IM Guidance Update

F e b r u a ry 2014 | No. 2014- 0 2

US Securities and Exchange Commission

Division of Investment Management

UNBUNDLING OF PROXY PROPOSALS—INVESTMENT COMPANY 

CHARTER AMENDMENTS

The Division has received inquiries from registrants with respect to amendments to 

investment company charters in light of the requirements of Rule 14a-4 under the 

Securities Exchange Act of 1934. As a result, and in an effort to encourage consistent 

application of the rule, the staff is providing the following guidance.

Rule 14a-4(a)(3) under the 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, together commonly 

referred to as the Commission’s “unbundling” rule, are intended to provide a means 

for shareholders to communicate their views to the board of directors on each matter 

to be acted upon.1

 The Division staff’s long-time position has been that, in accordance 

with Rule 14a-4, a matter should be voted upon separately if the Investment Company 

Act of 1940, state law, or a fund’s organizational documents (charter, by-laws) require 

a matter under consideration to be submitted to shareholders.

Division staff has commented 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: (1) amend voting rights from one vote per share to one vote per dollar 

of net asset value; (2) authorize a fund to involuntarily redeem small account balances; 

(3) authorize a fund to invest in other investment companies; (4) change supermajority 

voting requirements; (5) authorize the board to terminate a fund or merge with another 
IM GUIDANCE UPDATE 2

fund without a shareholder vote; and (6) authorize the board to make future amendments to the charter without a shareholder vote.2 Notwithstanding the requirements of 

Rule 14a-4, the rule does not prohibit a soliciting party from conditioning effectiveness 

of any proposal on the adoption of one or more other proposals, if permitted by state 

law.3 Further, 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.4

Endnotes

1 Securities Exchange Act Release No. 31326 (Oct. 16, 1992) [57 Fed. Reg. 48276, 

48287 (Oct. 22, 1992)].

2 See, e.g., Division of Corporation Finance: Manual of Publicly Available Telephone 

Interpretations, Fifth Supplement (Sept. 2004), available at: http://www.sec.gov/

interps/telephone/phonesupplement5.htm (examples of affected charter or bylaw 

provisions that generally would be required to be set out as separate proposals 

in merger and acquisition transactions include corporate governance-related and 

control-related provisions).

3 Securities Exchange Act Release No. 31326, 57 Fed. Reg. at 48287.

4 See Division of Corporation Finance: Compliance and Disclosure Interpretations, 

Question 101.02 (Jan. 24, 2014), available at: http://www.sec.gov/divisions/corpfin/

guidance/14a-interps.htm.

This IM Guidance Update summarizes the views of the Division of Investment Management 

regarding various requirements of the federal securities laws. Future changes in laws or 

regulations may supersede some of the discussion or issues raised herein. This IM Guidance 

Update is not a rule, regulation or statement of the Commission, and the Commission has 

neither approved nor disapproved of this IM Guidance Update.

The Investment Management Division works to:

s protect investors

s promote informed investment decisions and 

s facilitate appropriate innovation in investment products and services 

through regulating the asset management industry.

If you have any questions about this IM Guidance Update, please contact:

Disclosure Review Office

Phone: 202.551.6921

Email: IMOCC@sec.gov