Via e-mail

7 February 2000

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

RE: File No. S7-23-99; Role of Independent Directors of Investment Companies

Dear Mr. Katz:

The Association for Investment Management and Research (AIMR)1 is pleased to comment on the U.S. Securities and Exchange Commission's proposed rule amendments related to the role of independent directors of investment companies. AIMR's Advocacy Advisory Committee2 (AIMR Committee) provides its comments below.

Background and Summary

The SEC has proposed rule amendments designed to enhance the independence of boards of directors of investment companies and to provide greater disclosure to investors so that they may be better able to assess the independence of directors. The proposal affirms the important role that independent directors play in protecting fund investors. The AIMR Committee strongly supports efforts to protect the investing public and to increase investor confidence in the industry through regulation that addresses the independence of investment industry professionals and the improvement of full and fair disclosure. The AIMR Committee's support for the fundamental principles of independence and disclosure underlies its broad support for the SEC's proposal. The AIMR Committee believes also that such investor protections should be well balanced against the burden of regulatory compliance, which can increase fees that are ultimately borne by investors. The AIMR Committee believes that minimizing regulation can be achieved while maintaining adequate disclosures and other safeguards that preserve investor confidence and protection. The AIMR Committee strongly encourages the SEC to consider this view while it considers adopting new investment company rules.

AIMR Position

The AIMR Committee believes that the independence of fund directors is essential to investor protection. Fund directors occupy a unique role in a fund's corporate governance in that the fund's advisers employ them to oversee the fund's operations and protect the interests of their shareholders. Conflicts of interest can arise, however, between a fund and its investment adviser because the interests of the fund do not always align with the interests of the adviser. Independent directors monitor the potential conflicts of interest that can arise between a fund and its adviser. Furthermore, conflicts can arise from certain positions, interests, transactions, and relationships of fund directors that could affect their allegiance to shareholders. To protect the interests of fund shareholders effectively in light of these conflicts, the AIMR Committee believes that fund directors must be required to maintain their independence.

The AIMR Committee recognizes that conflicts of interest that hinder independence are inherent to the role of fund directors and abound in the investment industry. Rather than abolish these conflicts, the AIMR Committee instead believes that investor protection depends on setting effective guidelines based on high ethical and professional standards, such as the AIMR Code of Ethics and Standards of Professional Conduct (Code and Standards).

The Code and Standards require AIMR members, CFA charterholders, and candidates in the CFA Program to maintain independence and objectivity so that their work and opinions are unaffected by any potential conflicts of interest or other circumstances that may adversely affect their judgment. Every member should endeavor to avoid situations that might cause, or be perceived to cause, a loss of independence or objectivity. However, when they do exist, the Code and Standards plainly require members to disclose fully all actual and potential conflicts of interest that could possibly impair an AIMR member's ability to make unbiased and objective decisions and recommendations. Effective disclosure provides information that is vital to investors' ability to evaluate the independence and objectivity of the information that they are being provided.

It is within this framework that AIMR, as a global leader in setting high ethical and professional standards for investment professionals, promotes investor protections and confidence in the investment industry by advocating the fundamental principles of independence and disclosure. The AIMR Committee applauds the SEC for proposing rule amendments that promote similar ideals. However, the AIMR Committee acknowledges the administrative and cost burden that increased regulation can have on fund management. Consequently, the AIMR Committee strongly encourages the SEC to streamline investment company regulation while also ensuring that investors continue to receive the information they need to make informed investment decisions.


The AIMR Committee appreciates the opportunity to provide comments on this proposal to define the role of independent fund directors and to improve related disclosures. Please do not hesitate to contact Deborah Lamb at 404.724.4233 or; or Philippa Hughes at 804.951.5332 or should you have any questions or need additional information.


/s/ Deborah A. Lamb
Deborah A. Lamb, Chair
AIMR Advocacy Advisory Committee

/s/ Philippa P.B. Hughes

Philippa P.B. Hughes
AIMR Advocacy Program


1 The Association for Investment Management and Research is a global, nonprofit organization of over 41,000 investment professionals from 91 countries. Through its headquarters in the U.S. and 94 Member Societies and Member Chapters throughout the world, AIMR provides global leadership in investment education, professional standards, and advocacy programs.

2 The Advocacy Advisory Committee coordinates the priorities of AIMR's Advocacy committees and reviews major new regulatory, legislative, and other developments affecting AIMR's global membership.