SEC PUBLISHES FOR COMMENT AMEX'S PROPOSED CORPORATE GOVERNANCE REQUIREMENTS; COMMENTS DUE NOVEMBER 21ST

[16770] November 12, 2003 TO: CLOSED-END INVESTMENT COMPANY COMMITTEE No. 58-03 SEC RULES COMMITTEE No. 89-03 RE: SEC PUBLISHES FOR COMMENT AMEX’S PROPOSED CORPORATE GOVERNANCE REQUIREMENTS; COMMENTS DUE NOVEMBER 21ST The Securities and Exchange Commission has published for comment an American Stock Exchange proposal that would enhance board independence and increase the role of independent directors on board committees for companies listed on Amex. In addition, the proposal would impose new requirements with respect to audit committees and code of ethics obligations for these companies.1 Under the proposal, many of the corporate governance standards would not apply to closed-end investment companies in recognition of the fact that such issuers are subject to “extensive federal regulation” or to exchange-traded investment companies. However, both closed-end investment companies and exchange-traded investment companies would be required to comply with the proposed audit committee requirements to the extent required by Rule 10A-3 under the Securities Exchange Act of 1934. Comments on the proposal are due to the SEC no later than November 21st. If you have comments that you would like the Institute to consider including in a comment letter, please provide them to me by November 18th by phone at 202.218-3563, fax at 202.326-5827, or email at ddonohue@ici.org. The following is a summary of the Amex proposal. The proposed corporate governance standards that would apply to investment companies are specifically noted. Independent Directors. Companies would be required to have a majority of independent directors. Audit Committees. All Amex-listed companies, including investment companies, would be required to comply with the audit committee requirements of Rule 10A-3 under the Exchange Act, including requirements regarding the independence of audit committee members, procedures for the receipt of concerns regarding questionable accounting matters from 1 SEC Release No. 34-48706 (October 27, 2003); 68 FR 62109 (October 31, 2003) (“Release”). 2 employees of the issuer, authority to engage advisers; and funding of the audit committee. The Release states that the requirements regarding audit committees would be effective the earlier of the company’s first annual shareholder meeting after January 15, 2004 or October 31, 2004. Frequency of Meetings and Executive Sessions. Boards would be required to meet at least quarterly. The independent directors would be required to meet at least annually in executive session outside the presence of non-independent (or management) directors. Nomination of Directors. Directors generally would be required to be nominated either by a majority of independent directors or a nomination committee comprised solely of independent directors. Executive Compensation. Compensation of a company’s chief executive officer generally would be required to be determined by either a majority of independent directors or a compensation committee comprised solely of independent directors. Code of Conduct and Ethics. Companies would be required to adopt a code of conduct and ethics, applicable to all directors, officers, and employees, that complies with the definition of “code of ethics” as set forth in Item 406 of Regulation S-K. Each company would be permitted to determine the appropriate standards and guidelines in the code as long as the code promotes: honest and ethical conduct; full fair, accurate, timely, and understandable disclosure in periodic reports; compliance with rules and regulations; prompt internal reporting of violations of the code; and accountability for adherence to the code. Dorothy M. Donohue Associate Counsel