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Sent: Tuesday, December 05, 2006 4:00 PM
Subject: Issues to be addressed at tomorrow's open Forum meeting


Based on discussions with Forum participants during the past couple of weeks, the following issues are expected to be among those addressed at tomorrow afternoon’s open meeting of the Options Policies Forum (an updated agenda is copied below):  


Authorized use of capital:  In defining a marketplace consensus of broadly accepted principles as a foundation for healthy competition, it may be desirable to distinguish between the question of whether a company’s use of capital is “authorized” and the very different judgment about whether the use is wise.  For example, management’s failure to report how capital is used, or its use of capital in ways that were not presented as a condition of investment, might be considered “unauthorized.” Arguably, that should be distinguished from any properly reported use of capital, and treated differently.  If investors know how executives are being compensated, for example, they can then make an informed investment decision either about committing capital to the company or about voting for its directors.


Adaptive indexing:  A determination that a company’s use of capital is unauthorized would raises a question about the legitimacy of investing in the company.  That in turn raises questions about whether such a company should be eliminated from an index fund.  Aside from the fiduciary concerns about allowing unauthorized use of funds, there are practical issues relating to the administrative costs of modifying an indexed portfolio as well as theoretical issues relating to the integrity of what is intended to be a passive sampling of the economy as defined by the marketplace.


Information needed by investors:  There is a very wide range of views among analysts and economists about how to treat the costs of options to a company’s shareholders.  Accommodating the needs of different analytical methods may require a company’s provision of information that would not necessarily be included in the standard reports required by SEC regulations.  This raises many of same questions that were addressed in the PAIS/Amazon Forum six years ago concerning what is reasonable to request and what is fair to provide, but in a context of information technology developments that are significantly expanding what can be reasonably produced.  The differences among experts about what information is considered relevant also requires attention to the difference between (a) what should be required by regulators in standardized reporting and (b) what processes should be established to encourage vital competition among investment professionals seeking better evaluations.


Please let me know if you have any last-minute suggestions of representative viewpoints or experts who should be heard at the meeting.  For those of you who are unable to attend, I will welcome email summaries of views you think should be presented.

Gary Lutin
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Tel: 212-605-0335
Fax: 212-605-0325



Initial Open Meeting

of the

Shareholder Forum for Options Policies



Wednesday, December 6, 2006


3:00pm to 5:00pm


Four Seasons Hotel, Metropolitan Suite (2nd Floor)

57 East 57th Street (between Madison and Park Avenues)

New York, New York 10022


Reservations required,* 50 places to be allocated for diverse representation of marketplace constituencies


To Be Decided: Scope of Principles


1. What kind of information do investors need for their capital allocation and voting decisions?

2. Who is responsible for the processes of defining, controlling and reporting a company’s equity-based compensation practices?




I.        Introduction, brief presentations by invited experts on subjects such as adaptive indexing that may be relevant to issues being addressed at the meeting.  (Forum participants are encouraged to offer any suggestions of relevant subjects prior to the meeting, allowing time to seek the expertise.*)

II.     Exchange of views among meeting participants on the scope of principles to be defined for the authorized use of capital in fair marketplace competition.

III.   Identification of issues that should be considered in the definition of principles.

IV.  Suggestions of prospective Corporate Participants that may provide effective representation of important marketplace perspectives.

V.     Conclusion, suggestions of any special workshops or projects needed to address particular subjects identified during the meeting.


More Information


Information about the Options Policies Forum, including its purposes and Conditions of Participation, can be found posted on its web site:

*Reservation requests and agenda suggestions may be addressed to the Forum's chairman, Gary Lutin, c/o Lutin & Company, 575 Madison Avenue, New York, New York 10022 (telephone 212-605-0335; email

December 5, 2006 (revised)





This Forum program is open, free of charge, to all shareholders of the invited corporate participants, and to any fiduciaries or professionals concerned with the investment decisions of those shareholders, according to the posted Conditions of Participation.  The Forum's purpose is to provide shareholders with access to information and a free exchange of views on issues relating to their investment interests described in the Forum Summary As stated in the Conditions, all Forum participants are expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

This Forum program has been organized with the support of Hermes Equity Ownership Services, Ltd.  It is the first in an expected series that will be managed by a not-for-profit “Institute” to be established for the purpose of continuing the Forum programs conducted by Gary Lutin.

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