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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Remarks before the Mutual Fund Directors Forum Members Roundtable with SEC Staff


Commissioner Paul S. Atkins

U.S. Securities and Exchange Commission

Washington, DC
June 14, 2006

Thank you for that introduction. I appreciate very much the opportunity to be with you again. I found last November's Mutual Fund Directors Forum Members Roundtable to be a good give-and-take, and I am confident that today's session will be equally useful. I appreciate that the time is short, so I will keep my remarks brief. Before I begin, I must remind you that the views that I express here are my own and do not necessarily represent those of the Securities and Exchange Commission or my fellow commissioners.

Since the last Roundtable, there has been a new development in the Commission's fund governance rulemaking saga. Two months ago, the DC Circuit Court of Appeals weighed in for a second time. The Court found that the Commission had violated the Administrative Procedure Act and vacated the provisions in the rule that would have required funds to have a board with 75% independent directors and an independent chairman. The Court gave us ninety days - if we wished - to take another look at the costs of implementing the rules.

The last time that the Court reprimanded the Commission, the Commission in the infamous meeting on Chairman Donaldson's penultimate day plowed forward like an obstinate child and, over Commissioner Glassman's and my dissent, readopted the rule without change. This time, I am happy to say, the Commission has taken a more measured approach before acting in response to the Court's opinion. I credit Chairman Cox and Buddy Donahue for this more deliberate course.

Just yesterday, we announced our plan to seek additional comment on the rule. I want to assure you that my vote in favor of the comment request does not signal a change of heart on my part. The Court of Appeals vacated the two contested provisions of the rule, so the fund governance slate is wiped clean and we are starting afresh. Tabula rasa. The old rule is dead and all options are back on the table. We can once again consider options that preserve investor choice. I hope that commenters, in discussing various fund governance rulemaking options, in addition to addressing direct costs, also will address the indirect costs that accompany one-size-fits-all government mandates.

As we consider where to go from here, it is worth noting that investors do not seem to care about the contested provisions. No fund that I know of has ever marketed itself on the basis of who sits on its board or who serves as chairman of the board. Investors decide to invest by looking at who the fund advisor is, who the portfolio managers are, what other related funds and features the advisor offers, how high the fees are, and, in direct defiance of our ever-constant warnings, what the past performance has been.

I say this with a deep respect and appreciation for the work that independent directors do. I am sure that you are dedicated to seeing that funds operate for the benefit of shareholders. I am sure that you try to speak for shareholders on the issues that are important to them. The responsibility, however, for managing funds in a way that ensures that shareholders want to invest in them lies with the advisor.

I am looking forward to working with Buddy Donahue and the rest of the Commission on the many pressing issues in the fund arena, from redemption fees to fair value. I am also looking forward to having the benefit of the insightful input of the Mutual Fund Directors Forum on these and other issues.

Thank you for your attention and for the service that you provide to fund shareholders. I know that you still have a number of important issues to discuss with the Investment Management staff, but, if I can steal a few more minutes, I would be interested in hearing your thoughts and concerns.


Modified: 06/15/2006