Capital Group Funds Seek Board Elections, Fee Structure Changes, and Diversification Shift

Capital Group Central Fund Series II DEF 14A Filing Summary
FieldDetail
CompanyCapital Group Central Fund Series II
Form TypeDEF 14A
Filed DateSep 9, 2025
Risk Levelmedium
Pages15
Reading Time18 min
Key Dollar Amounts$1.70
Sentimentmixed

Sentiment: mixed

Topics: Proxy Statement, Fund Governance, Advisory Fees, Diversification Change, Shareholder Meeting, Investment Company Act, Capital Group

TL;DR

**Capital Group is shaking up governance and fees across its fund lineup, with a key tax-exempt fund taking on more risk for potential flexibility – watch those bond fund fee changes closely!**

AI Summary

Capital Group Central Fund Series II, along with numerous other American Funds and Capital Group ETFs, is holding a joint special shareholder meeting on November 25, 2025, to address three key proposals. Shareholders are being asked to elect Board members, a necessary step as it has been several years since the last election and subsequent Board composition changes require shareholder approval to maintain the two-thirds elected member ratio mandated by the 1940 Act. Additionally, ten specific bond funds, including American Funds Mortgage Fund and The Bond Fund of America, are seeking approval to amend their Investment Advisory and Service Agreements, transitioning from an asset and income-based fee schedule to an asset-only fee structure to provide greater stability and consistency for investors, particularly in dynamic interest rate environments. Finally, American Funds Tax-Exempt Fund of New York (TEFNY) proposes to reclassify from a 'diversified' to a 'non-diversified' fund, granting its investment adviser, Capital Research and Management Company (CRMC), greater investment flexibility, though this change introduces additional risks for TEFNY shareholders.

Why It Matters

This DEF 14A filing is crucial for investors as it outlines significant governance and operational changes across a broad spectrum of American Funds and Capital Group ETFs. The proposed shift to an asset-only advisory fee for ten bond funds could stabilize costs for investors, making these funds more predictable in volatile interest rate markets, potentially impacting their competitive positioning against other fixed-income offerings. The reclassification of TEFNY to 'non-diversified' offers CRMC enhanced investment flexibility, which could lead to higher returns but also increased risk, directly affecting TEFNY shareholders' risk exposure and potentially influencing their investment decisions. The election of Board members ensures proper oversight and adherence to regulatory requirements, reinforcing investor confidence in the funds' management.

Risk Assessment

Risk Level: medium — The risk level is medium due to the proposed reclassification of American Funds Tax-Exempt Fund of New York (TEFNY) from 'diversified' to 'non-diversified.' This change, as stated in Proposal 3, means TEFNY will no longer be subject to the 1940 Act's limits on investing more than 5% of total assets in one issuer or holding more than 10% of an issuer's voting securities, introducing 'additional risks associated with investing in a non-diversified fund.' While other proposals are largely administrative or aim for fee stability, this specific change directly increases investment risk for TEFNY shareholders.

Analyst Insight

Investors should carefully review the specific proposals, especially if they hold shares in American Funds Tax-Exempt Fund of New York (TEFNY) due to the increased risk from its proposed non-diversified classification. For shareholders in the ten bond funds affected by the fee schedule change, analyze the 'Comparison of Current and Proposed Advisory Fee Schedules' in Appendix 8 to understand the potential impact on your investment costs. Vote 'FOR' or 'AGAINST' based on your risk tolerance and financial objectives.

Key Numbers

  • 2025-09-09 — Filing Date (Date the DEF 14A was filed)
  • 2025-11-25 — Shareholder Meeting Date (Date of the Joint Special Meetings of Shareholders)
  • 2025-08-28 — Record Date (Date for determining shareholders entitled to vote)
  • 3 — Number of Proposals (Total proposals to be voted upon by shareholders)
  • 10 — Number of Bond Funds (Funds proposing a change to an asset-only advisory fee schedule)
  • 67% — Majority Vote Threshold (a) (Required for proposals 2 and 3 if more than 50% of outstanding voting securities are present)
  • 50% — Majority Vote Threshold (b) (Required for proposals 2 and 3 based on outstanding voting securities)
  • 2/3 — Board Member Election Ratio (Minimum proportion of Board members required to be elected by shareholders under the 1940 Act)
  • 5% — Diversified Fund Asset Limit (Maximum percentage of total assets invested in one issuer for a diversified fund)
  • 10% — Diversified Fund Voting Securities Limit (Maximum percentage of outstanding voting securities held in one issuer for a diversified fund)

Key Players & Entities

  • Capital Group Central Fund Series II (company) — Registrant for DEF 14A filing
  • Michael W. Stockton (person) — Executive Vice President of the Funds
  • Capital Group (company) — Parent company and meeting location host
  • American Funds (company) — Family of funds involved in the joint proxy statement
  • Capital Research and Management Company (company) — Investment adviser for American Funds Tax-Exempt Fund of New York (CRMC)
  • American Funds Tax-Exempt Fund of New York (company) — Fund proposing reclassification from diversified to non-diversified (TEFNY)
  • Computershare Fund Services (company) — Company hired to assist with shareholder meetings and proxy solicitation
  • SEC (regulator) — Securities and Exchange Commission
  • Investment Company Act of 1940 (regulator) — Governing act for fund classifications and board elections
  • $1.70 (dollar_amount) — Estimated average cost per shareholder account for proxy solicitation

FAQ

What are the key proposals for the Capital Group Central Fund Series II shareholder meeting?

The key proposals for the Capital Group Central Fund Series II shareholder meeting on November 25, 2025, include electing Board members, approving an amendment to the Investment Advisory and Service Agreement for ten bond funds to modify their fee schedules, and approving a change in American Funds Tax-Exempt Fund of New York's classification from 'diversified' to 'non-diversified.'

Why is American Funds Tax-Exempt Fund of New York changing its diversification classification?

American Funds Tax-Exempt Fund of New York (TEFNY) is proposing to change its classification to 'non-diversified' to give its investment adviser, Capital Research and Management Company (CRMC), greater investment flexibility. This change removes the 1940 Act's restrictions on investing more than 5% of total assets or holding more than 10% of voting securities in any one issuer, though it introduces additional risks.

Which Capital Group funds are affected by the proposed advisory fee schedule changes?

Ten specific bond funds are affected by the proposed advisory fee schedule changes: American Funds Mortgage Fund, American High-Income Trust, The Bond Fund of America, U.S. Government Securities Fund, Intermediate Bond Fund of America, American High-Income Municipal Bond Fund, Limited Term Tax-Exempt Bond Fund of America, The Tax-Exempt Bond Fund of America, The Tax-Exempt Fund of California, and American Funds Tax-Exempt Fund of New York.

What is the purpose of electing Board members for Capital Group funds?

The purpose of electing Board members is to update Board oversight and fund operations, as it has been several years since the last election. This ensures that at least two-thirds of the Board members are elected by shareholders, as required by the Investment Company Act of 1940, allowing the Boards to add new members for a longer period without incurring additional shareholder meeting expenses.

What are the voting requirements for the proposals at the Capital Group shareholder meeting?

For Proposal 1 (Board elections), approval requires a plurality of votes cast for most funds, and a majority of votes cast for EUPAC and EMEF. For Proposals 2 and 3, approval requires the affirmative vote of a majority of the outstanding voting securities of each applicable fund, which is the lesser of 67% of votes present or 50% of outstanding voting securities.

Who is Michael W. Stockton and what is his role in this filing?

Michael W. Stockton is the Executive Vice President of the Funds. He signed the Dear Shareholder letter dated September 9, 2025, encouraging shareholders to vote at the upcoming complex-wide shareholder meeting and recommending a 'FOR' vote on all proposals.

What happens if a proposal is not approved by Capital Group shareholders?

If there are not enough votes to approve a proposal, the fund's meeting may be adjourned to solicit further proxy votes. If a proposal is ultimately not approved (other than for EMEF or EUPAC's Proposal 1), the fund will continue to operate as it currently does. If EMEF or EUPAC's Proposal 1 is not approved, their current trustees will continue to serve.

How much will it cost Capital Group funds to obtain shareholder approval for these proposals?

The Board of each Fund has determined that the expenses associated with obtaining shareholder approval, including printing, mailing, and proxy solicitation, are appropriate for the Funds to incur. These costs are estimated to average approximately $1.70 per shareholder account across all Funds.

What is the significance of the 'non-diversified' classification under the 1940 Act?

Under the 1940 Act, a 'non-diversified' fund is not subject to the same regulatory limits as a 'diversified' fund. A diversified fund cannot, with respect to 75% of its total assets, invest more than 5% of its value in one issuer or hold more than 10% of an issuer's voting securities. A non-diversified fund has greater flexibility but also carries additional investment risks.

When and where will the Capital Group shareholder meetings take place?

The Joint Special Meetings of Shareholders will be held on November 25, 2025, at the office of Capital Group, located at 333 South Hope Street, Los Angeles, California 90071, starting at 9:00 a.m. Pacific Time.

Risk Factors

  • 1940 Act Compliance for Board Elections [medium — regulatory]: The Investment Company Act of 1940 mandates that at least two-thirds of a fund's Board members must be elected by shareholders. The current proposal addresses a situation where several years have passed since the last election, and changes in board composition necessitate shareholder approval to maintain this 2/3 ratio. Failure to comply could lead to regulatory scrutiny.
  • Diversified vs. Non-Diversified Fund Classification [medium — regulatory]: American Funds Tax-Exempt Fund of New York (TEFNY) proposes to reclassify from a 'diversified' to a 'non-diversified' fund. Diversified funds have limits on asset concentration (max 5% in one issuer's securities for 75% of assets) and voting securities (max 10% of outstanding voting securities in one issuer). Non-diversified funds are not subject to these limits, increasing investment flexibility but also risk.
  • Interest Rate Environment Impact on Advisory Fees [medium — market]: Ten bond funds are seeking to transition from an asset and income-based fee schedule to an asset-only structure. The current structure can lead to fee variability, especially in dynamic interest rate environments. The proposed change aims for greater stability and consistency in fees for investors.

Industry Context

The mutual fund industry, particularly for large asset managers like Capital Group, is highly competitive and subject to evolving regulatory landscapes. Funds are continuously adapting their structures and fee arrangements to attract and retain investors, especially in response to market volatility and changing interest rate environments. The shift towards asset-only fee structures for bond funds reflects a trend towards simplifying fee models and providing greater predictability for investors.

Regulatory Implications

The proposals directly engage with the Investment Company Act of 1940. Maintaining the required 2/3 shareholder-elected board ratio is a compliance necessity. The reclassification of TEFNY from diversified to non-diversified has significant implications for its investment strategy and risk profile, requiring careful shareholder consideration and adherence to disclosure requirements.

What Investors Should Do

  1. Review the Joint Proxy Statement carefully, paying close attention to Proposals 1, 2, and 3.
  2. Vote your proxy, either online, by phone, or by mail, by the meeting date of November 25, 2025.
  3. Contact (888) 615-7476 if you have questions or require assistance with voting.

Key Dates

  • 2025-09-09: Filing Date — The date the DEF 14A proxy statement was officially filed with the SEC, initiating the formal communication to shareholders regarding the upcoming meeting and proposals.
  • 2025-08-28: Record Date — Determines which shareholders are eligible to vote at the special shareholder meeting. Only shareholders of record on this date will receive proxy materials and have the right to cast votes.
  • 2025-11-25: Shareholder Meeting Date — The date of the joint special shareholder meetings for Capital Group Central Fund Series II and other American Funds/Capital Group ETFs, where shareholders will vote on the proposed resolutions.

Glossary

DEF 14A
A Definitive Proxy Statement filed with the U.S. Securities and Exchange Commission (SEC) by publicly traded companies or mutual funds to solicit shareholder votes for an upcoming meeting. (This document contains the official proposals, board recommendations, and detailed information shareholders need to make informed voting decisions.)
Investment Company Act of 1940
A landmark U.S. federal law that regulates the organization and operation of mutual funds and other investment companies. (Key provisions of this Act are relevant to the proposals, including the requirement for shareholder approval of board elections (maintaining a 2/3 elected ratio) and the classification of funds as 'diversified' or 'non-diversified'.)
Diversified Fund
A type of investment company under the 1940 Act that has limitations on the percentage of its assets that can be invested in any single issuer's securities (typically no more than 5% of total assets) and voting securities (typically no more than 10% of outstanding voting securities). (American Funds Tax-Exempt Fund of New York is proposing to change its classification from diversified to non-diversified, which will alter its investment flexibility and associated risks.)
Non-Diversified Fund
A type of investment company under the 1940 Act that does not adhere to the strict asset concentration limits imposed on diversified funds. (This classification offers greater investment flexibility to the fund's adviser but may expose shareholders to higher concentration risk.)
Investment Advisory and Service Agreement
The contract between a mutual fund and its investment adviser that outlines the services to be provided and the fees to be paid. (Ten bond funds are seeking shareholder approval to amend this agreement, specifically to change the fee structure from an asset and income-based model to an asset-only model.)

Year-Over-Year Comparison

This filing is a proxy statement for a special shareholder meeting, not an annual report, so direct year-over-year financial comparisons are not applicable. The key focus is on upcoming shareholder votes regarding board elections, advisory fee structures for specific bond funds, and a fund's diversification classification, rather than changes in financial performance metrics like revenue or net income from a previous period.

Filing Stats: 4,405 words · 18 min read · ~15 pages · Grade level 13.7 · Accepted 2025-09-09 16:17:58

Key Financial Figures

  • $1.70 — average across all Funds approximately $1.70 per shareholder account. How many vote

Filing Documents

– The Proposals

Part I – The Proposals     Proposal 1 – To elect Board members of the Funds   3 Proposal 2 – To approve the proposed amendment of the Investment Advisory and Service Agreement to modify the investment advisory and service fee schedule for each of American Funds Mortgage Fund, American High -Income Trust, The Bond Fund of America, U.S. Government Securities Fund, Intermediate Bond Fund of America, American High -Income Municipal Bond Fund, Limited Term Tax -Exempt Bond Fund of America, The Tax -Exempt Bond Fund of America, The Tax -Exempt Fund of California, and American Funds Tax -Exempt Fund of New York   8 Proposal 3 – To approve the proposed change to the diversification classification for American Funds Tax -Exempt Fund of New York from a diversified to a non -diversified registered investment company   13 Part II     Additional Information about the Funds   15 Audit Committee   16 Further Information About Voting and the Shareholder Meetings   17 EXHIBITS     Exhibit A – Series and Included Fund(s )     Exhibit B – Form of Nominating and Governance Committee Charte r     APPENDICES     Appendix 1 – Board Member and Nominee Informatio n     Appendix 2 – Board and Committee Meetings; Committee Compositio n     Appendix 3 – Board Member Compensation and Fund Ownershi p     Appendix 4 – Executive Officer s     Appendix 5 – Total Shares Outstandin g     Appendix 6 – Principal Beneficial Holder s     Appendix 7 – Independent Auditors and Related Fee s     Appendix 8 – Comparison of Current and Proposed A

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