[Federal Register Volume 67, Number 6 (Wednesday, January 9, 2002)]
[Notices]
[Pages 1252-1254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-524]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-25354; 812-12728]


American Balanced Fund, Inc., et al.

January 3, 2002.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: 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'').

FILING DATES: 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.

ADDRESSES: Secretary, Commission, 450 5th Street, NW., Washington, DC 
20549-0609. Applicants: 333 South Hope Street, Los Angeles, CA 90071-
1447.

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).

SUPPLEMENTARY 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).

[[Page 1253]]

Applicants' Representations

    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'').\1\ 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.\2\
---------------------------------------------------------------------------

    \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.
    \2\ This figure is based on NLHC's consolidated revenues in 
2000.
---------------------------------------------------------------------------

    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.\3\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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'').\4\ 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.
---------------------------------------------------------------------------

    \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).

---------------------------------------------------------------------------

[[Page 1254]]

Applicants' Conditions

    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.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-524 Filed 1-8-02; 8:45 am]
BILLING CODE 8010-01-P