ICI Comments on Proposed Disclosure Regarding Director Nomination, Communication Processes, September 2003

Washington, DC, September 16, 2003 - The Institute supports a recent SEC proposal making enhancements to existing disclosure requirements regarding the operation of board nominating committees and a new disclosure requirement concerning shareholders' ability to communicate with directors.

Background
Companies currently must disclose whether they have a nominating committee and, if so, whether the committee considers nominees recommended by security holders. To increase the transparency of the nominating process, the SEC has proposed new requirements that would expand disclosure in company proxy statements regarding the nominating committee and the nominating process.

The SEC has also proposed measures to meaningfully enhance the process that allows security holders to communicate directly with board members. The SEC believes that providing security holders with disclosure about the process for communicating with board members would improve the transparency of board operations as well as security holder understanding of the companies in which they invest.

In addition, the SEC has proposed to apply the new disclosure requirements regarding board nominating committees and security holders' communications with members of boards to proxy statements of investment companies. Funds are currently required to comply with Exchange Act Schedule 14A when soliciting proxies, including proxies relating to the election of directors, and are required to disclose the same information about nominating committees that is currently required for operating companies.

ICI Position
In a recent comment letter, the Institute expressed support for the SEC's proposals and noted that shareholders of investment companies, like those of operating companies, may benefit from enhanced transparency of board operations.

require investment companies to disclose whether or not the members of its nominating committee are "interested persons" of the investment company as defined in Section 2(a)(19) of the Investment Company Act of 1940, rather than "independent" as defined under the listing standards of a national securities exchange or national securities association, as in the case of operating companies; and
require issuers, including investment companies, to provide a statement of the specific source, such as the name of an executive officer or other individual, of each nominee approved by the nominating committee for inclusion in their proxy statements.

The Institute also wrote that disclosure of the means by which shareholders may communicate with directors could facilitate the ability of investment company shareholders to voice any concerns. The Institute's letter states that there is no reason for the SEC to distinguish investment companies from other issuers in the general application of the proposed disclosure requirements.

clarify that investment companies may disclose any changes made during the year to procedures for shareholders to recommend director nominees on Form N-CSR;
revise aspects of the proposal that would require issuers to disclose when boards take action as a result of formal petitions from shareholders; and
modify the proposed requirement that issuers describe their processes for determining which communications will be relayed to board members to reflect that mutual funds' processes for handling communications between shareholders and directors may permit personnel from investment company service providers to determine which communications should be relayed.

Related Links
A section of this website is devoted to the Institute's support for initiatives that ensure investor awareness of fund and investment concepts as well as regulatory and legislative efforts that maintain the high industry standard in the many types of disclosure provided by funds, including prospectuses, shareholder reports, and advertisements.