From: Roy Sandstrom [roysands@voicenet.com]
Sent: Wednesday, March 10, 2004 11:38 PM
To: rule-comments@sec.gov
Subject: S7-03-04: 

As a mutual fund investor for over a quarter century in several different funds 
and fund families, I am pleased to see the SEC address several aspects of fund 
governance which have cried out for attention for some time. Yet I am concerned 
that when attempting to pursue laudable reform goals, government and, in this 
case in particular, the SEC can overreach and pursue courses of action which 
lead to micromanagement. What we move toward are enterprises which are 
over-bureaucratized and take on aspects of state-managed institutions.  One of 
the positive aspects of our economic system is its inherent flexibility when not 
constrained by unnecessary regulation.  We need to exercise care in drawing the 
appropriate line between a system that is an unfettered capitalist free-for-all 
and and a system that ultimately doesn't serve shareholders because it becomes 
excessively rigid.

I concur with the steps you have taken and are proposing to have a board with a 
supermajority.  The percentage necessary could be debated between 75% or 70% 
with quorum rules for the independent directors.  With the addition of a chief 
compliance officer directly reporting to the board and an independent legal 
counsel you have put the independent directors in control.  With this control 
they can also hire anyone else, including outside auditors, they deem necessary.  

No other hires should be prescribed by SEC regulation; you've created the 
control, so let them exercise this authority in creating a structure that is 
appropriate for the circumstances of the particular fund or family of funds.  
This includes the determining the chairmanship.  I disagree that the SEC should 
prescibe the only alternative as an outside director for the chair.  In this 
area one concern I would have is the depth of the talent pool, especially 
considering that we're moving to separate chairs in corporations and mutual 
funds. Does the chair have to have a background with a financial firm?  With the 
fund industry?  Of course we need to retain experienced people in the regulatory 
bodies also.  There will be significant demands on all independent directors, 
but an independent chair will need to be particularly qualified.  If you feel 
that some boards have been in over their heads up until now, I am not confident 
that bringing in an independent chair is a panacea for this, and may in fact be 
detrimental.
 
Instead of being concerned about the influence of the chair in the boardroom, I 
would recommend that the commissioners look at how better to give shareholders 
more presence in the boardroom by making it easier for shareholders to offer 
nominations--even independent of the ostensibly independent directors.  This is 
more likely to make all directors more accountable to the shareholders and 
improve the protection of fund shareholders with a better self-correcting 
mechanism, should the shareholders become aggrieved.  

Shareholders can assess the governance structure of a fund in the same way they 
look at issues of fund performance, fund expenses, fees, and loads.  We must 
allow for a range of approaches.  Funds that are well managed operationally and 
have shareholder-friendly policies will attract assets and thrive.  We must not, 
even with all the best intentions, actually drive up the cost of investing, 
create less flexible, efficient, and effective management, and perhaps diminish 
overall shareholder returns.   

Thank you for your efforts and your indulgence in receiving the opinion of an 
individual investor.

Sincerely,
Roy Sandstrom