Institute Proposal Would Permit Electronic Delivery of Dividend Disclosures

Washington, DC, June 18, 2007 - The Institute recently submitted to the SEC a proposal that would permit funds to use an Internet website to satisfy certain disclosure obligations.

Background
The Institute's proposal would amend Rule 19a-1 under the Investment Company Act of 1940. Section 19(a) requires the payment of any dividend, or a distribution in the nature of a dividend payment, to be accompanied by a written statement that adequately discloses the source(s) of a payment if it is made from any source other than accumulated undistributed net income. Rule 19a-1(a) requires the notice to be on a separate piece of paper, and to clearly indicate what portion of the payment is from: (1) net income; (2) net profits from the sale of securities or other properties; and/or (3) paid-in surplus or any other capital source.

ICI Position
ICI's proposal would amend Rule 19a-1 to permit funds to satisfy their disclosure obligations by including the relevant information on their own, or an affiliate's, Internet website and in periodic shareholder communications. Under the proposal, closed-end funds would be required to disclose by means of a press release that Section 19(a) notices will be posted to a specified website while mutual funds would be required to make this disclosure in prospectuses.

Funds also would be required to disclose in semiannual and annual shareholder reports the Internet availability and location of notices. In addition, funds would be required to keep their Section 19(a) notices on the website for at least 24 months from the date of posting. The proposal would require funds to transmit Section 19(a) information to beneficial shareholders in account statements, check stubs, or other written communications mailed (including e-mail) no less frequently than quarterly either together with, or separately from, account statements. This flexible approach would permit funds to communicate distribution information to beneficial shareholders in a manner that takes into account how shares are distributed.

Related Links
A section of this website is devoted to investment companies' disclosure requirements.