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December 20, 2004
TO: ACCOUNTING/TREASURERS MEMBERS No. 42-04
CHIEF COMPLIANCE OFFICER COMMITTEE No. 35-04
CLOSED-END INVESTMENT COMPANY MEMBERS No. 81-04
OPERATIONS MEMBERS No. 38-04
PRIMARY CONTACTS - MEMBER COMPLEX No. 106-04
SEC RULES MEMBERS No. 178-04
SMALL FUNDS MEMBERS No. 131-04
RE: SIGN-UP PERIOD OPENS FOR ICI/IDC DIRECTORS’ PRACTICES STUDY
The Investment Company Institute and the Independent Directors’ Council are
committed to providing programs and services that help fund boards, especially independent
directors, fulfill their responsibilities to shareholders. As you know, the Institute has conducted
studies of director practices since 1996. These studies, which represent some of the most
comprehensive surveys to date on investment company directors, returned data to participating
fund complexes on both director practices and director compensation.
At the request of the Independent Directors Council, the Institute is preparing to
undertake its sixth Director Practices Study early next year. The objective of this study will be
to collect year-end 2004 data and to provide detailed reports to participating complexes in the
third quarter of 2005. Mercer Human Resource Consulting (“Mercer”), a nationally recognized
compensation consulting firm has been retained to assist in performing the study. We are
pleased to invite your organization to participate in the 2005 ICI/IDC Director Practices
Study. The Independent Directors Council will inform fund directors of the opportunity to
participate in the study through a separate communication.
STUDY OBJECTIVES
The primary objectives of the study are: (1) to provide participants with data necessary
to make well-informed judgments about trustee practices, including compensation, and (2) to
develop a resource that will permit the ICI and the IDC to communicate authoritatively, on the
industry’s and directors’ behalf, with media, government and others on these subjects.
Individual company responses to this survey will be held in strict confidence; however,
aggregated survey data, including trend analyses, may be released to the media or public
officials in order to support ICI and IDC policy initiatives. In particular, we anticipate release of
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aggregated industry-level director practices information, including analyses of changes in
director practices since the inception of this survey, in order to support ICI and IDC programs.
At the conclusion of the data collection and analysis phases of the survey, a summary
report of the aggregate survey results will be provided to each participant. The report will
present detailed analyses of director practices and compensation, such as:
• board and committee meeting practices, including meeting frequency, number and
types of committees, and relative time spent addressing specific areas of responsibility
in board and committee meetings;
• trustee term practices, mandatory retirement practices and term limits;
• use of independent counsel, consultants and dedicated staff;
• demographic information about trustees, including age and professional background;
• types of benefits, perquisites and services provided to directors; and
• the structure, type, and amount of trustee compensation, including retainers, committee
fees, meeting fees, and total compensation. Compensation analysis is provided on an
industry-wide basis and by complex size (both assets under management and number of
funds).
In addition, to provide maximum utility of the survey data, participants may request a
report describing compensation and practices for a participant-specified industry peer group.
Concurrent with the delivery of the summary report, participants will be invited to request one
such peer group analysis without charge. Additional peer group reports may be requested for a
fee of $125 per report. Each participant-specified peer group will be required to consist of at
least seven participating fund groups.
COMPENSATION DATA TO BE COLLECTED ANNUALLY
Traditionally the Institute has performed this study, collecting both director practices
data and director compensation data, every other year. In response to increased demand for
current director compensation data, we plan to conduct the compensation portion of this study
on an annual basis. Data on director practices will continue to be collected every other year.
Accordingly, the current study will collect both director practices and compensation data for the
year ended December 31, 2004. The subsequent survey, covering the year ended December 31,
2005, will collect only compensation data.
PARTICIPATION FEE
As noted above, aggregate industry-level director practices data may be released to
support of ICI and IDC policy initiatives. Director compensation data however, will be
provided only to fund groups that participate in the study. Fund groups that do not participate
will not have access to compensation data or peer group reporting.
Fund groups that elect to participate in the current study will be expected to participate
in the subsequent study collecting compensation data for the year ended December 31, 2005. In
order to ensure a comprehensive database on director practices, fund groups will not be
permitted to participate on an every other year basis (i.e., those years in which only
compensation data is collected).
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Fund groups that elect to participate in the study will be charged an asset-based fee
intended to cover the Institute’s out-of-pocket costs for performing the study. The fee rates
described below cover participation in both the current survey collecting director practices and
compensation data for the year ended December 31, 2004 and the subsequent survey that will
collect compensation data for the year ended December 31, 2005.
Total Assets of Open-end, Closed-end and Variable Participation Fee
Insurance Funds in Complex (as of 12/31/04) ICI Member Non-ICI Member
Over $30 billion $2,850 $5,850
$20 - $30 billion $2,475 $5,100
$10 - $20 billion $2,100 $4,350
$5 - $10 billion $1,650 $3,450
$3 - $ 5 billion $1,275 $2,700
$1 - $ 3 billion $ 825 $1,875
Under $ 1 billion $ 450 $ 1,125
DATA COLLECTION
Fund groups that agree to participate in the survey will be required to complete a
questionnaire that collects data at the complex level, the board level, and the individual director
level. Participants will enter their questionnaire responses using a web-based application on a
secure site. Fund groups will be asked to designate an employee of the management company
responsible for completing the survey questionnaire. As with other ICI surveys, the
confidentiality of data submitted by individual fund groups will be strictly maintained.
TIMETABLE
Fund complexes have until January 21, 2005 to signify their intention to participate by
filling out the attached participant authorization form and returning it to the Institute. We
expect to provide the survey questionnaire to participants in early February. Participants will
have approximately one month to complete the survey questionnaire. To enable participants to
monitor the progress of data receipt by the survey team, the Institute will issue a weekly
tracking report to all participants showing each participant’s questionnaire submission status
beginning mid-March and continuing until all questionnaires are received. Our target for
completion of data entry, data validation and scrubbing, and stabilization of the survey
database is June 2005. We expect to deliver summary reports to participants and begin
accepting peer-group report requests during July 2005. The summary report detailing study
results will be a copyrighted publication.
ACTION REQUESTED
In order that we may proceed with this project as soon as possible, it is important that
we hear from you promptly as to your interest in participating. Please return the attached
form to the Institute by fax (202/326-8314) as soon as possible, but not later than January 21,
2005, to indicate whether or not your organization will participate. Please do not send
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participation fee payments to the Institute at this time. An invoice will be mailed to
participating complexes in 2005.
Please do not hesitate to contact the undersigned (202/326-5851) or Marguerite Bateman,
Managing Director of the Independent Directors Council (202/326-5813) with any questions
regarding this project. We look forward to working with you on the ICI/IDC Directors’
Practices Study.
Gregory M. Smith
Director - Operations/Compliance & Fund
Accounting
Attachment
Attachment (in .pdf format)