SEC Initiatives Affecting Mutual Funds

December 3, 2003

The SEC proposed rule amendments requiring that an order to purchase or redeem fund shares be received by the mutual fund, its primary transfer agent, or a registered securities clearing agency by the time that the fund establishes for calculating its net asset value (usually 4:00 p.m. EST) in order to receive that day’s price.
The SEC proposed enhanced disclosure requirements relating to: (1) a fund’s market timing policies and procedures; (2) its practices regarding “fair valuation” of its portfolio securities; and (3) its policies and procedures with respect to disclosure of its portfolio holdings.
The SEC adopted a rule that requires a fund to: (1) adopt comprehensive compliance policies and procedures, which must be approved by the fund’s board; (2) conduct an annual review of its policies and procedures; and (3) designate a chief compliance officer, who must report to the fund’s board at least annually.

The SEC issued a concept release seeking public comment on issues relating to disclosure of mutual fund transaction costs.
The SEC proposed amendments requiring mutual funds to provide enhanced disclosure regarding breakpoint discounts on front-end sales loads.

The SEC proposed amendments to certain of its rules that would require virtually all funds to have boards of directors that satisfy the following standards:
- Independent directors must constitute at least 75% of the board.
- The board must appoint an independent director as its chairman.
- The board must conduct an annual self-assessment, including consideration of its committee structure and the number of funds on whose boards the directors serve.
- The independent directors must meet separately at least quarterly.
- The independent directors must have the authority to hire their own staff.
The SEC proposed a rule that would require registered investment advisers to adopt and enforce codes of ethics applicable to their supervised persons. The code would have to include certain minimum provisions, including reporting of personal securities holdings and transactions in mutual funds managed by the adviser or an affiliate.
The SEC proposed rules requiring broker-dealers to provide their customers with targeted information, at the point of sale and in transaction confirmations, regarding the costs and potential conflicts of interest that arise from the distribution of mutual fund shares.

The SEC proposed an amendment to Rule 12b-1 under the Investment Company Act of 1940 that would prohibit mutual funds from using brokerage commissions to pay broker-dealers for selling fund shares.
The SEC adopted amendments requiring mutual funds to: (1) disclose semi-annually the dollar amount of fees and expenses paid by shareholders; and (2) increase to quarterly the frequency with which they disclose their portfolio holdings.
The SEC proposed amendments requiring a mutual fund to disclose in its annual reports to shareholders the reasons supporting the directors’ decision to approve the fund’s investment advisory contract.

The SEC proposed rules requiring a mutual fund to impose a mandatory redemption fee of 2% on the sale of fund shares within five days of the original investment, with certain limited exceptions.

The SEC proposed amendments requiring enhanced disclosure regarding portfolio managers, their incentives in managing a fund, and the potential conflicts of interest that may arise when they also manage other investment vehicles.

The SEC adopted, with certain modifications, its December 3rd proposal to require enhanced disclosure relating to: (1) a fund’s market timing policies and procedures; (2) its practices regarding “fair valuation” of its portfolio securities; and (3) its policies and procedures with respect to disclosure of its portfolio holdings.

The SEC adopted amendments to Form N-1A that require mutual funds to provide enhanced disclosure regarding breakpoint discounts on front-end sales loads. The adopted amendments are substantively identical to those proposed by the SEC on December 17th.
The SEC adopted, with certain modifications, the rule proposed on January 14th to require registered investment advisers to adopt and enforce codes of ethics applicable to their supervised persons.

The SEC adopted amendments requiring a fund to disclose in its annual reports to shareholders the reasons supporting the directors’ decision to approve the fund’s investment advisory contract.
The SEC adopted amendments to several exemptive rules that will require virtually all funds to have boards of directors that satisfy certain new governance standards (e.g., fund board must have at least 75% independent directors and an independent chair).

July 12, 2004