SEC Votes To Adopt Additional 8-K Requirements and To Propose Amendments to Form 20-F and Fund Manager Disclosure Requirements


Washington, D.C., Mar. 11, 2004 -- The U.S. Securities and Exchange Commission today voted to publish for comment proposed amendments to Form 20-F, to adopt additional reporting requirements on Form 8-K and to publish for comment proposed disclosure requirements for portfolio managers of mutual funds and other registered management investment companies.

1. First-Time Adoption of International Financial Reporting Standards

The Commission voted to propose amendments to Form 20-F that would affect foreign private issuers that change their basis of accounting to international accounting standards, known as International Financial Reporting Standards (IFRS). Form 20-F generally requires a company to provide in its SEC filings three years of audited financial statements prepared on a consistent basis of accounting. The proposed amendments would

  • apply to companies that publish IFRS financial statements for the first time for any financial year beginning no later than Jan. 1, 2007;
  • allow those companies, for their first year of reporting under IFRS, to include only two years of audited financial statements in their SEC filings; and
  • require appropriate related disclosure.

The proposed amendments also would require any company that adopts IFRS for the first time, in any financial year

  • to provide disclosure related to exceptions from IFRS on which it relied; and
  • to include a specified level of information in the reconciliation from its previous system of accounting to IFRS.

The proposals are intended to ease the burdens that foreign companies may face when they adopt IFRS for the first time, while improving the quality of financial disclosure that they provide to investors. The proposals are addressed particularly at foreign issuers located in the European Union (EU), which under current EU law will generally be required to adopt IFRS for reporting on their 2005 financial year. The proposals are also intended to encourage other foreign companies to switch their accounting voluntarily to IFRS. These proposals will be open for public comment for a 30-day period following their publication in the Federal Register.

2. Form 8-K Disclosure Requirements and Filing Deadlines

The Commission voted to adopt amendments to Form 8-K, the Exchange Act form used by public companies to disclose important corporate events on a current basis. The amendments will add ten disclosure items to Form 8-K, including transferring two items to the current report from the periodic reports. The amendments will also provide investors with timelier disclosure by replacing the current five business and 15 calendar day Form 8-K deadlines with a new four business day deadline.

The amendments are responsive to the current disclosure goals of Section 409 of the Sarbanes-Oxley Act by requiring public companies to disclose, on a "rapid and current basis," material information regarding changes in a company's financial condition or operations as the Commission, by rule, determines to be necessary or useful for the protection of investors and in the public interest.

The eight new disclosure items include

  • entry into a material non-ordinary course agreement;
  • termination of a material non-ordinary course agreement;
  • creation of a material direct financial obligation or a material obligation under an off-balance sheet arrangement;
  • triggering events that accelerate or increase a material direct financial obligation or a material obligation under an off-balance sheet arrangement;
  • material costs associated with exit or disposal activities;
  • material impairments;
  • notice of delisting or failure to satisfy a continued listing rule or standard; transfer of listing; and
  • non-reliance on previously issued financial statements or a related audit report or completed interim review (restatements).

The two disclosure items transferred, in part, from the periodic reports are

  • unregistered sales of equity securities; and
  • material modifications to rights of security holders.

Expanded disclosure items include

  • departure of directors or principal officers, election of directors, or appointment of principal officers; and
  • amendments to Articles of Incorporation or Bylaws and change in fiscal year.

The amendments will create a limited safe harbor under Exchange Act Section 10(b) and Rule 10b-5 for failure to file timely seven of the new items on Form 8-K. The safe harbor will not apply to, or impact, any other duty to disclose a company may have and extends only until the due date of the company's periodic report for the relevant period.

Compliance with these amendments will be required as of Aug. 23, 2004.

3. Disclosure Regarding Portfolio Managers of Registered Management Investment Companies

The Commission decided to propose amendments to its forms that are designed to improve the disclosure that mutual funds and other registered management investment companies provide about their portfolio managers. These proposals are intended to provide greater transparency 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 amendments that the Commission voted to propose include the following:

  • Identification of Portfolio Management Team Members. The proposals would extend the existing requirement that a fund provide basic information in its prospectus regarding its portfolio managers to include the members of management teams. A fund would be required to state the name, title, length of service, and business experience of each member of a portfolio management team, and to provide a brief description of each member's role on the management team.
  • Disclosure Regarding Other Accounts Managed and Potential Conflicts of Interest. The proposals would require a fund to provide disclosure in its Statement of Additional Information (SAI) regarding other accounts managed by the fund's portfolio manager (e.g., hedge funds or pension plans), including the number of such accounts and the total assets in the accounts. In addition, the proposals would require a fund to describe any conflicts of interest that may arise in connection with the portfolio manager's simultaneous management of the fund and other accounts, and to include a description of the policies and procedures used to address any such conflicts.
  • Disclosure of Portfolio Manager Compensation Structure. The proposals would require a fund to describe in its SAI the structure of, and the method used to determine, the compensation of its portfolio managers.
  • Disclosure of Securities Ownership of Portfolio Managers. The proposals would require a fund to disclose in its SAI the dollar range of shares held in the fund by its portfolio manager, as well as the dollar range of shares held by the portfolio manager in each other account managed by the portfolio manager or the investment adviser.

    Comments on this proposal should be received by the Commission within 60 days of its publication in the Federal Register.

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    The full text of detailed releases concerning each of these items will be posted to the SEC Web site as soon as possible.



Last modified: 3/11/2004