Marvin L. Mann
Chairman of the Independent Trustees
The Fidelity Funds
P.O. Box 55235
Boston, Massachusetts 02205-5235
March 9, 2004
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Attention: Jonathan G. Katz, Secretary
Investment Company Governance (File No. S7-03-04)
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 Independent Trustees appreciate the opportunity to comment on the proposed amendments that would require funds that rely on certain exemptive rules under the Investment Company Act of 1940 to adopt certain governance practices. We support the goal of enhancing the independence and effectiveness of fund boards and improving their ability to protect the interests of funds and their shareholders. We believe that the proposals put forward by the Securities and Exchange Commission (the "SEC" or "Commission") generally are tailored to meet this goal. We are concerned, however, that some aspects of the Commission's proposal may unnecessarily impinge on the discretion of a fund's board of trustees to determine how best to structure its internal processes.
We support several of the changes that the Commission has proposed:
Board Composition: The proposed amendments would require that independent trustees constitute at least seventy-five percent of the board of a mutual fund that relies on the exemptive rules. We support that amendment. A supermajority may be the best assurance that the independent trustees control the board. The Independent Trustees of the Fidelity Funds constitute more than 70 percent of the board.
Trustee Self Assessment: The proposed amendments would require fund trustees to perform an evaluation, at least once annually, of the effectiveness of the board and its committees. We support the amendment, particularly its focus on committees. We believe that a well-functioning board needs to have an effective and flexible committee structure to ensure that all necessary work is completed, based on the right mix of information.
We do have two suggestions. First, it should be made clear that the independent trustees may meet separately in connection with this process. While it may be of value to include the interested trustees in the process, in some contexts candor may be best served by providing the independent trustees with flexibility in this regard. Second, the SEC should take such action as is necessary to assure that the results of a candid trustee self-assessment do not become litigation risks.
Separate Sessions: The proposed amendment would require that independent trustees be required to meet at least once quarterly in a separate session at which no interested persons of the fund are present. We support this proposal. Separate meetings of the independent trustees are important. At every Board meeting, we reserve a substantial amount of time for sessions limited to Independent Trustees. At these meetings we discuss the agenda, the agendas for future meetings and other matters relating to our oversight of the Fidelity Funds.
The SEC may wish to consider requiring that separate sessions of the independent trustees be held regularly rather than quarterly. Our concern is that requiring meetings to be held quarterly will result in quarterly meetings becoming the norm, when in the case of some fund boards, more frequent meetings may be appropriate. The Fidelity Funds Board meets 11 times a year.
Independent Director Staff: The proposed amendments would require that independent trustees be explicitly authorized to hire employees and others to help the independent directors fulfill their fiduciary duties. We support this provision. While the Independent Trustees have not felt it necessary to retain employees, we do retain independent counsel and, from time to time, other consultants.
We do not support the proposal to require that the chairman of a fund board be an independent trustee. A well-functioning board, as in the case of the Fidelity Funds board, can act independently and effectively without having an Independent Trustee serve as chairman. The key structural component of assuring that independent trustees are in a position to control the board is to ensure that they constitute a substantial majority of the board, as the SEC has proposed.
There may be some fund boards where governance might be improved if a particular individual, who also happened to be an independent trustee, served as chairman. But in the case of most funds, that may not be the case. We believe the independent trustees are the parties in the best position to make this decision. The SEC and the Investment Company Act authorize independent trustees to make a number of important decisions with respect to various matters, including the approval of investment advisory contracts, underwriting agreements and determinations under various rules that address conflicts of interest. Removing from the independent trustees the discretion to elect the board chairman seems to me to be in basic conflict with that approach, particularly if, as proposed, the independent trustees must be at least a majority of the board.
The Sarbanes-Oxley Act strengthened corporate governance for public operating companies. Wisely, it did not require corporate boards to have independent chairs. We feel strongly that mandating a governance structure that requires an independent chairman is not in the best interests of all funds or all shareholders.
The SEC may wish to consider requiring that a majority of the independent trustees of a fund have the authority to elect and remove the board chairman. This would assure that the power to select the chairman is in the hands of the independent trustees.
The Independent Trustees appreciate the opportunity to present our views on the Commission's proposals, and would be pleased to provide any additional information that would assist the Commission in its consideration of the proposals. Please contact the undersigned at (859) 232-6300 with any questions.
Very truly yours,
/s/ Marvin L. Mann
Marvin L. Mann
Chairman, Independent Trustees