Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, March 6, 2007

SEC Staff Speech On Mutual Fund Directors

Excerpts from Keynote Address at the Mutual Fund Directors Forum Institute by Andrew J. Donohue Director, Division of Investment Management, U.S. Securities and Exchange Commission:

I have committed to focus this year on reaching out to fund directors, with the ultimate goal of determining what the SEC and the staff of the Division of Investment Management can do to enable you to be more effective in your oversight role. My goal is not to make your jobs easier, but to allow you to be more effective.....

Another piece of advice that I continually give to fund managers is to get back to basics. Fund managers should be focusing on their basic compliance duties and obligations, some of which have - surprisingly - been overlooked. For example, the Investment Company Act prohibits the payment of a dividend or distribution from any source other than net income unless the payment is accompanied by a written statement identifying the source of the payment. This is a basic and fundamental requirement. However, last year, the Commission settled a case in which three closed-end funds, over a four-year period, made 98 distributions that included a return of capital. None of those distributions was accompanied by the required written statement. I was shocked that a requirement so fundamental was so thoroughly ignored.

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