Check Capital Management / Blue Chip Investor Funds
PROXY VOTING
POLICIES AND PROCEDURES
(Adopted June
9, 2003)
(Amended
February 20, 2008)
Pursuant to the recent adoption by the Securities and Exchange Commission
(the “Commission”) of Rule 206(4)-6 (17 CFR 275.206(4)-6) and amendments to
Rule 204-2 (17 CFR 275.204-2) under the Investment Advisers Act of 1940 (the
“Act”), it is a fraudulent, deceptive, or manipulative act, practice or course
of business, within the meaning of Section 206(4) of the Act, for an investment
adviser to exercise voting authority with respect to client securities, unless
(i) the adviser has adopted and implemented written policies and procedures
that are reasonably designed to ensure that the adviser votes proxies in the
best interests of its clients, (ii) the adviser describes its proxy voting
procedures to its clients and provides copies on request, and (iii) the adviser
discloses to clients how they may obtain information on how the adviser voted
their proxies.
In order to fulfill its responsibilities under the Act, Check
Capital Management (hereinafter “we” or “our”) has adopted the following
policies and procedures for proxy voting with regard to companies in investment
portfolios of our clients.
KEY OBJECTIVES
The key objectives of these policies and procedures recognize that
a company’s management is entrusted with the day-to-day operations and longer
term strategic planning of the company, subject to the oversight of the company’s
board of directors. While “ordinary business matters” are primarily the
responsibility of management and should be approved solely by the corporation’s
board of directors, these objectives also recognize that the company’s
shareholders must have final say over how management and directors are
performing, and how shareholders’ rights and ownership interests are handled,
especially when matters could have substantial economic implications to the
shareholders.
Therefore, we will pay particular attention to the following
matters in exercising our proxy voting responsibilities as a fiduciary for our
clients:
Accountability.
Each company should have effective means in place to hold those entrusted
with running a company’s business accountable for their actions.
Management of a company should be accountable to its board of directors
and the board should be accountable to shareholders.
Alignment of Management and Shareholder Interests. Each company should endeavor to
align the interests of management and the board of directors with the interests
of the company’s shareholders. For example, we generally believe that
compensation should be designed to reward management for doing a good job of
creating value for the shareholders of the company.
Transparency.
Promotion of timely disclosure of important information about a company’s
business operations and financial performance enables investors to evaluate the
performance of a company and to make informed decisions about the purchase and
sale of a company’s securities.
DECISION METHODS
We generally believe that the portfolio managers that invest in
and track particular companies are the most knowledgeable and best suited to
make decisions with regard to proxy votes. Therefore, we rely on those
individuals to make the final decisions on how to cast proxy votes.
No set of proxy voting guidelines can anticipate all situations
that may arise. In special cases, we may seek insight from our managers and
analysts on how a particular proxy proposal will impact the financial prospects
of a company, and vote accordingly.
SUMMARY OF PROXY VOTING
GUIDELINES
Election of the Board of
Directors
We believe that good corporate governance generally starts with a board
composed primarily of directors that are business-savvy, interested, and
shareholder-oriented. When electing board members, we will attempt to
vote for people that meet these qualities.
The election of a company’s board of directors is one of the most
fundamental rights held by shareholders. Because a classified board
structure prevents shareholders from electing a full slate of directors
annually, we will generally support efforts to declassify boards, or other
measures that permit shareholders to remove a majority of directors at any
time, and will generally oppose efforts to adopt classified board structures.
Approval of Independent Auditors
We believe that the relationship between a company and its
auditors should be limited primarily to the audit engagement, although it may
include certain closely related activities that do not raise an appearance of
impaired independence.
Equity-based compensation plans
We believe that appropriately designed equity-based compensation
plans, approved by shareholders, can be an effective way to align the interests
of shareholders and the interests of directors, management, and employees by
providing incentives to increase shareholder value. Conversely, we are
opposed to plans that substantially dilute ownership interests in the company,
provide participants with excessive awards, or have inherently objectionable
structural features.
We will generally support measures intended to increase stock
ownership by executives and the use of employee stock purchase plans to
increase company stock ownership by employees. These may include:
1. Requiring senior executives to hold stock
in a company.
2. Using restricted stock grants instead of
options.
3. Awards
based on non-discretionary grants specified by the plan’s terms
rather than subject to management’s discretion.
While we evaluate plans on a case-by-case basis, we will generally
oppose plans that have the following features:
1. Annual
option grants that would exceed 1% of outstanding shares.
2. Ability
to issue options with an exercise price below the stock’s
current market price.
3. Authorization
to permit the board of directors to materially amend a plan
without shareholder approval.
4. Authorizes
the re-pricing of stock options or the cancellation and exchange of options
without shareholder approval.
These are guidelines, and we consider other factors, such as the
nature of the industry and size of the company, when assessing a plan’s impact
on ownership interests.
Corporate Structure
We view the exercise of shareholders’ rights, including the rights
to act by written consent, to call special meetings and to remove directors, to
be fundamental to good corporate governance.
Because classes of common stock with unequal voting rights limit
the rights of certain shareholders, we generally believe that shareholders
should have voting power equal to their equity interest in the company and
should be able to approve or reject changes to a company’s by-laws by a simple
majority vote.
Because the requirement of a supermajority vote can limit the
ability of shareholders to effect change, we will support proposals to remove
super-majority (typically from 66.7% to 80%) voting requirements for certain
types of proposals and oppose proposals to impose super-majority requirements.
We will generally support the ability of shareholders to cumulate
their votes for the election of directors.
Shareholder Rights Plans
While we recognize that there are arguments both in favor of and against
shareholder rights plans, also known as poison pills, such measures may tend to
entrench current management, which we generally consider to have a negative
impact on shareholder value.
We believe the best approach is for a company to seek shareholder
approval of rights plans, and we generally support shareholder resolutions
requesting that shareholders be given the opportunity to vote on the adoption
of rights plans.
We will generally be more inclined to support a shareholder rights
plan if the plan (i) has short-term “sunset” provisions, (ii) is linked to a
business strategy that will likely result in greater value for shareholders,
(iii) requires shareholder approval to reinstate the expired plan or adopt a
new plan at the end of its term and (iv) is subject to mandatory review by a
committee of independent directors.
Proxy
Voting Policy
In cases where Check
Capital is responsible to vote proxies on securities held in a client’s
account, Check Capital has adopted policies and procedures in an effort to
ensure that all votes are cast in the best interests of our clients. These policies and procedures are summarized
as follows:
Check Capital
believes that the portfolio managers that invest in and track particular
companies are the most knowledgeable and best suited to make decisions with
regard to proxy votes. Check Capital has
adopted proxy-voting guidelines, but, in some cases, may vote a proxy contrary
to the guidelines if it determines that such action is in the best interests of
clients.
If the person(s)
responsible for voting proxies becomes aware of any type of potential or actual
conflict of interest relating to a proxy proposal, they will promptly report
such conflict to the Chief Compliance Officer.
Conflicts will be handled in a number of ways depending on the type and
materiality. The method selected by Check Capital will depend upon the facts
and circumstances of each situation and the requirements of applicable laws and
will always be handled in the best interest of the client(s).
A complete copy of
Check Capital’s current Proxy Voting Policies & Procedures is available
upon request. Clients may obtain
information on how their proxies were voted by contacting Check Capital at the
principal office and place of business indicated on page 1 of this form.
Clients should include in their request, their name, and the account and
security for which they are making the request.
CLIENT INFORMATION
A copy of these Proxy Voting Policies and Procedures is available
to our clients, without charge, upon request, by calling 800-710-5777 and on
our website at http://www.bluechipinvestorfund.com. We will send a
copy of these Proxy Voting Policies and Procedures within three business days
of receipt of a request, by first-class mail or other means designed to ensure
equally prompt delivery.
In
addition, we will provide each client, without charge, upon request,
information regarding the proxy votes cast by us with regard to the client’s
securities.