[Federal Register Volume 74, Number 202 (Wednesday, October 21, 2009)]
[Proposed Rules]
[Pages 53954-53964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25232]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release Nos. 33-9073; 34-60825; IC-28946; File No. S7-22-09]
RIN 3235-AK25


Amendments to Rules Requiring Internet Availability of Proxy 
Materials

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing changes to the proxy rules under the 
Securities Exchange Act of 1934 to improve the notice and access model 
for furnishing proxy materials to shareholders. Specifically, we are 
proposing revisions to our rules to provide additional flexibility 
regarding the format of the Notice of Internet Availability of Proxy 
Materials that is sent to shareholders. We are also providing guidance 
about the current requirement for the Notice to identify the matters 
intended to be acted on at the shareholders' meeting. In addition to 
the proposed changes and guidance regarding the format of the Notice, 
we are proposing a new rule that will permit issuers and soliciting 
shareholders to include explanatory materials regarding the process of 
receiving and reviewing proxy materials and voting. Finally, we are 
proposing revisions to the timeframe for delivering a Notice to 
shareholders when a soliciting person other than the issuer relies on 
the notice-only option.

DATES: Comments should be received on or before November 20, 2009.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number S7-22-09 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-22-09. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's Web 
site (http://www.sec.gov/rules/proposed.shtml). Comments are also 
available for public inspection and copying in the Commission's Public 
Reference Room, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. All comments 
received will be posted without change; we do not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly.

[[Page 53955]]


FOR FURTHER INFORMATION CONTACT: Steven G. Hearne, Special Counsel in 
the Office of Rulemaking, Division of Corporation Finance, at (202) 
551-3430, or with respect to registered investment companies, Sanjay 
Lamba, Senior Counsel, in the Office of Disclosure Regulation, Division 
of Investment Management, at (202) 551-6784, 100 F Street, NE., 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to 
Rule 14a-16 \1\ under the Securities Exchange Act of 1934 \2\ and Rule 
498 \3\ under the Securities Act of 1933.\4\
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    \1\ 17 CFR 240.14a-16.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 17 CFR 230.498.
    \4\ 15 U.S.C. 77a et seq.
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I. Background

    As part of a continuing review of the proxy disclosure and 
solicitation process, we have been exploring ways to improve the 
disclosures shareholders receive when they are asked to make a voting 
decision and the process followed when those votes are solicited. In 
May 2009, we voted to propose changes to our proxy rules to require 
issuers to include shareholder nominated directors in issuer proxy 
statements if certain conditions are met.\5\ We also recently proposed 
amendments to our proxy rules to enhance the compensation and corporate 
governance disclosures that issuers are required to make and to address 
certain proxy solicitation matters.\6\ We also approved changes 
proposed by the New York Stock Exchange (``NYSE'') to its Rule 452 that 
eliminated broker discretionary voting for uncontested elections of 
directors at shareholder meetings.\7\
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    \5\ See Facilitating Shareholder Director Nominations, Release 
No. 33-9046 (June 10, 2009) [74 FR 29024].
    \6\ See Proxy Disclosure and Solicitation Enhancements, Release 
No. 33-9052 (July 10, 2009) [74 FR 35076].
    \7\ See Order Approving Proposed Rule Change, as modified by 
Amendment No. 4, to Amend NYSE Rule 452 and Corresponding Listed 
Company Manual Section 402.08 to Eliminate Broker Discretionary 
Voting for the Election of Directors, Except for Companies 
Registered under the Investment Company Act of 1940, and to Codify 
Two Previously Published Interpretations that Do Not Permit Broker 
Discretionary Voting for Material Amendments to Investment Advisory 
Contracts with an Investment Company, Release No. 34-60215 (July 1, 
2009) [74 FR 33293].
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    One of the other ways we identified to improve the proxy 
solicitation process is to revise our notice and access proxy rules to 
further facilitate informed shareholder participation in the proxy 
voting process. In 2007 we amended the proxy rules by adopting a notice 
and access model that required all issuers and other soliciting persons 
to post their proxy materials on an Internet Web site and furnish 
notice of the materials' availability to shareholders.\8\ The notice 
and access model was intended to establish procedures that would 
promote use of the Internet as a reliable and cost-efficient means of 
making proxy materials available to shareholders. Even though we 
recently adopted these requirements, we believe based on our experience 
that it is important to propose these limited modifications in order to 
advance the regulatory goals of the notice and access model.
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    \8\ See Internet Availability of Proxy Material, Release No. 34-
55146 (Jan. 22, 2007) [72 FR 4148] (``Internet Availability of Proxy 
Material Adopting Release'') and Shareholder Choice Regarding Proxy 
Materials, Release No. 34-56135 (July 26, 2007) [72 FR 42221]. The 
rules were phased-in over a two year period. Large accelerated 
filers, not including registered investment companies, were required 
to use the model with respect to proxy solicitations commencing on 
or after January 1, 2008. All other companies (including registered 
investment companies), and soliciting persons, were required to use 
the model for proxy solicitations commencing on or after January 1, 
2009.
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    Under the notice and access model, an issuer or other soliciting 
person may choose to provide proxy materials to shareholders under 
either of two options, the ``notice-only option'' and the ``full set 
delivery option.'' \9\ An issuer or other soliciting person is 
permitted to provide proxy materials to some shareholders via the 
notice-only option and to other shareholders via the full set delivery 
option. Under both options, the issuer or other soliciting person must 
make its proxy materials available on an Internet Web site.
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    \9\ The process of distributing proxy materials to beneficial 
owners differs from the process for direct delivery of the materials 
by an issuer to its record holders. Beneficial owners are owners 
whose names do not appear directly in issuers' stock registers 
because they hold their securities through a broker, bank, trustee, 
or similar intermediary. The proxy rules, specifically Exchange Act 
Rule 14a-13, Rule 14b-1 and Rule 14b-2 [17 CFR 240.14a-13, 240.14b-1 
and 240.14b-2], impose obligations on issuers and intermediaries to 
ensure that beneficial owners receive proxy materials and are given 
the opportunity to participate in the shareholder voting process. 
Under the proxy rules, intermediaries are required to forward the 
proxy materials, other than the proxy card, along with a request for 
voting instructions. The request for voting instructions is prepared 
by the intermediary and the beneficial owner returns the voting 
instructions to the intermediary. The intermediary is required to 
vote the beneficial owners' shares in accordance with each owner's 
voting instructions when formally executing the proxy card. In the 
absence of voting instructions from the beneficial owner, the 
intermediary may vote the beneficial owner's shares in its own 
discretion under certain circumstances. See NYSE Rule 452.
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    The notice-only option permits the issuer or other soliciting 
person to send only a Notice of Internet Availability of Proxy 
Materials (``Notice'') to shareholders. The Notice must include, among 
other things, the Internet Web site address where shareholders can 
access the proxy materials and a description of the means by which a 
shareholder can request paper or electronic copies of the 
materials.\10\ Under this option, an issuer must send the Notice to 
shareholders at least 40 days prior to the shareholder meeting to which 
the proxy materials relate.\11\ A soliciting person other than the 
issuer must send the Notice to shareholders by the later of 40 days 
prior to the meeting or 10 days after the issuer first sends its Notice 
or proxy materials to shareholders.\12\ An issuer or other soliciting 
person must then provide copies of the proxy materials upon the request 
of shareholders receiving the Notice.\13\ The full set delivery option 
permits an issuer or other soliciting person to send the traditional 
full set of proxy materials in paper to shareholders accompanied by the 
Notice, or to include the information required in the Notice in the 
proxy materials.\14\
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    \10\ See Exchange Act Rule 14a-16(b) and (d) [17 CFR 240.14a-
16(b) and (d)].
    \11\ See Exchange Act Rule 14a-16(a) [17 CFR 240.14a-16(a)].
    \12\ See Exchange Act Rule 14a-16(l) [17 CFR 240.14a-16(l)].
    \13\ See Exchange Act Rule 14a-16(j) [17 CFR 240.14a-16(j)].
    \14\ See Exchange Act Rule 14a-16(n) [17 CFR 240.14a-16(n)].
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    According to Broadridge Financial Solutions, Inc. (``Broadridge''), 
1,312 corporate issuers used the notice-only option for distribution to 
some portion of their beneficial owners under the notice and access 
model in the 2009 proxy season.\15\ While issuers may enjoy significant 
cost savings using the notice-only option under the notice and access 
model, we are concerned by statistics indicating lower shareholder 
response rates to proxy solicitations when the notice-only option is 
used.\16\ According

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to Broadridge, the percentage of ``retail'' shares \17\ voted by 
shareholders in issuers using the notice-only option for distribution 
to some portion of their beneficial owners is lower than the percentage 
in issuers that exclusively use the full-set delivery option to provide 
proxy materials to their shareholders.\18\ In addition, when comparing 
between shareholders in issuers that used both the notice-only and full 
set delivery options, the response rates of retail shares voted by 
shareholders that received notice-only was half that of shareholders 
that received full set delivery.\19\ With regard to the effect on 
voting by retail account holders, rather than retail shares voted, 
statistics provided by Broadridge indicate even lower voting response 
rates for retail accounts that received notice-only instead of full-set 
delivery.\20\ The available data do not necessarily exclude the 
possibility that factors other than requirements of our notice and 
access rules may contribute to the different voting response rates, 
although the available data do not identify them.
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    \15\ See Broadridge Notice & Access, Statistical Overview of Use 
with Beneficial Shareholders (as of May 31, 2009) at http://www.broadridge.com/notice-and-access/NAStatsStory.pdf (``Broadridge 
Statistical Overview''). Broadridge is the largest provider of 
brokerage processing services with respect to beneficial owners 
holding through a broker or similar intermediary and has provided 
detailed statistical information on the use of the notice and access 
model. The Broadridge Statistical Overview is generally limited to 
comparisons between issuers that have used the notice-only option 
for distribution to some portion of their beneficial owners and 
issuers that exclusively used the full set delivery option and 
comparisons between the first and second years of use of the notice-
only option. The data that is currently publicly available and 
directly comparable to the data in the May 31, 2009 Broadridge 
Statistical Overview does not provide a comparison to an issuer's 
experience in the year prior to using the notice-only option for 
distribution.
    \16\ The Commission has long had an interest in facilitating 
shareholder participation in corporate governance and in fair 
corporate suffrage. See, for example, the testimony of Chairman 
Ganson Purcell in 1943, Securit[ies] and Exchange Commission Proxy 
Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. 2019 Before the 
House Comm. on Interstate and Foreign Commerce, 78th Cong., 1st 
Sess., at 17-19 (1943) and more recently Security Holder Director 
Nominations, Release No. 34-48626 (Oct. 14, 2003) [68 FR 60784], 
Shareholder Proposals Relating to the Election of Directors, Release 
No. 34-56161 (July 27, 2007) [72 FR 43488], and Release No. 33-9046 
in note 5 above.
    \17\ The term ``retail,'' as used in the Broadridge Statistical 
Overview, does not refer to shares or accounts that are managed by 
an advisor and that have previously consented to the electronic 
delivery of their proxy materials. See Broadridge Statistical 
Overview at 1. When not referring specifically to the Broadridge 
statistics, this release uses the term individual shareholders to 
more broadly refer to non-institutional shareholders generally.
    \18\ According to the Broadridge Statistical Overview, when 
comparing the 11-month period from July 1, 2008 to May 31, 2009, 
response rates were 4.11% less for retail shares voted in issuers 
that used the notice-only option for distribution to some portion of 
their beneficial owners (27.69%) compared to issuers that 
exclusively used the full set delivery option (31.8%).
    \19\ According to the Broadridge Statistical Overview, for 
companies that used a mixed approach--using the notice-only option 
for some retail shareholders and the full set delivery option for 
the remaining shareholders--the percentage of retail shares voted by 
shareholders that received notice-only was 13.48% during the 11-
month period from July 1, 2008 to May 31, 2009. In comparison, the 
percentage of retail shares voted by shareholders of the same set of 
issuers that received full set delivery during the same period was 
28.63%.
    \20\ The percentage of retail accounts that responded when 
receiving notice-only under the mixed approach during the 11-month 
period from July 1, 2008 to May 31, 2009 was only 4.10%. In 
comparison, for companies that used a mixed approach, the percentage 
of retail accounts that responded after receiving full-set delivery 
during the same period was 21.44%. To the extent that retail account 
data represent individual shareholders, the data indicates a large 
difference in voting by individual shareholders that receive full-
set delivery as opposed to those that receive notice only. It is 
important to note, however, that issuers (absent specific 
instructions from a shareholder) have the flexibility under the 
notice and access model to determine which shareholders will receive 
notice-only or full set delivery of proxy materials. As a result, 
when making such determinations, it is possible that consideration 
is given to the historical response rates of particular shareholders 
or certain similarly situated shareholders. Consequently, the subset 
of retail investors that only receive the Notice may be stratified 
to include those shareholders that are least likely to respond to 
the materials. Among the other potential reasons for the difference 
in these response rates may be an issuer's consideration of the 
number of shares held in an account (e.g., all accounts holding 500 
shares or more will receive a full set of proxy materials) when 
deciding whether to furnish notice-only or full set delivery of 
proxy materials.
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    We are exploring the reasons for the difference in retail share and 
account voting response rates and whether our rules are creating 
difficulties or affecting voting rates. We note that there appears to 
have been some confusion among shareholders regarding the operation of 
the notice and access model.\21\ The legend required to be put on the 
Notice does not appear to have provided clear guidance for some 
shareholders as to how those shareholders could access the proxy 
materials online or request a paper copy of the proxy materials and 
vote their shares. For example, the Commission's staff has received 
reports of some shareholders attempting to indicate their voting 
instructions by returning a marked copy of the Notice.\22\ Disclosing 
the matters to be acted on in the Notice in the same format as the 
matters listed in the proxy may have resulted in some shareholders 
misunderstanding the purpose of the Notice. There may be other reasons 
why shareholder participation under the notice and access model, 
especially by individual shareholders, is lower, and we are soliciting 
comment on why the participation rates are lower and how best to 
advance the Commission's regulatory interest in informed shareholder 
participation.
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    \21\ Our Office of Investor Education and Advocacy has received 
complaints about the notice and access model and members of our 
staff have heard about the experience of some issuers with the 
notice and access model from informal meetings with Broadridge and 
issuer representatives.
    \22\ Id.
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    We are proposing revisions to remove regulatory impediments that 
may be reducing shareholder response rates to proxy solicitations. The 
revisions are intended to permit issuers and other soliciting persons 
to more effectively use the notice and access model. The proposed 
amendments are described below. We are also soliciting comment on ways 
to improve the mechanics of the notice and access model and other ways 
to increase informed shareholder participation in the proxy 
solicitation process.\23\ We intend to continue monitoring 
implementation of the notice and access rules and may propose 
additional revisions in order to achieve greater shareholder 
participation.
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    \23\ For example, when the amendments to NYSE Rule 452 were 
approved, we noted our support for the establishment of an Investor 
Education Sub-Committee of the NYSE Proxy Working Group to develop 
and encourage the NYSE and its member firms to implement an investor 
education effort to inform investors about the amendments to NYSE 
Rule 452, the proxy voting process, and the importance of voting. 
See Release No. 34-60215 in Note 7 above. Our Office of Investor 
Education and Advocacy is also considering ways to educate investors 
about these matters.
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II. Proposed Amendments

A. Improving Clarity of the Notice

    Exchange Act Rule 14a-16(d) \24\ currently imposes strict 
requirements regarding the content of the Notice, and requires the 
Notice to be presented in a prescribed format.\25\ The rule requires 
the Notice to contain a prominent legend indicating that the document 
is an important notice regarding the Internet availability of proxy 
materials for a specified shareholder meeting. Among other things, the 
Notice also must indicate that it presents only an overview of the more 
complete proxy materials available to the shareholders on the Internet 
and must include a statement encouraging shareholders to access and 
review the proxy materials at a specified Web site address. In 
addition, the Notice must explain how a shareholder may request a paper 
or e-mail copy of the proxy materials. Rule 14a-16(d)(3) further 
requires the Notice to contain ``[a] clear and impartial identification 
of each separate matter intended to be acted on and the soliciting 
person's recommendations regarding those matters, but no supporting 
statements.'' \26\ The intent behind the specific Notice requirements 
was to inform shareholders of the availability of proxy materials and 
to notify them of the matters to be considered and voted on at the 
meeting. The specific limitations on the type of information that can 
be included in the Notice were included because we do not intend the 
Notice to become a means of persuading shareholders how to vote or to 
deliver marketing or other materials

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that may distract shareholders from the Notice.
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    \24\ 17 CFR 240.14a-16(d).
    \25\ 17 CFR 240.14a-16(d)(1).
    \26\ 17 CFR 240.14a-16(d)(3).
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    Exchange Act Rule 14a-16(f) imposes a strict prohibition on the 
types of materials that may accompany the Notice when an issuer or 
other soliciting person elects to follow the notice-only option. 
Specifically, for companies other than registered investment companies, 
the Notice under this option must be sent separately from other types 
of shareholder communications and may not accompany any other document 
or materials, except for a pre-addressed, postage-paid reply card for 
requesting a copy of the proxy materials and a copy of a notice of 
shareholder meeting required by state law.\27\ Therefore, a soliciting 
person may not include additional materials to explain why the 
shareholder is receiving only a Notice instead of the proxy materials.
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    \27\ Registered investment companies may also include a 
prospectus or a report that is required to be transmitted to 
shareholders by Section 30(e) of the Investment Company Act (15 
U.S.C. 80a-29(e)) and the rules thereunder. See Exchange Act Rule 
14a-16(f)(2)(iii) [17 CFR 240.14a-16(f)(2)(iii)].
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    In light of our serious concerns regarding shareholder confusion 
and the potential that our rules may be causing a reduction in 
shareholder voting, we propose to revise our rules to provide issuers 
and other soliciting persons with additional flexibility in formatting 
and selecting the language to be used in the Notice. Rather than 
requiring the soliciting person to include a detailed legend that may 
seem like boilerplate language to shareholders, we are proposing to 
require that the information appearing on the Notice address certain 
topics, without specifying the exact language to be used.\28\ We hope 
the flexibility will allow issuers and other soliciting persons to 
develop a more effective explanation of the importance and effect of 
the Notice, including to provide clearer guidance for shareholders as 
to how to access the proxy materials online, request a paper copy of 
the proxy materials, and vote their shares.
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    \28\ See proposed Exchange Act Rule 14a-16(d), which would limit 
the required legend to the line ``Important Notice Regarding the 
Availability of Proxy Materials for the Shareholder Meeting To Be 
Held on [insert meeting date]'' and would require the other 
information currently required in the legend to be included in the 
Notice, but not as part of a specified legend.
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    In addition, we have been informed that certain issuers are 
interpreting Rule 14a-16(d)(3) to require them to comply with the 
specific Exchange Act Rule 14a-4 \29\ formatting and content 
requirements for disclosure of matters on the proxy card when 
identifying in the Notice each separate matter to be acted on at the 
meeting.\30\ Rule 14a-16(d)(3) provides for more flexibility regarding 
the design of the Notice. It is not necessary that the Notice directly 
mirror the proxy card. Rather, the rule simply requires that the Notice 
identify each matter that will be considered at the meeting (e.g., 
election of directors; ratification of auditors; approval of a stock 
option plan, etc.).
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    \29\ 17 CFR 240.14a-4.
    \30\ See note 21 above.
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    Further, in order to mitigate confusion about the Notice and to 
allow issuers and other soliciting persons to better engage 
shareholders, we propose to revise our rules to permit issuers and 
other soliciting persons to accompany the Notice with an explanation of 
the notice and access model.\31\ The exception provided would be 
limited to the process of receiving or reviewing the proxy materials 
and voting. Materials designed to persuade shareholders to vote in a 
particular manner, change the method of delivery, or explain the basis 
for sending only a Notice to shareholders would not be permitted under 
the exception.\32\ With this increased flexibility, issuers could 
better educate shareholders about the notice and access model. While 
issuers would be permitted to provide their own explanation of the 
process of receiving and reviewing the proxy materials and the process 
of voting, we expect that many issuers will use standardized materials 
prepared for this purpose.\33\
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    \31\ See proposed Exchange Act Rule 14a-16(f)(2)(iv).
    \32\ As we explained in the Internet Availability of Proxy 
Material Adopting Release, ``The Notice is intended merely to make 
shareholders aware that these proxy materials are available on an 
Internet Web site; it is not intended to serve as a stand-alone 
basis for making a voting decision.'' See note 8 above.
    \33\ Through informal meetings with the staff, issuer 
representatives, intermediaries and proxy distribution service 
providers have expressed interest in developing standardized 
educational materials to be included with the Notice.
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    In addition to proposing to amend our rules to reduce possible 
confusion about the Notice, the Office of Investor Education and 
Advocacy, in consultation with the Division of Corporation Finance, has 
been directed to develop a program designed to educate and inform 
shareholders, especially individual shareholders, about the notice and 
access model; explain how shareholders may participate through this 
model; and explain shareholders' rights under this model. Although the 
proposed amendments to our rules would permit, rather than require, 
issuers and other soliciting persons to include explanatory information 
about the Notice, the Commission strongly encourages issuers and other 
soliciting persons who use the notice-only option to better inform 
shareholders about the notice and access model. Issuers who have 
experienced significant cost savings, but may also have experienced a 
significant decrease in participation rates, may wish to consider using 
those cost savings in educational efforts designed to increase informed 
participation by shareholders.
    We are also proposing technical amendments to our rules for 
registered investment companies. Rule 14a-16(f)(2)(iii) currently 
permits a registered investment company to accompany the Notice with a 
prospectus or report to shareholders.\34\ The Commission recently 
adopted rule amendments that permit mutual funds \35\ to satisfy their 
prospectus delivery obligations by sending or giving investors key 
information in the form of a summary prospectus.\36\ Consistent with 
permitting mutual funds to use a summary prospectus to satisfy their 
delivery obligations, we propose to revise our rules to permit mutual 
funds to accompany the Notice with a summary prospectus.\37\
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    \34\ 17 CFR 240.14a-16(f)(2)(iii). Unless otherwise specified or 
the context otherwise requires, the term ``prospectus'' means a 
prospectus meeting the requirements of Section 10(a) of the 
Securities Act [15 U.S.C. 77j(a)]. See 17 CFR 240.0-1(d).
    \35\ We use the term ``mutual fund'' to mean a registered 
investment company that is an open-end management company as defined 
in Section 5(a)(1) of the Investment Company Act of 1940 [15 U.S.C. 
80a-5(a)].
    \36\ See Enhanced Disclosure and New Prospectus Delivery Option 
for Registered Open-End Management Investment Companies, Release No. 
33-8998 (Jan. 13, 2009) [74 FR 4546]. Although the summary 
prospectus is not a Section 10(a) prospectus, it may be used to 
satisfy any prospectus delivery obligations under Section 5(b)(2) of 
the Securities Act [15 U.S.C. 77e(b)(2)]. 17 CFR 230.498(c).
    \37\ See proposed amendment to Exchange Act Rule 14a-
16(f)(2)(iii). We are also proposing a conforming amendment to Rule 
498 under the Securities Act [17 CFR 230.498], which permits mutual 
funds to use a summary prospectus to satisfy their prospectus 
delivery obligations. Rule 498(f)(2) provides that a fund's summary 
prospectus shall be given greater prominence than any accompanying 
materials. We are proposing to amend Rule 498 to provide that a 
summary prospectus need not be given greater prominence than an 
accompanying Notice. See proposed amendment to Rule 498(f)(2).
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Request for Comment
     Has use of the notice and access model made proxy 
materials more or less accessible to shareholders? The Commission is 
concerned by reports that indicate there has been a drop in shareholder 
response rates to proxy solicitations by individual shareholders under 
the notice and access model, especially when the notice-only option has 
been used. We are proposing

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changes to the Notice requirements intended to make the Notice clearer 
and encourage efforts to better inform shareholders about participation 
under the notice and access model. Do the proposed changes help in 
enabling issuers and other soliciting persons to make the Notice 
clearer? Will these changes help address concerns about confusion and 
other factors that may be reducing shareholder participation? What 
other changes to the notice and access model should we consider to 
address these concerns?
     What factors have caused the lower shareholder response 
rates by individual shareholders to proxy solicitations when the 
notice-only option is used under the notice and access model? If the 
lower shareholder response rates result primarily from the notice and 
access model itself, would requiring issuers to deliver paper copies of 
proxy materials to some subset of individual shareholders, such as 
shareholders that own over a certain threshold of shares or that have 
received paper copies of proxy materials and voted in the past, affect 
voting rates? Does permitting issuers to choose to which shareholders 
to provide notice-only and full set delivery affect voting rates? If 
so, how are issuers exercising their discretion over full set delivery 
and are they doing so appropriately? Would additional requirements 
affect an issuer's ability to implement the notice and access model? 
Are there other alternatives that would increase the voting rates under 
the notice and access model?
     Should we consider adding requirements that would limit an 
issuer's ability to use the notice-only option where the issuer has 
experienced a decrease in shareholder participation as a result of 
using the notice-only option for distribution to some portion of its 
shareholders? For example, should we only allow an issuer to continue 
to use the notice-only option if the shares voted or the voting 
response rate has not decreased from the most recent issuer's meeting 
when they provided all of their shareholders with full set delivery? 
Would some decrease, such as 10% or 20% be acceptable? Should we 
instead consider requiring shareholder participation to increase from 
prior years in order for an issuer to continue to use the notice-only 
option? Are there other participation-level conditions that we should 
consider?
     Will shareholders find the Notice more confusing if we do 
not prescribe how to describe the matters to be acted on at the 
meeting? Should we prescribe minimum standards for formatting? Should 
we instead require a legend to the effect that the Notice should not be 
used for voting on matters, and that a separate proxy card or Vote 
Instruction Form should be used for voting?
     Should we permit the Notice to be accompanied by materials 
to explain the process of receiving and reviewing the proxy materials 
and voting as proposed? Should we require that explanatory materials be 
included? Should we allow these explanatory materials to include any 
additional information? For example, should an issuer or other 
soliciting person be permitted to explain what the benefits of using 
the notice and access model would be? Should we specify by rule the 
topics that cannot be included? Should we include the level of detail 
in the explanation in this section in the text of the rule? For 
example, should the rule specifically provide that the explanation in 
the Notice may not contain materials designed to persuade shareholders 
to vote in a particular manner, change the methods of delivery or 
explain the basis for sending the Notice? Should a soliciting person be 
permitted to explain why it has decided to use the notice-only option?
     The Commission is aware that there has been some confusion 
relating to the Notice and that some shareholders have attempted to 
indicate their voting instructions by returning a marked copy of the 
Notice. What changes can we make to help shareholders better understand 
the Notice? Should the Commission amend its rules to prohibit issuers 
and other soliciting persons from including voting recommendations in 
the Notice as permitted under Rule 14a-16(d)(3)? Would removing 
recommendations increase the likelihood that a shareholder will access 
the proxy materials through the Internet? Does the Notice currently 
look too similar to a proxy card or Vote Instruction Form? Would 
possible confusion in the Notice be reduced if the Commission amended 
its rules to require identification of matters to be voted on by topic 
rather than identifying the specific matters as they appear on the 
proxy card, so that the Notice looks less like a proxy card or Vote 
Instruction Form?
     Has the notice and access model lowered costs for issuers 
and other soliciting persons resulting from the proxy solicitation 
process? Have any costs increased? In your response, please quantify 
the costs and savings of using the notice and access model, and provide 
supporting data where possible.
     It is our understanding from informal conversations our 
staff has had with issuers and proxy distribution service providers 
that a number of issuers were discouraged from using the notice and 
access model due to the difficulty of meeting the 40-day Notice mailing 
requirement. Would a 30-day deadline for delivery of the Notice still 
allow sufficient time for shareholders who prefer paper proxy materials 
to request and receive them through the mail? Would changing to a 30-
day deadline encourage use and improve implementation of the notice and 
access model? If the Notice mailing requirement for the issuer were 
shortened, would any changes be necessary to the filing and mailing 
requirements for soliciting persons other than the issuer?
     Some issuers have expressed concern regarding the fees 
charged by proxy distribution service providers. Have the fees charged 
by proxy distribution service providers affected use rates of the 
notice and access model? Should the Commission address fees charged by 
service providers relating to the implementation of the notice and 
access model? If so, how?
     Should the Commission consider proposing suspension of the 
notice and access rules until a later date to provide more time for 
shareholders to understand and be better prepared for the notice and 
access model? If so, how much time would be appropriate? Would 
additional educational efforts be sufficient to inform shareholders 
about the notice and access model, or would other efforts, such as 
development of an on-line disclosure and voting infrastructure, be 
needed? If so, why?

B. Proposed Amendment to Notice Deadlines for Soliciting Persons Other 
Than the Issuer

    Under Rule 14a-16, if a soliciting person other than the issuer 
chooses to use the notice-only option, the soliciting person must send 
its Notice to shareholders by a date that is the later of:
     40 calendar days before the shareholder meeting to which 
the proxy materials relate, or
     10 calendar days after the issuer first sends its Notice 
or proxy statement to shareholders. \38\
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    \38\ 17 CFR 240.14a-16(l)(2)(i) and (ii).

We created this 10-day period to provide soliciting persons other than 
the issuer desiring to rely on the notice-only option sufficient time 
to respond to an issuer's mailing of proxy materials and still allow 
shareholders receiving a Notice from the soliciting person enough time 
to request paper copies of

[[Page 53959]]

the soliciting person's proxy materials.\39\
---------------------------------------------------------------------------

    \39\ See Internet Availability of Proxy Materials, Release No. 
34-52926 (Dec. 8, 2005) [70 FR 74597] (``Internet Availability of 
Proxy Materials Proposing Release'').
---------------------------------------------------------------------------

    The current 10-calendar-day requirement for soliciting persons to 
send the Notice to shareholders can create potential compliance issues 
for soliciting persons. Under current practice, the staff of the 
Division of Corporation Finance reviews and provides comments on 
preliminary proxy materials filed by soliciting shareholders in a 
contested solicitation. While the staff makes great effort to review 
filings and address comments as quickly as possible, there may continue 
to be outstanding comments on a soliciting person's preliminary proxy 
statement more than 10 calendar days after the soliciting person has 
initially filed. Consequently, a soliciting person may not be in a 
position to send its Notice within 10 calendar days after the issuer 
first sends its Notice or proxy statement to shareholders.
    Thus, because a soliciting person is required to send its Notice 
within 10 days after the issuer first sends its Notice or proxy 
statement, the practical effect of Rule 14a-16, as currently written, 
is to limit that person's ability to use the notice-only option. This 
is because Rule 14a-16(b)(4) requires the soliciting person to make a 
means to execute a proxy available to shareholders at the time the 
Notice is first sent to shareholders. Rule 14a-4(f), however, prohibits 
a person from providing a form of proxy unless it is accompanied, or 
preceded, by a definitive proxy statement. Because the soliciting 
person may not have finished revising its proxy statement and may not 
have filed its definitive proxy statement with the Commission by that 
time, the notice and access rules, combined with current staff review 
practice, may, in many circumstances, prevent a soliciting person other 
than the issuer from using the notice-only option for a proxy contest 
if that soliciting person's initial proxy statement filing is made in 
response to the issuer's definitive proxy statement filing.
    To improve implementation of the notice and access model, we 
propose to amend Rule 14a-16(l)(2)(ii) to require the soliciting 
shareholder relying on this alternative to file a preliminary proxy 
statement within 10 days after the issuer files its definitive proxy 
statement and to send its Notice to shareholders no later than the date 
on which it files its definitive proxy statement with the Commission. 
We believe that this proposed time period would provide sufficient time 
for a soliciting person to prepare its proxy statement and respond to 
any staff comments, while still permitting the soliciting person to use 
the notice and access model. While the proposed rule does not provide 
for a specific period of time before the meeting by which a soliciting 
person would need to mail the Notice, the soliciting person should make 
the Notice and proxy materials available to shareholders with 
sufficient time for shareholders to review the materials and make an 
informed voting decision.
Request for Comment
     We are proposing to revise one of the two alternative 
Notice deadlines applicable to soliciting persons other than the issuer 
to reconcile Rule 14a-16(b)(4) with Rule 14a-4(f) and better coordinate 
the timing requirements with the Commission staff's review process. Is 
there a preferable way to revise the rule to address this issue? If so, 
how should we revise the rule?
     The proposed rule would require a soliciting person to 
send its Notice to shareholders no later than the date on which it 
files its definitive proxy statement with the Commission. The 
soliciting person, however, has control over the date that it files a 
definitive proxy statement. Is it necessary to impose a specific time 
period by which a soliciting person other than the issuer must send its 
Notice? If so, should we impose a specific time period after the filing 
of the preliminary proxy by which a soliciting shareholder must send 
its Notice?

III. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding:
     The proposed amendments that are the subject of this 
release;
     Other ways to reduce regulatory impediments to shareholder 
participation and thereby improve shareholder response rates to proxy 
solicitations using the notice and access model or otherwise improve 
the notice and access model;
     Additional or different changes; or
     Other matters that may have an effect on the proposals 
contained in this release.
    We request comment from the point of view of issuers, investors, 
and other market participants. With regard to any comments, we note 
that such comments are of great assistance to our rulemaking initiative 
if accompanied by supporting data and analysis of the issues addressed 
in those comments.

IV. Paperwork Reduction Act

A. Background

    Certain provisions of the proposed rule amendments contain a 
``collection of information'' within the meaning of the Paperwork 
Reduction Act of 1995.\40\ The Commission is submitting this proposed 
amendment to the Office of Management and Budget for review in 
accordance with the PRA. An agency may not conduct or sponsor, and a 
person is not required to comply with, a collection of information 
unless it displays a currently valid control number. Compliance with 
the rules as they are proposed to be amended would be mandatory, 
however certain information collections under these rules are required 
and some are voluntary. Responses to the information collections would 
not be kept confidential and there would be no mandatory retention 
period for the information disclosed.
---------------------------------------------------------------------------

    \40\ 44 U.S.C. 3501 et seq.; 5 CFR 1320.11.
---------------------------------------------------------------------------

    The proposed revision to Rule 14a-16 would permit issuers and other 
soliciting persons to include explanatory materials about the notice 
and access model along with the Notice. The proposed revision would 
still require a legend in the Notice, but would allow more flexibility 
in how prescribed topics are described in the legend.\41\ The proposed 
explanatory materials would be a relatively short and straight-forward 
explanation of the notice and access model that could accompany the 
Notice. Finally, the proposed change to the filing deadline for 
soliciting persons other than the issuer is not expected to affect the 
burden estimates.
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    \41\ We anticipate no change in the burden estimates for the 
change in the legend requirement. The proposed rule would require 
essentially the same information as is currently required in the 
legend to continue to be conveyed creating no additional burden.
---------------------------------------------------------------------------

B. Regulation 14A and 14C

    The titles for the collections of information for operating 
companies are: \42\
---------------------------------------------------------------------------

    \42\ The paperwork burden from Regulation S-K is imposed through 
the forms that are subject to the requirements in those regulations 
and is reflected in the analysis of those forms. To avoid a 
Paperwork Reduction Act inventory reflecting duplicative burdens and 
for administrative convenience, we assign a one-hour burden to 
Regulation S-K.
---------------------------------------------------------------------------

     Regulation 14A (OMB Control No. 3235-0059); and
     Regulation 14C (OMB Control No. 3235-0057).
    We previously revised these collections of information in the 
release that proposed the notice and access model as a voluntary model 
for

[[Page 53960]]

disseminating proxy materials \43\ and the release in which we adopted 
amendments requiring issuers and other soliciting persons to follow the 
model.\44\ We submitted the revisions in both releases to the OMB for 
review in accordance with the PRA. We received approval for the revised 
information collections and now propose a further revision which we 
will submit to OMB.
---------------------------------------------------------------------------

    \43\ See Internet Availability of Proxy Materials Proposing 
Release in note 39 above.
    \44\ See the Internet Availability of Proxy Material Adopting 
Release in note 8 above.
---------------------------------------------------------------------------

    Under the proposed amendments, an issuer or other soliciting person 
will be permitted, but not required, to include explanatory materials 
with the Notice. We expect that this information will generally consist 
of approximately one or two paragraphs of text. For purposes of the 
PRA, we estimate the annual burden if a soliciting person chooses to 
prepare the explanatory materials would be approximately 0.5 reporting 
hours per issuer or other soliciting person.\45\ We estimate that 75% 
of the burden would be borne by the soliciting person and that 25% of 
the burden would be borne by outside counsel retained by the soliciting 
person at an average cost of approximately $400 per hour. The portion 
of the burden carried by outside professionals is reflected as a cost, 
while the portion of the burden carried by the issuer internally is 
reflected in hours.
---------------------------------------------------------------------------

    \45\ As we have previously indicated, according to Broadridge, 
it processes more than 95% of proxy materials that are sent to 
beneficial owners on behalf of intermediaries. See the Internet 
Availability of Proxy Materials Adopting Release in note 8 above. We 
believe that issuers likely will rely on proxy distribution service 
providers to provide the explanatory materials and that issuers and 
intermediaries would provide explanatory materials that are 
substantially the same to the beneficial owners that hold through 
intermediaries, creating no additional annual burden to prepare an 
intermediary's Notice.
---------------------------------------------------------------------------

    The following table summarizes the proposed PRA burden estimates 
for Schedules 14A and 14C:

                    Table 1--Calculation of Incremental Paperwork Reduction Act Burden Estimates for Proxy and Information Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                         Form                              Annual      Incremental   Incremental         75% Issuer              25%           $400
-------------------------------------------------------  responses     hours/form       burden   -------------------------- Professional   Professional
                                                       ------------------------------------------                          --------------      cost
                                                                                                        (D)=(C)*0.75                     ---------------
                                                            (A)            (B)       (C)=(A)*(B)                            (E)=(C)*0.25   (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Schedule 14A..........................................        7,300             0.5   3,650                        2,737.5    912.5             $365,000
Schedule 14C..........................................          680             0.5     340                            255       85              $34,000
    Total.............................................        7,980  ..............   3,990                        2,992.5    997.5             $399,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

C. Rule 20a-1

    Certain provisions of the current notice and access model contain 
``collection of information'' requirements within the meaning of the 
PRA, including preparation of Notices, maintaining Web sites, 
maintaining records of shareholder preferences, and responding to 
requests for copies. Those provisions increase the current burden for 
the existing collection of information entitled ``Rule 20a-1 under the 
Investment Company Act of 1940,\46\ Solicitation of Proxies, Consents 
and Authorizations'' (OMB Control No. 3235-0158). Rule 20a-1 under the 
Investment Company Act \47\ requires that the solicitation of a proxy, 
consent, or authorization with respect to a security issued by an 
investment company be in compliance with Regulation 14A,\48\ Schedule 
14A,\49\ and all other rules and regulations adopted under Section 
14(a) of the Exchange Act.\50\ It also requires a fund's investment 
adviser, or a prospective adviser, to transmit to the person making a 
proxy solicitation the information necessary to enable that person to 
comply with the rules and regulations applicable to the solicitation.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 80a-1 et seq.
    \47\ 17 CFR 270.20a-1.
    \48\ 17 CFR 240.14a-1 et seq.
    \49\ 17 CFR 240.14a-101.
    \50\ 15 U.S.C. 78n(a).
---------------------------------------------------------------------------

    The notice and access model requires all registered investment 
companies to post their proxy materials on an Internet Web site and 
furnish Notice of the materials' availability to shareholders.\51\ The 
Notices, the proxy materials posted on the Web site, and copies of the 
proxy materials sent in response to shareholder requests are not kept 
confidential.
---------------------------------------------------------------------------

    \51\ See the Internet Availability of Proxy Material Adopting 
Release in note 8 above.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that the annual burden 
required to prepare and transmit a Notice to be approximately 1.5 
reporting hours. This estimate is based on the PRA burden for issuers 
other than investment companies to prepare and transmit a Notice. We 
estimate that 75% of the burden is prepared by the investment company 
and that 25% of the burden is prepared by outside counsel retained by 
the investment company at an average cost of approximately $400 per 
hour. Based on the number of proxy filings from registered investment 
companies received by the Commission during 2008, we would expect 
approximately 1,225 Notices to be filed annually. We estimate that the 
total annual reporting burden for rule 20a-1 should be increased by 
approximately 1,378 hours \52\ and that the annual cost would be 
increased by approximately $735,000 \53\ for the services of outside 
professionals to comply with the disclosure provisions of the existing 
notice and access model.
---------------------------------------------------------------------------

    \52\ 1,225 Notices x 1.5 hours per Notice x .75 = 1,378 hours.
    \53\ 1,225 Notices x $400 per hour x 1.5 hours per Notice x .25 
= $735,000.
---------------------------------------------------------------------------

    In addition, registered investment companies must permit 
shareholders to make permanent elections to receive proxy materials in 
paper or by e-mail. An investment company issuer must maintain records 
as to which of its shareholders have made such an election. We believe 
that many investment company issuers already maintain similar records 
to keep track of their shareholders who have affirmatively consented to 
electronic delivery consistent with past Commission guidance,\54\ as 
well as their shareholders who have consented to householding of proxy 
materials pursuant to Rule 14a-3(e).\55\ For purposes of the PRA, we 
estimate that a typical investment company issuer will spend an 
additional five hours per year, or a total of 6,125 hours, to

[[Page 53961]]

maintain these records.\56\ Because this is an internal recordkeeping 
requirement, we do not expect a cost for hiring outside counsel.
---------------------------------------------------------------------------

    \54\ Use of Electronic Media for Delivery Purposes, Release No. 
33-7233 (Oct. 6, 1995) [60 FR 53458] provided guidance on electronic 
delivery of prospectuses, annual reports to security holders and 
proxy solicitation materials under the Securities Act, the Exchange 
Act, and the Investment Company Act.
    \55\ 17 CFR 240.14a-3(e).
    \56\ 1,225 filings with an estimated one filing per issuer or 
soliciting person x 5 hours = 6,125 hours. This estimate is based on 
the PRA burden for issuers other than investment companies to 
maintain these records.
---------------------------------------------------------------------------

    Further, the notice and access model also requires an intermediary 
to prepare its own Notice and provide it to beneficial owners. We 
expect that all of the factual information required to appear in the 
Notice will become available as part of the ordinary preparations for a 
shareholder meeting. This Notice would be substantially the same as a 
registered investment company's Notice, but will be modified by the 
intermediaries to provide information that is relevant to beneficial 
owners rather than registered holders. According to Broadridge, it 
processes more than 95% of proxy materials that are sent to beneficial 
owners on behalf of intermediaries, reducing the need to create 
multiple intermediary Notices. In addition, the investment company 
issuer or other soliciting person will provide the majority of 
information required in the intermediary's Notice. Therefore, we 
estimate that the additional burden to prepare an intermediary's Notice 
will be approximately one hour, or a total annual burden of 1,225 hours 
for all investment company proxy solicitations.\57\
---------------------------------------------------------------------------

    \57\ 1,225 notices x 1 hour per Notice = 1,225 hours. We do not 
include a cost to intermediaries for hiring outside counsel because 
we expect that the substantive contents of an intermediary's Notice 
would be provided by the issuer or other soliciting person. The 
estimates assume that Broadridge will continue to process over 95% 
of the proxy solicitations on behalf of intermediaries, thereby 
eliminating the need for each intermediary to prepare a separate 
Notice.
---------------------------------------------------------------------------

    Finally, intermediaries must also maintain records to keep track of 
which beneficial owners have made a permanent election to receive proxy 
materials in paper or by e-mail. Like registered investment companies, 
intermediaries already maintain records of shareholders' affirmative 
consents to electronic delivery and householding of proxy materials. In 
addition, intermediaries maintain records as to whether their 
beneficial owner customers have objected, or not objected, to 
disclosure of their identities to the investment company issuer. Like 
investment company issuers, we believe this will result in an 
additional annual burden of five hours, or a total of 6,125 hours, for 
intermediaries.\58\
---------------------------------------------------------------------------

    \58\ This estimate is based on the PRA burden for intermediaries 
for issuers other than investment companies to maintain records.
---------------------------------------------------------------------------

    We estimate that the total annual PRA reporting burden for Rule 
20a-1 should be increased by 14,853 hours and $735,000 in professional 
costs to reflect compliance with the existing notice and access model. 
We request comment and supporting empirical data on the burden and cost 
of sending copies of proxy materials under the notice and access model 
for registered investment companies.
    Under the proposed amendments to the notice and access model, a 
registered investment company or other soliciting person will be 
permitted, but not required, to include explanatory materials with the 
Notice. We expect that this information will generally consist of 
approximately one or two paragraphs of text. For purposes of the PRA, 
we estimate the annual burden if a soliciting person chooses to prepare 
the explanatory materials would be approximately 0.5 reporting hours 
per investment company. We estimate that 75% of the burden would be 
borne by the investment company and that 25% of the burden would be 
borne by outside counsel retained by the investment company at an 
average cost of approximately $400 per hour. The portion of the burden 
carried by outside professionals is reflected as a cost, while the 
portion of the burden carried by the issuer internally is reflected in 
hours. We estimate that the proposed amendments will increase the PRA 
burden estimates under Rule 20a-1 by approximately 459 hours and 
$61,250 in professional costs.

D. Solicitation of Comments

    We request comments in order to evaluate: (1) Whether the proposed 
revision to the collection of information is necessary for the proper 
performance of the functions of the agency, including whether the 
information would have practical utility; (2) the accuracy of our 
estimate of the burden of the proposed revisions to the collection of 
information; (3) whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected; and (4) 
whether there are ways to minimize the burden of the collection of 
information on those who are to respond, including through the use of 
automated collection techniques or other forms of information 
technology.\59\
---------------------------------------------------------------------------

    \59\ 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct the comments to the Office of 
Management and Budget, Attention: Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and should send a copy to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090, 
with reference to File No. S7-22-09. Requests for materials submitted 
to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-22-09, and be 
submitted to the Securities and Exchange Commission, Office of Investor 
Education and Advocacy, 100 F Street, NE., Washington, DC 20549-0213. 
OMB is required to make a decision concerning the collection of 
information between 30 and 60 days after publication of this release. 
Consequently, a comment to OMB is best assured of having its full 
effect if OMB receives it within 30 days of publication.

V. Cost-Benefit Analysis

A. Proposed Amendments

    The proposed amendments are designed to improve implementation of 
the notice and access model. The proposed amendments to Exchange Act 
Rule 14a-16 would revise the legend requirements in the rule to make 
them more flexible, revise the deadline applicable to soliciting 
persons other than the issuer to reconcile the rules and better 
coordinate them with the Commission staff's review process, and permit 
issuers and other soliciting persons to accompany the Notice with 
explanatory materials regarding the process of receiving and reviewing 
the proxy materials and voting.\60\
---------------------------------------------------------------------------

    \60\ We do not expect our proposed conforming amendment, which 
would permit mutual funds to accompany the Notice with a summary 
prospectus, to have a substantive impact on a mutual fund's decision 
otherwise permitted under Rule 498 of the Securities Act to provide 
a summary prospectus instead of a statutory prospectus to its 
shareholders.
---------------------------------------------------------------------------

    We expect that the economic effect of the proposed amendments, if 
adopted, would be to:
     Facilitate participation by shareholders who may be 
confused by the operation of the notice and access model;
     Provide flexibility to soliciting persons in describing 
the notice and access model; and
     Facilitate participation by some soliciting persons who 
may currently be effectively precluded from using the notice-only 
option.

[[Page 53962]]

B. Benefits

    As discussed above, by permitting some additional flexibility in 
designing the Notice and permitting explanatory materials regarding the 
process of receiving and reviewing the proxy materials and voting to 
accompany the Notice, we expect that the proposal would improve 
understanding of the notice and access model for participating 
shareholders. Improved understanding of the model would reduce 
confusion and may thereby improve the efficiency and effectiveness of 
the proxy voting system. However, to the extent that issuers send 
notices to shareholders that are less likely to respond, these benefits 
may be limited.
    Revising one of the two alternative Notice deadlines applicable to 
soliciting persons other than issuers to reconcile the rules' timing 
requirements with the Commission staff's review process would 
facilitate use of the notice-only option by soliciting persons who may 
otherwise be precluded from using the notice-only option because of 
their inability to meet the deadline for sending the Notice. This would 
help lower costs for those persons by reducing impediments for certain 
soliciting persons to participate in the proxy process.

C. Costs

    Eliminating the specific limitations of the legend requirement may 
result in some soliciting persons providing a more confusing notice or 
seeking to include soliciting, marketing or other materials that may 
distract shareholders from the Notice. These activities would increase 
the cost of shareholder participation in the proxy process, and could 
distort votes and outcomes.\61\ In addition, an issuer or other 
soliciting person that chooses to include explanatory materials in the 
same mailing with the Notice would incur the cost of preparing that 
information. We expect that this information generally would be no more 
than a few paragraphs long. For purposes of the PRA, we estimate that 
the proposal would cause an annual increase in the compliance burden 
for issuers and other soliciting persons preparing explanatory 
materials of approximately 3,450 hours of in-house personnel time and 
approximately $460,000 for the services of outside professionals.
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    \61\ Since intermediaries and their agents already have systems 
to prepare and deliver proxy materials and the nature of the 
proposed changes are relatively small, we do not expect the 
intermediaries' role in sending explanatory material to beneficial 
owners to affect their costs associated with the rule. In any event, 
since soliciting persons reimburse intermediaries for their 
reasonable expenses forwarding proxy materials, we do not expect 
intermediaries to incur costs associated with the rule.
---------------------------------------------------------------------------

D. Request for Comments

    We request comment on all aspects of the cost-benefit analysis, 
including identification of any additional costs or benefits of, or 
suggested alternatives to, the proposed amendments. We also request 
that those submitting comments provide, to the extent possible, 
empirical data and other factual support for their views.

VI. Consideration of Burden on Competition and Promotion of Efficiency, 
Competition, and Capital Formation

    Section 23(a) of the Exchange Act \62\ requires the Commission, 
when making rules and regulations under the Exchange Act, to consider 
the impact a new rule would have on competition. Section 23(a)(2) 
prohibits the Commission from adopting any rule that would impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. Section 2(b) of the Securities 
Act,\63\ Section 3(f) of the Exchange Act \64\ and Section 2(c) of the 
Investment Company Act \65\ require the Commission, when engaging in 
rulemaking that requires it to consider whether an action is necessary 
or appropriate in the public interest, to also consider whether the 
action would promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \62\ 15 U.S.C. 78w(a).
    \63\ 15 U.S.C. 77b(b).
    \64\ 15 U.S.C. 78c(f).
    \65\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The amendments would permit some additional flexibility in 
designing the Notice, permit issuers and other soliciting persons to 
accompany the Notice with explanatory materials regarding the process 
of receiving and reviewing the proxy materials and voting, and revise 
one of the two deadlines applicable to soliciting persons other than 
the issuer to reconcile our rules and better coordinate the timing 
requirements with the Commission staff's review process. The proposed 
amendments are designed to reduce regulatory impediments and thereby 
increase shareholder participation, improve implementation of the 
notice and access model, and enhance investor understanding of the 
operation of the notice and access model. These changes are intended to 
improve the efficiency and effectiveness of the proxy process.
    We do not anticipate any effect on competition or capital formation 
as a result of these proposed revisions.
    The Commission solicits comment on whether the proposed amendment, 
if adopted, would affect efficiency, competition, and capital 
formation.

VII. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis has been prepared in 
accordance with 5 U.S.C. 603. It relates to proposed revisions to 
Exchange Act Rule 14a-16 that would permit some additional flexibility 
in designing the Notice, permit issuers and other soliciting persons to 
accompany the Notice with explanatory materials regarding the process 
of receiving and reviewing the proxy materials and voting, and revise 
one of the timing requirements applicable to soliciting persons other 
than the issuer to reconcile our rules and better coordinate the 
requirement with the Commission staff's review process.

A. Reasons for, and Objectives of, the Proposed Action

    The proposed amendments are designed to improve implementation of 
the notice and access model. Based on our monitoring of the effects of 
the notice and access model on the proxy solicitation process and the 
experiences that issuers and shareholders have had with the notice and 
access model to date, we believe that several revisions to the existing 
rules would improve the operation of the model without adversely 
affecting soliciting persons or shareholders' abilities to effectively 
participate in the proxy process.
    Improved notice design and shareholder education should help to 
mitigate the difference in shareholder participation in the proxy 
voting process observed in the use of the notice and access model to 
the extent the difference was caused by our regulations. The proposed 
amendment to the timing requirements for soliciting persons other than 
the issuer to file their preliminary proxy statements is designed to 
better enable soliciting shareholders other than the issuer to use the 
notice-only option.

B. Legal Basis

    We are proposing amendments to the forms and rules under the 
authority set forth in Sections 6, 7, 10, and 19 of the Securities Act 
of 1933, as amended, Sections 3(b), 13, 14, 15, and 23(a) of the 
Exchange Act, as amended, and Sections 8, 20(a), 24(a), 24(g), 30, and 
38 of the Investment Company Act, as amended.

[[Page 53963]]

C. Small Entities Subject to the Proposed Rules

    The proposals would affect issuers that are small entities. 
Exchange Act Rule 0-10(a) \66\ defines an issuer to be a ``small 
business'' or ``small organization'' for purposes of the Regulatory 
Flexibility Act if it had total assets of $5 million or less on the 
last day of its most recent fiscal year. We estimate that there are 
approximately 1,100 public companies, other than investment companies, 
that may be considered small entities.
---------------------------------------------------------------------------

    \66\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    For purposes of the Regulatory Flexibility Act, an investment 
company is a small entity if it, together with other investment 
companies in the same group of related investment companies, has net 
assets of $50 million or less as of the end of its most recent fiscal 
year.\67\ Approximately 178 registered investment companies meet this 
definition. Moreover, approximately 34 business development companies 
may be considered small entities.
---------------------------------------------------------------------------

    \67\ 17 CFR 270.0-10.
---------------------------------------------------------------------------

    Paragraph (c)(1) of Rule 0-10 under the Exchange Act \68\ states 
that the term ``small business'' or ``small organization,'' when 
referring to a broker-dealer, means a broker or dealer that had total 
capital (net worth plus subordinated liabilities) of less than $500,000 
on the date in the prior fiscal year as of which its audited financial 
statements were prepared pursuant to Sec.  240.17a-5(d); and is not 
affiliated with any person (other than a natural person) that is not a 
small business or small organization. The Commission has estimated that 
there were approximately 910 broker-dealers that qualified as small 
entities as defined above.\69\ Small Business Administration 
regulations define ``small entities'' to include banks and savings 
associations with total assets of $165 million or less.\70\ The 
Commission estimates that the rules might apply to approximately 9,475 
banks, approximately 5,816 of which could be considered small banks 
with assets of $165 million or less. The proposals may affect these 
entities because they are intermediaries that are required under the 
Commission's proxy rules to forward proxy materials, including the 
Notice or any explanatory materials, on to shareholders who 
beneficially own their shares through the intermediaries.\71\
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    \68\ 17 CFR 240.0-10(c)(1).
    \69\ These numbers are based on a review by the Commission's 
Office of Economic Analysis of 2005 FOCUS Report filings reflecting 
registered broker-dealers. This number does not include broker-
dealers that are delinquent on FOCUS Report filings.
    \70\ 13 CFR 121.201.
    \71\ An intermediary is not required to forward proxy materials 
to beneficial owners unless the issuer or other soliciting person 
provides assurance of reimbursement of the intermediary's reasonable 
expenses incurred in connection with forwarding those materials. 17 
CFR 240.14b-2(c)(2)(i). Therefore, any costs imposed on 
intermediaries by the rules will be borne by the issuer or other 
soliciting person.
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    We request comment on the number of small entities that would be 
impacted by our proposals, including any available empirical data.

D. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments would allow soliciting persons more time to 
use the notice-only model before a shareholder meeting and permit, but 
do not require, issuers to include additional, explanatory material in 
their Notice.

E. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no rules that conflict with or duplicate 
the proposed rules.

F. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objective, while 
minimizing any significant adverse impact on small entities. In 
connection with the proposed amendments, we considered the following 
alternatives:
     The establishment of differing compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     The clarification, consolidation or simplification of 
disclosure for small entities;
     The use of performance standards rather than design 
standards; and
     An exemption for small entities from coverage under the 
proposals.
    The Commission has considered a variety of reforms to achieve its 
regulatory objectives.
    The proposed amendments, if adopted, would apply to all issuers and 
other soliciting persons, including small entities, that choose to rely 
on the notice-only option. The amendments are intended to improve the 
operation of the notice and access model by providing additional 
flexibility in designing the Notice, permitting issuers and other 
soliciting persons to accompany the Notice with explanatory materials 
regarding the notice and access model, and revising one of the timing 
requirements applicable to soliciting persons other than the issuer to 
reconcile our rules and better coordinate the requirement with the 
Commission staff's review process.
    We considered the use of performance standards rather than design 
standards in the proposed rules. The proposal contains both performance 
standards and design standards. We are proposing revising existing 
design standards, such as the deadline applicable to soliciting persons 
other than the issuer, to the extent that we believe necessary. 
However, to the extent possible, we are proposing rules that impose 
performance standards to provide issuers, other soliciting persons and 
intermediaries with the flexibility to devise the means through which 
they can comply with such standards. For example, the proposed 
amendments regarding explanatory materials do not specify the content 
of such information.
    We are requesting comment on whether separate requirements for 
small entities would be appropriate. The purpose of the amendments is 
to improve the implementation of the notice and access model based on 
our experience with the model to date. Exempting small entities would 
not be consistent with this goal. The establishment of any differing 
compliance or reporting requirements or timetables or any exemptions 
for small business issuers may not be in keeping with the objectives of 
the proposed rules.

G. Solicitation of Comment

    We encourage comments with respect to any aspect of this Initial 
Regulatory Flexibility Analysis. In particular, we request comments 
regarding:
     The number of small entities that may be affected by the 
proposed amendments;
     The existence or nature of the potential impact of the 
proposed amendments on small entities discussed in the analysis; and
     How to quantify the impact of the proposed amendments.

Commenters are asked to describe the nature of any impact and provide 
empirical data supporting the extent of the impact. Such comments will 
be considered in the preparation of the Final Regulatory Flexibility 
Analysis, if the proposals are adopted, and will be placed in the same 
public file as comments on the proposed amendments themselves.

VIII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of

[[Page 53964]]

1996,\72\ a rule is ``major'' if it has resulted, or is likely to 
result in:
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    \72\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
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     An annual effect on the U.S. economy of $100 million or 
more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.

We request comment on whether the proposed amendments to Exchange Act 
Rule 14a-16 would be a ``major rule'' for purposes of the Small 
Business Regulatory Enforcement Fairness Act. We solicit comment and 
empirical data on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment, or 
innovation.

IX. Statutory Authority and Text of Rule and Form Amendments

    We are proposing the amendments pursuant to Sections 6, 7, 10, and 
19 of the Securities Act of 1933, as amended, Sections 3(b), 13, 14, 
15, and 23(a) of the Securities Exchange Act of 1934, as amended, and 
Sections 8, 20(a), 24(a), 24(g), 30, and 38 of the Investment Company 
Act of 1940, as amended.

List of Subjects in 17 CFR Parts 230 and 240

    Reporting and recordkeeping requirements, Securities.
    For the reasons set out in the preamble, Title 17, Chapter II of 
the Code of Federal Regulation is proposed to be amended as follows.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The authority citation for Part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *
    2. Amend Sec.  230.498 by revising paragraph (f)(2) to read as 
follows:


Sec.  230.498  Summary Prospectuses for open-end management investment 
companies.

* * * * *
    (f) * * *
    (2) Greater prominence. If paragraph (c) or (d) of this section is 
relied on with respect to a Fund, the Fund's Summary Prospectus shall 
be given greater prominence than any materials that accompany the 
Fund's Summary Prospectus, with the exception of other Summary 
Prospectuses, Statutory Prospectuses, or a Notice of Internet 
Availability of Proxy Materials under Sec.  240.14a-16 of this chapter.
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    3. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *
    4. Amend Sec.  240.14a-16 by:
    a. Revising paragraph (d)(1).
    b. Redesignating paragraphs (d)(2) through (d)(8) as paragraphs 
(d)(5) through (d)(11);
    c. Adding new paragraphs (d)(2) through (d)(4);
    d. Removing the word ``and'' at the end of paragraph (f)(2)(ii);
    e. Revising paragraph (f)(2)(iii);
    f. Adding paragraph (f)(2)(iv); and
    g. Revising paragraph (l)(2)(ii).
    The revisions and additions read as follows:


Sec.  240.14a-16  Internet availability of proxy materials.

* * * * *
    (d) * * *
    (1) A prominent legend in bold-face type that states ``Important 
Notice Regarding the Availability of Proxy Materials for the 
Shareholder Meeting To Be Held on [insert meeting date]'';
    (2) An indication that the communication presents only an overview 
of the more complete proxy materials, which contain important 
information and are available on the Internet or by mail and 
encouraging a security holder to access and review the proxy materials 
before voting;
    (3) The Internet Web site address where the proxy materials are 
available;
    (4) Instructions regarding how a security holder may request a 
paper or e-mail copy of the proxy materials at no charge, including the 
date by which they should make the request to facilitate timely 
delivery, and an indication that they will not otherwise receive a 
paper or e-mail copy;
* * * * *
    (f) * * *
    (2) * * *
    (iii) In the case of an investment company registered under the 
Investment Company Act of 1940, the company's prospectus, a summary 
prospectus that satisfies the requirements of Sec.  230.498(b) of this 
chapter, or a report that is required to be transmitted to stockholders 
by section 30(e) of the Investment Company Act (15 U.S.C. 80a-29(e)) 
and the rules thereunder; and
    (iv) An explanation of the process of receiving and reviewing the 
proxy materials and voting as detailed in this section.
* * * * *
    (l) * * *
    (2) * * *
    (ii) The date on which it files its definitive proxy statement with 
the Commission, provided its preliminary proxy statement is filed no 
later than 10 calendar days after the date that the registrant files 
its definitive proxy statement.
* * * * *

    Dated: October 14, 2009.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-25232 Filed 10-20-09; 8:45 am]
BILLING CODE 8011-01-P