This site displays a prototype of a “Web 2.0” version of the daily Federal Register. It is not an official legal edition of the Federal Register, and does not replace the official print version or the official electronic version on GPO’s govinfo.gov.
The documents posted on this site are XML renditions of published Federal Register documents. Each document posted on the site includes a link to the corresponding official PDF file on govinfo.gov. This prototype edition of the daily Federal Register on FederalRegister.gov will remain an unofficial informational resource until the Administrative Committee of the Federal Register (ACFR) issues a regulation granting it official legal status. For complete information about, and access to, our official publications and services, go to About the Federal Register on NARA's archives.gov.
The OFR/GPO partnership is committed to presenting accurate and reliable regulatory information on FederalRegister.gov with the objective of establishing the XML-based Federal Register as an ACFR-sanctioned publication in the future. While every effort has been made to ensure that the material on FederalRegister.gov is accurately displayed, consistent with the official SGML-based PDF version on govinfo.gov, those relying on it for legal research should verify their results against an official edition of the Federal Register. Until the ACFR grants it official status, the XML rendition of the daily Federal Register on FederalRegister.gov does not provide legal notice to the public or judicial notice to the courts.
Securities and Exchange Commission (“Commission”).
Notice of application for an order under section 6(c) of the Investment Company Act of 1940 (the “Act”) for relief from section 2(a)(19) of the Act.
SUMMARY OF APPLICATION:
Applicants request an order under section 6(c) of the Act declaring that a director on the boards of certain registered investment companies, who also is an outside director for the parent company of a registered broker-dealer, will not be deemed an “interested person” of the registered investment companies.
Applicants: American Balanced Fund, Inc. (“AMBAL”), Fundamental Investors, Inc. (“FI”), The New Economy Fund (“NEF”), SMALLCAP World Fund, Inc. (“SCWF”), The Growth Fund of America, Inc. (“GFA”), and The Income Fund of America, Inc. (“IFA”) (collectively, the “Funds”); Capital Research and Management Company (“Capital Research”); and American Funds Distributors, Inc. (“AFD”).
The application was filed on December 20, 2001.
Hearing or Notification of Hearing: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission'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 January 28, 2002, 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 who wish to be notified of a hearing may request notification by writing to the Commission's Secretary.
Secretary, Commission, 450 5th Street, NW., Washington, DC 20549-0609. Applicants: 333 South Hope Street, Los Angeles, CA 90071-1447.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Marilyn Mann, Senior Counsel, at (202) 942-0582, or Mary Kay Frech, Branch Chief, at (202) 942-0564 (Division of Investment Management, Office of Investment Company Regulation).End Further Info End Preamble Start Supplemental Information
The following is a summary of the application. The complete application may be obtained for a fee from the Commission's Public Reference Branch, 450 5th Street, NW., Washington, DC 20549-0102 (tel. (202) 942-8090). Start Printed Page 1253
1. Each of the Funds is an open-end management investment company registered under the Act. NEF is a Massachusetts business trust. AMBAL, FI, GFA, SCWF and IFA are Maryland corporations.
2. Capital Research, an investment adviser registered under the Investment Advisers Act of 1940, serves as investment adviser to the Funds and certain other registered investment companies. The Funds and these investment companies, together with any future registered investment company advised by Capital Research, are referred to as the “American Funds.” AFD, a wholly-owned subsidiary of Capital Research, is the principal underwriter of the Funds.
3. Each Fund has a board of directors (“Board”), a majority of whom are not “interested persons” within the meaning of section 2(a)(19) of the Act. ICA and NPF also have advisory boards, as defined in section 2(a)(1) of the Act, whose members consult with Capital Research and the Funds' Boards.
4. Patricia K. Woolf serves as a director of the Funds. The Funds, together with such other American Funds that in the future elect Ms. Woolf as a director or advisory board member who is not an “interested person” of the American Fund within the meaning of section 2(a)(19) of the Act, are referred to as the “Applicant Funds.” Ms. Woolf's principal occupation is as a lecturer at Princeton University. Ms. Woolf also is a non-employee director of National Life Holding Company (“NLHC”). NLHC is a mutual insurance holding company that is primarily engaged in the life insurance business. One of NLHC's indirect wholly-owned subsidiaries is Equity Services, Inc. (“ESI”), a broker-dealer registered under the Securities Exchange Act of 1934. Approximately 3.2% of NLHC's consolidated revenues comes from ESI.
5. ESI is a relatively small retail-oriented firm. It does not execute any portfolio transactions for the American Funds. ESI provides de minimis distribution services to the American Funds. The gross sales by ESI of shares of the American Funds during the period January 1, 1998 through December 31, 2000 was approximately $61.83 million, or 0.05% of the total gross sales of American Funds shares by all broker-dealers for the same period. The fees received by ESI from the sale of shares of the American Funds during 2000 represented approximately 0.07% of NLHC's total consolidated revenues. The American Funds have adopted plans pursuant to rule 12b-1 under the Act and make payments to their distributors, including ESI, pursuant to those plans.
Applicants' Legal Analysis
1. Section 2(a)(19)(A)(v) of the Act defines an “interested person” of an investment company to include any person or any affiliated person of a person that, at any time during the last six months, has executed any portfolio transactions for, engaged in any principal transactions with, or distributed shares for (a) the investment company; (b) any other investment company having the same investment adviser or holding itself out to investors as a related company for purposes of investment or investor services; or (c) any account over which the investment company's investment adviser has brokerage placement discretion. Applicants state that Ms. Woolf may be deemed an affiliated person of ESI by virtue of her position as a director of NLHC, an entity that controls ESI within the meaning of section 2(a)(9) of the Act. Because Ms. Woolf may be deemed an affiliated person of ESI, Ms. Woolf currently is considered an interested person of the Funds.
2. Applicants believe that, because Ms. Woolf's affiliation with ESI is solely the result of her position as a non-employee director of NLHC, and because ESI provides only de minimis distribution services to the American Funds, it would be more appropriate to treat Ms. Woolf as an independent director. Applicants thus request an order under section 6(c) of the Act declaring that Ms. Woolf will not be deemed an interested person under section 2(a)(19) of the Act.
4. Section 6(c) of the Act provides, in part, that the Commission may exempt any person from any provision of the Act or any rule under the Act if and to the extent the exemption is necessary or 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. Applicants contend that their request for relief from interested person status for Ms. Woolf meets this standard because Ms. Woolf's relationship with ESI is attenuated and poses no real or potential conflict of interest and because ESI's only business relationship with the Funds involves a de minimis amount of distribution services for the Funds.
5. Applicants state that, in her position as a non-employee director of NLHC, Ms. Woolf has no authority or responsibility for the operations of ESI and does not control or influence the day-to-day management of ESI. Applicants also represent that Ms. Woolf has no material business or professional relationship with NLHC, ESI, the American Funds, Capital Research, AFD or any affiliated person of these entities.
6. Applicants state that, as one of the conditions to the proposed relief, certain requirements will apply if the Commission has declared by order (“Status Order”) the non-interested status of more than one director serving on the Board of a particular Applicant Fund, and the director is an affiliated person of, or an affiliated person of an affiliated person of, a broker or dealer doing a limited amount of business with one or more American Funds (a “B-D Director”). In such a case, the Applicant Fund would not rely on Status Orders relating to more than one B-D Director in complying with all applicable board composition requirements under the Act (including regulations under the Act) (“Board Composition Requirements”). In addition, for purposes of actions requiring the separate vote of a majority of the Applicant Fund's non-interested directors (“Special Voting Requirements”), only one of the B-D Directors would be counted as a non-interested director.Start Printed Page 1254
Applicants agree that the order granting the requested relief will be subject to the following conditions:
1. The American Funds will comply with all of the requirements of section 2(a)(19) of the Act (and any rules thereunder) except for the clauses concerning the distribution of investment company shares in subparagraphs (A)(v) and (B)(v) of section 2(a)(19), as those clauses relate to distribution of shares of the American Funds by ESI.
2. The amount of distribution business engaged in by ESI on behalf of any one Applicant Fund (other than a money market fund) may not exceed five percent of gross share sales (prior to payment of dealer and underwriter commissions) for such Applicant Fund.
3. The amount of distribution business engaged in by ESI on behalf of all American Funds in the aggregate may not exceed five percent of gross share sales (prior to payment of dealer and underwriter commissions and exclusive of money market fund share sales) for American Funds in the aggregate.
4. No more than one percent of NLHC's consolidated gross revenues may come from sales by ESI of shares on behalf of any one Applicant Fund.
5. No more than five percent of NLHC's consolidated gross revenues may come from sales by ESI of shares on behalf of all American Funds in the aggregate.
6. ESI may not serve as a regular broker or dealer, as defined in rule 10b-1 under the Act, for any American Fund.
7. To the extent Board Composition Requirements or Special Voting Requirements are applicable, each Applicant Fund will comply with such requirements without taking into account more than one B-D Director subject to a Status Order. For all other purposes under the Act, each Applicant Fund may treat as “non-interested” all B-D Directors subject to one or more Status Orders.
For the Commission, by the Division of Investment Management, under delegated authority.Start Signature
Margaret H. McFarland,
1. In 2000, Ms. Woolf's aggregate compensation from NLHC (consisting of annual retainer and meeting fees, and term insurance) was $43,080. Ms. Woolf, as a policyowner of National Life Insurance Company, a subsidiary of NLHC, is entitled to one vote at meetings of the members of NLHC. During 2000 and 2001, Ms. Woolf received advice from an employee of ESI regarding certain estate planning issues. In addition, in the future Ms. Woolf may establish a brokerage or similar account with ESI (or an affiliate thereof). In each case, the transaction or relationship was, or would be, a routine, retail transaction or relationship under which Ms. Woolf was not, or will not be, accorded special treatment.Back to Citation
2. This figure is based on NLHC's consolidated revenues in 2000.Back to Citation
3. Applicants are not requesting relief from the provisions of rule 12b-1(b)(2) that require a rule 12b-1 plan to be approved by the directors of an investment company “who * * * have no direct or indirect financial interest in the operation of the plan or in any agreements related to the plan.” Applicants state that they intend to treat Ms. Woolf as a director who meets these requirements, based on Ms. Woolf's lack of a material business or professional relationship with NLHC or ESI. Applicants represent that, should Ms. Woolf develop a direct or indirect financial interest in the operation of the American Funds' rule 12b-1 plans, she will no longer be treated as meeting the above requirements of rule 12b-1.Back to Citation
4. In 1998, the Commission granted an order to Capital Research, AFD, and certain American Funds, permitting the applicants to treat William H. Kling as a non-interested director. EuroPacific Growth Fund, Investment Company Act Release Nos. 23307 (July 9, 1998) (notice) and 23374 (Aug. 4, 1998) (order).Back to Citation
[FR Doc. 02-524 Filed 1-8-02; 8:45 am]
BILLING CODE 8010-01-P