●
|
Daily, weekly and monthly data on share prices, distributions and more
|
●
|
Portfolio overviews and performance analyses
|
●
|
Announcements, press releases and special notices
|
●
|
Fund and adviser contact information
|
December 31, 2012 |
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 3
|
DEAR SHAREHOLDER continued
|
December 31, 2012
|
4 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
QUESTIONS & ANSWERS
|
December 31, 2012
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 5
|
QUESTIONS & ANSWERS continued
|
December 31, 2012
|
6 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
QUESTIONS & ANSWERS continued
|
December 31, 2012
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 7
|
QUESTIONS & ANSWERS continued
|
December 31, 2012
|
8 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
QUESTIONS & ANSWERS continued
|
December 31, 2012
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 9
|
FUND SUMMARY (Unaudited)
|
December 31, 2012
|
Fund Statistics
|
|||
Share Price
|
$
|
8.20
|
|
Common Share Net Asset Value
|
$
|
8.93
|
|
Premium/(Discount) to NAV
|
-8.17%
|
||
Net Assets ($000)
|
$
|
170,253
|
Total Returns(1)
|
|||||
(Inception 8/25/05)
|
Market
|
NAV
|
|||
One Year
|
11.52 % | 6.60 % | |||
Three Year - average annual
|
9.96 % | 9.05 % | |||
Five Year - average annual
|
-0.37 % | -2.71 % | |||
Since Inception - average annual
|
-1.11 % | -0.24 % |
Long-Term Holdings
|
% of Long-Term
Investments
|
|||
SPDR S&P 500 ETF Trust
|
42.4
|
%
|
||
SPDR Dow Jones Industrial Average ETF Trust
|
28.6
|
%
|
||
iShares Russell 2000 Index
|
12.0
|
%
|
||
SPDR S&P MidCap 400 ETF Trust
|
4.8
|
%
|
||
Industrial Select Sector SPDR
|
4.8
|
%
|
||
PowerShares QQQ Trust, Series 1
|
4.5
|
%
|
||
SPDR S&P Retail ETF
|
2.4
|
%
|
||
Health Care Select Sector SPDR
|
0.5
|
%
|
Fund Breakdown
|
% of Net
Assets
|
|||
Long-Term Investments
|
137.3
|
%
|
||
Short-Term Investment
|
0.4
|
%
|
||
Total Investments
|
137.7
|
%
|
||
Total Value of Options Written
|
-1.2
|
%
|
||
Liabilities in excess of Other Assets
|
-0.1
|
%
|
||
Borrowings
|
-36.4
|
%
|
||
Total Net Assets
|
100.0
|
%
|
10 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
PORTFOLIO OF INVESTMENTS
|
December 31, 2012
|
Number
of Shares
|
Description
|
Value
|
||||
Long-Term Investments – 137.3%
|
||||||
Exchange Traded Funds (a) – 137.3%
|
||||||
27,800
|
Health Care Select Sector SPDR(b)
|
$
|
1,110,610
|
|||
294,900
|
Industrial Select Sector SPDR(b)
|
11,176,710
|
||||
332,900
|
iShares Russell 2000 Index
|
28,060,141
|
||||
162,000
|
PowerShares QQQ Trust, Series 1(b)
|
10,547,820
|
||||
510,700
|
SPDR Dow Jones Industrial Average ETF Trust(b)
|
66,850,630
|
||||
696,200
|
SPDR S&P 500 ETF Trust(b)
|
99,222,424
|
||||
60,200
|
SPDR S&P MidCap 400 ETF Trust(b)
|
11,179,742
|
||||
89,100
|
SPDR S&P Retail ETF
|
5,560,731
|
||||
(Cost $233,709,978)
|
233,708,808
|
|||||
Short-Term Investment – 0.4%
|
||||||
Money Market Fund – 0.4%
|
||||||
796,565
|
Dreyfus Treasury Prime Cash Management Institutional Shares
|
796,565
|
||||
(Cost $796,565)
|
||||||
Total Investments – 137.7%
|
||||||
(Cost $234,506,543)
|
234,505,373
|
|||||
Liabilities in excess of Other Assets – (0.1%)
|
(167,818
|
)
|
||||
Total Value of Options Written – (1.2%)
|
||||||
(Premiums received $2,788,818)
|
(2,084,449
|
)
|
||||
Borrowings – (36.4% of Net Assets or 26.4% of Total Investments)
|
(62,000,000
|
)
|
||||
Net Assets – 100.0%
|
$
|
170,253,106
|
Contracts
(100 shares
per contract)
|
Options Written
|
Expiration
Month
|
Exercise
Price
|
Value
|
|||||||
Call Options Written (c) – (1.2%)
|
|||||||||||
278
|
Health Care Select Sector SPDR
|
January 2013
|
$
|
41.00
|
$
|
(3,336
|
)
|
||||
2,949
|
Industrial Select Sector SPDR
|
January 2013
|
39.00
|
(53,082
|
)
|
||||||
3,329
|
iShares Russell 2000 Index
|
January 2013
|
84.00
|
(584,239
|
)
|
||||||
1,620
|
PowerShares QQQ Trust, Series 1
|
January 2013
|
66.00
|
(119,880
|
)
|
||||||
5,107
|
SPDR Dow Jones Industrial Average ETF Trust
|
January 2013
|
133.00
|
(416,221
|
)
|
||||||
6,962
|
SPDR S&P 500 ETF Trust
|
January 2013
|
145.00
|
(675,314
|
)
|
||||||
602
|
SPDR S&P MidCap 400 ETF Trust
|
January 2013
|
188.00
|
(109,865
|
)
|
||||||
891
|
SPDR S&P Retail ETF
|
January 2013
|
62.00
|
(122,512
|
)
|
||||||
Total Value of Options Written – (1.2%)
|
|||||||||||
(Premiums received $2,788,818)
|
$
|
(2,084,449
|
)
|
(a)
|
Securities represent cover for outstanding options written.
|
(b)
|
These securities have been physically segregated as collateral for borrowings outstanding.
|
(c)
|
Non-income producing security.
|
See notes to financial statements.
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 11
|
STATEMENT OF ASSETS AND LIABILITIES
|
December 31, 2012
|
Assets
|
||||
Investments, at value (cost $234,506,543)
|
$
|
234,505,373
|
||
Dividends receivable
|
141,666
|
|||
Other assets
|
31,566
|
|||
Total assets
|
234,678,605
|
|||
Liabilities
|
||||
Borrowings
|
62,000,000
|
|||
Options written, at value (premiums received of $2,788,818)
|
2,084,449
|
|||
Advisory fee payable
|
161,409
|
|||
Interest due on borrowings
|
58,965
|
|||
Administration fee payable
|
5,306
|
|||
Accrued expenses
|
115,370
|
|||
Total liabilities
|
64,425,499
|
|||
Net Assets
|
$
|
170,253,106
|
||
Composition of Net Assets
|
||||
Common stock, $.01 par value per share; unlimited number of shares authorized, 19,054,684 shares issued and outstanding
|
$
|
190,547
|
||
Additional paid-in capital
|
241,111,219
|
|||
Net unrealized appreciation on investments and options
|
703,199
|
|||
Accumulated net realized loss on investments and options
|
(71,751,859
|
)
|
||
Net Assets
|
$
|
170,253,106
|
||
Net Asset Value (based on 19,054,684 common shares outstanding)
|
$
|
8.93
|
See notes to financial statements.
|
12 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
STATEMENT OF OPERATIONS For the year ended December 31, 2012
|
December 31, 2012
|
Investment Income
|
|||||||
Dividends
|
$
|
1,087,057
|
|||||
Total income
|
|
$
|
1,087,057
|
||||
Expenses
|
|||||||
Advisory fee
|
2,179,916
|
||||||
Interest expense
|
628,387
|
||||||
Professional fees
|
167,764
|
||||||
Trustees’ fees and expenses
|
75,711
|
||||||
Fund accounting
|
66,407
|
||||||
Administration fee
|
63,443
|
||||||
Printing expense
|
50,864
|
||||||
Custodian fee
|
47,848
|
||||||
Insurance
|
25,264
|
||||||
NYSE listing fee
|
21,409
|
||||||
Transfer agent fee
|
18,204
|
||||||
Miscellaneous
|
8,420
|
||||||
Total expenses
|
|
3,353,637
|
|||||
Advisory fees waived
|
|
(242,213
|
)
|
||||
Net expenses
|
|
3,111,424
|
|||||
Net investment loss
|
|
(2,024,367
|
)
|
||||
Realized and Unrealized Gain (Loss) on Investments and Options:
|
|
||||||
Net realized gain (loss) on:
|
|
||||||
Investments
|
|
$
|
21,934,927
|
||||
Options
|
|
(6,403,948
|
)
|
||||
Net change in unrealized appreciation (depreciation) on:
|
|
||||||
Investments
|
|
(4,456,356
|
)
|
||||
Options
|
|
2,759,989
|
|||||
Net realized and unrealized gain on investments and options
|
|
13,834,612
|
|||||
Net Increase in Net Assets Resulting from Operations
|
|
$
|
11,810,245
|
See notes to financial statements.
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 13
|
STATEMENT OF CHANGES IN NET ASSETS
|
December 31, 2012
|
For the
Year Ended
December 31, 2012
|
For the
Year Ended
December 31, 2011
|
||||||
Increase (Decrease) in Net Assets from Operations
|
|||||||
Net investment income (loss)
|
$
|
(2,024,367
|
)
|
$
|
219,222
|
||
Net realized gain (loss) on investments and options
|
15,530,979
|
13,818,723
|
|||||
Net change in unrealized appreciation (depreciation) on investments and options
|
(1,696,367
|
)
|
(2,767,879
|
)
|
|||
Net increase (decrease) in net assets resulting from operations
|
11,810,245
|
11,270,066
|
|||||
Distributions to Shareholders
|
|||||||
From and in excess of net investment income
|
(18,289,205
|
)
|
(18,265,472
|
)
|
|||
Capital Share Transactions
|
|||||||
Net proceeds from common shares issued through dividend reinvestment
|
64,197
|
405,853
|
|||||
Net increase from capital share transactions
|
64,197
|
405,853
|
|||||
Total decrease in net assets
|
(6,414,763
|
)
|
(6,589,553
|
)
|
|||
Net Assets
|
|||||||
Beginning of period
|
176,667,869
|
183,257,422
|
|||||
End of period (including accumulated net investment
|
|||||||
income of $0 and $0, respectively)
|
$
|
170,253,106
|
$
|
176,667,869
|
See notes to financial statements.
|
14 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
STATEMENT OF CASH FLOWS For the year ended December 31, 2012
|
December 31, 2012
|
Cash Flows from Operating Activities:
|
||||
Net increase in net assets resulting from operations
|
$
|
11,810,245
|
||
Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to Net Cash Used
|
||||
by Operating and Investing Activities:
|
||||
Net change in unrealized depreciation on investments
|
4,456,356
|
|||
Net change in unrealized appreciation on options
|
(2,759,989
|
)
|
||
Net realized gain on investments
|
(21,934,927
|
)
|
||
Net realized loss on options
|
6,403,948
|
|||
Purchase of long-term investments
|
(1,725,280,624
|
)
|
||
Proceeds from sale of long-term investments
|
1,720,941,422
|
|||
Net purchase of short-term investments
|
(673,798
|
)
|
||
Cost of written options closed
|
(36,996,075
|
)
|
||
Premiums received on options written
|
41,597,559
|
|||
Decrease in dividends receivable
|
474,977
|
|||
Decrease in other assets
|
5,328
|
|||
Increase in interest due on borrowings
|
55,321
|
|||
Increase in advisory fee payable
|
14,431
|
|||
Increase in administration fee payable
|
358
|
|||
Decrease in accrued expenses
|
(20,878
|
)
|
||
Net Cash Used by Operating and Investing Activities
|
$
|
(1,906,346
|
)
|
|
Cash Flows From Financing Activities:
|
||||
Proceeds from borrowings
|
69,500,000
|
|||
Payments on borrowings
|
(49,500,000
|
)
|
||
Distributions to common shareholders
|
(18,225,008
|
)
|
||
Net Cash Provided by Financing Activities
|
1,774,992
|
|||
Net decrease in cash
|
(131,354
|
)
|
||
Cash at Beginning of Period
|
131,354
|
|||
Cash at End of Period
|
$
|
—
|
||
Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest
|
$
|
573,066
|
||
Supplemental Disclosure of Non Cash Operating Activity: Options exercised during the year
|
$
|
13,787,056
|
||
Supplemental Disclosure of Non Cash Financing Activity: Dividend reinvestment
|
$
|
64,197
|
See notes to financial statements.
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 15
|
FINANCIAL HIGHLIGHTS
|
December 31, 2012
|
Per share operating performance for a common share outstanding throughout the period
|
For the
Year Ended
|
For the
Year Ended |
For the
Year Ended |
For the
Year Ended |
For the
Year Ended |
|||||||||||
Net asset value, beginning of period
|
$
|
9.27
|
$
|
9.64
|
$
|
9.40
|
$
|
10.24
|
$
|
17.79
|
||||||
Income from investment operations
|
||||||||||||||||
Net investment income (loss) (a)
|
(0.11
|
)
|
0.01
|
(0.01
|
)
|
0.04
|
0.05
|
|||||||||
Net realized and unrealized gain (loss) on investments, futures, options, securities sold short, forwards and foreign currency
|
0.73
|
0.58
|
1.21
|
0.24
|
(6.00
|
)
|
||||||||||
Total from investment operations
|
0.62
|
0.59
|
1.20
|
0.28
|
(5.95
|
)
|
||||||||||
Distributions to Common Shareholders
|
||||||||||||||||
From and in excess of net investment income
|
(0.96
|
)
|
(0.96
|
)
|
(0.50
|
)
|
—
|
(0.14
|
)
|
|||||||
Return of capital
|
—
|
—
|
(0.46
|
)
|
(1.12
|
)
|
(1.46
|
)
|
||||||||
Total distributions to common shareholders
|
(0.96
|
)
|
(0.96
|
)
|
(0.96
|
)
|
(1.12
|
)
|
(1.60
|
)
|
||||||
Net asset value, end of period
|
$
|
8.93
|
$
|
9.27
|
$
|
9.64
|
$
|
9.40
|
$
|
10.24
|
||||||
Market value, end of period
|
$
|
8.20
|
$
|
8.16
|
$
|
9.33
|
$
|
8.52
|
$
|
7.98
|
||||||
Total investment return (b)
|
||||||||||||||||
Net asset value
|
6.60
|
%
|
6.78
|
%
|
13.95
|
%
|
3.51
|
%
|
-35.09
|
%
|
||||||
Market value
|
11.52
|
%
|
-2.42
|
%
|
22.18
|
%
|
22.85
|
%
|
-39.88
|
%
|
||||||
Ratios and supplemental data
|
||||||||||||||||
Net assets, end of period (thousands)
|
$
|
170,253
|
$
|
176,668
|
$
|
183,257
|
$
|
178,680
|
$
|
194,666
|
||||||
Ratios to average net assets:
|
||||||||||||||||
Net operating expense ratio, including fee waivers
|
1.38
|
%
|
1.38
|
%
|
1.57
|
%
|
1.77
|
%
|
1.41
|
%
|
||||||
Interest expense
|
0.35
|
%
|
0.28
|
%
|
0.16
|
%
|
N/A
|
N/A
|
||||||||
Dividends paid on securities sold short
|
N/A
|
N/A
|
0.07
|
%
|
0.65
|
%
|
0.85
|
%
|
||||||||
Total net expense ratio
|
1.73
|
%(c)
|
1.66
|
%(c)
|
1.80
|
%(c)
|
2.42
|
%
|
2.26
|
%
|
||||||
Gross operating expense ratio, excluding fee waivers
|
1.52
|
%
|
1.51
|
%
|
1.64
|
%
|
1.77
|
%
|
1.41
|
%
|
||||||
Interest expense
|
0.35
|
%
|
0.28
|
%
|
0.16
|
%
|
N/A
|
N/A
|
||||||||
Dividends paid on securities sold short
|
N/A
|
N/A
|
0.07
|
%
|
0.65
|
%
|
0.85
|
%
|
||||||||
Total gross expense ratio
|
1.87
|
% (c)
|
1.79
|
%(c)
|
1.87
|
%(c)
|
2.42
|
%
|
2.26
|
%
|
||||||
Net investment income (loss) ratio
|
(1.13
|
) %
|
0.12
|
%
|
(0.15
|
) %
|
0.38
|
%
|
0.36
|
%
|
||||||
Net investment income (loss) ratio, excluding fee waivers
|
(1.27
|
) %
|
(0.01
|
)%
|
(0.22
|
) %
|
0.38
|
%
|
0.36
|
%
|
||||||
Portfolio turnover(d)
|
705
|
%
|
405
|
%
|
497
|
%(e)
|
256
|
%
|
223
|
%
|
||||||
Senior Indebtedness
|
||||||||||||||||
Total borrowings outstanding (in thousands)
|
$
|
62,000
|
$
|
42,000
|
$
|
50,500
|
N/A
|
N/A
|
||||||||
Asset Coverage per $1,000 of indebtedness(f)
|
$
|
3,746
|
$
|
5,206
|
$
|
4,629
|
N/A
|
N/A
|
N/A
|
Not applicable
|
(a)
|
Based on average shares outstanding during the period.
|
(b)
|
Total investment return is calculated assuming a purchase of a common share at the beginning of the period and a sale on the last day of the period reported either at net asset value (“NAV”) or market price per share. Dividends and distributions are assumed to be reinvested at NAV for NAV returns or the prices obtained under the Fund’s Dividend Reinvestment Plan for market value returns. Total investment return does not reflect brokerage commissions. A return calculated for a period of less than one year is not annualized.
|
(c)
|
The ratios of total expenses to average net assets do not reflect fees and expenses incurred indirectly by the Fund as a result of its investment in shares of other investment companies. If these fees were included in the expense ratios, the expense ratios would increase by 0.25%, 0.21%, and 0.28% for the years ended December 31, 2012, 2011 and 2010, respectively.
|
(d)
|
Portfolio turnover is not annualized for periods of less than one year.
|
(e)
|
The increase in the portfolio turnover compared to prior years is the result of the change in the Fund’s Sub-Adviser and the resulting reallocation of the portfolio holdings.
|
(f)
|
Calculated by subtracting the Fund’s total liabilities (not including the borrowings) from the Fund’s total assets and dividing by the total borrowings.
|
See notes to financial statements.
|
16 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
NOTES TO FINANCIAL STATEMENTS
|
December 31, 2012
|
Description
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||
Valuations (in $000s)
|
|||||||||||||
Assets:
|
|||||||||||||
Exchange-Traded Funds
|
$
|
233,709
|
$
|
—
|
$
|
—
|
$
|
233,709
|
|||||
Money Market Fund
|
796
|
—
|
—
|
796
|
|||||||||
Total
|
$
|
234,505
|
$
|
—
|
$
|
—
|
$
|
234,505
|
|||||
Liabilities:
|
|||||||||||||
Call Options Written
|
$
|
2,084
|
$
|
—
|
$
|
—
|
$
|
2,084
|
|||||
Total
|
$
|
2,084
|
$
|
—
|
$
|
—
|
$
|
2,084
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 17
|
NOTES TO FINANCIAL STATEMENTS continued
|
December 31, 2012
|
Managed Assets
|
Rate
|
First $200,000,000
|
0.0275%
|
Next $300,000,000
|
0.0200%
|
Next $500,000,000
|
0.0150%
|
Over $1,000,000,000
|
0.0100%
|
18 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
NOTES TO FINANCIAL STATEMENTS continued
|
December 31, 2012
|
Additional paid-in-capital
|
Accumulated
Undistributed Net
|
$(20,313,572)
|
$20,313,572
|
Cost of
Investments |
Gross Tax
Unrealized |
Gross Tax
Unrealized |
Net Tax
Unrealized |
Net Tax
Unrealized |
|||||||||||||
$ 242,410,433 | $ 87,931 | $ (7,992,991 | ) | $ (7,905,060 | ) | $ 704,369 |
December 31, 2012
|
|||
Accumulated Capital and Other Losses
|
$ | (63,847,969) |
Distributions paid from:
|
2012
|
2011
|
|||||
Ordinary Income*
|
$ | 18,289,205 | $ | 18,265,472 |
Number of Contracts
|
Premiums Received
|
||||||
Options outstanding, beginning of year
|
28,741
|
$
|
5,570,442
|
||||
Options written, during the year
|
363,932
|
41,597,558
|
|||||
Options expired, during the year
|
(97,441
|
)
|
(7,291,443
|
)
|
|||
Options closed, during the year
|
(158,915
|
)
|
(23,300,683
|
)
|
|||
Options exercised, during the year
|
(114,579
|
)
|
(13,787,056
|
)
|
|||
Options outstanding, end of year
|
21,738
|
$
|
2,788,818
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 19
|
NOTES TO FINANCIAL STATEMENTS continued
|
December 31, 2012
|
Statement of Assets and Liabilities Presentation of Fair Values of Derivative Instruments ($000):
|
||||||||||||
Asset Derivatives
|
Liability Derivatives
|
|||||||||||
Statement of Assets and Liabilities Location
|
Fair Value
|
Statement of Assets
and Liabilities Location
|
Fair Value
|
|||||||||
Equity risk
|
N/A | $ – |
Options written, at value
|
$ 2,084 | ||||||||
Total
|
$ – | $ 2,084 |
Effect of Derivative Instruments on the Statement of Operations:
|
||||||
($000s)
|
||||||
Amount of Net
Realized Gain |
Net Change in
Unrealized |
|||||
Options
|
Options
|
|||||
Equity risk
|
$
|
(6,404
|
)
|
$
|
2,760
|
|
Total
|
$
|
(6,404
|
)
|
$
|
2,760
|
Year Ended
|
Year Ended
|
|||
December 31, 2012
|
December 31, 2011
|
|||
Beginning shares
|
19,047,826
|
19,005,240
|
||
Shares issued through dividend reinvestment
|
6,858
|
42,586
|
||
Ending shares
|
19,054,684
|
19,047,826
|
20 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
December 31, 2012
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 21
|
SUPPLEMENTAL INFORMATION (Unaudited)
|
December 31, 2012
|
Name, Address*, Year
of Birth and
Position(s) Held
with Registrant
|
Term of Office**
and Length
of Time Served
|
Principal Occupations during the Past Five Years and
Other Affiliations
|
Number of
Portfolios in the
Fund Complex***
Overseen by Trustee
|
Other Directorships
Held by Trustee
|
||||
Independent Trustees:
|
||||||||
Randall C. Barnes
Year of Birth: 1951
Trustee
|
Since 2005
|
Private Investor (2001-present). Formerly, Senior Vice President & Treasurer, PepsiCo., Inc. (1993-1997), President, Pizza Hut International (1991-1993) and Senior Vice President, Strategic Planning and New Business Development of PepsiCo., Inc. (1987-1990).
|
52
|
None
|
||||
Roman Friedrich III
Year of Birth: 1946
Trustee
|
Since 2011
|
Founder and President of Roman Friedrich & Company, a US and Canadian-based business, which provides investment banking to the mining industry (1998-present). Formerly, Senior Managing Director of MLV & Co., LLC, an investment bank and institutional broker-dealer specializing in capital intensive industries such as energy, metals and mining (2010-2011).
|
48
|
Director of First Americas Gold Corp. (2012-present), Zincore Metals, Inc. (2009–present). Previously, Director of Blue Sky Uranium Corp. (formerly Windstorm Resources Inc.) (April 2011–July 2012); Director of Axiom Gold and Silver Corp. (2011-2012), Stratagold Corp.(2003-2009); Gateway Gold Corp. (2004-2008) and GFM Resources Ltd. (2005-2010).
|
||||
Robert B. Karn III
Year of Birth: 1942
Trustee
|
Since 2011
|
Consultant (1998-present). Formerly, Managing Partner, Financial and Economic Consulting, St. Louis office of Arthur Andersen, LLP (1977-1997).
|
48
|
Director of Peabody Energy Company (2003-present), and GP Natural Resource Partners LLC (2002-present).
|
||||
Ronald A. Nyberg
Year of Birth: 1953
Trustee
|
Since 2005
|
Partner of Nyberg & Cassioppi, LLC, a law firm specializing in corporate law, estate planning and business transactions (2000-present). Formerly, Executive Vice President, General Counsel and Corporate Secretary of Van Kampen Investments (1982-1999).
|
54
|
None
|
||||
Ronald E. Toupin, Jr.
Year of Birth: 1958
Trustee, Chairman
|
Since 2005
|
Portfolio Consultant (2010-present). Formerly, Vice President, Manager and Portfolio Manager of Nuveen Asset Management (1998-1999), Vice President of Nuveen Investment Advisory Corp. (1992-1999), Vice President and Manager of Nuveen Unit Investment Trusts (1991-1999), and Assistant Vice President and Portfolio Manager of Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999).
|
51
|
Trustee, Bennett Group of Funds (2011-present).
|
||||
Interested Trustee:
|
||||||||
Donald C. Cacciapaglia†
Year of Birth: 1951
Trustee,
Chief Executive Officer
|
Since 2012
|
Senior Managing Director of Guggenheim Investments; Chief Executive Officer of Guggenheim Funds Services, LLC (2012-present); President (2010-present) and Chief Executive Officer (2012-present) of Guggenheim Funds Distributors, LLC and Guggenheim Funds Investment Advisors, LLC; Chief Executive Officer of funds in the Fund Complex and President and Chief Executive Officer of funds in the Rydex fund complex (2012 - present). Formerly, Chief Operating Officer of Guggenheim Partners Asset Management, LLC (2010 – 2011); Chairman and CEO of Channel Capital Group Inc. and Channel Capital Group LLC (2002-2010); Managing Director of PaineWebber (1996-2002).
|
231
|
Trustee, Rydex Dynamic Funds, Rydex ETF Trust, Rydex Series Funds and Rydex Variable Trust (2012-present); Independent Board Member, Equitrust Life Insurance Company, Guggenheim Life and Annuity Company, and Paragon Life Insurance Company of Indiana (2011-present).
|
*
|
Address for all Trustees: 2455 Corporate West Drive, Lisle, IL 60532
|
|
**
|
Each Trustee serves a three-year term concurrent with the class of Trustees for which he serves:
|
|
-Messrs. Karn and Toupin, as Class III Trustees, are expected to stand for re-election at the Fund’s 2013 annual meeting of shareholders.
|
||
-Messrs. Barnes and Cacciapaglia, as Class I Trustees, are expected to stand for re-election at the Fund’s 2014 annual meeting of shareholders.
|
||
-Messrs. Friedrich and Nyberg, as Class II Trustees, are expected to stand for re-election at the Fund’s 2015 annual meeting of shareholders.
|
||
***
|
The Guggenheim Investments Fund Complex consists of U.S. registered investment companies advised or serviced by Guggenheim Funds Investment Advisors, LLC or Guggenheim Funds Distributors, Inc. and/or affiliates. The Guggenheim Investments Fund Complex is overseen by multiple Boards of Trustees.
|
|
†
|
Mr. Donald C. Cacciapaglia is an “interested person” (as defined in section 2(a)(19) of the 1940 Act) (“Interested Trustee”) of the Fund because of his position as the President and CEO of the Adviser.
|
22 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
SUPPLEMENTAL INFORMATION (Unaudited) continued
|
December 31, 2012
|
Name, Address*, Year of Birth and
Position(s) Held with Registrant
|
Term of Office**
and Length of Time Served
|
Principal Occupations During the Past Five Years and
Other Affiliations
|
||
Officers:
|
||||
Amy J. Lee
Year of Birth: 1961
Chief Legal Officer
|
Since 2012****
|
Senior Vice President & Secretary, Security Investors, LLC; Secretary & Chief Compliance Officer, Security Distributors, Inc.; Vice President, Associate General Counsel & Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation; Associate General Counsel, First Security Benefit Life Insurance and Annuity of New York; Vice President & Assistant Secretary, Rydex Series Funds, Rydex ETF Trust, Rydex Dynamic Funds, and Rydex Variable Trust; Vice President & Secretary, Rydex Holdings, LLC; Secretary, Advisor Research Center, Inc., Rydex Specialized Products, LLC; Guggenheim Distributors, LLC and Rydex Fund Services, LLC; and Assistant Secretary, Security Benefit Clinic and Hospital; Senior Vice President & Secretary, Security Global Investors, LLC (2007-2011); Senior Vice President & Secretary, Rydex Advisors, LLC and Rydex Advisors II, LLC (2010); Vice President (2010) and Chief Legal Officer (2012) of certain funds in the Guggenheim Fund Complex; and Director, Brecek & Young Advisors, Inc. (2004-2008).
|
||
John Sullivan
Year of Birth: 1955
Chief Accounting
Officer, Chief Financial
Officer and Treasurer
|
Since 2011
|
Senior Managing Director of Guggenheim Funds Investment Advisors, LLC and Guggenheim Funds Distributors, Inc. (2010-present). Chief Accounting Officer, Chief Financial Officer and Treasurer of certain other funds in the Fund Complex. Formerly, Chief Compliance Officer, Van Kampen Funds (2004-2010).
|
||
Joanna M. Catalucci
Year of birth: 1966
Chief Compliance Officer
|
Since 2012***
|
Chief Compliance Officer of certain funds in the Fund Complex; and Managing Director of Compliance and Fund Board Relations, Guggenheim Investments (2012-present). Formerly, Chief Compliance Officer & Secretary, SBL Fund; Security Equity Fund; Security Income Fund; Security Large Cap Value Fund & Security Mid Cap Growth Fund; Vice President, Rydex Holdings, LLC; Vice President, Security Benefit Asset Management Holdings, LLC; and Senior Vice President & Chief Compliance Officer, Security Investors, LLC (2010-2012); Security Global Investors, LLC, Senior Vice President (2010-2011); Rydex Advisors, LLC (f/k/a PADCO Advisors, Inc.) and Rydex Advisors II, LLC (f/k/a PADCO Advisors II, Inc.), Chief Compliance Officer and Senior Vice President (2010-2011); Rydex Capital Partners I, LLC & Rydex Capital Partners II, LLC, Chief Compliance Officer (2006-2007); and Rydex Fund Services, LLC (f/k/a Rydex Fund Services, Inc.), Vice President (2001-2006).
|
||
Mark E. Mathiasen
Year of Birth: 1978
Secretary
|
Since 2009
|
Director; Associate General Counsel of Guggenheim Funds Services, LLC (2012-present). Formerly, Vice President; Assistant General Counsel of Guggenheim Funds Services Group, Inc. (2007-2012). Secretary of certain other funds in the Fund Complex.
|
*
|
Address for all Officers unless otherwise noted: 2455 Corporate West Drive, Lisle, IL 60532
|
**
|
Officers serve at the pleasure of the Board of Trustees and until his or her successor is appointed and qualified or until his or her earlier resignation or removal.
|
***
|
Effective September 26, 2012.
|
****
|
Effective February 12, 2013.
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 23
|
DIVIDEND REINVESTMENT PLAN (Unaudited)
|
December 31, 2012
|
24 | GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT
|
FUND INFORMATION
|
December 31, 2012
|
Board of Trustees
Randall C. Barnes
Donald C. Cacciapaglia*
Roman Friedrich III
Robert B. Karn III
Ronald A. Nyberg
Ronald E. Toupin, Jr.,
Chairman
|
Officers
Donald C. Cacciapaglia
Chief Executive Officer
Amy J. Lee
Chief Legal Officer
John Sullivan
Chief Accounting Officer,
Chief Financial Officer
and Treasurer
Joanna M. Catalucci
Chief Compliance Officer
Mark E. Mathiasen
Secretary
|
Investment Adviser
and Administrator
Guggenheim Funds
Investment
Advisors, LLC
Lisle, Illinois
Investment Sub-Adviser
Guggenheim Partners
Investment
Management, LLC
Santa Monica, California
|
Accounting Agent and
Custodian
The Bank of
New York Mellon
New York, New York
Legal Counsel
Skadden, Arps, Slate,
Meagher & Flom LLP
New York, New York
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Chicago, Illinois
|
||||
*
|
Trustee is an “interested person” (as defined in Section 2(a)(19) of the 1940 Act) (“Interested Trustee”) of the Trust because of his position as the President and CEO of the Adviser.
|
●
|
If your shares are held in a Brokerage Account, contact your Broker.
|
●
|
If you have physical possession of your shares in certificate form, contact the Fund’s Transfer Agent:
|
Computershare Shareowner Services LLC, 480 Washington Boulevard, Jersey City, NJ 07310; (866) 488-3559
|
GPM | GUGGENHEIM ENHANCED EQUITY INCOME FUND ANNUAL REPORT | 27
|
ABOUT THE FUND MANAGER
|
(a)
|
The registrant has adopted a code of ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
|
(b)
|
No information need be disclosed pursuant to this paragraph.
|
(b)
|
The registrant has not amended its Code of Ethics during the period covered by the report presented in Item 1 hereto.
|
(d)
|
The registrant has not granted a waiver or an implicit waiver to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions from a provision of its Code of Ethics during the period covered by this report.
|
(e)
|
Not applicable.
|
(f)
|
(1) The registrant's Code of Ethics is attached hereto as an exhibit.
|
|
(2) Not applicable.
|
|
(3) Not applicable.
|
IV.C.2
|
Pre-approve any engagement of the independent auditors to provide any non-prohibited services to the Fund, including the fees and other compensation to be paid to the independent auditors (unless an exception is available under Rule 2-01 of Regulation S-X).
|
(a)
|
The categories of services to be reviewed and considered for pre-approval include the following:
|
·
|
Annual financial statement audits
|
·
|
Seed audits (related to new product filings, as required)
|
·
|
SEC and regulatory filings and consents
|
·
|
Accounting consultations
|
·
|
Fund merger/reorganization support services
|
·
|
Other accounting related matters
|
·
|
Agreed upon procedures reports
|
·
|
Attestation reports
|
·
|
Other internal control reports
|
·
|
Tax compliance services related to the filing of amendments:
|
o
|
Federal, state and local income tax compliance
|
o
|
Sales and use tax compliance
|
·
|
Timely RIC qualification reviews
|
·
|
Tax distribution analysis and planning
|
·
|
Tax authority examination services
|
·
|
Tax appeals support services
|
·
|
Accounting methods studies
|
·
|
Fund merger support services
|
·
|
Tax compliance, planning and advice services and related projects
|
(b)
|
The Audit Committee has pre-approved those services, which fall into one of the categories of services listed under 2(a) above and for which the estimated fees are less than $25,000.
|
(c)
|
For services with estimated fees of $25,000 or more, but less than $50,000, the Chairman is hereby authorized to pre-approve such services on behalf of the Audit Committee.
|
(d)
|
For services with estimated fees of $50,000 or more, such services require pre-approval by the Audit Committee.
|
(e)
|
The independent auditors or the Chief Accounting Officer of the Trust (or an officer of the Trust who reports to the Chief Accounting Officer) shall report to the Audit Committee at each of its regular quarterly meetings all audit, audit-related and
|
permissible non-audit services initiated since the last such report (unless the services were contained in the initial audit plan, as previously presented to, and approved by, the Audit Committee). The report shall include a general description of the services and projected fees, and the means by which such services were approved by the Audit Committee (including the particular category listed above under which pre-approval was obtained).
|
IV.C.3
|
Pre-approve any engagement of the independent auditors, including the fees and other compensation to be paid to the independent auditors, to provide any non-audit services to the Adviser (or any “control affiliate” of the Adviser providing ongoing services to the Fund), if the engagement relates directly to the operations and financial reporting of the Fund (unless an exception is available under Rule 2-01 of Regulation S-X).
|
(a)
|
The Chairman or any member of the Audit Committee may grant the pre-approval for non-audit services to the Adviser (or any “control affiliate” of the Adviser providing ongoing services to the Trust) relating directly to the operations and financial reporting of the Trust for which the estimated fees are less than $25,000. All such delegated pre-approvals shall be presented to the Audit Committee no later than the next Audit Committee meeting.
|
(b)
|
For non-audit services to the Adviser (or any “control affiliate” of the Adviser providing ongoing services to the Trust) relating directly to the operations and financial reporting of the Trust for which the estimated fees are $25,000 or more, such services require pre-approval by the Audit Committee
|
(2)
|
None of the services described in each of Items 4 (b) through (d) were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
|
|
The registrant’s principal accountant did not bill fees for non-audit services that required approval by the Audit Committee pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X during the registrant’s last two fiscal years.
|
Name
|
Since
|
Professional Experience During the Last Five Years
|
Scott Minerd - CEO and CIO
|
2010
|
Guggenheim Partners Investment Management, LLC.: CEO and CIO – 12/05–Present; Guggenheim Partners, LLC: Managing Partner – Insurance Advisory – 5/98–Present.
|
Anne Walsh, CFA, FLMI – Senior Managing Director
|
2010
|
Guggenheim Partners Investment Management, LLC.: Senior Managing Director – 4/07–Present. Former, Reinsurance Group of America, Inc.: Senior Vice President and Chief Investment Officer – 5/00–3/07.
|
Farhan Sharaff
|
2010
|
Guggenheim Partners Investment Management, LLC.: Senior Managing Director – 7/10–Present.
|
Jamal Pesaran
|
2010
|
Guggenheim Partners Investment Management, LLC.: Vice President, Portfolio Manager– 2008 –Present.
|
Jayson Flowers
|
2010
|
Guggenheim Partners Investment Management, LLC.: Managing Director, 12/05 – Present; Guggenheim Partners, LLC: Managing Director -2001–2005
|
Type of Account
|
Number of Accounts
|
Total Assets in the Accounts
|
Number of Accounts In Which the Advisory Fee is Based on Performance
|
Total Assets in the Accounts In Which the Advisory Fee is Based on Performance
|
Registered investment companies
|
14
|
$2,223,812,717
|
1
|
$3,430,980
|
Other pooled investment vehicles
|
4
|
$2,497,171,347
|
2
|
$2,448,391,017
|
Other accounts
|
21
|
$58,439,979,520
|
0
|
$-0-
|
Type of Account
|
Number of Accounts
|
Total Assets in the Accounts
|
Number of Accounts In Which the Advisory Fee is Based on Performance
|
Total Assets in the Accounts In Which the Advisory Fee is Based on Performance
|
Registered investment companies
|
12
|
$2,126,847,384
|
0
|
$-0-
|
Other pooled investment vehicles
|
2
|
$2,448,347,145
|
2
|
$2,448,347,145
|
Other accounts
|
29
|
$74,482,872,221
|
2
|
$482,590,275
|
Type of Account
|
Number of Accounts
|
Total Assets in the Accounts
|
Number of Accounts In Which the Advisory Fee is Based on Performance
|
Total Assets in the Accounts In Which the Advisory Fee is Based on Performance
|
Registered investment companies
|
3
|
$144,675,873
|
1
|
$3,430,980
|
Other pooled investment vehicles
|
3
|
$442,625,517
|
1
|
$393,845,187
|
Other accounts
|
3
|
$330,761,655
|
0
|
$-0-
|
Type of Account
|
Number of Accounts
|
Total Assets in the Accounts
|
Number of Accounts In Which the Advisory Fee is Based on Performance
|
Total Assets in the Accounts In Which the Advisory Fee is Based on Performance
|
Registered investment companies
|
3
|
$104,072,705
|
1
|
$3,430,980
|
Other pooled investment vehicles
|
5
|
$272,703,968
|
0
|
$-0-
|
Other accounts
|
1
|
$3,290,832
|
0
|
$-0-
|
Type of Account
|
Number of Accounts
|
Total Assets in the Accounts
|
Number of Accounts In Which the Advisory Fee is Based on Performance
|
Total Assets in the Accounts In Which the Advisory Fee is Based on Performance
|
Registered investment companies
|
4
|
$151,783,244
|
1
|
$3,430,980
|
Other pooled investment vehicles
|
2
|
$48,780,330
|
0
|
$-0-
|
Other accounts
|
1
|
$3,290,832
|
0
|
$-0-
|
Name of Portfolio Manager
|
Dollar Amount of Equity Securities in Fund
|
Scott Minerd
|
$-0-
|
Anne Walsh
|
$10,001 to $50,000
|
Farhan Sharaff
|
$-0-
|
Jayson Flowers
|
$-0-
|
Jamal Pesaran
|
$-0-
|
·
|
the Chairman of the Audit Committee of the Trust will take all appropriate action to investigate any actual or potential violations reported to him or to an Independent Trustee of the Trust in his absence;
|
·
|
after such investigation, violations and potential violations will be reported to the Independent Trustees;
|
·
|
if the Independent Trustees determine that a violation has occurred, they will take, or shall designate appropriate persons to determine, appropriate action in response to violations of this Code of Ethics; and
|
·
|
appropriate action may include a letter of censure, suspension, dismissal or, in the event of criminal or other serious violations of law, notification of the Securities and Exchange Commission or other appropriate law enforcement authorities.
|
Trust
|
Date Procedures most recently approved:
|
Claymore Exchange-Traded Fund Trust
|
11.29.11
|
Claymore Exchange-Traded Fund Trust 2
|
11.29.11
|
Claymore Exchange-Traded Fund Trust 3
|
11.29.11
|
Fiduciary/Claymore MLP Opportunity Fund
|
11.30.11
|
Guggenheim Build America Bonds Managed Duration Trust
|
11.30.11
|
Guggenheim Enhanced Equity Income Fund
|
11.30.11
|
Guggenheim Enhanced Equity Strategy Fund
|
11.30.11
|
Guggenheim Equal Weight Enhanced Equity Income Fund
|
11.30.11
|
Guggenheim Strategic Opportunities Fund
|
11.30.11
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Date: March 4, 2013 | |
/s/ Donald C. Cacciapaglia
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Donald C. Cacciapaglia
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Chief Executive Officer
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Date: March 4, 2013 | |
/s/ John Sullivan
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John Sullivan
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Chief Financial Officer, Chief Accounting Officer and Treasurer
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(1)
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the Report fully complies with the requirements of Section 13-(a) or 15-(d) of the Securities Exchange Act of 1934; and
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(2)
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the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Adopt and implement written policies and procedures reasonably designed to ensure that the adviser votes client securities in the best interest of clients; such policies and procedures must address the manner in which the adviser will resolve material conflicts of interest that can arise during the proxy voting process;
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Disclose to clients how they may obtain information from the adviser about how the adviser voted proxies with respect to their securities; and
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Describe to clients the adviser’s proxy voting procedures and, upon request, furnish a copy of the policies and procedures.
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§
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Refer Proposal to the Client – GPIM may refer the proposal to the client and obtain instructions from the client on how to vote the proxy relating to that proposal.
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§
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Obtain Client Ratification – If GPIM is in a position to disclose the conflict to the client (i.e., such information is not confidential), GPIM may determine how it proposes to vote the proposal on which it has a conflict, fully disclose the nature of the conflict to the client, and obtain the client’s consent for how GPIM will vote on the proposal (or otherwise obtain instructions from the client on how the proxy on the proposal should be voted).
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§
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Use an Independent Third Party for All Proposals – Subject to any client imposed proxy voting policies, GPIM may vote all proposals in a proxy according to the policies of an independent third party (or to have the third party vote such proxies).
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§
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Use an Independent Third Party to Vote the Specific Proposals that Involve a Conflict – Subject to any client imposed proxy voting policies, GPIM may use an independent third party to recommend how the proxy for specific proposals that involve a conflict should be voted (or to have the third party vote such proxies).
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§
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Abstaining
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§
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a copy of this policy;
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proxy statements received regarding client securities;
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records of votes cast on behalf of clients;
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any documents prepared by GPIM that were material to making a decision how to vote, or that memorialized the basis for the decision; and
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§
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records of client requests for proxy voting information and a copy of any written response by GPIM to any client request (regardless of whether such client request was written or oral).
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·
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An auditor has a financial interest in or association with the company, and is therefore not independent;
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There is reason to believe that the independent auditor has rendered an opinion which is neither accurate nor indicative of the company’s financial position;
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Poor accounting practices are identified that rise to a serious level of concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures; or
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Fees for non-audit services (“Other” fees) are excessive.
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Non-audit (“other”) fees >audit fees + audit-related fees + tax compliance/preparation fees
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1.1.
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The board is classified, and a continuing director responsible for a problematic governance issue at theboard/committee level that would warrant a withhold/against vote recommendation is not up for election -- any or all appropriate nominees (except new) may be held accountable;
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1.2.
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The board lacks accountability and oversight, coupled with sustained poor performance relative to peers. Sustained poor performance is measured by one- and three-year total shareholder returns in the bottom half of a company’s four-digit GICS industry group (Russell 3000 companies only). Take into consideration the company’s five-year total shareholder return and five-year operational metrics. Problematic provisions include but are not limited to:
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A classified board structure;
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A supermajority vote requirement;
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Either a plurality vote standard in uncontested director elections or a majority vote standard with no plurality carve-out for contested elections;
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The inability of shareholders to call special meetings;
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The inability of shareholders to act by written consent;
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A dual-class capital structure; and/or
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A non–shareholder- approved poison pill.
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1.3.
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The company’s poison pill has a “dead-hand” or “modified dead-hand” feature. Vote WITHOLD or AGAINST every year until this feature is removed;
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1.4.
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The board adopts a poison pill with a term of more than 12 months (“long-term pill”), or renews any existing pill, including any “short-term” pill (12 months or less), without shareholder approval. A commitment or policy that puts a newly adopted pill to a binding shareholder vote may potentially offset an adverse vote recommendation.Review such companies with classified boards every year, and such companies with annually elected boards at least once every three years, and vote AGAINST or WITHHOLD votes from all nominees if the company still maintains a non-shareholder-approved poison pill. This policy applies to all companies adopting or renewing pills after the announcement of this policy (Nov. 19, 2009); or
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1.5.
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The board makes a material adverse change to an existing poison pill without shareholder approval.
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1.6.
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The board adopts a poison pill with a term of 12 months or less (“short-term pill”) without shareholder approval, taking into account the following factors:
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The date of the pill‘s adoption relative to the date of the next meeting of shareholders– i.e. whether the company had time to put the pill on ballot for shareholder ratification given the circumstances;
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The issuer‘s rationale;
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The issuer's governance structure and practices; and
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The issuer's track record of accountability to shareholders.
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1.7.
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The non-audit fees paid to the auditor are excessive (see discussion under “Auditor Ratification”);
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1.8.
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The company receives an adverse opinion on the company’s financial statements from its auditor; or
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1.9.
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There is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm.
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1.10.
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Poor accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth, chronological sequence and duration, as well as the company’s efforts at remediation or corrective actions, in determining whether WITHHOLD/AGAINST votes are warranted.
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1.11.
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There is a significant misalignment between CEO pay and company performance (pay for performance);
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1.12.
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The company maintains significantproblematic pay practices;
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1.13.
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The board exhibits a significant level ofpoor communication and responsiveness to shareholders;
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1.14.
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The company fails to submit one-timetransfers of stock options to a shareholder vote; or
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1.15.
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The company fails to fulfill the terms of aburn rate commitment made to shareholders.
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1.16.
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The company's previous say-on-pay proposal received the support of less than 70 percent of votes cast, taking into account:
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The company's response, including:
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Disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;
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Specific actions taken to address the issues that contributed to the low level of support;
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Other recent compensation actions taken by the company;
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Whether the issues raised are recurring or isolated;
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The company's ownership structure; and
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Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.
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1.17.
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Material failures of governance, stewardship, risk oversight, or fiduciary responsibilities at the company;
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1.18.
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Failure to replace management as appropriate; or
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1.19.
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Egregious actions related to a director’s service on other boards that raise substantial doubt about his or her ability to effectively oversee management and serve the best interests of shareholders at any company.
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2.1.
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The board failed to act on a shareholder proposal that received the support of a majority of the shares outstanding the previous year;
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2.2.
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The board failed to act on a shareholder proposal that received the support of a majority of shares cast in the last year and one of the two previous years;
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2.3.
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The board failed to act on takeover offers where the majority of shares are tendered;
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2.4.
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At the previous board election, any director received more than 50 percent withhold/against votes of the shares cast and the company has failed to address the issue(s) that caused the high withhold/against vote; or
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2.5.
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The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the majority of votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency.
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2.6.
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The board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received a plurality, but not a majority, of the votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency, taking into account:
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The board's rationale for selecting a frequency that is different from the frequency that received a plurality;
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The company's ownership structure and vote results;
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ISS' analysis of whether there are compensation concerns or a history of problematic compensation practices; and
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The previous year's support level on the company's say-on-pay proposal.
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3.1.
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The inside or affiliated outside director serves on any of the three key committees: audit, compensation, or nominating;
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3.2.
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The company lacks an audit, compensation, or nominating committee so that the full board functions as that committee;
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3.3.
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The company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the functions of such a committee; or
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3.4.
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Independent directors make up less than a majority of the directors.
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4.1.
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The company’s proxy indicates that not all directors attended 75 percent of the aggregate board and committee meetings, but fails to provide the required disclosure of the names of the director(s) involved.
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4.2.
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Attend less than 75 percent of the board and committee meetings (with the exception of new nominees).
Acceptable reasons for director absences are generally limited to the following:
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Medical issues/illness;
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Family emergencies; and
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Missing only one meeting.
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4.3.
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Sit on more than six public company boards; or
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4.4.
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Are CEOs of public companies who sit on the boards of more than two public companies besides their own–withhold only at their outside boards.
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Long-term financial performance of the target company relative to its industry;
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Management’s track record;
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Background to the proxy contest;
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Qualifications of director nominees (both slates);
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Strategic plan of dissident slate and quality of critique against management;
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Likelihood that the proposed goals and objectives can be achieved (both slates);
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Stock ownership positions.
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Company-specific factors; and
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Proposal-specific factors, including:
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o
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The ownership thresholds proposed in the resolution (i.e., percentage and duration);
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The maximum proportion of directors that shareholders may nominate each year; and
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The method of determining which nominations should appear on the ballot if multiple shareholders submit nominations.
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Whether the company has been materially harmed by shareholder litigation outside its jurisdiction of incorporation, based on disclosure in the company’s proxy statement; and
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Whether the company has the following good governance features:
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An annually elected board;
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A majority vote standard in uncontested director elections; and
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The absence of a poison pill, unless the pill was approved by shareholders.
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No lower than a 20% trigger, flip-in or flip-over;
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A term of no more than three years;
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No dead-hand, slow-hand, no-hand or similar feature that limits the ability of a future board to redeem the pill;
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Shareholder redemption feature (qualifying offer clause); if the board refuses to redeem the pill 90 days after a qualifying offer is announced, 10 percent of the shares may call a special meeting or seek a written consent to vote on rescinding the pill.
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The ownership threshold to transfer (NOL pills generally have a trigger slightly below 5 percent);
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The value of the NOLs;
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Shareholder protection mechanisms (sunset provision, or commitment to cause expiration of the pill upon exhaustion or expiration of NOLs);
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The company's existing governance structure including: board independence, existing takeover defenses, track record of responsiveness to shareholders, and any other problematic governance concerns; and
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Any other factors that may be applicable.
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Shareholders' current right to act by written consent;
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The consent threshold;
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The inclusion of exclusionary or prohibitive language;
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Investor ownership structure; and
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Shareholder support of, and management's response to, previous shareholder proposals.
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An unfettered3 right for shareholders to call special meetings at a 10 percent threshold;
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A majority vote standard in uncontested director elections;
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No non-shareholder-approved pill; and
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An annually elected board.
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Past Board Performance:
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o
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The company's use of authorized shares during the last three years
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The Current Request:
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o
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Disclosure in the proxy statement of the specific purposes of the proposed increase;
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o
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Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request; and
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o
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The dilutive impact of the request as determined by an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that reflects the company's need for shares and total shareholder returns.
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Past Board Performance:
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The company's use of authorized preferred shares during the last three years;
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The Current Request:
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Disclosure in the proxy statement of the specific purposes for the proposed increase;
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o
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Disclosure in the proxy statement of specific and severe risks to shareholders of not approving the request;
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In cases where the company has existing authorized preferred stock, the dilutive impact of the request as determined by an allowable increase calculated by ISS (typically 100 percent of existing authorized shares) that reflects the company's need for shares and total shareholder returns; and
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Whether the shares requested are blank check preferred shares that can be used for antitakeover purposes.
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The company discloses a compelling rationale for the dual-class capital structure, such as:
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The company's auditor has concluded that there is substantial doubt about the company's ability to continue as a going concern; or
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The new class of shares will be transitory;
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The new class is intended for financing purposes with minimal or no dilution to current shareholders in both the short term and long term; and
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The new class is not designed to preserve or increase the voting power of an insider or significant shareholder.
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Valuation - Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on the offer premium, market reaction and strategic rationale.
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Market reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer scrutiny of a deal.
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Strategic rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies should not be overly aggressive or optimistic, but reasonably achievable. Management should also have a favorable track record of successful integration of historical acquisitions.
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Negotiations and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation "wins" can also
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signify the deal makers' competency. The comprehensiveness of the sales process (e.g., full auction, partial auction, no auction) can also affect shareholder value.
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Conflicts of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests may have influenced these directors and officers to support or recommend the merger. The CIC figure presented in the "ISS Transaction Summary" section of this report is an aggregate figure that can in certain cases be a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be excessive, analyze the underlying assumptions to determine whether a potential conflict exists.
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Governance - Will the combined company have a better or worse governance profile than the current governance profiles of the respective parties to the transaction? If the governance profile is to change for the worse, the burden is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.
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1.
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Maintain appropriate pay-for-performance alignment, with emphasis on long-term shareholder value: This principle encompasses overall executive pay practices, which must be designed to attract, retain, and appropriately motivate the key employees who drive shareholder value creation over the long term. It will take into consideration, among other factors, the link between pay and performance; the mix between fixed and variable pay; performance goals; and equity-based plan costs;
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2.
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Avoid arrangements that risk “pay for failure”: This principle addresses the appropriateness of long or indefinite contracts, excessive severance packages, and guaranteed compensation;
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3.
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Maintain an independent and effective compensation committee: This principle promotes oversight of executive pay programs by directors with appropriate skills, knowledge, experience, and a sound process for compensation decision-making (e.g., including access to independent expertise and advice when needed);
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4.
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Provide shareholders with clear, comprehensive compensation disclosures: This principle underscores the importance of informative and timely disclosures that enable shareholders to evaluate executive pay practices fully and fairly;
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5.
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Avoid inappropriate pay to non-executive directors: This principle recognizes the interests of shareholders in ensuring that compensation to outside directors does not compromise their independence and ability to make appropriate judgments in overseeing managers’ pay and performance. At the market level, it may incorporate a variety of generally accepted best practices.
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There is a significant misalignment between CEO pay and company performance (pay for performance);
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The company maintains significant problematic pay practices;
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The board exhibits a significant level of poor communication and responsiveness to shareholders.
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There is no MSOP on the ballot, and an AGAINST vote on an MSOP is warranted due to pay for performance misalignment, problematic pay practices, or the lack of adequate responsiveness on compensation issues raised previously, or a combination thereof;
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The board fails to respond adequately to a previous MSOP proposal that received less than 70 percent support of votes cast;
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The company has recently practiced or approved problematic pay practices, including option repricing or option backdating; or
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The situation is egregious.
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A pay for performance misalignment is found, and a significant portion of the CEO’s misaligned pay is attributed to non-performance-based equity awards, taking into consideration:
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o
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Magnitude of pay misalignment;
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o
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Contribution of non-performance-based equity grants to overall pay; and
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The proportion of equity awards granted in the last three fiscal years concentrated at the named executive officer (NEO) level.
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1.
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Peer Group4 Alignment:
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The degree of alignment between the company's TSR rank and the CEO's total pay rank within a peer group, as measured over one-year and three-year periods (weighted 40/60);
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The multiple of the CEO's total pay relative to the peer group median.
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2.
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Absolute Alignment: The absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years – i.e., the difference between the trend in annual pay changes and the trend in annualized TSR during the period.
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The ratio of performance- to time-based equity awards;
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The ratio of performance-based compensation to overall compensation;
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The completeness of disclosure and rigor of performance goals;
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The company's peer group benchmarking practices;
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Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and relative to peers;
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Special circumstances related to, for example, a new CEO in the prior fiscal year or anomalous equity grant practices (e.g., biennial awards); and
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Any other factors deemed relevant.
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Problematic practices related to non-performance-based compensation elements;
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Incentives that may motivate excessive risk-taking; and
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Options Backdating.
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Repricing or replacing of underwater stock options/SARS without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options);
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Excessive perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting;
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New or extended agreements that provide for:
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o
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CIC payments exceeding 3 times base salary and average/target/most recent bonus;
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o
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CIC severance payments without involuntary job loss or substantial diminution of duties ("single" or "modified single" triggers);
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o
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CIC payments with excise tax gross-ups (including "modified" gross-ups).
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Multi-year guaranteed bonuses;
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A single or common performance metric used for short- and long-term plans;
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Lucrative severance packages;
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High pay opportunities relative to industry peers;
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Disproportionate supplemental pensions; or
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Mega annual equity grants that provide unlimited upside with no downside risk.
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Reason and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes;
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Duration of options backdating;
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Size of restatement due to options backdating;
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Corrective actions taken by the board or compensation committee, such as canceling or re-pricing backdated options, the recouping of option gains on backdated grants; and
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Adoption of a grant policy that prohibits backdating, and creates a fixed grant schedule or window period for equity grants in the future.
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Failure to respond to majority-supported shareholder proposals on executive pay topics; or
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Failure to adequately respond to the company's previous say-on-pay proposal that received the support of less than 70 percent of votes cast, taking into account:
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o
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The company's response, including:
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·
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Disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support;
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||
·
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Specific actions taken to address the issues that contributed to the low level of support;
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·
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Other recent compensation actions taken by the company;
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o
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Whether the issues raised are recurring or isolated;
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o
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The company's ownership structure; and
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o
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Whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.
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Recently adopted or materially amended agreements that include excise tax gross-up provisions (since prior annual meeting);
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Recently adopted or materially amended agreements that include modified single triggers (since prior annual meeting);
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Single trigger payments that will happen immediately upon a change in control, including cash payment and such items as the acceleration of performance-based equity despite the failure to achieve performance measures;
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Single-trigger vesting of equity based on a definition of change in control that requires only shareholder approval of the transaction (rather than consummation);
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Potentially excessive severance payments;
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Recent amendments or other changes that may make packages so attractive as to influence merger agreements that may not be in the best interests of shareholders;
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In the case of a substantial gross-up from pre-existing/grandfathered contract: the element that triggered the gross-up (i.e., option mega-grants at low point in stock price, unusual or outsized payments in cash or equity made or negotiated prior to the merger); or
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The company's assertion that a proposed transaction is conditioned on shareholder approval of the golden parachute advisory vote. ISS would view this as problematic from a corporate governance perspective.
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The total cost of the company’s equity plans is unreasonable;
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The plan expressly permits repricing;
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A pay-for-performance misalignment is found;
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The company’s three year burn rate exceeds the burn rate cap of its industry group;
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The plan has a liberal change-of-control definition; or
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The plan is a vehicle for problematic pay practices.
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Whether adoption of the proposal is likely to enhance or protect shareholder value;
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Whether the information requested concerns business issues that relate to a meaningful percentage of the company's business as measured by sales, assets, and earnings;
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The degree to which the company's stated position on the issues raised in the proposal could affect its reputation or sales, or leave it vulnerable to a boycott or selective purchasing;
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Whether the issues presented are more appropriately/effectively dealt with through governmental or company- specific action;
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Whether the company has already responded in some appropriate manner to the request embodied in the proposal;
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Whether the company's analysis and voting recommendation to shareholders are persuasive;
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What other companies have done in response to the issue addressed in the proposal;
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Whether the proposal itself is well framed and the cost of preparing the report is reasonable;
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Whether implementation of the proposal’s request would achieve the proposal’s objectives;
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Whether the subject of the proposal is best left to the discretion of the board;
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Whether the requested information is available to shareholders either from the company or from a publicly available source; and
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Whether providing this information would reveal proprietary or confidential information that would place the company at a competitive disadvantage.
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There are no recent, significant controversies, fines or litigation regarding the company’s political contributions or trade association spending; and
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The company has procedures in place to ensure that employee contributions to company-sponsored political action committees (PACs) are strictly voluntary and prohibit coercion.
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·
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The company's current disclosure of policies and oversight mechanisms related to its direct political contributions and payments to trade associations or other groups that may be used for political purposes, including information on the types of organizations supported and the business rationale for supporting these organizations; and
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Recent significant controversies, fines, or litigation related to the company's political contributions or political activities.
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·
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The company's current disclosure of relevant policies and oversight mechanisms;
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Recent significant controversies, fines, or litigation related to the company's public policy activities; and
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The impact that the policy issues may have on the company's business operations.
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·
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The company's current level of disclosure of relevant policies and oversight mechanisms;
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The company's current level of such disclosure relative to its industry peers;
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Potential relevant local, state, or national regulatory developments; and
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·
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Controversies, fines, or litigation related to the company's hydraulic fracturing operations.
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![]() |
Taft Hartley Advisory Services’ guidelines
based on AFL-CIO proxy voting policy
|
2012 Taft-Hartley U.S. Proxy Voting Guidelines
- 6 -
|
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