Subject: File No. S7-03-04
From: James E Grant, CPA

April 14, 2004

Dear Sir/Madam

I am author of How to Select and Use Mutual Funds published by CCH, Inc., and I frequently speak and write on mutual fund investing issues. I will be making comments about a number of SEC proposals to regulate the mutual fund industry. This particular comment is in regards to the proposed SEC rule to improve mutual fund governance.

As I have read many of the comments on this proposal, I have noted the following two observations:

1. Most of the comments made by those in the mutual fund industry are in opposition to improving governance by increasing the number of independent directors. I find their comments to be self serving because they are conflicted. The events of the past couple of years have taught us that anyone who is conflicted is untrustworthy.

2. Other comments seem to haggle over the percent of directors who should be independent. I have read arguments, persuasive and otherwise, that the percent should be 40 percent, 50 percent, two-thirds, or 75 percent, the SEC proposed level of independence. My experience has been that the longer a Board member remains on a Board the more that independence seems to suffer. In other words, financial ties alone are not the only test for independence, or lack thereof.

Therefore, I would argue that the SEC needs to adopt a stronger test for indendence by adopting the rule that 75 percent of a Boards members be independent.


James E. Grant, CPA