SEC Says Fund Must Include Proxy Proposal on Election of Directors

The SEC Division of Investment Management declined a request to take a no-action position from a registered investment company (the "Fund") that sought to exclude proxy materials on a shareholder proposal to "declassify" the Fund's Board.

The challenged shareholder proposal concerned a vote on whether to require the Fund's Board of Directors to take all necessary actions to declassify the Board "so that all directors are elected on an annual basis starting at the next annual meeting of shareholders." The proposal stated that the declassification "shall be completed in a manner that does not affect the unexpired terms of the previously elected directors."

In its request for relief, the Fund asked that the proposal and supporting statement be excluded pursuant to Rule 14a-8(i)(3) ("Shareholder proposals") under the Securities Exchange Act, because the materials contained materially false and misleading statements contrary to Rule 14a-9 ("False or misleading statements) under the Exchange Act.

The SEC concluded that it was unable to concur that the Fund may exclude the proposal under Rule 14a-8(i)(3) and cannot assure that it would not recommend enforcement action if the Fund omitted the proposal or portions of the supporting statement from its proxy materials in reliance on Rule 14a-8(i)(3).