ICI Strongly Supports SEC Corporate Reform Rules

Washington, DC, September 23, 2002 - The Institute recently filed a comment letter strongly supporting provisions of the Sarbanes-Oxley Act of 2002 that are intended to enhance the ethical standards of public companies and their senior officers, and to bolster the effectiveness of public company audit committees.

The SEC is expected to propose rulemaking by October 28 regarding the implementation of two provisions of the Sarbanes-Oxley Act:

Section 406, which directs the SEC to issue rules to require each issuer to disclose whether or not it has adopted a code of ethics for senior financial officers and if not, why not, and
Section 407, which requires each issuer to disclose whether or not its audit committee includes at least one member who is a "financial expert," as defined by the SEC.

With respect to Section 406, the Institute describes existing code of ethics requirements for investment companies under the Investment Company Act of 1940 and notes several other relevant provisions of the Investment Company Act, as well as the recently adopted certification requirements under Section 302 of the Sarbanes-Oxley Act. The Institute recommends that the SEC deem compliance with Rule 17j-1 under the Investment Company Act and other relevant requirements to satisfy any new requirement applicable to investment companies under Section 406.

With respect to Section 407, the Institute recommends that the SEC define "financial expert" for investment companies in a way that recognizes the inherent differences between investment companies and operating companies. The Institute notes that due to the straightforward nature of fund financial statements and accounting policies, investment company audit committees typically do not include directors with accounting or auditing experience. Rather, audit committees for investment companies typically have members with relevant investment company experience or other appropriate business experience.