Ronald W. Forbes
58 Euclid Avenue
Delmar, N.Y. 12054
January 27, 2000
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Attention: Mr. Jonathan G. Katz, Secretary
Re: File No. S7-23-99
Dear Mr. Katz:
We are writing in response to your request for comment on the proposed rule-making referenced above. We comprise all of the independent directors of forty-three mutual funds with fifty-five portfolios managed by the Merrill Lynch Asset Management Group and its affiliates. At December 31, 1999, total assets of these funds exceeded $107 billion.
We are in accord with a number of the Commission's proposals and, as a matter of routine, we have observed many of proposed practices for a number of years. All of the fund boards on which we serve have a super-majority of independent directors. We also retain independent counsel. Each fund has a nominating committee consisting of independent directors only. These practices and current regulatory requirements have served us and the funds under our oversight well.
We also support the view expressed by the Commission that investments in index funds do not compromise a director's independence.
However, we have serious reservations concerning other proposals that would substantially broaden disclosures to the general public. The Commission proposes requiring that funds disclose the aggregate dollar amount of fund shares in a fund complex owned by each director. In our view, this proposal raises serious concerns with respect to director privacy. Moreover, we do not believe that such disclosures provide unambiguous signals of the alignment of directors' interests with other investors. Personal decisions to invest in a specific type of mutual fund, or even in any mutual fund, are based on a number of factors, such as the level of assets and incomes, tax considerations, state of residence, and family circumstances. These investment decisions are distinct from our fiduciary responsibilities under federal and state law. Finally, such disclosures do not provide meaningful indications of the qualifications that independent directors bring to specific funds. We recommend that the Commission abandon this proposal.
If the Commisison does not see fit to abandon this proposal, we recommend that the disclosure of each director's investments in funds managed by the complex be stated in broad ranges, e.g., $10,000 -$50,000; over $50,000.
The Commission proposes an extraordinary increase in the reporting burdens for independent directors and funds as to the interests, transactions and positions of a very broad definition of `immediate family'. We oppose adding to existing levels of disclosure on several grounds. The information suggested by the Commission is simply not readily available in many instances because of individual family dynamics. Such disclosure requirements effectively impose something akin to continuing due diligence requirements not only on directors but also on other, perhaps distant, members of an extended' immediate' family who may not wish to reveal private information. Moreover such information would add greatly to the disclosure documents with, we believe, very little benefit to fund shareholders. We would suggest that any added disclosures in this area be limited to dependent members of the director's household.
We currently retain counsel who is independent of the funds, the investment advisers, and their affiliates. We rely importantly on the advice of counsel and we insist that he and his colleagues have no unresolved conflicts of interest. Because of the strong and close relationship that we develop with counsel, we oppose the Commission's proposed regulatory requirements on our selection process. Ethical requirements of the legal profession compel counsel to act only in our interests as directors and we believe that we are in the best position to judge this.
We thank you for the opportunity to share our views.
Ronald W. Forbes
Chairman of the Audit Committees
On behalf of, and with the consent of: