DRAFT SUPPLEMENTAL COMMENT LETTER ON SEC SUMMARY PORTFOLIO SCHEDULE PROPOSAL; CONFERENCE CALL ON 3/25

[15771] March 20, 2003 TO: ACCOUNTING/TREASURERS COMMITTEE No. 13-03 SEC RULES COMMITTEE No. 24-03 RE: DRAFT SUPPLEMENTAL COMMENT LETTER ON SEC SUMMARY PORTFOLIO SCHEDULE PROPOSAL; CONFERENCE CALL ON 3/25 The Institute recently filed a comment letter on the SEC’s proposals concerning shareholder reports and portfolio holdings disclosure.1 The letter strongly supported, among other things, the proposal to permit funds to include a summary portfolio schedule in their shareholder reports. The letter expressed a concern, however, that the proposed criteria for identifying and listing holdings in the summary schedule would essentially nullify the benefits of the summary portfolio schedule for some types of funds, such as U.S. government securities funds.2 The letter encouraged the SEC to revise its proposal to address this concern. The Institute is considering filing a supplemental comment letter making specific recommendations to the SEC. A draft letter is attached for your review and it is summarized below. We will hold a conference call on Tuesday, March 25th at 2:00 p.m. Eastern time to discuss comments on the draft letter. The dial-in information for the call is as follows: Dial-in number: 888/455-9651 Pass code: Portfolio/Frances Stadler Please contact Monica Carter-Johnson by email at mcarter@ici.org to let us know if you plan to participate on the call. If you are unable to participate on the call but have comments on the draft letter, please provide them to me at 202/326-5822 or frances@ici.org before the call. 1 See Memorandum to Accounting/Treasurers Members No. 9-03 and SEC Rules Members No. 21-03, dated February 14, 2003. 2 Under the proposal, funds would be required to include in the summary schedule the 50 largest issues held by the fund and any other securities the value of which exceeded one percent of the fund’s net asset value as of the close of the reporting period. For purposes of determining whether the value of a security exceeds one percent of net asset value, funds would be required to aggregate and treat as a single issue all securities of any one issuer. For purposes of listing holdings in the summary schedule, however, each issue would be required to be listed separately. 2 The draft letter recommends that the SEC extend to U.S. government securities the same treatment that it has proposed for short-term debt instruments and fully collateralized repurchase agreements. Thus, U.S. government securities funds would be required to aggregate and treat as a single issue U.S. government securities issued by the same issuer (e.g., the U.S. Treasury, the Federal Home Loan Bank Board, the Federal National Mortgage Association, etc.). We further recommend that, as with short-term debt instruments, funds be required to disclose a range of interest rates and maturity dates where holdings are listed in the aggregate. In addition, recognizing that our proposal could result in the aggregation of securities with a wide range of maturities in a single line item, we recommend that funds be required to disclose the average weighted maturity of the aggregated securities. The draft letter notes that similar issues arise under the Commission’s proposal for other types of fixed income funds, such as funds that invest in asset-backed securities, because these funds often hold multiple securities or pools issued by the same issuer. It recommends that the Commission consider extending the same treatment to non-U.S. government fixed income securities, i.e., require that such securities be aggregated by issuer and listed as a single issue. Please note that, within the draft letter, we have highlighted several specific issues on which we would appreciate receiving feedback from members. We also welcome any other comments you may have. Frances M. Stadler Deputy Senior Counsel Attachment (in .pdf format)