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SEC Adopts Advisory Contract Disclosure Requirements
Washington, DC, June 25, 2004 – The SEC has adopted rule and form amendments intended to improve the disclosure provided by registered management investment companies about how their boards of directors evaluate and approve, and recommend shareholder approval of, investment advisory contracts.
The new rule and form amendments require a registered management investment company to provide disclosure in its reports to shareholders regarding the material factors, and conclusions with respect to those factors, that formed the basis for the board’s approval of advisory contracts during the most recent fiscal half-year. The amendments also are designed to encourage improved disclosure in proxy statements regarding the basis for the board’s recommendation that shareholders approve an advisory contract.
The SEC also amended the fund recordkeeping rule to require that funds retain copies of the written materials that directors considered in approving an advisory contract. This recordkeeping requirement will facilitate SEC compliance examiners’ review of whether directors are obtaining the necessary information to make an informed assessment of the advisory contract.
The requirements apply to all registered management investment companies, and will apply to all shareholder reports filed on or after March 31, 2005, and all proxy statements filed on or after October 31, 2004.
The Institute has strongly supported the SEC's ongoing efforts to enhance the regulatory framework that governs mutual funds. The rulemaking process overseen by the SEC has afforded all concerned parties ample opportunity to make known their views on proposed reforms, resulting in a vigorous and informed debate on an important policy question that the SEC today has resolved.
In an April 2004 letter to the SEC, the Institute expressed support for the investment advisory contract proposal, stating its belief that, by making the information more readily available to shareholders, they will better understand one of the most important responsibilities of fund directors.
A section of this website is devoted to the Institute’s support for a strong system of mutual fund governance and the critical role of mutual fund directors in safeguarding the interests of fund shareholders.