SEC Division of Investment Management staff letter: Washington Mutual Investors Fund, Inc.

MÀY141E

SllC Our Ref. No. 93-226-CC

Washington Mutual
RESPONSE OF THE OFFICE OF CHIEF COUNSEL Investors Fund, Inc. DIVISION OF INVESTMENT MAAGEMENT File No. 811-604 In your letter of April 19, 1993, you request assurance that

the staff would not recommend enforcement action to the

Commission under section 15 (a) of the Investment Company Act of

1940 (the "1940 Act") if, as more fully described in your letter,

Washington Mutual Investors Fund, Inc. (the "Fund") does not

solicit shareholder approval of a proposed reduction in the

amount of compensation paid under its existing investment

advisory agreement (the "Agreement"). 1./ You state that, pursuant to the Agreement, which was

approved by a vote of the majority of the Fund's outstanding

voting securities on October 4, 1990, the Fund currently pays

Capital Research and Management Company (the "Investment

Adviser") a monthly fee that declines, as the Fund's assets

increase, from an annual rate of .25% to .21% of the Fund's

average daily net assets. You further state that the Fund and

the Investment Adviser propose permanently to amend the Agreement

to provide for a monthly fee that declines, as the Fund's assets

increase, from an annual rate of .25% to .20% of the Fund's

average daily net assets.

You state that the Fund's board of directors will consider

the proposed amendment at its regular meeting on June 17, 1993,

and that the amended Agreement will require the approval of a

majority of the Fund's directors, including a majority of the

directors who are not interested persons. ~/ Moreover, you state

1./ You ai~o request assurance that the staff would not

recommend enforcement action to the Commission under section 15 (a) ¡if the Fund does not solicit shareholder approval of a proposed fee reduction under its existing business

management agreement (the "Business Management Agreement") .

You represent that the Fund's business manager performs the

Fund's general administrative services and does not provide

any services to the Fund that would cause the business

manager to fall within the definition of investment adviser

in section 2 (a) (20) of the 1940 Act or 202 (a) (11) of the

Investment Advisers Act of 1940. Telephone conversation

between John Jude O'Donnell and Alison E. Baur (May 10,

1993). section 15(a) does not require that the Fund's

shareholders approve the Business Management Agreement.

Accordingly, this letter responds only to the proposed fee

reduct~on in the Agreement.

~/ You also state that the proposed amendment would become effective on July 1, 1993 and would be a permanent amendment

to the Agreement. You further state that any other future

amendment to the Agreement, including any amendment

that the Fund's shareholders will be notified of the amendment to

the Agreement by delivery, on or about June 22, 1993, of a

revised prospectus to be dated June 22, 1993, which is the

scheduled renewal date for the Fund's prospectus. You represent

that the Fund would prepare and mail a revised prospectus to

existing shareholders at that time regardless of the proposed

amendment to the Agreement, and therefore the Fund, rather than

the Investment Adviser, will pay the costs of preparing and

mailing the revised prospectus. ~/ In addition, you believe that

requiring the Fund to call a shareholder meeting for the sole

purpose of approving the amendment to the Agreement under these

circumstances needlessly would cause the Fund's shareholders to

incur solicitation expenses. ~/

On the basis of the facts and representations in your letter

and the telephone conversations, particularly your representation

that the Investment Adviser will not reduce the quality or

quantity of its services, and that its obligations will remain

the same in all respects, we would not recommend enforcement

action to the Commission under section 15 (a) if the Fund

permanently amends the Agreement to reduce the compensation paid

to the Investment Adviser without soliciting approval of the

Fund's shareholders. 2/ This position expresses the Division's posi tion on enforcement action only and does not purport to express any legal conclusion on the question presented.

~~~
Alison E. Baur

Attorney reinstating the existing fee schedule or any reduction in

services provided by the Investment Adviser to the Fund,

would require approval by the Fund's shareholders in

accordance with section 15 (a) .
~/ Telephone conversation between Julian E. Markham, Jr. and

Alison E. Baur (May 6, 1993).

~/ As a Maryland corporation, the Fund is not required to hold

annual shareholder meetings.

2/ See Limited Term Municipal Fund, Inc. (pub. avail. Nov. 17,
1992) .

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, THOMPSON; O'DoNNELL~mRKHAM~ NORTON & :.' ,..d"., .:rHESOUT4~~RN BUILDING ~\ _ .HANNON ., -~ lN JUDE O'DONNELL . ~ .~ , , 805 FIFTEENTH STREET, N.W'll .IAN E. MARKHAM, JR. + · ,. ,lg ,(ANDELL HUNT NORTON + . SUITE 705 ~. ,.' '1 J. MICHAEL HANNON · WASHINGTON, D.C. 2005-2216 J KENNETH G. STALLRD + * . .'t (202) 289-1133 .ar , BROOKE A. PINKERTON · CHARLOTTE HARRIS BELTRAMI. . TELECOPIER (202) 289-0275 SECTON ~ RULE OF COUNSEL . ALSO ADMlnEO IN MARYLAND

• ALSO ADMlnED IN YIRGlfUA

T ALSO ADMITTED IN FLORIDA April 19, 1993 PÌJLIC c: ¡ ~ ~AS H, McGRAIL + .. .. ALSO ADMlnEO IN NEW YORK J , ',RY F, HARDING áV AILABIL . ~ 'I J, ROY THOMPSON. JR, . * ALSO AOMlnED IN WEST VIRGINIA / . ALSO ADMlntD IN GEORGIA JOHN E. LARSON, RETIRED Lawrence B. Stol ler, Esq.

Office of Chief Counsel

Di vision of Investment Management

Securities and Exchange Commission

450 Fifth street, N.W.

Washington, DC 20549

Dear Mr. Stoller:

We request on behalf of Washington Mutual Investors Fund,

Inc. (the "Fund"), a registered open-end management investment

company, Washington Management Corporation, the Fund's business

manager (the "Business Manager") and Capital Research and

Management Company, the Fund's investment adviser (the

"Investment Adviser") ~ . that the Staff of the Division of

Investment. Management ,advise, that it-will- not recommend enforcement against :the ,Fund, the Business Manager or the' Investment Adviser if the Business Manager, the Investment Adviser and the Fund agree to reduce the percentage amount of the

compensation required to be paid 'to the Business Manager and the

Investment Adviser in respect of their services for the Fund

under their existing Business Management and Investment Advisory

Agreements (the "Agreements") with the Fund without obtaining a

stockholder vote respecting the amendment of such Agreements to

effect the fee reduction. We believe thát this request follows a

similar procedure to that utilized by'Limited Term Municipal

Fund, Inc. which obtained a no-action letter on November 17, 1992

(File No. 811-4302, Ref. No. 92-631-CC).

The Fund was organized in 1952 and is incorporated in Maryland as a regulated investment company. The Fund invests at least 95% of its assets in common stocks and securities

convertible into common stocks. The approximate total assets of

the Fund on the date of this letter are $11.4 billion and the

Fund has more than 700,000 stockholders. The Fund is not

required to hold annual stockholders meetings.

, ,The Business
, ,

Manager and the Investment Adviser are 'Delaware corl?o::ation~ .','''The Business Manager 'performs the Fund's general administrati ve and corporate affairs pursuant to, a Business ~anagement Agr7ement: The Investment Adviser is registered as an

investment adviser under the Investment Advisers Act of 1940 i and

~;.'~'~

J' '.

. .~.~':~;;f:jt.~ll~f~1t~~; . . - . - . ~ .-. -' 'C - -', , ,
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,- "; : .' .' ~ ." '.' performs advisory' service~for:the ~ Fùndpursùant to an ,Investment

Advisory Agreement. Both Agreements were approved by a" vote of the majority of the Fund's outstanding voting securities on

October 4, 1990, and have been continued by the Funq' s Board of Directors regularly since then in accordance with Section 15 o~ the Investment Company Act of 1940 (the "1940 Ac~"),.... ,The ~ Agreements by their terms currently require .the , FÜI1d"',tc? pay a monthly fee in accordance with the followingscheduÙÙ" '. ' , Annual Rate

Business Investment
Net Assets Manaqer Adviser' Tota i

First $125 mil .25% .25% ~ ,'.." . ".50% Over $125 mil to $3 bil .175% .225% .40% Excess over $3 bil .15% . 21% .36% Management has proposed to the Fund i s Board that such fees

be reduced in accordance with the following schedule:

Annual Rate

Business Investment
Net Assets Manaqer Adviser Tota i First $125 mil .25% .25% .50% Over $125 mil to $3 bil .175% .225% .40% Over $3 bil' to $5 bil .15% .21% .36% Over $5 bil to $8 bil .135% .21% .3'45% Over $8 bil to $12 bil .12% .20% .32% Excess over $12 bil .095% .20% .295% \ Each annual rate shown is applicable to the incremental

amount of net assets shown opposite the respective rate, and is

applied to the daily average net assets of the Fund. Accrued

fees are paid following the end of each month. Management

intends to present amended Agreements which incorporate the

proposed schedule, which will apply prospectively to all years

after it becomes effective, to the Fund i s Board of Directors for

approval at their regular meeting on June 17, 1993. The Business

Manager and the Investment Adviser will not reduce. the quality or

quanti ty of their services as a result of any reduction of fees

by such amendment, and their obligations will remain the same in

all respects.

, Pending receipt of no-action advice from the Staff, the

Business Manager and the Investment Adviser have voluntarily

wai ved a portion of their fee that is in excess of the amounts

due under the proposed fee schedule. The Directors will consider

the foregoing proposal to amend the Agreements upon the receipt

of no-action advice, and the Agreements will be changed

accordingly upon the approval of a majority of the Fund's

Directors, including a majority of the Directors who have no

direct or indirect financial interest in the Business Manager and

the Investment Adviser or their respective Agreements. Such

Agreements would then become effective on July 1, 1993. The

Fund's shareholders will thereafter be notified of the amendment

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-".... "'~.'-'~'''''''' ~ ".':'~ " ," tf,Æ;;J~;:' of the Agreements by deli very of a revised prospectus to be dated

June 22, 1993, which is the scheduled renewal date for the Fund's prospectus. The revised prospectus to existing shareholders will be mailed on or about June 22, 1993. Prospective investors will

also be notif ied by the revised prospectus.

section 15 (a) of the 1940 Act provides in pertinent part:

"15(a) It shall be unlawful for any person to

serve or act as investment adviser of a registered

investment company, except pursuant to a wr i tten contract, which contract, whether with such registered

company or with an investment adviser of such

registered company, has been approved by the vote of a

majority of the outstanding voting securities of such

registered company, and
(1) precisely describes all compensation to be paid thereunder i" The proposed reduction to both fee schedules would be a

permanent amendment to such Agreements with the Fund. Any other

future amendment to either or both Agreements, including any

amendment reinstating either of the existing fee schedules or

increasing either of the proposed fee schedules or any reduction

in services provided by the Business Manager or Investment

Adviser to the Fund would require approval of the Fund i s shareholders in accordance with section 15 (a) of the 1940 Act. The Staff has considered and replied favorably to the reduction of advisory fees in several no-action letters, including the one cited in paragraph one. Since the Agreements,

when amended, will only and specifically reduce the level of

compensation paid by the Fund to ,the Business Manager, and the

Investment Adviser as well as eliminate the expense to the Fund

of a shareholders i meeting, the statute should not have any

applicability to the effect of a fee reduction amendment to the

Agreements where the quality and quantity of services will be

maintained.
Therefore, we believe that in the absence of a clear

prohibition against the proposed action, and in view of the fact

that a stockholder vote would yield no benefit to the Fund or its

stockholders in exchange for the cost of the voting process, the

Fund, its Business Manager and its Investment Adviser should be

permitted to reduce their fees in the manner described without a

stockholder vote.
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Reauèst
On the basis of the foregoing, we hereby request a

determination prior to the June 17, 1993 meeting of the Fund i s

Board of Directors, that the Staff of the Division of Investment

Management will not recommend that the Commission take any action

under Section lS (a) of the 1940 Act if the Business Manager and

the Investment Adviser reduce their fees in the manner described.

If the Staff requires any further information in connection

wi th this request, or if you believe it helpful to discuss any of

these points, please telephone me at the number shown above. If

the Staff is unable upon its review of this letter to confirm

that it will not recommend enforcement action, we request that

the Staff telephone the undersigned to discuss possible revisions

or additional submissions that could make a no-action position available. Thank, you for your consideration in this matter.

Very truly yours,

:7l~ \J~ t~~,/¿7 .. ~l ~
John Jude 0' Donnell
, General Counsel, Washington Mutual Investors Fund, Inc. cc: Mr. Stephen Hartwell

Chairman of the Board

Washington Mutual Investors Fund, Inc.

1101 Vermont Avenue, N.W.

Washington, DC 2000S

Mr. Harry J. Lister

President
Washington Management corporation

1101 Vermont Avenue, N. W.
Washington, DC 20005

Paul G. Haaga, Jr., Esq.

Senior Vice President capital Research and Management Company

333 South Hope Street

Los Angeles, CA 90Ö71

John A. Beck, Esq.

General Counsel

Washington Management Corporation

1200 18th Street, N. W .

Washington, DC 20036

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