From: Cyrus A. Ansary
August 21, 2006
Ladies and Gentlemen:
This letter is in response to the Commissionís request for additional comments on the requirements that (a) 75% of a mutual fund board be comprised of independent directors, and (b) the chairman of the fund be an independent member of its board.
I am the independent Chairman of the Board of Washington Mutual Investors Fund, which has approximately $75 billion in assets and is a part of the American Funds Group.
The Issue of Costs
Washington Mutual achieved a 75% ratio of independent directors in December 2004 when one of its management directors reached mandatory retirement. For our fund, therefore, compliance with this rule did not entail any new costs, and none is anticipated. (The possibility that in the future and under certain circumstances this rule may require the fund to call a special meeting of shareholders to fill a vacancy on the board is conjectural at this point and cannot be the basis for any cost projections.)
To create the position of an independent chairman at Washington Mutual, the Board elevated the chair of the Governance Committee to that post. This move resulted in a subsequent increase of $15,000 per year in annual fees for the new Chairman. There is no separate staff or office for the independent Chairman, and none is contemplated. No additional legal counsel has been hired by the independent Chairman. There are no other increases in expenses.
Therefore, the total costs associated with the two rules amount to $15,000, or .0000002% as a percentage of the fundís assets.
(Please note that, following the enactment of Sarbanes-Oxley, our fund group incurred substantial additional expenses to comply with the new statutory requirements. Those expenses are separate and wholly unrelated to the issue of compliance with the two rules under consideration here.)
The Issues of Efficiency, Competition & Capital Formation
For a mutual fund, indeed for any public entity, it is vital to have a sound governance structure, of which an independent chairman is a crucial component. Awareness of this fact by the investing public makes such a governance structure a strong marketing element for any mutual fund, while simultaneously promoting a favorable image for, and the competitiveness of, the entire fund industry. Also, by serving as the primary liaison between the management and the independent directors of a mutual fund, the independent chairman can act as a buffer between them, effectively defusing the tensions that inevitably arise, thus enhancing operational efficiency.
In the experience of the undersigned, both of the rules under discussion are workable for a fund, have no organizational downside, would safeguard the interests of the public shareholders of a mutual fund and are of long-term benefit for the fund industry. As such, the rules promote efficiency, competition and capital formation.
Cyrus A. Ansary