SEC May Require Proxy Voting Disclosures in Revised Form ADV

January 14, 2000

The Securities and Exchange Commission ("SEC") is considering requiring investment advisors to disclose how they vote their portfolio proxies and what process they use to determine how they will vote. The disclosures would be made as part of the revised Form ADV, the primary registration and disclosure document for investment advisors. On April 3, 1997, the Securities and Exchange Commission ("SEC") adopted six final rules implementing some of the provisions of the Improvement Act. The new rules, which are discussed in detail below, become effective on June 9, 1997.

The SEC has never required disclosures of proxy voting by advisors. Citing proxy votes on executive compensation packages and anti-takeover provisions as examples, Paul Roye, director of the SEC's division of investment management, recently proffered that such voting can impact on shareholder value. According to SEC Commissioner Paul R. Carey, another concern involves conflicts of interest that may exist if, for example, fund advisors vote to please company directors in order to get or retain corporate pension fund business management. As a result, the SEC believes investors should be aware of how investment advisors vote their portfolio proxies.

The proposed requirement for investment advisor disclosure of portfolio proxy voting history is being considered in connection with other proposed revisions to Form ADV. The form is being revised to reflect the SEC's move toward plain English in all disclosure documents.

Part two of Form ADV, the "brochure" that is provided to clients, will change from a question and answer format to a narrative format. There are also plans to update the form to allow more electronic filing of amendments. The form will also disclose certain disciplinary actions that are not addressed in the current form and, therefore, are not currently being disclosed to potential investors. The form will also require greater disclosure of soft dollar practices.

The SEC anticipates that the revised Form ADV will be ready in the second quarter of the year.

If you would like further information about Form ADV or to discuss other issues relating to hedge funds and their investment managers, contact Howard A. Neuman at (212) 818-9200.