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California Drops Lawsuit Against|American Funds Mutual Funds Adviser

LOS ANGELES - Attorney General Jerry Brown and the investment adviser to the American Funds family of mutual funds on Monday agreed to drop lawsuits against each other over what Brown considered the unethical and illegal practice of "revenue sharing."Mutual funds, such as American Funds' adviser, Capital Research and Management Co., pay cash to brokers who recommend them to investors. Brown considered that fraudulent.

In announcing the settlement, Brown said that American Funds and other mutual funds have improved the disclosure of their "broker compensation practices." Capital Research, for instance, "waived 10 percent of its management fees, saving shareholders an aggregate of approximately $1 billion," Brown said in a press release.

The attorney general said Capital Research also improved its governance and internal supervision, "eliminated the practice of directed brokerage" and "will add disclosures regarding revenue sharing to all its prospectuses."

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