On September 11, 2013, the Supreme Judicial Court of Massachusetts provided its interpretation of a provision in the bylaws of two closed-end PIMCO funds requiring that annual shareholder meetings be held “on at least an annual basis.” The court held that the phrase required the funds to hold their annual meetings no later than one year and 30 days following the previous year’s annual meeting.

At issue in the case was the interpretation of a provision in the funds’ bylaws relating to the timing of the funds’ annual shareholder meetings. Specifically, the funds’ bylaws provide that, so long as common shares of the funds are listed on the NYSE, “regular meetings of the Shareholders for the election of Trustees…shall be held…on at least an annual basis.” The plaintiffs, the second-largest beneficial owners of the funds’ preferred shares, sued the funds after the funds rescheduled their annual meetings from December 2011 to July 31, 2012 subsequent to receiving notice that the plaintiffs intended to nominate one of their partners for election as a preferred shares trustee. The plaintiffs argued that the bylaws required the funds to hold their annual shareholders’ meetings within 12 months of the previous year’s annual meeting, which was held in December 2010, and that the funds’ failure to do so delayed the plaintiffs’ ability to elect their nominee as a preferred shares trustee. The funds argued that the bylaws, in conjunction with the NYSE rules, merely required that an annual shareholders’ meeting be held in each fiscal year, with July 31, 2012 being the last day of each fund’s fiscal year.

The Superior Court granted summary judgment to the plaintiffs, ordering that the funds hold the annual meeting “as soon as practicable” and endorsing the plaintiffs’ interpretation of the bylaws. The Appeals Court stayed the judgment, and the annual meeting was held, as rescheduled, on July 31, 2012. On its own motion, the Supreme Judicial Court reviewed the appeal with respect to the application of the bylaws to future annual meetings and modified the Superior Court’s interpretation of the bylaws. The Supreme Judicial Court focused on the advanced notice provisions of the funds’ bylaws, which included special notice requirements for “annual meetings” held more than 30 days before or after the anniversary of the previous year’s annual meeting. The court noted that, for purposes of the advanced notice provisions only, the term “annual meeting” was defined to include special meetings held “in lieu of” annual meetings pursuant to a provision of the bylaws that authorizes the trustees to call such a special meeting if a “regular meeting of the Shareholders for the election of Trustees” is not held “in any annual period.” The court interpreted these provisions as together suggesting that a “regular” annual meeting must be held within the “annual period” ending 30 days after the anniversary date of the previous year’s meeting and that any “annual meeting” held thereafter would not be a “regular” annual meeting but rather a special meeting held “in lieu of” an annual meeting. The court noted that its interpretation was consistent with how the funds operated in previous years and that, to the extent that bylaws contain any ambiguity, the ambiguous provisions should be construed against the drafters.