DEF: Tortoise Funds Announce Annual Meeting Agenda, Director Nominations, and Auditor Change Amidst Ongoing Shareholder Litigation

Tortoise Energy Infrastructure Corporation and Tortoise Sustainable and Social Impact Term Fund will hold their combined annual meeting on August 14, 2025, to elect directors and ratify a new independent auditor, while addressing ongoing shareholder litigation and a decision to maintain a classified board.

Summary

• A combined annual meeting for Tortoise Energy Infrastructure Corporation (TYG) and Tortoise Sustainable and Social Impact Term Fund (TEAF) is scheduled for Thursday, August 14, 2025, at 10:00 a.m. Central Time.
• Shareholders will vote on the election of three directors for each company: Thomas Florence and Andrew Iseman are nominated for three-year terms expiring in 2028, and Alexandra Herger is nominated for a one-year term expiring in 2026.
• The Board of Directors for each company will increase from four to five members, effective as of the Annual Meeting date, with Alexandra Herger filling the new Class I director vacancy.
• Shareholders will also vote to ratify Tait, Weller & Baker LLP as the independent registered public accounting firm for the fiscal year ending November 30, 2025, replacing Ernst & Young LLP, who were dismissed on April 8, 2025.
• The Board decided not to propose declassification of the Board at the 2025 Annual Meeting, despite a precatory proposal approved by shareholders at the 2024 Annual Meeting, citing extensive stockholder engagement and a belief in the benefits of a classified board for stability and continuity.
• Two ongoing legal proceedings initiated by a stockholder, Nathanson, against TYG, its Adviser, and current/former directors are pending, alleging breach of fiduciary duties related to leverage use and management during 2020 energy market volatility.
• The 'Demand Futility Litigation' was dismissed by the Circuit Court in February 2024, but the breach of fiduciary duty claim is pending appeal in the Appellate Court of Maryland.
• The 'Demand Refused Litigation,' filed after the Board refused a demand to initiate litigation, has been stayed by the court as of May 28, 2025, pending the resolution of the appeal in the Demand Futility Litigation.
• As of May 31, 2025, Tortoise Capital Advisors, L.L.C., the investment adviser, had approximately $8.9 billion in client assets under management.
• Saba Capital Management, L.P. holds 1,549,226 shares (11.48%) of TEAF common stock and 625,915 shares (5.81%) of TYG common stock as of May 31, 2025.
• Prudential Financial Inc. holds 3,800,000 shares (97.5%) of TYG preferred stock, and Morgan Stanley holds 960,816 shares (8.9%) of TYG common stock as of May 31, 2025.
• A material weakness in internal controls for TYG related to accounting for income taxes, identified in fiscal year 2022, was remediated as of November 30, 2023.

Sentiment

Score: 6

Explanation: The document is largely neutral, as it's a procedural proxy statement. Positives include board unanimity on proposals and the remediation of a past control weakness. Negatives include the ongoing litigation and the board's decision to not declassify despite shareholder preference, which could be a point of contention. The overall tone is factual and compliant, typical of an SEC filing, without overtly positive or negative framing of the core business operations.

Positives

• The Boards of Directors of both TYG and TEAF unanimously recommend voting FOR all proposed agenda items, indicating strong internal alignment on governance matters.
• The Board engaged in extensive and confidential engagement with various stockholders following the 2024 Annual Meeting to address issues raised by Saba Capital, demonstrating responsiveness to shareholder concerns.
• The material weakness in internal controls identified in fiscal year 2022 for TYG, related to accounting for income taxes, was successfully remediated as of November 30, 2023, indicating improved financial reporting controls.
• The Audit and Valuation Committee has determined that Conrad S. Ciccotello and Rand C. Berney are audit committee financial experts, enhancing the committee's oversight capabilities.
• All directors attended at least 75% of the aggregate Board and committee meetings during the 2024 fiscal year, reflecting active participation and commitment to their oversight responsibilities.

Negatives

• The Board decided not to propose declassification of the Board at the 2025 Annual Meeting, despite a precatory proposal approved by shareholders at the 2024 Annual Meeting, which may lead to continued shareholder dissatisfaction or activism.
• Two ongoing legal proceedings initiated by a stockholder against TYG, its Adviser, and current/former directors allege serious claims such as breach of fiduciary duties and gross negligence, creating legal uncertainty and potential financial liabilities.
• The 'Demand Futility Litigation' appeal is pending, and the 'Demand Refused Litigation' is stayed, indicating that the legal challenges are unresolved and will continue to be a focus for the company.
• A material weakness in internal controls related to accounting for income taxes was identified in fiscal year 2022 for TYG, highlighting a past deficiency in financial reporting processes, even though it has since been remediated.

Risks

• Litigation Risk: Ongoing 'Demand Futility Litigation' and 'Demand Refused Litigation' could result in adverse judgments, significant legal costs, and reputational damage. The Board noted that pursuing the demanded claims might result in losses to TYG in the form of mandatory indemnification payments.
• Shareholder Activism/Governance Risk: The Board's decision not to declassify despite a precatory shareholder vote could lead to continued shareholder activism or dissatisfaction, potentially impacting future proxy votes or management stability.
• Operational Risk (Historical): A material weakness in internal controls related to income tax accounting was identified in FY2022, though remediated, highlighting past control deficiencies that could recur.
• Market Volatility Risk: Allegations in the litigation reference the Defendant Directors' management of TYG during the 2020 energy market volatility, indicating inherent exposure to market fluctuations in the energy infrastructure sector.
• Investment-Related Risks: The Board acknowledges that it may be necessary to bear certain risks, such as investment-related risks, to achieve the Company's goals and objectives, implying exposure to market and asset-specific risks.
• Limitations of Risk Oversight: The Board explicitly states that its risk management oversight is subject to substantial limitations, as not all risks can be identified, some cannot be eliminated or mitigated, and reports may be inaccurate or incomplete, suggesting inherent vulnerabilities in risk management.

Future Outlook

The document primarily focuses on corporate governance matters for the upcoming annual meeting, including director elections and auditor ratification. It also addresses ongoing litigation and the Board's decision to maintain a classified board structure. No specific forward-looking financial guidance or strategic outlook beyond these governance and legal updates is provided.

Management Comments

• The Board has decided not to propose action to effect such declassification at the 2025 Annual Meeting, following the Boards careful consideration of (A) extensive and confidential engagement by the Board and members of management with various stockholders following the 2024 Annual Meeting, (B) numerous other steps taken by the Board and management of both Companies since the 2024 Annual Meeting to address many of the issues raised by Saba and (C) the Boards belief, as discussed in the Companies 2024 Annual Meeting proxy statement, that maintaining a classified Board of Directors at this time continues to serve the best interests of each Company and its stockholders by appropriately supporting the independence and accountability of the directors to each Companys stockholders while also promoting stability and continuity of management for each Company at the Board level.
• The Board of TYG considered the Demand Review Committees findings and concluded that the claims asserted in the Demand were valueless and, if pursued, may actually result in losses to TYG in the form of mandatory indemnification payments to the Adviser and the Board of TYG for the cost of litigation.
• The Board of Directors also believes that its leadership structure not only facilitates the orderly and efficient flow of information to the Independent Directors from management, but also enhances the independent and orderly exercise of its responsibilities.
• The Board of Directors believes that not all risks that may affect the Company can be identified, that it may not be practical or cost-effective to eliminate or mitigate certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Companys goals and objectives, and that the processes, procedures and controls employed to address certain risks may be limited in their effectiveness. Moreover, reports received by the directors as to risk management matters are typically summaries of relevant information and may be inaccurate or incomplete.

Industry Context

This filing is typical for closed-end funds, which often face shareholder activism, particularly regarding governance structures like board classification. The mention of 'energy market volatility' in the context of litigation highlights the inherent risks and challenges within the energy infrastructure sector, which these funds invest in. The change in auditors is a routine governance matter, but the specific mention of a remediated material weakness in internal controls for income taxes suggests a focus on compliance and financial reporting accuracy, which is critical in a highly regulated industry. The significant ownership by activist investor Saba Capital Management indicates ongoing pressure on governance and potentially performance.

Comparison to Industry Standards

• The decision to maintain a classified board, despite a precatory shareholder vote for declassification, deviates from a growing trend among U.S. public companies to declassify boards, often seen as a move to enhance accountability and shareholder responsiveness. Many large-cap companies have transitioned to annual director elections.
• The presence of a Lead Independent Director (Conrad S. Ciccotello) and independent audit committee financial experts (Conrad S. Ciccotello and Rand C. Berney) aligns with best practices for corporate governance, particularly for investment companies, ensuring robust financial oversight.
• The detailed disclosure of auditor fees and the pre-approval policies for audit and non-audit services are standard practices in compliance with SEC regulations, such as the Sarbanes-Oxley Act, demonstrating adherence to regulatory requirements.
• The ongoing litigation initiated by Saba Capital Management, a known activist investor, is a common occurrence in the closed-end fund space, where activists often target funds trading at a discount to net asset value or with perceived governance issues, indicating the company is navigating typical industry challenges.

Management Changes

Corporate Governance

Legal Proceedings

• **Demand Futility Litigation:** A stockholder filed suit in May 2023 against TYG, its Adviser, and current/former directors, alleging breach of fiduciary duties and gross negligence related to leverage use, management during 2020 energy market volatility, and corporate governance bylaw amendments. The court dismissed the case in February 2024, but the breach of fiduciary duty claim is currently pending appeal in the Appellate Court of Maryland (No. 0370, September Term, 2024).
• **Demand Refused Litigation:** Following the dismissal of the Demand Futility Litigation, a stockholder served a demand letter on the TYG Board in April 2024, requesting litigation for similar claims. The Board's Demand Review Committee investigated and concluded the claims were valueless and could result in losses due to indemnification. The Board refused the demand in August 2024. The stockholder then filed a lawsuit in November 2024, alleging wrongful refusal of the demand. This litigation was stayed in May 2025, pending the resolution of the appeal in the Demand Futility Litigation.

Related Party Transactions

• The Investment Adviser, Tortoise Capital Advisors, L.L.C., is an interested party, and its Chief Executive Officer, Tom Florence, serves as Chairman of the Board for both companies.
• The Adviser paid Ernst & Young LLP $35,300 in 2024 and $33,850 in 2023 for tax and other non-audit services, which were not required to be pre-approved by the Companies' Audit and Valuation Committee.
• RWC Asset Management LLP serves as the investment sub-adviser to TEAF, jointly managing approximately $67.1 million of assets with the Adviser.

Stakeholder Impact

• **Shareholders:** Directly impacted by the proposals for director elections and auditor ratification. The Board's decision to maintain a classified board despite a precatory vote for declassification may concern some shareholders, particularly activist investors like Saba Capital. Ongoing litigation creates uncertainty and potential costs that could affect shareholder value.
• **Management/Directors:** The election of new directors and the re-election of existing ones directly impacts the composition and leadership of the Board. The ongoing litigation places legal and reputational pressure on current and former directors and the Adviser.
• **Auditors:** Tait, Weller & Baker LLP will assume the role of independent registered public accounting firm, impacting their business and responsibilities. Ernst & Young LLP's dismissal concludes their engagement.
• **Investment Adviser (Tortoise Capital Advisors, L.L.C.):** The Adviser's operations and management fees are central to the litigation, and its CEO is a key director. The outcome of the litigation could impact its relationship with the funds and its reputation.

Next Steps

• Stockholders are requested to vote on director elections and auditor ratification at the Annual Meeting on August 14, 2025.
• The resolution of the appeal in the 'Demand Futility Litigation' is pending.
• The 'Demand Refused Litigation' is stayed pending the outcome of the 'Demand Futility Litigation' appeal.
• Stockholders can submit proposals for inclusion in the proxy statement for the 2026 Annual Meeting by March 16, 2026.
• Stockholders can submit director nominations or other business proposals for consideration at the 2026 Annual Meeting (not for proxy statement inclusion) between February 2, 2026, and March 16, 2026.

Key Dates

Recommendation

Keywords

Proxy Statement, Annual Meeting, Director Election, Auditor Ratification, Corporate Governance, SEC Filing, Shareholder Vote, Board Declassification, Litigation, Fiduciary Duty, Investment Fund, Closed-End Fund, Tortoise Energy Infrastructure Corporation, Tortoise Sustainable and Social Impact Term Fund, Saba Capital, Tait Weller & Baker LLP, Ernst & Young LLP, Financial Reporting, Risk Management