Marvin L. Mann
Chairman of the Independent Trustees
The Fidelity Funds
P.O. Box 55235
Boston, Massachusetts 02205-5235
December 6, 2002
Mr. Jonathan G. Katz
Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Definition of "Financial Expert" for Purposes
of the Sarbanes-Oxley Act of 2002
(SEC Release Nos. 33-8138, 34-46701 and IC-25775)
File No. S7-40-02
Dear Mr. Katz:
I am writing on behalf of the Independent Trustees (the "Independent Trustees") of the domestic open-end management investment companies (the "Fidelity Funds") managed by Fidelity Management & Research Company ("FMR"). The Fidelity Funds comprise more than 260 registered investment companies ("funds") with aggregate assets in excess of $850 billion.
The Independent Trustees appreciate the opportunity to comment on the Securities and Exchange Commission's proposed rule amendments that would require a fund to make certain disclosures relating to whether any member of its audit committee is a "financial expert," as determined by the fund's board of directors. It is our objective that at least one member of the Fidelity Funds' Audit Committee should qualify as a "financial expert" to avoid having a disclosure that could be interpreted by investors as casting doubt on the capacity of the Fidelity Funds' Audit Committee to protect shareholder interests.
The Independent Trustees agree with the Commission that "experience applying . . . generally accepted accounting principles in connection with the accounting for estimates, accruals and reserves that are generally comparable to the estimates, accruals and reserves, if any, used in the registrant's financial statements" is useful for effective oversight of a fund's financial reporting. We believe that at least two members of the Fidelity Funds' Audit Committee fall within the plain meaning of the language quoted above (one is a former chair of the Financial Accounting Standards Board and the second is a former CFO of a major publicly-traded energy firm), but none of the members has experience preparing or auditing mutual fund financial statements.
The Independent Trustees are concerned that the language in the proposed definition of financial expert could be construed as limiting financial experts for mutual fund audit committees to people who have experience in preparing or auditing mutual fund financial statements. We hope that this was not the Commission's intention. In the course of screening a large number of potential board candidates we have concluded that this interpretation would dramatically limit the universe of people who could serve on our board who are both "financial experts" and have the requisite business experience to play an otherwise constructive role. Present and retired mutual fund executives have experience with mutual fund financial statements, but this universe consists of Fidelity executives (who are not independent) and executives of Fidelity's competitors (who would have actual or perceived business conflicts). The Fidelity Funds employ as auditors the two big four accounting firms with the largest mutual funds practices - retired partners from these firms would not be available to give immediate service on the Audit Committee.
The Independent Trustees urge the Commission to provide clear guidance to the effect that a mutual fund's board of directors may consider a person's experience in preparing or auditing financial statements for any public company, whether or not it is an investment company, for purposes of determining whether he or she is a "financial expert."
The Independent Trustees appreciate the opportunity to present their views on this Commission proposal and would be pleased to provide any additional information that would assist the Commission in its consideration of the proposal. Please contact the undersigned with any questions through the Independent Trustees' legal counsel, Woodrow W. Campbell, at (212) 909-6779.
Sincerely yours,
Marvin L. Mann
Chairman of the Independent Trustees
cc: Chairman Harvey L. Pitt
Commissioner Cynthia A. Glassman
Commissioner Harvey J. Goldschmid
Commissioner Paul S. Atkins
Commissioner Roel C. Campos
Paul F. Roye, Director, Division of Investment Management
Cynthia M. Fornelli, Deputy Director, Division of Investment Management
Susan Nash, Associate Director, Division of Investment Management
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