On December 16, 2009, the Securities and Exchange Commission ("SEC") adopted proxy rule and registration statement form amendments that impact disclosures about directors and director nominees of management investment companies registered under the Investment Company Act of 1940 ("funds"). These amendments are generally effective February 28, 2010, as discussed below. The text of the amended rules and forms is available here.
The final rules require enhanced disclosure of the background and qualifications of directors and director nominees provided in fund proxy statements. In particular, the final rules require disclosure of:
- Director and Nominee Qualifications. For each director or nominee for election as director, funds must disclose the specific experience, qualifications, attributes or skills that led to the conclusion that the person should be a director of the fund at the time that the disclosure is made in light of the fund's business and structure. If material, this disclosure should cover more than the past five years, including information about the person's particular areas of expertise or other relevant qualifications.
- Past Directorships. Funds must disclose any directorships held by each director and nominee at any time during the past five years at any public company or registered investment company.
- Legal Proceedings. Funds must disclose legal proceedings involving a fund's directors, nominees, and executive officers. The final rules also lengthen the time frame for disclosure of all legal proceedings from five to ten years.
The final rules also amend Forms N-1A, N-2, and N-3 (collectively, the "Forms") to require expanded statement of additional information disclosures regarding director and nominee qualifications and past directorships.
In addition, the final rules amend the Forms to include new disclosure about a fund board's leadership structure and the board's role in the risk oversight of the fund. As part of this disclosure, funds are required to disclose the responsibilities of the board of directors with respect to the fund's management and whether the chairman of the board is an interested person of the fund. If the chairman of the board is an interested person of the fund, specified additional information must be disclosed.
The SEC Division of Investment Management published, on December 23, 2009, interpretative guidance in the form of frequently asked questions ("FAQs") that clarify when funds need to comply with the disclosure requirements above. The FAQs can be viewed here, and provide as follows:
- Existing Fund's Fiscal Year Ends on or after December 20, 2009. An existing fund (or a series of a fund) with a fiscal year that ends on or after December 20, 2009, will need to comply with the disclosure requirements with regard to any proxy statement, registration statement or post-effective amendment filed on or after February 28, 2010. If a fund files a preliminary proxy statement and expects to file its definitive proxy statement on or after February 28, 2010, then the preliminary proxy statement must comply with the new disclosure requirements, even if filed before February 28, 2010.
- New Fund Files Registration Statement on or after December 20, 2009. A new fund that files its registration statement (or an existing fund that adds a new series) on or after December 20, 2009, must comply with the new disclosure requirements in order for the registration statement to be declared effective on or after February 28, 2010.
- Existing Fund's Fiscal Year Ends before December 20, 2009. An existing fund (or a series of a fund) with a fiscal year that ends before December 20, 2009, will need to comply with the new disclosure requirements with regard to any registration statements, posteffective amendments, and proxy statements filed after the end of the fund's 2010 fiscal year, even if filed on or after February 28, 2010. However, funds may comply with the new disclosure requirements on a voluntary basis.