improve the quality of the management analysis.

16/

Duff and Phelps, Inc., thoughtfully characterized the management discussion as "an island of relative individualism in a sea of regulation," suggesting that it afforded "management the opportunity to show its personality and establish 17/ the credibility of the company. The data from the survey displayed on Tables 14 and 15 indicate that while investors demonstrate high interest in and attribute great utility to the financial statements portion of the annual report, they also consider the president's report and management description to be of significant interest--although of substantially less utility. The reason cited by many was lack of credibility.

18/

It would appear, therefore, that a substantial effort by management to improve the summary and analysis of earnings

16/ Duff and Phelps, Inc., A Management Guide to Better Financial Reporting--Ideas for Strengthening Reports to Shareholders and the Financial Analysts Perspective on Financial Reporting Practices, A Report for Arthur Andersen & Co. (1976).

17/ Id. at 86.

18/ The reasons most cited were, for the president's letter,
lack of interest, and, for the management description,
lack of time. It is interesting to contrast these
results with the reasons submitted for not reading the
financial statements portion of the annual report which
was usually that the information was difficult to under-
stand. In this respect, surveyed shareholders
expressed opinions quite similar to those expressed
by registered representatives surveyed for the
Committee by the Securities Industry Association.
However, shareholders attributed considerably less
importance and concern about so-called "inside
information" and institutional activity than did the
registered representatives. More basically, they
indicated considerably less reliance upon their
brokers than the brokers believe.

would provide returns to the company in two areas.

First, shareholders would obtain a better understanding of the operations and capabilities of their company and management. Second, management could substantially enhance its credibility with both shareholders and the professional investment community which, in the long run, should strengthen the market for the company's products and securities.

It also appears that management and the company's auditors are by-passing an opportunity with respect to the company's financial statements. The survey results indicate that shareholders consider these materials among the most important available to them in the annual report and that they are willing to spend a reasonable amount of time and effort in reviewing them. Shareholders also indicate however, that they have considerable difficulty in understanding the financial statements. Despite all the obvious difficulties in "simplifying" what are inherently complex documents, it nevertheless appears that efforts toward more effectively communicating financial statement information are much desired by shareholders and would be extremely well received.

Also, the importance ascribed by shareholders to information about company products and services and company and industry outlook tend to support the Committee's interest in improving segment reporting and disclosure of forward-looking information.

Finally, the data respecting proxy materials should be noted. While the overwhelming majority of respondent shareholders who reported receiving proxy materials indicated that they read such materials either thoroughly or moderately and that they signed and returned the proxy, a surprisingly large number could not remember whether the proxy materials contained a management proposal. It is difficult to reconcile these two sets of results.

PART II

RECOMMENDATIONS CONCERNING COMMISSION PROCEDURES

IN DEVELOPING DISCLOSURE REQUIREMENTS AND STANDARDS