The staff of the SEC’s Division of Investment Management issued a Guidance Update discussing its position that a single proxy proposal to amend an investment company charter must be “unbundled” to provide a separate vote for each proposed material amendment contained in the proposal. Cautioning that there is no bright line test for materiality, the Guidance Update instructs funds to consider whether “a given matter substantively affects shareholder rights” in determining materiality. The Guidance Update provides the following provides examples of proposals the staff has commented should be presented separately:
- 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.
The Guidance Update notes that (a) a soliciting party is not prohibited from conditioning a proposal on the adoption of other proposals if permitted by state law and (b) the staff has not objected to “bundling” proxy proposals that are ministerial in nature (e.g., proposals involving editorial or non-substantive changes to fund documents) or otherwise immaterial with a single material matter.