ICI Provides Additional Comment on Amended Fund Governance Proposals
Institute Committee's Letter Focuses on Rules' Impact on Small Funds

Washington, DC, August 21, 2006 - The Institute and one of its member committees have filed comment letters with the SEC responding to the agency's request for comments on fund governance rules it adopted in July 2004.

Background
In January 2004, the SEC proposed amendments to improve the governance standards of investment companies that provided for greater independence of fund boards; the rules were adopted in July of that year. Since that time, the U.S. Chamber of Commerce has twice challenged the governance rules in lawsuits: the first alleged that the SEC did not provide evidence supporting the need for the new governance rule; the second that the SEC did not adequately consider the costs of implementing the proposed rules. The U.S. Court of Appeals for the District of Columbia ruled in the Chamber's favor in both instances, remanding the rule back to the SEC for further consideration. The Court's latest decision, in April 2006, provided a 90-day period for the SEC to seek additional public comment on the costs of implementing the two standards and to file a status report with the court.

ICI Position
In its recent letter, ICI states that it continues to believe that the choice of a chairperson should be left to the members of the board. The Institute's letter notes that since the Commission first issued its proposal, many fund boards have chosen an independent director as chair, demonstrating that a legal requirement is not necessary to facilitate this approach. ICI also states that the Commission has not adequately demonstrated the benefits of mandating this governance structure for virtually all fund boards.

The Institute also continues to support a requirement that two-thirds of a board's members be independent, rather than 75 percent. ICI discusses the costs involved in reaching and maintaining a supermajority of independent directors and provides examples to illustrate that a 75 percent requirement amplifies these costs, most notably in terms of reduced flexibility in board composition.

ICI's Small Funds Committee focuses on the impact of the Commission's mandatory requirements on small fund complexes in its own letter. The Committee highlights the disproportionate impact on small funds of recently imposed regulatory requirements, explaining how legal, audit, and directors' fees have risen substantially as a percentage of total fund expenses in recent year. The Committee's letter emphasizes that each additional regulatory cost imposed on small fund complexes makes the business less profitable and less desirable to enter.