SEC Division of Investment Management staff letter: Twentieth Century Mutual Funds

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON. D.C. 20549

DIVISION OF

INVESTMENT MANAGEMENT AfJ iLA
SETION /7ict )
RULE July 7, 1995

FUB1JC
AVAILABIL 7 - 7- c¡ 5
Mr. Wiliam M. Lyons

Executive Vice President and Genera Counsel

Twentieth Century Mutual Funds
P.O. Box 418210

Kansas City, MO 64141-9210

Re: Twentieth Century Investors, Inc. - Cash Reserve Portfolio; Twentieth Century Premium Reserves, Inc. Premium Capital Reserve Portolio Dear Mr. Lyons:

Your letter of July 6, 1995 requests our assurance that we would not recommend that the Commission tae any enforcement action under sections 17(a) and 17(d) of the Investment Company Act of 1940 (" 1940 Act") and the rules thereunder if Twentieth Century Companies, Inc. ("Mfilate"), the Cash Reserve fund, a series of Twentieth Century Investors, Inc. ("Cash Reserve"); and the Premium Capital Fund, a series of Twentieth Century Premium Reserves, Inc. ("Premium Capita"), effect the trasaction summaried

below and more fully described in your letter.

Cash Reserve and Premium Capital are money market funds that seek to maintain a stable net asset value per share of $1.00, and use the amortized cost method of valuation in valuing their portfolio securities as permitted by rule 2a-7 under the 1940 Act. Cash Reserve and Premium Capital each hold taxable notes issued by Orage County, California that mature on July 10, 1995 ("Securities") in the following amounts: (1) Cash Reserve:
$38.5 milion principal value (approximately 2.8 percent of net assets); and (2) Premium Capital: $1.5 milon pricipal value (approxiately 0.75 percent of rret assets). The Securities pay interest at a rate equal to one-month LIOR, and the maxum interest rate is "capped" at 12 percent. As a result of the Orage County banptcy filg on December 6, 1994, Cash Reserve and Premium Capital determined the fai values of the Securities to be less than their amortized cost values. In December 1994, upon application of the Afilate, Chase Manatt Ban, N.A. ("Current LOC Provider") issued two irevocable standby letters of credit ("Current LaCs") ._ on behalf. of Cash Reserve and Premium Capital in order to avoid any potential losses to shareholders of the funds ("Current LOC Arngement").l Under the Current LOC In your letter of December 13, 1994, you represented that the Current LOC Provider had the highest ratings on its short-term debt obligations from the "Requisite NRSROs" (as defined in paragraph (a)(13) of rule 2a-7 under the 1940 Act).

Mr. Wilam M. Lyons

Arngement, the Current LOCs provide for payment of up to $20 milon ($19.25 milon attributable to 50 percent of the principal value of the Securities held by Cash Reserve and $0.75 million attributable to 50 percent of the pricipal value of the Securities held by

Premium Capita) of scheduled payments of pricipal and interest on the Securities in the event of a default by Orage County. The Current LaC Argement was entered into after the staf of the Division of Investment Management inormed Cash Reserve; Premium Capital and the Afilate on December 13, 1994 that it would not recommend to the

Commission enforcement action agaist any of the paries if the Argement was effected. You represent that Cash Reserve and Premium Capita each are relying on the Current LOC Arngement to value 50 percent of the pricipal value of the Securities held. The Current LOC Arngement, by its terms, expires on July 10, 1995 (the fmal maturity date of the Securities) . Cash Reserve and Premium Capita have been inormed that Orage County, in all lielihood, wil not make the scheduled pricipal payments due on the Securities on July 10,
1995. Rather, Orage
County is contemplating an amendment, substitution or extension of the Securities ("Amendment") that would, among other thigs, extend the maturity date of the Securities to June 30, 1996 and conta certin other terms to be negotiated ("Amended Securities"). A portion of the interest on the Amended Securities would be payable monthly, and a portion of the interest on the Amended Securities would be accrued and paid to Cash Reserve and Premium Capital at a later date. As a result of these developments, you state that the Mfilate, Cash Reserve and Premium Capital plan to replace the Current LaC Arngement with a new LaC arrngement ("New LOC Argement") that is summared below and more fully described in your letter of July 6. On July 6, 1995, the Mfilate applied for two irevocable stadby letters of credit ("New LOCs") to be issued by State Street Bank and Trust Company ("New LOC Provider") on behalf of Cash Reserve and Premium Capita ("New LaC 2 Under the New LOC Arngement, the New LaCs would provide for Arngement"). payment to the funds in the aggregate of $26 milon as follows: (1) Cash Reserve would be entitled to draw up to $25 milon ($22 milion attributable to approxiately 59 percent of the principal value of the Amended Securities held and $3 milon attributable to interest due on the entire pricipal value of the Amended Securities held); and (2) Premium Capital

would be entitled to draw up to $1 milon ($0.75 milon attributable to 50 percent of the pricipal value of the Amended Securities held and $0.25 milon attributable to interest due on the entire pricipal value of the Amended Securities held). Cash Reserve and Premium Capita would have the unconditional right to draw on the New LaCs if scheduled interest and pricipal were not paid when due under any circumstaces, including Orage County's repudiation of its obligations under the Amended Securities, and a failure to pay that is premised on violations of certin provisions of the Calorna state constitution and California law. The Affilate would agree to reimburse the New LaC Provider for any payments made to Cash Reserve and Premium Capita under the New LOCs. The Mfilate reserves the right under the New LaC Argement to purchase the Amended Securities from Cash Reserve and Premium Capital on or before June 30, 1996 (the maturity date of the Amended Securities). If the Mfilate exercises this right, -the New The New LOC Provider currently has the highest ratings on its short-term debt obligations from the "Requisite NRSROs" (as defined in paragraph (a)(13) of rule 2a-7 under the 1940 Act).

Mr. Wilam M. Lyons

LaCs would expire, and the New LaC Provider's obligations under the New LaC Arangement would be discharged. Cash Reserve wil value approxiately 59 perceht of the pricipal value of the Amended Securities held, and Premium Capital wil value approxiately 50 percent of the pricipal value of the Amended Securities held, based on the New LaC Argement as soon as it is effected. The balance of the Amended Securities held by the funds wil be valued without reference to the New LaC Argement. You represent that the boards of directors of Cash Reserve and Premium Capital, including a majority of the directors who are not "interested persons" as defined in section 2(a)(19) of the 1940 Act, have determined that it is in the best interests of the funds and their shareholders not to draw under the Current LaC Argement, but, rather, to accept the Amended Securities subject to the New LaCs and the New LOC Argement. Ths determination was based, in par, on an evaluation of the credit qualty of the New LaC Provider, and the interest rate provided under the New LaC Argement. You also represent that the boards of directors of the Cash Reserve and Premium Capita have determined that the Amended Securities, together with the New LaCs and the New LaC Arrgement, are "Eligible Securities" as defined in pargraph (a)(5) of rule 2a-7 and present minimal credit risks as required by pargraph (c)(3) of that rule. Finaly, you have concluded that the amount provided under the New LOCs attributable to interest can reasonably be expected to cover any interest due on the maturity of the entire pricipal value of the Amended Securities held by the funds. On the basis of the facts and representations in your letters of July 6, 1995 and December 13, 1994, we wil not recommend enforcement action under sections 17(a) and 17 (d) of the 1940 Act and the rules thereunder if the New LaC Argement is effected. You should note that any different facts or representations might require a diferent 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, l4 2A-. Robert E. Plaze

Assistant Director

Jl. Ø6'95 05: 1ØPM 20TH CE INV P.2
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:j ~~::;:):....
TWNTIEfT CENTURY

COMPANIES INC.
July 6, 1995

VI FACSIM AN FEDER EXRESS

Robert B. Plae Assit Di
Offce of Disclosur an Investment

Advier Retion
Diion of Investmt Maemt
U.S. Secties an Exchage Cossion
450 Fif Str N.W.

Ma Sto 10-6
Wasgt, D.C. 20549

Re: Twentiet Centu Investors, Inc. - Cash Reserve Twentieth Centu Prum Reseres, Inc. - Prum Capita Resere Dea Mr. Plae:
As discused i enclose herwith ou no-acton reuest under Secons 17(a) and 17(d) of the Investt Company Act. of 1940.

Pleae let me know if you have adtion questons or comments.

v cr trly you, wnli M. L~ ~
Exective Vice Prsident

and Gener Counsel

Wlmr
Enclosur
P.O. Box 418210 . Kansa City, Mis&ouri 64141-9210 . 1-80-345-2021 or 816-531-575

Jl Ø6 '95 05:10PM 20TH CEURY INV t~~~.(;:;~
... - . o. .. .. .. ... - ..- - __"

TWENTIH CENTURY

COMPANIES INC.
July 6, 1995

VI FACSI AN FEER EXPRESS

Rober E. Plae
Assistt Dictor
Offce of Dilosu and Investmt
Advi Reguti

Division of Investmt Maemt
U.S. Secmities an Exange Commssion
450 Fift Strt, N.W. .
Mal Sto i 0-6
Wasin D.C. 20549
Re: Twentieth Centu Investo, Ino. .. Cuh Resere Twentieth Centu Prum Reseres, Inc. . Premum Capita Resee Dea Mr. P1a:
We ar wrti on behaf otTwenticth Cetu Companes, Inc. C'Afte"), an afliate

per of the Ca Ree fu ("Cah Resere") of Twtieth Cetu Investo, Inc. ('l'CI'~ an the Prum Captal Resee fu (''P Capitan) of Twentiet Centu Prum Reeres, Inc. ("TCPR"). We se assuce fÌ the sta of the Division of Investt Magemt C'Division") th it will not remmen enforemt acon to the Cossion the Investt Comany Actor 1940 ("1940 Act") or the rule~ therde if Cah Resee, Prum Capita and the Afliate enter into th~ argement under Setlons 17(a) or 17(d) of

descbed below. .

TCI an TCPR ar rest with the Cossio under the i 940 Act as open.ed mat investment companes. Cash Reere and Pr Capita ar "sees" fuds within TCI and TCPR. Ca Resere and Prum Capita ar moey maket fuds that se to mata stable net asse values of $1.00 per sh and use the amrted cost method of valuation in valuing thei polio seties. Approxitely 2.8% of cas Resere's net asse anc1.7S% of Prum Capita's; net assets as of July 5, 1995, cosiste of cer debt secties

("Secties") f\y described below. The maet vale of the Sectiës is less th thei am cost value Ú: par value plus accred intest). P.O. Box 418210 . Kansas City, Missouri 64141-9210 . 1.800.345.2021 or 816.531.5575

Jl. Ø6 '95 05: l1PM 20TH CEY 1NV P.4
Rober B. P1a
My 6, 1995
The Seties ar:

As long as the let of crt suppo facilty res in p1ae, $22 millon prcipal

amt of the Secties held by Cash Resee and $.75 millìoñ pricipal amt of the Seaties held by Prum Rceie wùl be price at par. The reg pricipal amt o~

JL Ø6'95 05: 12PM 20TH CE INV P.S

Robe B. Pla

July 6, 1995

the Se wi be prce acg to valuation prour adpte by the Boar of Dictrs of TCI an TCPR and consit with the reuients of the 1940 Act and reations therdM. Cah Resee an Pr Capita will ta suh actions as ar reui to reve l'iymt under the le of crt in the event of any default in the paymt of intest or

pricial under the Secuties.

amunts pai by thé LOC Prvier Th Afte wi reur the LOC Pr for any

un the let of crt. Howeer. the i~ of crit aremts may be teate (withoUt

paymt by. the LOC Prid to CU Resee or Prum Capita) in the event the Aflite (plus accn elec to pUr the Secties fr Cas Rese and Premum Capita at par

intest) at or prior to matuty.
It is ou unertadig th Orge County is contelati an amdmt, substitution would exted the maty date to June 30, or exio of the Securties (the "Amendmcnt'1 that

1996 an cota ce oth te to be negotite (includg a new intest rate. so poon of whioh, raer th being due and payable mothly. may aoe to the new matuty date). If

su an amdmt. substitution or exion is effecte prior to the fi maty of the Setis (July lQ, 1995). the lett of crt wil provide for payment to Casb Ree and Pr Capita ony in the event of Orge Countys fai1ur to mae scheduled paymts of

intest or pricipal un the Secties as so amded substitute or exteded.

The Afliate bas agred with the Bo of Dictors of Tei and TCPR tht, reares or the te of the Secties. ü Orge Coty fals to mae sceduled payments of intest or

pricipal beause it reates its obliatns under a theory tht the Secties wer not validly

issue. tht the issuce of the seties exce the "debt litation" prosion of aplioable Resee and lett of crt oan be drwn upon by Cash law. or fb any other re, the

~ui Capita to support thei respecve ne~ wet value.

The TCl an TCPR Boar of Dictrs (mc1ug a maonty of the ditors who ar not . .

.'intst perns" u defined in Section 2(a)(19) of the 1940 Act) ha bee advise of an have

approved the prose let of crt argemts desDed above. In coectin with its

apal, the Bo of Di. up the reresetaons and remmendations of the Afliate,

detened tht, if ths wer a new investment decidott. the Sectiea' as au by the II (as deed in parh (a)(5) of Rue prpose let of crt would be "eligiõle secties

2.7) presetig niim cret rik to Cash Resee an Prum Capita. and thei ahho1der.

The Bo of Dic~ .. fuerdced tht it wa in the best intests of Ca Resee, Prum Capit and thei shholder to not drw unde the lett of crt argements tht the new and cmt1'oxisi.buraer. to coent to the Amdmt and to the estblismet of

ex let of crt argemts desoòed in- this let.. The Boa of Di. ma suoh

Jl. Ø6 '95 05: 12P 20TH CEY INV P.6
Rober B. P1a
1u 6, 1995

:iage 4
. cion af consideti of a numer of fars. includ the specic intest rate and

other te of the Amendmt an the critworess of the LO prvider. . \ the an afia penn" under.Sector 2(aX3) of The Af is an "afte persn or TCPR. The 1940 Act becus it is the part company of the investment adviser to Tei an

prpo amt may fal with Secon 17(d) of the 1940.Act, which mas it unlawf fo any aftcper of a regist investnent company to effect any trtion in whch

mc regite coany is ajoint or a joint and seer parcipant with such pern. or Se 17(aX2) of the 1940 Ac whioh maes it unawf for any afli per of a regist

invcstt company (or any afliate pern of such pern actg as pricipal) tQ knowigly

pure any aety or other prer frm the investmt coany.
Ca Ree, Prum Capita an the Afliate believe 1h it would be in the best if the irvocble stadby mteata of the shhold of Cah Ree and Premum Capita

lett of credt ar issu and the Afliat is obligate to pay to the LOC Prvider any amts pa by it to Cas Resere or Prum Capita. On behalf of Ca Ree, Prum Capita an th Aflite, we herby reuest that the Diviion sta give its assuce that it wi not red tht 1h Commssion tae enfort action agait Tel, TCP~ Cah Resee, in such capacty or Pr C.pita or the Afiat unde Sectin 17(d) if the Afiate acts

un Scoon 17(a) ü the Afiat purs the Secties fr Cas Ree or Prum Caita u note aboe.

Th non ase. if prvided, wi suer and relae in its enti sila no. let fr the acti assuce th wai provied by' the Divsion sta in rese to a

unigned date Deoer 13, 1994 (the "Decber 13 Leer"). The Jet of crt aremts denDed hern wi bec effectie on Jul 12, 1995, imly upo the tenatin of the exstig letter of credt support fa1ity 1hat was referced in thé Decber

13 Le.
If you have any qustions or other conications concerg this matt, plea cal1he uned at (816) 3404770. . M.L~~. Executive Vice Prsident

and Gener Counsel

WM

';.~.~,;...

4
NOTE FROM THE DIVISION OF INVESTMENT

MANAGEMENT: CONFIDENTIAL TREATMENT--' ~ WAIVED.
TWENTffH CENTURY

COMPANIES INC.
December 13, 1994
FREDOM OF INORMTION ACT

CONFENTIA TREATMENT REQUESTED

VI FACSIME AN FEDERA EXPRESS

Robert E. Plaze

Assistat Director

Offce of Disclosure and Investment

Adviser Regulation

Division of Investment Management
U.S. Securties and Exchange Commssion
450 Fift Street, N.W.

Mail Stop 10-6

Washingtn, D.C. 20549

Re: Orange County

Dear Mr. Plaze:
As discussed, I enclose herewith our no-action request under Section 17(d) of the Investment Company Act of 1940. Please let me know if you have additional questions or comments. Very trly yours,

illiam M. LYOn~Ý
Executive Vice President and General Counsel

WM/mro
Enclosure
P.O. Box 418210 . Kansas City. Missouri 64141-9210 . 1-800.345-2021 or 816.531-5575

NOTE FROM THE DIVISION OF INVESTMENT
, .' MANAGEMENT: CONFIDENTIAL TREATMENT

WAIVED.

( TWENTIEH CENTURY

COMPANIES INC.
December 13, 1994
FREEDOM OF INORMTION ACT
CONFENTIA TREATMENT REQUESTED

VI FACSIME AN FEDERA EXPRESS

Robert E. Plaze

Assistant Director
Office of Disclosure and Investment
Adviser Regulation

Division of Investment Management
U.S. Securities and Exchange Commssion
450 Fift Street, N.W.

Mail Stop 10-6

~ Washington, D.C. 20549 '" '
Re: Twentieth Centu Investors, Inc. - Cash Reserve Twentieth Centu Premium Reserves, Inc. - Premium Capital Reserve Dear Mr. Plaze:
Twentieth Centu Companies, Inc. ("Afliate"), an affliated person of the Cash Reserve fud ("Cash Reserve") of Twentieth Centu Investors, Inc. ("TCI") and the Premium Capital Reserve fud ("Premium Capital") of Twentieth Centu Premium Reserves, Inc. ("TCPR"). We seek assurance from the staff of the Division of Investment Management ("Division") that it wil not recommend enforcement action to the Commssion We are wrting on behalf of

under Section 17 (d) of the Investment Company Act of 1940 (" 1940 Act") or the rules thereunder if Cash Reserve, Premium Capital and the Affliate enter into the arangement described below. TCI and TCIP are registered with the Commssion under the 1940 Act as open-end management investment companies. Cash Reserve and Premium Capital are "series" fuds within TCI and TCPR. Cash Reserve and Premium Capital are money market fuds that seek to maintain stable net asset values of $1.00 per share and use the amorted cost method of valuation in valuing their portolio securties. Approximately 2.8% of Cash Reserve's net assets and 2.3% of Premium Capital's net assets as of December 9, 1994, consisted of certin debt P.O. Box 418210 . Kansas City, Missouri 64141-9210 . 1-800-345-2021 or 816-531-5575

l Robert E. Plaze FREDOM OF INORMTION ACT
December 13, 1994 CONFENTIA TREATMENT REQUESTED . Page 2 securities ("Securities") fully described below. The market value of the Securties is less than their amorted cost value (i.e. par value plus accrued interest). The Securties are:
Cash Reserve:

1. Issuer: County of Orange, California

2. Issue: 1994-95 Taxable Notes

3. Letter of Credit Provider: Chase Manhattn Bank, N.A.

4. Prncipal Amount of Securties Held: $38.5 Milion

5. Final Matuty of Securties: July 10, 1995

6. CUSIP Number of Securties: 684201EL6

Premium Capital:
1. Issuer: County of Orange, California
2. Issue: 1994-95 Taxable Notes
, 3. Letter of Credit Provider: Chase Manattn Bank, N.A. il 4. Principal Amount of Securties Held: $ 1.5 Millon
5. Final Maturity of Securties: July 10, 1995
6. CUSIP Number of Securities: 684201EL6
On December 13, 1994, the Affiate applied for two irrevocable standby letters of credit to be issued by Chase Manhattn Bank, N.A. ("LOC Provider"), a bank which has the highest short-term ratings from the "Requisite NRSROs" (as such term is defined in paragraph (a)(13) of rule 2a-7 under the 1940 Act), for the benefit of Cash Reserve and Premium CapitaL. These irrevocable stadby letters of credit provide for payment to Cash Reserve and Premium Capital of up to $20 millon ($19.25 millon with respect to Cash Reserve and $.75 millon with respect to Premium Capital) of scheduled payments of interest and principal of the Securties through the date of final maturity to avoid potential portolio shareholder loss on the Securties. Cash Reserve and Premium Capital will take such actions as are required to receive payment under the letters of credit in the event of any default in the payment of interest or principal under the Securties. The Affliate will reimburse the LOC Provider for any amounts paid by the LOC Provider under the letters of credit. However, the letter of credit arangements may be termnated (without payment by the LaC Provider to Cash Reserve or Premium Capital) in the event the Affliate elects to purchase the Securities from Cash Reserve and Premium Capital at par (plus accrued t interest) at or prior to matuty. The Affliate hereby undertes to obtain exemptive relief from the Commssion staff under Section 17(a) prior to any such purchase of the Securties.

L
Robert E. Plaze FREDOM OF INORMTION ACT
! December 13, 1994 CONFENTIA TREATMENT REQUESTED "

The TCI and TCPR board of directors has been advised of the proposed arangement described above.

The Affliate is an "affliated person of an affliated person" under Section 2(a)(3) of the 1940 Act because it is the parent company of the investment adviser to TCI and TCPR. The proposed arangement may fall within Section 17(d) of the 1940 Act, which maes it unlawfl for any affliated person of a registered investment company to effect any transaction in which such registered company is a joint or a joint and several partcipant with such person. Cash Reserve, Premium Capital and the Afliate believe that it would be in the best interests of the shareholders of Cash Reserve and Premium Capital if the irrevocable stadby letters of credit are issued and the Affliate is obligated to pay to the LaC Provider any amounts paid by it to Cash Reserve or Premium CapitaL. On behalf of Cash Reserve, Premium Capital and the Affiliate, we hereby request that the Division staff give its assurance that it will not recommend that the Commssion tae enforcement action against TCI, TCPR, Cash Reserve, Premium Capital or the Affiliate under Section 17(d) if the Affiliate acts in such capacity. This letter is being submitted solely for the staffs use in connection with considerig the above no-action request with the understanding that confidentiality pertins to each page. Ths letter and the information contained herein is considered to be a confidential or private internal document that is commercially valuable. Therefore, in accordance with the Commssion's procedures with respect to Freedom of Information Act ("FOIA") requests (17 CFR Sec. 200.83), we hereby request confidential treatment of the information contained herein. This letter has been appropriately labeled to indicate the intention to maintain confidential status. This letter is submitted with the fuer request that it be kept in a non-public file and that access to it by any third par who is not a be denied, except as provided by the Privacy Act of 1974, or unless such access is specifically permtted by existig law. . member of the Commssion or its staff

We understand that upon receipt of any FOIA request for the enclosed materials, the Commssion staff wil make an initial determnation as to whether access to the information should be granted. If, in the staffs view, no grounds exist which would justify the withholding of the information, the staff wil ask that within ten days of the receipt of the FOIA request, appropriate persons will submit substantiation for affording continued confidential treatment and for withholding of the informtion. In such circumstances, the undersigned should be telephoned

immediately.

I
" .
..
I t
"
Robert E. Plaze
December 13, 1994
FREDOM OF INORMTION ACT
CONFENTIA TREATMENT REQUESTED
If you have any questions or other communications concerning this matter, please call the undersigned at (816) 340-4770.

Very trly yours,

Wiliam M. Lyons

Executive Vice Presiden

and General Counsel

~'T
WM/mro