ICI Supports Final Audit Committee Independence Rule

Washington, DC, April 11, 2003 - The Institute strongly supports a  final rule recently adopted by the SEC implementing requirements for listed company audit committees, as required by the  Sarbanes-Oxley Act. In a February  comment letter, the Institute particularly supported the SEC’s decision to tailor certain aspects of the proposed rule for investment companies, and stated that the new rule will assist in ensuring the accuracy and reliability of financial reporting.

The final rule states that an investment company audit committee member may not be considered an “interested person” of the investment company, as defined by the Investment Company Act. The Institute believes this approach is appropriate because it addresses the types of conflicts of interest faced by investment company directors.

The final rule also requires that the audit committee have the authority to engage independent counsel and other advisors, as it determines necessary to carry out its duties. Issuers are required to provide appropriate funding for payment of compensation to any registered public accounting firm hired to prepare or issue an audit report or to perform other services for the issuer; and advisors employed by the audit committee. The Institute supports these aspects of the rule because they will permit audit committees to perform more effectively by being able to seek advice on accounting and legal matters.

The new rule directs the national securities exchanges and the national securities associations to prohibit the listing of any security of an issuer that is not in compliance with specified audit committee requirements. Listed closed-end investment companies and exchange-traded funds organized as open-end investment companies must be in compliance with the listing rules by the earlier of their first annual shareholders meeting after January 15, 2004, or October 31, 2004.