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Closed-End Fund No-Action Relief to Exclude Shareholder Proposal Denied by SEC Staff

The staff of the SEC’s Division of Investment Management declined to give no-action assurance to two closed-end funds regarding the exclusion of a shareholder proposal from a proxy statement.  At issue was a shareholder proposal to declassify the boards of the Deutsche Multi-Market Income Trust and the Deutsche Strategic Income Trust so all directors would be subject to an annual election.   In their no-action request, the funds argued that the supporting statement for the proposal is “rife with materially false and misleading statements that would require extensive editing to bring them into compliance with the proxy rules and, therefore, the entire Proposal and Supporting Statement may be excluded from the Proxy Materials.”  Western Investment, LLC, the shareholder behind the proposal, countered the funds’ arguments.  In a letter to the staff regarding the no-action request, Western stated that its supporting statement did not contain materially false or misleading statements.  Further, Western asserted that “we believe the Fund is trying to prevent criticism of their shareholder-unfriendly conduct from being publicized. Rather than try to explain their actions in a statement in opposition, they are seeking to block any disclosure of their acts.”

The staff stated that it was “unable to conclude that you have demonstrated objectively that the portions of the supporting statement you reference are materially false or misleading in violation of Rule 14a-9. Accordingly, we cannot assure the Fund that we would not recommend enforcement action if the Fund omits the Proposal or portions of the supporting statement from its proxy materials . . .”