- SEC Reminds Funds That Shareholders Should Be Allowed to Vote on Each Material Amendment to Charter Documents
- March 6, 2014 | Authors: Peter D. Fetzer; Terry D. Nelson
- Law Firms: Foley & Lardner LLP - Milwaukee Office ; Foley & Lardner LLP - Madison Office
The Staff of the Division of Investment Management has issued guidance to funds reminding them that when shareholders are voting on amendments to the charters of investment companies, shareholders should be provided a separate vote on each material amendment to the charters.
Rule 14a-4(a)(3) under the Securities Exchange Act requires that the form of proxy “identify clearly and impartially each separate matter to be acted upon, whether or not related to or conditioned on the approval of other matters ....” Further, Rule 14a-4(b)(1) requires that the form of proxy provide separate boxes for shareholders to choose between approval, disapproval or abstention “with respect to each separate matter referred to therein as intended to be acted upon ....” These rules are commonly referred to as the SEC’s “unbundling” rule, and they are intended to provide a means for shareholders to communicate their views to the board of directors on each matter to be acted upon.
The Staff has commented in the past that proposed amendments to the charters of investment companies should be “unbundled,” providing separate votes for each proposed material amendment. While there is no bright-line test for determining materiality in the context of Rule 14a-4(a)(3), the Staff believes that investment companies should consider whether a given matter substantively affects shareholder rights.
Examples of proposed material amendments to the charters of investment companies that the staff has commented should be presented separately include, among other things, proposals seeking to:
- Amend voting rights from one vote per share to one vote per dollar of net asset value;
- Authorize a fund to involuntarily redeem small account balances;
- Authorize a fund to invest in other investment companies;
- Change supermajority voting requirements;
- Authorize the board to terminate a fund or merge with another fund without a shareholder vote; and
- Authorize the board to make future amendments to the charter without a shareholder vote.