SEC Division of Investment Management staff letter: Municipal Fund for California Investors, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

-,IVISION OF

INVESTMENT MANAGEMENT
July 12, 1995

!.~..., ....-:l,,"'. r . r f ¡'IH,~~";hh""''' I, 7 Cif- l-() Mr. Thomas H. Nevin 1 ;~:eot1Q. ! 7 ( ~) ~ :~.;1 President & Chief Investment "'~"''''~ ¡ ., Officer .' Z':Û:.! PNC Institutional Management ..',"." 'f : ,~bl1(' Corporation lid 1.,"!.~il1 ty

.'.""....,,'~-.. 711 d-L~~~_~,.,~.~"'~"'.. ..' 400 Bellvue Parkway Wilmington, DE 19809 Re: Municipal Fund for California Investors. Inc. Dear Mr. Nevin:

Your letter of July 11, 1995 requests our assurance that we would not recommend that the Commission take any enforcement action under section l7(a) of the Investment Company Act of 1940 (" 1940 Act") and the rules thereunder if the Californa Money Fund, a series of the above referenced registrant ("Fund"), and PNC Bank Corp. ("Affilate") effect the transaction summaried below and more fully described in the letter. The Fund is a money market fund that seeks to maitain a stable net asset value per share of $1.00, and uses the amortized cost method of valuation as permitted by rule 2a-7 under the 1940 Act. The Fund holds tax and revenue anticipation notes issued by Orage County, California in the pricipal amount of $7.9 milon (approximately 1.82 % of net

assets) that mature on July 19, 1995 ("Securities"). The Securities pay interest at a rate of
4.5 % per year. As a result of the Orange County banptcy filing on December 6, 1994,
the Fund was unable to obtain reliable market quotes for these Securities, and it determined the fair values of the Securities to be less than their amortized cost values. In December 1994, PNC Bank, N.A. ("PNC Bank"), an affiiated person of the Fund's investment adviser, entered into an agreement with the Fund in order to avoid potential loss to shareholders of the Fund ("LaC Agreement").! Under the LOC Agreement, PNC Ban issued a letter of credit ("LaC") on behalf of the Fund that covered the principal amount of the Securities plus accrued interest. The obligation of PNC Bank to pay principal and interest under the LOC Agreement was to be discharged if the LaC was replaced with a letter of credit issued by a bank that was not an affiliated person of the Fund, or an affiiated person of such person ("Replacement LOC"). The staff of the Division of Investment Management informed PNC Ban and the Fund that it would not recommend to the Commission enforcement action against the parties if the LOC Agreement In your letter of December 9, 1994, you represented that PNC Bank had the highest ratings on its short-term debt obligations from the "Requisite NRSROs" (as this term is defined in paragraph (a)(l3) of rule 2a-7 under the 1940 Act). '

Mr. Thomas H. Nevin

was effected. Subsequently, a Replacement LOC issued by Citibank, N.A. on behalf of the Fund in the amount of $8.3 millon was put into effect. The Fund continues to hold the Securities and values them based on the Replacement LOC. The Replacement LOC, by its terms, expires on July 31, 1995.

Orange County, in all likelihood, wil not make the scheduled principal payment due on the Securities on July 19, 1995. Rather, Orange County has proposed, the Banptcy Court has approved, and holders of certain short-term notes issued by Orange County have agreed to, a mandatory amendment of the Securities that wil, among other things, extend the maturity date of the Securities to June 30, 1996. To avoid potential shareholder losses on the Securities, you state that the Affiiate has offered to purchase the Securities from the Fund at their amortized cost values ("Purchase Offer"). You also represent that the Fund's board of directors wil be advised of the Purchase Offer. On the basis of the facts and representations in your letter, we wil not recommend enforcement action under section l7(a) of the 1940 Act and the rules thereunder if the Purchase Offer is effected. You should note that any different facts or representations might require a different conclusion. Moreover, this response expresses the Division's position on enforcement action only and does not express any legal conclusions on the issues presented. Sincerely, /l ~~ Robert E. Plaze

Assistant Director

~U~-ll-l~~~ 16: 11 FROM

A PNC Intitutiou ¡

'I H. Nev

40 Bellevue Parkway

Maneut Cont.. i ~&
Chf Inw.ftt Ofce
Wilmington, DE 1 ~09
TO 9-12029429659 P. 002/Ø03
791 1728 Tel I

7911898 F~ ¡

July 11, 1995

YlA Ff\CSIM R PIMC
Mr. Rcrt E. Pla Assi i t Dir offcebf Disclo an InVesent Advi$or Reiula

Divisiqn of Invesl' Maement

U.S. ~nti an .Bh~ Commission

450 Fif Str, N.W., Ma Stop 10-6

Was~gtn, DC 20549

Re: 14unicipa Fund for Calorn Invesrs, Inc.; File No. 2-79510 De Mr. Pia: ! iWe ar writi on beha of PNC Ba Coip. ("Afte"), an afte person of an

affli~ persn of Muncip Fund for Caoni Invesrs, Inc. ("Reistt"). We se ~ frm th st of th Divisin of Investment Mament ("Division") tht it wil Dot

recm~end enforct actn to the Coinion und Seon 17(a) of th Investment ComP-Y Act of 194 ("1940 Ac") or th role therender if th Regitrt and the Af

enter I.to th trn deribe below.

:The Registt is regiteie with the Commission unde the i 940 Act as an opn-end

management invesent compay, On seri of shars of the Registt, Calorna Money

Fund (fFund"), is a moy mar fu th se to mainta a stale net asset value per sha of $1.ØO, and use th amort cost metod of valuation in vauing its portolio seurities. Approiimaly 1.82% of th Fund's net ass as of July 10, 1995 consiste of certin debt se~ ("Securities") fully describe below. As a result of the Orage County banptcy, the FU'd has be unable to obta relile maret quotes for the seurities. The Securities

ar:
~$7.9 min of Co of Orae, Calorn Tax an Revenue Notes-A; CUSIP

!#684201BK8; origi marity da is July 19, 1995 an exte maturity date

¡is Jun JO, 199; Irocle Stay Iår of Cret of Citiba, N.A. in favor

!of Regit up to $8.3 milon, expir July 3 i, 1995.
¡On July 11, 1995, th Af offere to purha the Securities from the Fund at their amort co value (th pricip amount of the Seurities plus acciued intet) to avoid any

potentW portolio shlder loss on the Secrities. . The Reistrt's boad of directors wil be adv~se of ths Prose tIsation. '

A PNC Financial Servces Group Company

-JUL-11-1995 16: 11 FROM
TO 9-12029429659 P. 0Ø3/Ø03
'PIMC i
,
Mr. ~rt B. Pla

July II,! 1995 i
Page 2 ¡

th Aff is an l'af persn of an affil person" of the Registt under Sec 2(a)(3) of th 194 Ac be..se PNC Ba, N,A" th Fund's sub-adviser, is an ind whollY.Qwne Sl~ry of Afe. Th prose trsan fal with Sectin 17(a)(2) of the 194P Act, whih ma it' unlwful for any afil persn of a reist investment

compay or any afte persn of such persn acg as prcipa knowingly to purchas any

seurity! or other prort frm the invesent copay. th Re an th Af belie th it wou be in the be interests of the Fund's shaolk if th Af woul purcha th Secrities from the Regitrt at their amort

cost va14e, plus acni intere. On beha of the Fund and the Afte, we hereby reuest th the ¡ Division st give its asrace tht it wil not remmend that the Commission ta enforcetnent acton agst the Registt or th Afil under Section 17(a) if the Affilte purchases the Securiti from Uie Fund as deribe above. ~f you have any quetins or other communcations concern th matr, plea ca

th und~rsigned at (302) 791-1728.

Sinly,
~M9J. ~¿
Thmas H. Nevin
TH/iq,
;
00: j. Riha Ca - Chaan, PIC

~ar M. Gair - Chief Counsel, Mutu Funds

W. Bruce McConnel, il, Esquire - Drir Bidle & Reth A PNC Financial sc+ces Croup Company

FNC Institutional

Management Corporation

400, Bellevue Parkway
~P""Uington, DE 19809
'11 1539 Tel ,
, 1 9800 Tel
3lJ~ /91 1540 Fax
PIMC
December 9, 1994
Robert Plaze, Associate Director

Division of Investment Management

Securities and Exchange Commission

Judiciar Plaz

450 Fifh Street, N. W.

MS 10-6, Room 10054

Washigton, DC 20549

RE: Municipal Fund for Calorna Investors, Inc.
(File No.2 - 79510): Orage County CA TRS
Dea Mr. Plaze:
Ths letter wil confirm that Citiban, N.A. of New York has issued an irevocable stadby letter of credit for the benefit of the above referred registrat. Tls letter of credit has been issued by an institution (Citiban, N.A.) whose short-term obligations are rated P-l and A-I, in an amount ($8,300,000) in excess of the full pricipal and interest to be accrued on the above securities, with an expirtion date (July 31, 1995) later than the July 17, 1995 maturity date of the above securities. Ths confiration is sent based upon the representation included in the December 9, 1994 letter from Vernon Staton, Jr. of Drier Biddle & Reath to you.

~eIíÙU1Y y~: .

~ardnet
Chief Counsel, Mutual Funds
GMG:chs cc: Vernon Staton, Jr.

Drier Biddle & Reath

A PNC Financial Services Group Company

l
LAW OFFICES

DRINKER BIDDLE & REATH
PHilADELPHIA NATIONAL BANK BUILDING
SUITE 400 SUITE 900 47 HULFISH STREET
~IFTEENTH STREET, NW. 1345 CHESTNUT STREET POST OFFICE BOX 627 iINGTON. DC 20005-2503 PRINCETON. NJ 08542-0627 12021842-8800 PHILADELPHIA, PA 19107-3496 16091921-6336 TELEPHONE: 12151 988-2700

SUITE 300
TELEX: 834684 1000 WESTLAKES DRIVE VERNON STANTON. JR, BERWYN, PA 19312-2409 12151 988-2815 FAX: 12151 988-2757 16101993-2200 December 9, 1994

Robert Plaze, Associate Director

Di vision of Investment Management

Securities and Exchange Commission

Judiciary Plaza

450 Fifth Street, N.W.

MS 10-6, Room 10054

Washington, DC 20549

Re: Municipal Fund for California Investors, Inc.
(File No. 2-79510): Oranqe County TRAS

Dear Mr. Plaze:
This is to confirm your conversation with Gary Gardner,

Esq. of PNC Institutional Management corporation, the investment

adviser to the above-named registrant, relative to the $7.9

million principal amount of 4.50% TRAS of Orange County,

California, due July 19, 1995 (the "Securities"), which are held

by the Money Market Portfolio of registrant. As a result of the

filing for Bankruptcy of Orange County, the market for these

securities is unsettled. While we have not examined the actual

instrument, we believe that the filing under the Bankruptcy Code

by Orange County would be a default under the terms of the Securities. PNC Bank, N .A. (an affiliate of the investment adviser)

is rated P-1 by Moody's Investors Service, Inc. and A-1 by

Standard & Poor's corporation. It proposes to issue ago day

Letter of Credit of in favor of the registrant. The Letter of

Credi t can be drawn upon up to the full amount of principal and

accrued interest:

1) at any time on and after the date of a downgrade

in the credit rating of the Bank by Moody's or by Standard &

Poor's;

DRINKER BIDDLE & REATH

Robert Plaze, Associate Director

Division of Investment Management

Securities and Exchange commission

December 9, 1994

2) at any time following a determination by the

Internal Revenue Service that the interest on the Securities is

taxable for federal income tax purposes;

3) at any time after the close of business on the ,..ç third business day before the date of expiration of the Letter ""..
Credit.
The investment adviser and the directors of the

registrant have been advised that the position taken by the Staff

described herein is conditioned on the understanding that the

Letter of Credit will be drawn (a) upon the happening of the

events described in paragraphs 1) and 2) above, and (b) during

the period described in paragraph 3) above, unless the Securities

have theretofore been sold, or the Securities become Eligible

Securities as a result of the provision by the adviser of an

irrevocable standby letter of credit issued by an institution

rated P-L by Moody's Investors Service, Inc. and A-1 by Standard

& Poor's Corporation, in the full amount of principal and accrued

interest on the Securities, extending to the maturity date of the

Securities. If such a replacement letter of credit is obtained,

the registrant will promptly notify the Commission. The

investment adviser has advised the Board that it will adhere to

the conditions required by the Staff and set forth above.

The 90 day term of the Letter of Credit will give the

registrant time in which to determine what action it ultimately

expects to take, and to give the markets for these securities

time to return to a somewhat more normal situation.

I understand that you indicated to Mr. Gardner that the

Staff would assure that it will not recommend enforcement action

under Section 17 (a) of the Investment Company Act of 1940 if the

transaction were effected as set forth above.

While we have not fully analyzed the legal issues

associated with the proposed course of action, it would appear

that the issuance of the Letter of Credit, which is the action to

be taken today, would not be a transaction prohibited by Section

17 (a) of the Investment Company Act of 1940, but that the need

for exemptive relief would arise when as and if the registrant

assigned its rights in the Securities to the issuer of the Letter

of Credit in connection with draws thereon.

DRINKER BIDDLE & REATH

Robert Plaze, Associate Director

Di vision of Investment Management

Securities and Exchange Commission

December 9, 1994

I would appreciate it if you would confirm that if PNC

Bank, N .A. issues the Letter of Credit to the registrant

containing the terms outlined above, subject to the performance

of the conditions, the Staff of the Commission will assure that

it will not recommend enforcement action under section 17 (a) of

the Investment Company Act of 1940.

Since ely YOUg7 t J

ôn Stanton, Jr. "V~/' " l)" i (' / ~
VS: nt

Statov IMisc/PIa. Ltr