Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers

A Small Entity Compliance Guide¹

Introduction

On November 2, 2022, the Securities and Exchange Commission (the “Commission”) adopted amendments to enhance the form used by mutual funds, exchange-traded funds, and certain other registered funds (“funds”) to report information about their proxy votes (“Form N-PX”). The amendments will make these funds’ proxy voting records more usable and easier to analyze, improving investors’ ability to monitor how their funds vote and compare different funds’ voting records. The rulemaking will also newly require institutional investment managers (“managers”) to report how they voted on executive compensation, or so-called “say-on-pay” matters.

Who is affected by the amendments to Form N-PX?

Registered management investment companies, other than small business investment companies registered on Form N-5, are required to file Form N-PX. In addition, new rule 14Ad-1 under the Securities Exchange Act of 1934 (“Exchange Act”) will require managers subject to the reporting requirements of section 13(f) of the Exchange Act to report annually on Form N-PX each say-on-pay vote over which they exercised voting power.

What specific changes were made?

Identification of Proxy Voting Matters

For proxy votes in which a form of proxy, or “proxy card,” is required to be filed with the Commission, the amended form will require funds to use the same language as the issuer’s proxy card to identify the matters, presented in the same order as the matters appear in the proxy card and, if the matter relates to an election of directors, identify each director separately in the same order as on the proxy card, even if the election of directors is presented as a single matter on the proxy card. In all other cases, funds will remain subject to the current requirements to provide a brief identification of the matter voted on, except that abbreviations used in the descriptions should be limited to commonly understood terms or terms that the issuer abbreviated in its description of the matter.

Categorization of Voting Matters

Funds will be required to categorize the votes reported on the form consistent with a list of categories outlined in the amended form. The list includes categories for votes related to director elections, extraordinary transactions, Section 14A say-on-pay, shareholder rights and defenses, and the environment or climate, among others. The categories will be non-exclusive and funds must select all categories applicable to the matter.

Quantitative Disclosures and Securities Lending

The amended form will require funds to disclose the number of shares voted or instructed to be cast (if the fund had not received confirmation of the actual number of votes cast) and how those shares were voted (e.g., for or against proposal or abstain). If the votes were cast in multiple manners (e.g., both for and against), funds will be required to disclose the number of shares voted or instructed to be voted in each manner. The amended form will also require funds to disclose the number of shares loaned but not recalled and, therefore, not voted by the fund.

Structured Data Language

The amended form will require funds to file their reports using a custom eXtensilble Markup Language (“XML”) structured data language created specifically for reports on Form N-PX. The Commission is developing electronic “style sheets” that, when applied to the reported XML data, will present the data in human-readable form.

Joint Reporting

Under the amended form, a fund is permitted to report on its Form N-PX on behalf of a series or a manager. If it does, the fund must (1) present the complete voting record of each included series separately and (2) provide the required quantitative information for each included manager separately. The fund must also provide certain information (generally, their name and other identifying information such as their legal entity identifier) in the amended form’s summary page about the included series or managers.

Standardized Order

The amended form will also standardize the order of disclosure requirements on Form N-PX. Specifically, the amended form requires funds to present the required information, including the voting information, in the format and order provided in the form. For example, a fund’s voting information would first present the name of the issuer of the security then the CUSIP number of the security and so forth. If the fund is reporting for multiple series, the fund would first provide one series’ full proxy voting record, then followed by next series’ full proxy voting record and so forth. Lastly, as discussed above, if a proxy card is required to be filed with the Commission, the amended form will require funds to present the matters voted on in the same order as they appear in the proxy card and, if the matter relates to an election of directors, identify each director separately in the same order as on the proxy card, even if the election of directors is presented as a single matter on the proxy card.

Fund Notice Reports

The amended form permits funds that did not hold any securities they were entitled to vote, and therefore do not have any proxy votes to report, to indicate this by checking a box on the cover page and filing the cover page, required signature, and, information about the series on the summary page.

Website Posting

Under the amendments, if a fund has a website, it must make publicly available free of charge the information disclosed in the fund’s most recently filed report on Form N-PX on or through its website as soon as reasonable practicable after filing the report. A fund may satisfy the requirement to provide this information in a human-readable format by providing a direct link to the relevant HTML-rendered Form N-PX report on EDGAR. A fund is also required to state in its registration statement that its proxy voting record is available on or through its websites, if it has one, and upon request, free of charge in both cases.

Say-on-Pay Vote Disclosure for Institutional Investment Managers

New rule 14Ad-1 requires managers subject to the reporting requirements of section 13(f) of the Exchange Act to report annually on Form N-PX each say-on-pay vote over which they exercised voting power. The amendments permit joint reporting of say-on-pay votes by managers, or by managers and funds, under identified circumstances to avoid duplicative reporting, while also requiring additional disclosure to allow identification of a given manager’s full say-on-pay voting record. When reporting say-on-pay votes, managers are required to comply with the other requirements of Form N-PX for their say-on-pay votes (including the new disclosure requirements introduced by the amendments, as described above).

Effective Date

Funds and managers will be required to file their first reports on amended Form N-PX by August 31, 2024, with these reports covering the period of July 1, 2023 to June 30, 2024.

Other Resources

The adopting release, including amended Form N-PX, can be found on the Commission’s website at https://www.sec.gov/rules/final/2022/33-11131.pdf.

The proposing release can be found on the Commission’s website at https://www.sec.gov/rules/proposed/2021/34-93169.pdf.

Contacting the Commission

The Commission’s Division of Investment Management is happy to assist small entities with questions regarding the new rules and amendments to Form N-PX. You may submit a question by email to IMOCC@sec.gov. Additionally, you may contact the Division of Investment Management’s Office of Chief Counsel at (202) 551-6825.

¹This guide was prepared by the staff of the Securities and Exchange Commission as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules and form amendments adopted by the Commission, but is not a substitute for any rule or form itself. Only the rule or form itself can provide complete and definitive information regarding its requirements.