form.htm
FEDERATED
MDT SERIES
on behalf
of its portfolio, Federated MDT Small Cap Core Fund
4000
Ericsson Drive
Warrendale,
PA 15086-75761
EDGAR
Operations Branch
U.S.
Securities and Exchange Commission
Division
of Investment Management
100 F
Street, N.E.
Washington,
DC 20549-4720
Attention: Sheila
Stout
Re: Federated
MDT Small Cap Core Fund (“SCC”), a portfolio of Federated MDT Series, Form N-14
(File No. 333-163421)
Dear Ms.
Stout:
This
correspondence filing is made to respond to an oral comment received from Sheila
Stout on December 15, 2009, concerning the designation of SCC as the “accounting
survivor” in connection with the proposed reorganization (“Reorganization”) of
Federated Small Cap Value Fund (“SCV”) into SCC, as described in the captioned
Form N-14. (As further described in the Form N-14, SCC will be the
sole surviving legal entity to the Reorganization, as SCV will terminate its
existence after the Reorganization).
The
designation of SCC as “accounting survivor” (which was made by Federated
Investors, Inc. (“Federated”), whose subsidiary, Federated MDTA LLC (“MDT
Adviser”) is the investment adviser for both SCV and SCC), was based on
Federated’s review of the criteria set forth in the SEC no-action letter, North
American Security Trust, SEC No-Action Letter (pub. Avail. Aug. 5, 1994) (the
“Letter”), which sets forth the staff’s view as to the factors relevant to
identifying the survivor in a reorganization of two or more funds into a single
reorganized fund.
The
following reviews how each of the criteria set forth in the Letter bear upon the
selection of SCC as accounting survivor:
1. Investment
Adviser: The investment adviser and portfolio managers for SCC and
SCV are identical and will remain the same for the surviving fund (i.e., SCC)
after the Reorganization.
2. Portfolio
Composition: At the time of the Reorganization, it is anticipated
that each of the portfolio securities then held by SCC will be retained in the
portfolio of the surviving fund and, with respect to any portfolio security held
by SCV that, at the time of the Reorganization, would replicate a security then
held by SCC, such security would be acquired and retained by the surviving fund
pursuant to the Reorganization. With respect to the remaining
securities currently held by SCV, it is likely that most or all of those
positions will be disposed of prior to or immediately following the
Reorganization. As a result, Federated believes that, both for the
anticipated initial post- Reorganization portfolio composition, and for the
later “normal” portfolio composition of the surviving fund, SCC’s historical
portfolio composition will be more representative of the surviving fund’s
portfolio composition than the historical portfolio composition of
SCV.
3. Investment
Objectives, Policies and Restrictions: The investment objectives,
policies and restrictions of the surviving fund (i.e., SCC) will be the same as
those of SCC prior to the Reorganization. SCV, and SCC (whose
policies, objectives, and restrictions will become those of the surviving fund),
have identical investment objectives in that they both seek to provide long-term
capital appreciation by investing primarily in the common stock of small U.S.
companies. Further, SCV and SCC have substantially similar policies
and risks, except that SCV selects most of its investments from the Russell 2000
Value Index and SCC selects most of its investments from the Russell 2000
Index. After the Reorganization, SCC will continue to select most of
its investments from the Russell 2000 Index.
4. Expense
Structure and Expense Ratio: The expense structure of SCC and SCV,
with respect to 12b-1 and gross advisory fees, is identical and will remain the
same for the surviving fund (i.e., SCC) after the Reorganization. In
addition, the class and sales load structure of SCC will survive after the
Reorganization.
5. Asset
Size: The only factor that favors SCV being the surviving fund is
asset size. As of September 30, 2009, the asset size of SCV was
approximately $8.7 million, while that of SCC was approximately $7.0
million. Federated does not believe this factor alone, given the
other criteria discussed in this letter, is sufficient to prevent SCC from being
determined to be the surviving fund. Federated believes that SCC, on
a pro forma basis, will be a more viable fund. Further, Morningstar’s
small cap blend category is substantially larger in terms of assets than the
small cap value category. SCC is in the Morningstar small cap blend
category while SCV is in the Morningstar small cap value category.
In
summary, Federated has determined, based on the criteria set forth in the
Letter, particularly those of expense structure and expense ratio; investment
strategies; and portfolio composition, that SCC should be the accounting
survivor in the Reorganization.
If you
have any questions, please contact me at (412) 288-8239.
Respectfully,
/s/ Todd
P. Zerega
Todd P.
Zerega
Assistant
Secretary