Grover Norquist, President of American Shareholders AssociationFrom: Daniel Clifton [dclifton@atr.org]
Sent: Wednesday, March 10, 2004 1:39 PM
To: 'rule-comments@sec.gov'
Subject: S7-03-04



                                                    March 9, 2004

 

Mr. Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0609

Dear Mr. Katz:

On behalf of American Shareholders Association (ASA), I am writing to express 
this organization's opposition to rule S7-03-04 which requires all mutual funds 
to have an independent director serve as chair of the board of directors. It is 
this organization's opinion that the proposed action will have no effect on 
improving the governance of mutual funds and may in fact hurt individual 
shareholders in the long run. 

As an organization which represents individual shareholders, many of which are 
mutual fund owners, I applaud the Securities and Exchange Commission's (SEC) 
actions to fix the problems in the mutual fund industry that were uncovered last 
fall. However, the proposed reforms should seek to correct the imbalances in the 
industry that need fixing. Rule S7-03-04 does not target any imbalance that was 
uncovered last fall.  In fact, some of the mutual funds involved in the recent 
scandals have independent board chairmen. As a result, ASA does not see the 
logic of how this proposed rule is the solution to the current problems.

Proposing rules and mandates unrelated to the scandals will have the effect of 
hurting the mutual funds positive qualities and thus could hurt individual 
shareholders and family balance sheets. ASA believes the right remedies are to 
correct the current imbalances while preserving the majority of positive 
qualities of mutual funds which are responsible for expanding stock ownership to 
the middle class. Mostly due to mutual funds, stock ownership as a percentage of 
family finances has doubled from 28 percent in 1989 to 56 percent in 2001 and 
the decisions by the SEC can have an enormous impact on families' investments. 

Requiring all mutual fund boards of directors to have an independent chair is 
not required of corporate boards, is highly impractical, and may result in less 
return for shareholders. At the same time, an independent chair needs to be a 
person extremely familiar with the operations of a company in order to be an 
effective chair and independent representatives may not be best suited for this. 
If this is the case, the operations of the organization are tied down in less 
productive activities and less focused on the returns for shareholders. 

The $7 trillion mutual fund industry and its shareholders have growing 
increasingly more important to the U.S. economy and as such I urge the SEC to 
take a more careful deliberation when proposing rules. This proposed rule is 
shortsighted and ASA urges the SEC to withdraw the rule. 


Sincerely,

                                                                        
Daniel M. Clifton
Executive Director