[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