[Federal Register Volume 59, Number 190 (Monday, October 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24377]


[[Page Unknown]]

[Federal Register: October 3, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20585; 812-8958]

 

Twentieth Century Investors, Inc., et al.; Notice of Application

September 27, 1994.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (the ``Act'').

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APPLICANTS: Twentieth Century Investors, Inc. (``Twentieth Century''), 
TCI Portfolios, Inc. (``TCI''), (``Twentieth Century World Investors, 
Inc., Twentieth Century Premium Reserves, Inc. (``Premium Reserves''), 
Twentieth Century Capital Portfolios, Inc. (``Capital'') (collectively, 
the ``Investment Companies''), Investors Research Corporation (the 
``Manager''), and all subsequently registered open-end investment 
companies advised by the Manager (together with the Investment 
Companies, the ``Funds'').

RELEVANT ACT SECTIONS: Order requested pursuant to section 6(c) for an 
exemption from sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), and 22(g) 
of the Act and rule 2a-7 thereunder; pursuant to sections 6(c) and 
17(b) for an exemption from section 17(a)(1); and pursuant to section 
17(d) of the Act and rule 17d-1 thereunder to permit certain joint 
transactions.

SUMMARY OF APPLICATION: Applicants seek an order to permit the Funds to 
enter into deferred compensation arrangements with certain of their 
directors and to effect transactions incident to those arrangements.

FILING DATE: The application was filed on May 3, 1994 and amended on 
July 20, 1994. By letters dated September 15, 1994 and September 20, 
1994, applicants' counsel stated that an amendment, the substance of 
which is incorporated herein, will be filed during the notice period.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC'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 October 
24, 1994 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 may request 
notification of a hearing by writing to the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC, 
20549, Applicants, Twentieth Century Tower, 4500 Main Street, P.O. Box 
419200, Kansas City, Missouri 64141-6200.

FOR FURTHER INFORMATION CONTACT:
James M. Curtis, Senior Counsel, at (202) 942-0563 or Barry D. Miller, 
Senior Special Counsel, at (202) 942-0564 (Office of Investment Company 
Regulation, Division of Investment Management).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch.

Applicants' Representations

    1. Each of the Investment Companies is an open-end management 
investment company organized under the laws of the State of Maryland. 
The Manager serves as the investment adviser for the Investment 
Companies.
    2. The Board of Directors of each Investment Company currently 
consists of seven persons, five of whom are not ``interested persons'' 
of that Investment Company within the meaning of section 2(a)(19) of 
the Act. Each director is entitled to receive an annual fee plus 
meeting attendance fees from each Investment Company, except that 
directors who are interested persons of the Manager receive no 
remuneration from the Investment Companies. Non-interested directors 
who serve on certain committees of the directors are entitled to 
additional fees for such service. The aggregate amount payable to the 
non-interested directors will be de minimis in comparison to the 
aggregate net assets of the existing Funds.
    3. Applicants propose to implement a Deferred Compensation Plan for 
non-interested directors (the ``Plan''). The purpose of the Plan is to 
permit individual directors to elect to defer receipt of all or a 
portion of the fees (the ``Deferred Fees'') to enable them to defer 
payment of income taxes on such fees or for other financial goals. 
Applicants believe that the availability of deferred fee arrangements 
will enhance the ability of the Funds to attract and retain qualified 
directors.
    4. Under the Plan, a director's Deferred Fees are credited as of 
the date such fees would have been paid to a separate book reserve 
account established with respect to each series of each participating 
Fund (each a ``Deferred Fee Account''). The value of the Deferred Fee 
Account as of any date will be equal to the value each account would 
have had of such date if the amounts credited to such account had been 
invested and reinvested as of the date credited in shares of certain 
designated series of the Funds. Shares of any series of any Fund, other 
than TCI or Premium Reserves,\1\ as the Plan Committee and the 
participating director shall have agreed upon in writing from time to 
time, may be selected (the ``Designated Shares''). Each Deferred Fee 
Account shall be credited or charged with book adjustments representing 
all interest, dividends, and other earnings, and all gains and losses 
that would have been realized had such account been invested in the 
Designated Shares.
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    \1\TCI and Premium Reserves are excluded from those Funds the 
shares of which are eligible for selection because neither generally 
would be available to participating directors in their individual 
capacities. TCI is sold to insurance companies and Premium Reserves 
has a minimum investment requirement of $100,000 (an amount in 
excess of amounts anticipated to be deferred by any director). 
Because the directors believe it inappropriate to be able to invest 
in Funds they would not otherwise be able to invest in individually, 
it is anticipated that future Funds with restrictive provisions also 
will be excluded similarly from those eligible for selection under 
the Plan.
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    5. With respect to the obligations created under the Plan, each 
director will remain a general unsecured creditor. The Plan does not 
create an obligation of any Fund to any director to purchase, hold, or 
dispose of any investments, and if a Fund or series thereof should 
choose to purchase investments, including Designated Shares, all such 
investments will continue to be part of the general assets and property 
of such Fund or series.
    6. As a matter of prudent risk management, each Fund intends, where 
it determines appropriate, and with respect to money management series 
that employ the amortized cost method of valuation, will undertake, to 
purchase and maintain Designated Shares in amounts equal to the amount 
of Deferred Fees so credited.
    7. The Plan will allow a director to elect to defer payment of fees 
payable to him by a Fund with respect to any year (including all 
adjustments representing interest, dividends and other earnings, and 
all gains and losses, credited or charged with respect thereof) until 
(a) the director ceases to be a director of the Fund or (b) the Plan is 
terminated. Payments to directors may be made in a lump sum or in such 
number of annual installments (not to exceed 10) as shall be elected by 
the director. In the event of death, amounts payable to the director 
under the Plan will become payable to his designated beneficiary; in 
all other events, the director's right to receive payments will be non-
transferable.
    8. The Plan will not obligate any Fund to retain the services of a 
director, nor will it obligate any Fund or series to pay any (or any 
particular level of) fees to any director. Rather, it will merely 
permit a director to defer receipt of those fees that would otherwise 
be payable from each Fund.
    9. No Fund will purchase any Designated Shares, nor will it credit 
the Deferred Fee Accounts as though it had purchased any Designated 
Shares, before the requested exemptive order is issued.

Applicants' Legal Analysis

    1. Sections 13(a)(2), 13(a)(3), 18(f)(1), 22(f), 22(g), 17(a)(1), 
and 17(d) of the Act and rules 2a-1 and 17d-1 thereunder, taken 
together, might be deemed to preclude the Funds and their directors 
from implementing the Plan absent an exemptive order form the 
Commission. Each Investment Company and the Manager believes, however, 
that the Plan is and will be in the best interests of each Fund 
adopting the Plan and its shareholders and is and will be consistent 
with the purposes fairly intended by the policy and provisions of the 
Act. In addition, applicants believe that exemption of the deferred fee 
arrangement and transactions related thereto from certain provisions of 
the Act is necessary and appropriate in the public interest and 
consistent with the protection of investors.
    2. Applicants submit that the ability of the Funds to recruit and 
retain highly qualified directors will be enhanced if they are able to 
offer their directors the option of deferred payment of fees. Moreover, 
on a comparative basis, deferral would have a negligible effect on each 
Fund's total assets and liabilities because the total fees paid to each 
director will be de minimis in relation to the size of each Fund, and 
will have no effect on net assets and net income per share.
    3. Section 18(f)(1) of the Act generally prohibits a registered 
open-end investment company from issuing any class of senior security 
or selling any senior security of which it is the issuer. In addition, 
section 13(a)(2) of the Act requires that a registered investment 
company obtain authorization by the vote of a majority of its 
outstanding voting securities before issuing any senior securities not 
contemplated by the recitals of policy contained in its registration 
statement. The Plan does not and would not give rise to any of the 
``evils'' that led to Congress' concerns in enacting these provisions.
     4. Section 13(a)(3) of the Act prohibits registered investment 
companies from, absent shareholder approval, deviating from any 
``fundamental'' investment policy that is changeable only upon 
shareholder approval. The fundamental investment policies of certain 
series of the Funds\2\ would prohibit investment in Designated Shares 
of other series offered by the Funds. Any series of the Funds with 
these types of policies would be prevented, without shareholder 
approval, from purchasing shares of other series of the Funds. If any 
such series of Funds are prevented from so investing, they will not be 
able to effect the matching of Designated Shares with the liabilities 
credited to the Deferred Fee Accounts. This matching is desirable 
because it will help ensure that the deferred fee arrangements will not 
affect the net asset value of any series' shares. Applicants believe 
that it is 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 to exempt the Funds from the provisions of 
section 13(a)(3). The relief requested from section 13(a)(3) would 
extend only to the specifically named applicants and not to future 
investment companies or series because future open-end management 
investment companies or future series of currently effective open-end 
management companies will be able to establish fundamental policies 
with the necessary exceptions to accommodate purchases of Fund shares 
in connection with the Plan.
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    \2\The specific Funds seeking relief from the provisions of 
section 13(a)(3) are: Twentieth Century's Cash Reserve, U.S. 
Governments Short-Term, U.S. Governments Intermediate-Term, Limited-
Term Bond, Intermediate-Term Bond, Long-Term Bond, Tax-Exempt Short-
Term Bond, Tax-Exempt Intermediate-Term Bond, and Tax-Exempt long-
Term Bond, all of which are limited to the purchase of bonds and 
other fixed income securities; Twentieth Century's Balanced 
Investors, which is limited to ``common stocks * * * bonds and other 
fixed income securities''; Capital's Value which is restricted to 
``securities that management believes to be undervalued at the time 
of purchase''; and Premium Reserves' Government Reserve, Capital 
Reserve, and Management Bond, which are limited to the purchase of 
bonds and other fixed income securities.
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    5. Section 22(f) of the Act prohibits a registered open-end 
investment company from restricting the transferability or 
negotiability of any security of which it is the issuer unless the 
restriction is disclosed in its registration statement and does not 
contravene rules and regulations prescribed by the Commission. Section 
22(g) of the Act generally prohibits a registered open-end investment 
company from issuing any of its securities for services or for property 
other than cash or securities.
    6. Section 22(f) was designed to bar only those restrictions on 
transferability or negotiability not disclosed to the holder of the 
subject security or expressly prohibited by Commission rule or 
regulations, neither of which circumstances would apply to the 
restriction of transferability of a director's benefits under the Plan. 
Such restriction is clearly set forth in the Plan, is included 
primarily to benefit the participating director, and does not adversely 
affect the interests of the directors or of a shareholder of any Fund.
    7. With respect to section 22(g), the legislative history of the 
Act suggests that Congress was concerned with the dilutive effect on 
the equity and voting power of common stock of, or units of beneficial 
interest in, an open-end company if the company's securities were 
issued for consideration not readily valued. Applicants assert that the 
Plan would not have this effect. Also, a director's right to receive 
payments under the Plan are not granted in return for services or 
property other than cash already owed to the director. Although any 
director's fees that may be payable to a director would clearly be for 
services rendered, a Fund's obligation to pay such fees would exist 
whether or not the Plan was in effect. The Plan would merely provide 
for deferral of the payment of such fees and thus any rights under the 
Plan should be viewed as being ``issued'' not for services but for the 
Fund's not being required to pay such fees on a current basis. Thus, 
the requested exemption of the proposed deferred fee arrangement and 
future transactions effected pursuant to such arrangement from section 
22(g) of the Act would not be inconsistent with the protection of 
investors and the purposes of the Act.
    8. Section 17(a)(1) of the Act generally prohibits an affiliated 
person of a registered investment company, or any affiliated person of 
such person, from selling any security to such registered investment 
company. The section was designed to prevent sponsors of investment 
companies from using investment company assets as capital for 
enterprises with which they are associated or to acquire controlling 
interest in such enterprises. Applicants believe that the sale of 
securities issued by the various series of the Funds pursuant to the 
Plan does not implicate Congress concerns in enacting this section, but 
merely facilities the matching of the liabilities for Deferred Fees 
with Designated Shares, the value of which determines the amount of 
such liabilities.
    9. Rule 2a-7 provides that the current price per share of any 
``money market fund'' may be computed by use of the amortized cost 
method or the penny-rounding method, provided that the money market 
funds meets certain conditions. These conditions include, among others, 
(a) that the money market fund limit its investments to securities that 
have a remaining maturity of 397 days or less and that meet certain 
quality standards and (b) that the money market fund will not maintain 
a dollar-weighted average portfolio maturity that exceeds 90 days. 
Applicants believe that an exemption from rule 2a-7 for each money 
market fund to the limited extent required to permit them to invest in 
Designated Shares (and to exclude Designated Shares from the 
calculation of such series' dollar-weighted average maturities) is 
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. Such an exemption would permit the series in 
question to achieve an exact matching of Designated Shares with the 
deemed investments of the Deferred Fee Accounts, thereby ensuring that 
the deferred fee arrangements will not affect net asset value.
    10. Section 17(d) of the Act and rule 17d-1 thereunder are designed 
to limit or prevent a registered investment company's joint or joint 
and several participation with an affiliated person in a transaction in 
connection with any joint enterprise or other joint arrangement or 
profit-sharing plan on a basis different or less advantageous than that 
of the affiliated person.
    11. Under the Plan, each Fund will have discretion to set aside 
cash to fund the general obligations accruing thereunder, and each Fund 
may invest cash in those shares of one or more series of Funds 
representing Designated Shares. Adjustments are to be made to the 
Deferred Fee Accounts to reflect the income, gain or loss with respect 
to the Designated Shares. The changes in value would be identical to 
the changes in share value experienced by any shareholder of the same 
series during the same period, but whose shares were not held in a 
Deferred Fee Account.
    As an affiliated person, the participating director would neither 
directly nor indirectly receive a benefit that would otherwise inure to 
the Funds or any of their shareholders and thus the Plan would not 
constitute a joint or joint and several participation by any Fund with 
an affiliated person on a basis different from or less advantageous 
than that of the affiliated person.

Applicants' Conditions

    Applicants agree that the order of the Commission granting the 
requested relief shall be subject to the following conditions:
    1. With respect to the requested relief from rule 2a-7, any money 
market series of the Funds that values its assets by the amortized cost 
method will buy and hold Designated Shares that determine the 
performance of Deferred Fee Accounts to achieve an exact match between 
such series' liability to pay deferred fees and the assets that offset 
that liability.
    2. If a Fund purchases Designated Shares issued by an affiliated 
Fund, the Fund will vote such shares in proportion to the votes of all 
other holders of shares of such affiliated Fund.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-24377 Filed 9-30-94; 8:45 am]
BILLING CODE 8010-01-M