§80a–16 Board of Directors

Summary

Directors of a registered investment company must be chosen by the company’s shareholders at a proper annual or special meeting. If a director’s seat opens between meetings, it can be filled temporarily in any legal way, but after the fill at least two-thirds of the people on the board must have been elected by shareholders at such meetings. If fewer than a majority of current directors were elected by shareholders, the company must hold a shareholders’ meeting to elect directors as soon as possible and no later than 60 days, unless the SEC allows more time. Advisory-board members are not covered. A company may split its board into classes if its governing documents allow it, but each class must serve at least one year and no more than five years, and at least one class’s term must end each year. If a vacancy must be filled by someone who is not an “interested person” for certain transaction rules, that person must be picked by a majority of the non-interested directors and then elected by the shareholders; if that director dies, is disqualified, or resigns, the vacancy can be filled as described above. A common-law trust that existed on August 22, 1940, and whose trust papers do not call for trustee elections is treated differently. No natural person may keep serving as a trustee after shareholders holding at least two-thirds of the outstanding shares declare removal in writing or vote for removal at a meeting. Soliciting such written removal counts as asking for a proxy. Trustees must call a meeting to consider removal if shareholders holding at least 10% ask in writing. Ten or more shareholders who have held shares for at least six months and who together own either at least $25,000 in net asset value of shares or at least 1% of the shares (whichever is less) may ask trustees for help to contact other shareholders. Within five business days the trustees must either give those applicants a list of shareholder names and addresses, or tell them how many shareholders there are and how much mailing would cost. If trustees choose the cost option, they must mail the applicants’ material to shareholders when the applicants pay the mailing costs, unless within five business days the trustees file with the Commission a written statement signed by a majority of trustees saying the material is false, misleading, or illegal. The SEC can hold a hearing and rule on those objections. If the SEC refuses the objections or later finds they have been fixed, the trustees must mail the material promptly.