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No-Action Letter under:
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| 1 | In connection with this request, we also considered letter submitted to the staff on April 3, 2001 and May 15, 2001 by the Proponent, as well as additional correspondence from the Fund dated April 27, 2001. |
| 2 | The proposal in Lincoln National is identical to the Proposal except for the final sentence which reads "The provisions of this by-law may only be amended, added to, rescinded, or repealed by the shareholders." We believe this difference in language is immaterial to our discussion. |
| 3 | The note to paragraph (i)(1) of rule 14a-8 notes that shareholder proposals that might otherwise be excludable under rule 14a-8(i)(1) may be permissible if cast as recommendations or requests that the board take specified action. |
March 21, 2001
BY HAND
Securities and Exchange Commission,
450 Fifth Street, N.W.,
Washington, D.C. 20549.
Attention: Office of Disclosure and Review, Division of Investment Management
Re: The Asia Pacific Fund, Inc. - Exclusion of Stockholder
Proposal Pursuant to Rule 14a-8
Ladies and Gentlemen:
As counsel to The Asia Pacific Fund, Inc. (the "Company"), a closed-end investment company registered under the Investment Company Act of 1940 (the "1940 Act"), we are writing to seek confirmation that the staff (the "Staff") of the Securities and Exchange Commission will not recommend enforcement action if the Company omits from its proxy statement and form of proxy for its 2001 Annual Meeting of Stockholders (the "Proxy Materials") the stockholder proposal and supporting statement (together, the "Proposal") submitted to the Company in a February 19, 2001 letter from Thomas A. Kornfeld ("Proponent"). Pursuant to Rule 14a-8(j)(2) under the Securities Exchange Act of 1934 (the "1934 Act"), enclosed are six copies of each of the following:
1. this letter;
2. Proponent's February 19, 2001 letter, which contains the Proposal; and
3. an Opinion of Ballard Spahr Andrews & Ingersoll, LLP, Maryland counsel to the Company, regarding matters of state law.
The Company expects to file its definitive Proxy Materials in early June and intends to omit the Proposal for the reasons set forth herein.
INTRODUCTION
The Proposal seeks to have the Company adopt a bylaw requiring that the Company's investment management agreement be submitted to a stockholder vote annually, and, if its continuance is not approved by stockholders, that the Company's Board of Directors may subsequently approve its continuance if not inconsistent with state or federal law. This bylaw could be amended or repealed only by stockholders. The Proposal contains the following resolution:
RESOLVED: The following bylaw shall be adopted: "The Investment Management Agreement shall be submitted to shareholders for a vote in 2002 and every year thereafter. If the shareholders do not approve continuance of the Agreement, the Board of Directors may subsequently approve its continuance if not inconsistent with state or federal law. The provisions of this bylaw may be amended or repealed only by the shareholders."
We believe that the Proposal is properly excludable from the Proxy Materials pursuant to Rule 14a-8(i)(2) under the 1934 Act because it would cause the Company to violate federal law and pursuant to Rule 14a-8(i)(1) under the 1934 Act because it is not a proper action for stockholders under state law.
BASES OF EXCLUSION
Rule 14a-8(i)(2). The Proposal is properly excludable under Rule 14a-8(i)(2) because the Proposal, if implemented, would cause the Company to adopt a bylaw that conflicts with Section 15 of the 1940 Act. Section 15(a)(2) specifically permits the approval of the continuation of a fund's advisory contract by either the board of directors or its stockholders, independently and without the other's consent. See Ellsworth Convertible Growth and Income Fund, Inc. (September 21, 2000) (proposal requiring the fund to submit its investment advisory agreement to a vote of stockholders annually).
The Proposal, if implemented, would divest the Board of Directors of the Company of the independent ability to approve the continuance of the investment advisory agreement provided by Section 15(a)(2) by imposing as a condition precedent that the continuance first be submitted to a vote of stockholders. The right of the Board of Directors to approve continuance upon failure of the stockholders to do so does not cure the conflict with Section 15(a)(2) represented by the initial divestiture resulting from this condition precedent. The right of subsequent approval of continuance by the Board of Directors also does not cure this conflict and, in addition, is conditioned upon such subsequent approvals being not inconsistent with state or federal law. If subsequent approval of continuance by the Board of Directors is inconsistent with either state or federal law, the bylaw will have permanently divested the Board of Directors of its independent right to approve continuance in violation of Section 15. If subsequent approval of continuance by the Board of Directors is consistent with both state and federal law, the proposal, if implemented, will have divested the stockholders of their independent right to approve continuance of the investment advisory agreement in violation of Section 15 by making their failure to approve continuance a nullity.
For the above reasons, we believe that the Proposal, if implemented, would clearly violate both the letter of, and the policies underlying, Section 15 of the 1940 Act and, therefore, may be omitted from the Company's Proxy Materials pursuant to Rule 14a-8(i)(2).
Rule 14a-8(i)(1). While we believe the foregoing discussion is dispositive of the issue of excluding the Proposal, we believe exclusion is also warranted on the basis of state law and the Company's Bylaws. Pursuant to Rule 14a-8(i)(1) under the 1934 Act, a stockholder proposal may be excluded from a company's proxy materials "If the proposal is not a proper subject for action by stockholders under the laws of the jurisdiction of the company's organization." The Proponent is asking that the Company's stockholders adopt an amendment to the Company's Bylaws. Article XI thereof, which is entitled "Amendment of Bylaws," reads in its entirety as follows: "The Board of Directors shall have the exclusive power to make, alter and repeal the Bylaws of the Corporation." Thus, under the Company's Bylaws, only the Board of Directors of the Company has the authority to amend the Company's Bylaws, and Article XI complies with the requirements of Section 2-109(b) of the Maryland General Corporation Law, which provides that:
"After the organization meeting of the board of directors, the power to adopt, alter, and repeal the bylaws of the corporation is vested in the stockholders except to the extent that the charter or bylaws vest it in the board of directors." [emphasis added]
Section 2-109(b) permits a company's charter or bylaws to provide that the power to amend a company's bylaws is vested solely with its board of directors. (Please see the accompanying legal opinion of the Company's Maryland counsel, Ballard Spahr Andrews & Ingersoll, LLP.) Because the Proposal seeks stockholder adoption of an amendment to the Company's Bylaws, but, as permitted by Maryland law, the stockholders of the Company do not have the power to amend the Bylaws, the Proposal, if approved, would not be a valid and legal action by stockholders.
Approval of the Proposal also would have the effect of amending the Bylaws to mandate that the Board of Directors take certain actions that are within the Board's discretionary authority under the Maryland General Corporation Law. This would constitute an unlawful divestiture of the Board's authority under Section 2-401 of the Maryland General Corporation Law, which states that "[t]he business and affairs of a corporation shall be managed under the direction of a board of directors." Support for exclusion of proposals that improperly mandate action by directors can be found in the Note to Rule 14a-8(i)(1) under the 1934 Act, as well as in 1934 Act Release No. 12598 (July 7, 1976) and in Bancroft Convertible Fund, Inc. (pub. avail May 26, 1987).
For the above reasons, we believe that the Company may exclude the Proposal from the Proxy Materials pursuant to Rule 14a-8(i)(1) under the 1934 Act.
In accordance with Rule 14a-8(j) under the 1934 Act, the Company is contemporaneously notifying Proponent, by copy of this letter, of its intention to omit the Proposal from the Proxy Materials.
On behalf of the Company, we hereby respectfully request that the Staff express its intention not to recommend enforcement action if the Proposal is excluded from the Proxy Materials for the reasons set forth above. If the Staff disagrees with the Company's conclusions regarding the omission of the Proposal, or if any additional submissions are desired in support of the Company's position, we would appreciate an opportunity to meet with you or speak to you by telephone prior to the issuance of the Staff's Rule 14a-8(j) response. If you have any questions regarding this request, or need any additional information, please telephone the undersigned at (212) 558-3820.
Please acknowledge receipt of this letter and the enclosed materials by stamping the enclosed copy of this letter and returning it to our messenger, who has been instructed to wait.
Very truly yours,
Earl D. Weiner
(Enclosures)
cc w/encls.: Mr. Thomas A. Kornfeld
Ms. Deborah A. Docs
http://www.sec.gov/divisions/investment/noaction/asia-kornfeld060801.htm
Corporate Secretary
The Asia Pacific Fund, Inc.
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Modified: 10/30/2001