In a June 28 editorial about a Securities and Exchange Commission rule on the makeup of mutual fund boards, The Post said: "Until now, the mutual fund board members have been mainly people who work for the investment firm that manages the money; Fidelity Investments (to take one well-known example) has been negotiating with itself about what fees might be reasonable."

This is not true:

* Independent directors have formed a majority on most mutual fund boards for many years. In 2001, the SEC applied the requirement of having 50 percent independent directors to almost all mutual funds. For many years, Fidelity has voluntarily had a supermajority of independent directors on its board.

* The Investment Company Act requires that annual approval of a fund adviser's management fees result from not only a vote of the fund's board but also a separate vote of the fund's independent directors. Further, no mutual fund board has the sole authority to approve any change to a fund adviser's management contract that increases the fees paid to the adviser. Any such change must be approved not only by the board, with the independent directors also voting separately, but by fund shareholders.

During the debate on the SEC's proposal for an independent chairman, advocates frequently asked: If a fund's adviser has its own shareholders, how can an officer or chairman of that adviser also serve as chairman of the fund's board and perform fiduciary duties for two sets of shareholders?

The answer is that the adviser has chosen to enter a fiduciary business -- the management of other people's money -- so its interests and those of its shareholders cannot take precedence over the interests of the funds it manages and the shareholders of those funds. This duty of loyalty applies regardless of whether the fiduciary happens to be a public company, a private company -- like Fidelity -- or a sole proprietorship.

Fidelity opposed the independent chairman mandate because it took away the right of independent board members elected by shareholders to choose the chairman they believe is best suited to serve the interests of those shareholders. Notwithstanding its position on this issue, Fidelity endorses the principles of full and timely disclosure to investors, fiduciary duty, effective board oversight and investor choice that underlie the Investment Company Act.


Senior Vice President and General Counsel

Fidelity Management & Research Co.