pre-refunded and intermediate-term bonds.  Under normal circumstances, the Fund maintains a dollar-weighted average portfolio maturity of 15 to 30 years and a dollar-weighted average duration of 7 to 13 years.

 

 

 

 

 

III.      Representation of the Applicants.

           The Independent Trustees shall also have considered what conflicts of interest the Adviser and the affiliated persons of the Adviser and each such Fund might have with

           Generally, the purpose of a Plan would be to permit a Fund to distribute over the course of each year, through periodic distributions as nearly equal as practicable and any required special distributions, an amount closely approximating the total taxable income of such Fund during such year and, if so determined by its Board, all or a portion of the returns of capital paid by portfolio companies to such Fund during such year.  It is anticipated that under the Plan of a Fund, such Fund would distribute to its respective common shareholders a fixed monthly percentage of the market price of such Fund’s common shares at a particular point in time or a fixed monthly percentage of NAV at a particular time or a fixed monthly amount, any of which may be adjusted from time to time.  It is anticipated that under a Plan, the minimum annual distribution rate with respect to such Fund’s common shares would be independent of a Fund’s performance during any particular period but would be expected to correlate with a Fund’s performance over time.  Except for extraordinary distributions and potential increases or decreases in the final dividend periods in light of a Fund’s performance for an entire calendar year and to enable a Fund to comply with the distribution requirements of Subchapter M of the Code for the fiscal year, it is anticipated that each distribution on the common shares would be at the stated rate then in effect.

          (i)           are reasonably designed to ensure that all notices required to be sent to the Fund’s shareholders pursuant to Section 19(a) of the Act, Rule 19a-1 thereunder and condition 4 below (each a “19(a) Notice”) include the disclosure required by Rule 19a-1 and by condition 2(a) below, and that all other written communications by the Fund or its agents regarding distributions under the Plan include the disclosure required by condition 3(a) below; and

          (ii)          require the Fund to keep records that demonstrate its compliance with all of the conditions of the Order and that are necessary for such Fund to form the basis for, or demonstrate the calculation of, the amounts disclosed in its 19(a) Notices.

           The records of the actions of the Board of Trustees of a Fund shall summarize the basis for its approval of a Plan, including its consideration of the factors described above.  Such records will be maintained for a period of at least six years from the date of such meeting, the first two years in an easily accessible place, or for such longer period as may otherwise be required by law.

           In order to rely on the Order, a future Fund must satisfy each of the foregoing representations, except that such representations will be made in respect of actions by the board of directors of such future Fund and will be made at a future time and except that the purpose of its distribution policy may differ from the purpose of the Plans by the Current Funds in that such distribution policy may be to distribute a fixed amount or a fixed percentage of NAV without regard to the level of income, appreciation or total return of such Fund over particular series of dividend periods or with regard to only one

IV.      Justification for the Requested Relief.

           Section 6(c) of the Act provides that the Commission may, by order upon application, conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities or transactions, from any provision of the Act or any rule under the Act to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.  For the reasons set forth below, Applicants submit that the requested exemption from Section 19(b) and Rule 19b-1 would be consistent with the standards set forth in Section 6(c) of the Act and in the best interests of the Applicants and their respective shareholders.

          1.   Receipt of the Order would serve shareholder interests.

          An exemption from Rule 19b-1 would benefit shareholders in another way.  The common stock of closed-end funds generally tends to trade in the marketplace at a discount to their NAVs.  In the view of the Applicants, the discount may be reduced if the Funds are permitted to pay relatively frequent dividends on their common shares at a consistent rate, whether or not those dividends contain an element of capital gain.  Such a

 

2.

Each Fund's shareholders would receive information sufficient to clearly inform them of the nature of the distributions they are receiving.

   One of the concerns leading to the enactment of Section 19(b) and adoption of Rule 19b-1 was that shareholders might be unable to distinguish between frequent distributions of capital gains and dividends from investment income.3  However, Rule 19a-1 under the Act effectively addresses this concern by requiring that distributions (or the confirmation of the reinvestment thereof) estimated to be sourced in part from capital gains or capital be accompanied by a separate statement showing the sources of the distribution (e.g., estimated net income, net short-term capital gains, net long-term capital gains and/or return of capital).  Similar information is included in the Funds’ annual reports to shareholders and on Internal Revenue Service (“IRS”) Form 1099-DIV, which is sent to each common and preferred shareholder who received distributions during a particular year (including shareholders who have sold shares during the year).

           In addition, each of the Funds will make the additional disclosures required by the conditions set forth in Part V below, and each of them has adopted compliance policies and procedures in accordance with Rule 38a-1 under the Act to ensure that all required 19(a) Notices and disclosures are sent to shareholders.

          By providing the information required by Section 19(a) and Rule 19a-1, and by complying with the procedures adopted under the Plan and the conditions listed below,

 

3.

Under certain circumstances, Rule 19b-1 gives rise to improper influence on portfolio management decisions, with no offsetting benefit to shareholders.

 

          No purpose is served by the distortion in the normal operation of a periodic distribution plan required in order to comply with Rule 19b-1.  There is no reason or logic in requiring any fund that adopts a periodic distribution plan either to retain (and pay taxes on) long-term capital gains (with the resulting additional tax return complexities for the fund's shareholders) or to avoid designating its distributions of long-term gains as capital gains dividends for tax purposes (thereby avoiding a Rule 19b-1 problem but providing distributions taxable at ordinary income rates rather than the much lower long-term capital gains rates and being required to pay income tax on the amount of such income).  The desirability of avoiding these anomalous results creates pressure to limit the realization of long-term capital gains that otherwise would be taken for purely investment considerations.

          The Order requested by the Applicants would minimize these anomalous effects of Rule 19b-1 by enabling the Funds to realize long-term capital gains as often as investment considerations dictate without fear of violating Rule 19b-1.

4.

Other concerns leading to adoption of Rule 19b-1 are not applicable.

          The Applicants also submit that the "selling the dividend" concern is not applicable to preferred shares, if any, which entitles a holder to no more than a specified periodic dividend and, like a debt security, is initially sold at a price based upon its liquidation preference, credit quality, dividend rate and frequency of payment.  Investors buy preferred shares for the purpose of receiving specific payments at the frequency bargained for, and any application of Rule 19b-1 to preferred shares would be contrary to the expectation of investors.  There is also currently a tax rule that provides that any loss on the sale of shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gains distributions received with respect to such shares, and this rule discourages selling the dividend.

 

          Applicants also submit that the "selling the dividend" concern is not applicable to preferred stock, which entitles a holder to no more than a periodic dividend at a fixed rate or the rate determined by the market, and, like a debt security, is priced based upon its liquidation value, dividend rate, credit quality, and frequency of payment.  Investors buy preferred shares for the purpose of receiving payments at the frequency bargained for and do not expect the liquidation value of their shares to change.

 

6.

General

 

V.        Applicants’ Conditions

          1.           Compliance Review and Reporting

           2.           Disclosures to Fund Shareholders

           (i)           Will provide, in a tabular or graphical format:

 

(2)           "The Fund estimates that it has distributed more than its income and net realized capital gains; therefore, a portion of your distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you.  A return of capital distribution does not necessarily reflect the Fund's investment performance and should not be confused with 'yield' or 'income'";5 and

 

 

 

 

        (ii)         The Board will record the information considered by it, including its consideration of the factors listed in condition 5(b)(i)(2) above, and the basis for its approval or disapproval of the continuation, or continuation after amendment, of the Plan in its meeting minutes, which must be made and preserved for a period of not less than six years from the date of such meeting, the first two years in an easily accessible place.

 

(i)          the Fund's annualized distribution rate for the six months ending on the last day of the month ended immediately prior to the most recent distribution record date4, expressed as a percentage of NAV as of such date, is no more than 1 percentage point greater than the Fund's average annual total return for the 5-year period ending on such date5; and

7.

Amendments to Rule 19b-1

 

                These verifications required by Rule 0-2(d) under the Act are attached to this Application as Exhibit A.

1.

The address of each of the Applicants is as follows: Federated Investors Tower

2.

1001 Liberty Avenue Pittsburgh, Pennsylvania  15222-3779   Any questions regarding this Application should be directed to: Clair E. Pagnano, Esq. K&L Gates LLP State Street Financial Center One Lincoln Street Boston, Massachusetts 02111-2950 and Gregory Dulski Federated Investors Tower 1001 Liberty Avenue Pittsburgh, Pennsylvania  15222-3779

 

 

 

 

	By:	/s/ G. Andrew Bonnewell
	Name:	G. Andrew Bonnewell
	Title:	Assistant Secretary
	Date:	July 9, 2010

 

 

 

 

 

 

 

 

	1.	Verification of Federated Enhanced Treasury Income Fund, Federated Premier Intermediate Municipal Income Fund, and Federated Premier Municipal Income Fund
	2.	Verification of Federated Investment Management Company

 

 

 

 

 

STATE OF PENNSYLVANIA	)
COUNTY OF ALLEGHENY	)

 

 

	By:	/s/ G. Andrew Bonnewell
	Name:	G. Andrew Bonnewell
	Title:	Vice President and Secretary
	Date:	July 9, 2010

 

 

 

B-1