Andrew J. Donohue, Director of the SEC's Division of Investment Management, gave the keynote address at the Investment Company Institute's 2009 Mutual Funds and Investment Management Conference in Palm Desert, California on Monday. In his address, he outlined his staff's priorities for the coming year – priorities that are especially important in light of the turmoil in the markets over the past six months and the current emphasis in Washington on regulatory reform. Although many of the topics he discussed are likely to receive more extensive coverage here and elsewhere in the coming weeks, what follows a brief overview of the comments he made that are of most importance to independent directors:
Rule 12b-1 – Donohue noted that although reform of Rule 12b-1 has been a goal of the Division during the past few years, SEC proposal of a new rule will be deferred until at least next year due to the press of other priorities. Donohue did note that the factors in the current rule “are outdated and detract from effective board oversight.” He therefore suggested the possibility of providing directors with new guidance on the current rule prior to proposing reforms.
Valuation – While the staff and Commission are not yet ready to issue new comprehensive guidance on valuation of portfolio holdings, the staff recently published, as an interim step, a bibliography of all prior staff and Commission guidance on the topic. According to Donohue, the bibliography is intended “to assist funds and their counsel in understanding and applying the valuation requirements under the [Investment Company] Act.” The bibliography can be read at http://www.sec.gov/divisions/investment/icvaluation.htm.
Director Review of Soft Dollar Arrangements – Donohue noted that staff hopes to finalize last year's proposed guidance on director oversight of soft dollar arrangements. The proposed guidance is available at http://sec.gov/rules/proposed/2008/34-58264.pdf; the Forum's comments on the proposed guidance are available at http://www.mfdf.com/documents/MFDFCommentLetter-ICARel.28345.pdf.
Director Outreach and Regulatory Modernization – Donohue also noted that, as a follow-up to his program of reaching out to fund directors and attending their board meetings, the Division's staff is preparing recommendations to the Commission on updating the rules under the Investment Company Act. The recommendations would be designed to modify unnecessary director obligations under the rules and provide directors with better guidance, and thereby allow directors to be more efficient and more able to focus on oversight rather than day-to-management of the funds they oversee. The Forum has previously submitted its own recommendations to the Division on this topic. Our recommendations are available at http://www.mfdf.com/documents/DirectorDutiesMFDFLetterMay22008.pdf.
Annual and Semi-Annual Fund Reports -- Donohue noted that, as a follow-up to the adoption of the summary prospectus rule, the staff would now consider making recommendations to the Commission to revise fund annual and semi-annual reports to make them more useful for fund investors.
Money Market Funds – Finally, Donohue noted that the staff and Commission would be reviewing Rule 2a-7 (the rule that governs money market funds) in order to better protect money market investors and make money market funds better able to withstand the types of severe market stresses that have occurred over the past six months.
The full text of Donohue's speech can be read at http://www.sec.gov/news/speech/2009/spch032309ajd.htm.