New Perspective Fund, Inc.
November 26, 2002
Jonathan G. Katz, Secretary
RE: Proposed Rule Regarding Disclosure Required by Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002
Dear Mr. Katz:
I am an independent director and Chair of the Audit Committee of New Perspective Fund, Inc., one of the American Funds family of mutual funds advised by Capital Research and Management Company ("CRMC").
As a former auditor of operating companies in various industries other than the mutual fund industry, I am impressed with the low level of materiality required by the Securities and Exchange Commission's rules and therefore utilized by both the adviser and the independent auditor-100% testing of the pricing and existence of all securities at period end and a 0.01¢ per share of net asset value tolerance for the financial statements. Operating companies would hurt their shareholders if they maintained internal and financial controls at that level and required that their independent auditors audit to that tolerance level because the cost would be prohibitive relative to the benefit. For this reason, amongst others, I believe that investment companies should be treated differently from operating companies.
Accordingly, the Commission should broaden the definition of "financial expert" to include individuals who have any business or financial experience that involves financial operations or financial statements of an investment or operating company. Such individuals could be expected to have an understanding of generally accepted accounting principles, internal controls, and audit committee functions relevant to investment companies and consistent with the factors set forth in Section 407(b)(1), (3) and (4)1 of the Act. These individuals, as a group, would meet the financial expertise test required to discharge their oversight responsibilities and therefore, qualify as financial experts.
Identifying one individual as the "financial expert" puts undue responsibility and liability upon that individual. As a result, few qualified financial experts would accept that designation or be reluctant to join audit committees. Permitting an audit committee to determine if it, as a group, is a financial expert would eliminate these issues and therefore, ensure audit committees continue to be comprised of individuals capable of providing effective oversight on behalf of investment company shareholders.
If audit committee members further their general accounting or auditing knowledge through continuing education programs, the Commission should be willing to allow disclosure of that fact and recognize that the audit committee members, collectively, possess the financial expertise to provide effective oversight on behalf of investment company shareholders.
We are provided annually with CRMC's Code of Ethics and any violations thereof. I believe that the current rules, regulations and practices cover a "broader range of conduct" and do not believe further rulemaking in this area is necessary for investment companies. CRMC encourages interaction between their associates and the independent directors. As a result, I obtain a far better "feel" for the ethics of our adviser by observing and listening to how the CRMC associates exercise their judgment and conduct themselves.
Material changes to the code of ethics must be approved by the board of directors of an investment company, including a majority of directors that are not interested persons, and are already disclosed in an exhibit to an investment company's registration statement filing. Therefore, I believe adequate disclosure of this issue already exists and further rulemaking is unnecessary. Our board of directors already provides sufficient review and oversight of this through the annual reporting, interaction and approval process described above.
Thank you for considering my views.