According to the Investment Company Act of 1940, what requires shareholder approval?

The requirement for shareholder approval under the Investment Company Act of 1940 is particularly relevant when it comes to making significant alterations to the investment strategy of a fund, which is articulated in the investment policy statement. This document outlines how the fund will invest its assets and the types of investments it will pursue.

When a mutual fund or investment company seeks to change its investment policy, it potentially alters the risk profile and the expected returns for shareholders. Such changes could affect the stakeholders' financial interests, hence requiring transparency and consent through shareholder approval to ensure that investors are informed and have a say in how their money is managed.

In contrast, hiring or firing an adviser is typically within the purview of the board of directors and does not necessitate direct input from shareholders. Likewise, purchasing additional funds or investments generally falls within the operational decisions made by the fund's management and investment advisers, not requiring shareholder votes unless it fundamentally alters the nature of the fund itself.

Therefore, changing the investment policy statement stands out as a significant action that directly impacts the management and objectives of the fund, warranting shareholder approval to ensure that investors retain some level of control over critical investment decisions.