ICI Supports Amendments to Redemption Fee Rule

Washington, DC, April 10, 2006 - ICI strongly supports proposed amendments to the redemption fee rule, Rule 22c-2 under the Investment Company Act of 1940, noting that the proposed changes address many of the concerns raised by the Institute and are designed to reduce the costs associated with the rule as originally adopted.

Background

In February 2004 the SEC proposed a mandatory two percent redemption fee on short-term trading in mutual funds. This step was intended to combat market-timing abuses, which occurs when certain investors take advantage of time zone differences among international stock markets, to exploit fund share prices that are based on closing prices of foreign securities established some time before the fund calculated its own share price. In March 2005 the SEC adopted the redemption fee rule.

In a May 2005 letter to the SEC, the Institute noted that, while imposing redemption fees on short-term mutual fund trades is an important way funds can help curb harmful short-term trading, the final redemption fee rule has two fundamental flaws: the rule fails to impose responsibilities equally on funds and intermediaries, and it contains a contract requirement that ICI believes is unworkable.

In February of this year, the SEC proposed amendments to the rule that would reduce the number of intermediaries with which funds must negotiate information-sharing agreements.

ICI Position
In its recent letter, ICI commends the SEC for its efforts over the past year to work with the industry to address the issues that came to light after the rule was adopted, and strongly supports the proposed revisions. ICI also recommends that the SEC: