53954 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

SMALL BUSINESS SIZE STANDARDS BY NAICS INDUSTRY—Continued 

NAICS 

codes NAICS U.S. industry title 

Size standards 

in millions of 

dollars 

Size standards 

in number of 

employees 

812112 ......... Beauty Salons ............................................................................................................................... $7.0 

812113 ......... Nail Salons .................................................................................................................................... $7.0 

812191 ......... Diet and Weight Reducing Centers .............................................................................................. $19.0 

812199 ......... Other Personal Care Services ...................................................................................................... $7.0 

812210 ......... Funeral Homes and Funeral Services .......................................................................................... $7.0 

812220 ......... Cemeteries and Crematories ........................................................................................................ $19.0 

812310 ......... Coin-Operated Laundries and Drycleaners .................................................................................. $7.0 

812320 ......... Drycleaning and Laundry Services (except Coin-Operated) ........................................................ $5.0 

812331 ......... Linen Supply .................................................................................................................................. $30.0 

812332 ......... Industrial Launderers ..................................................................................................................... $35.5 

812910 ......... Pet Care (except Veterinary) Services ......................................................................................... $7.0 

812921 ......... Photo Finishing Laboratories (except One-Hour) ......................................................................... $19.0 

812922 ......... One-Hour Photo Finishing ............................................................................................................. $14.0 

812930 ......... Parking Lots and Garages ............................................................................................................ $35.5 

812990 ......... All Other Personal Services .......................................................................................................... $7.0 

Subsector 813—Religious, Grantmaking, Civic, Professional and Similar Organizations 

813110 ......... Religious Organizations ................................................................................................................ $7.0 

813211 ......... Grantmaking Foundations ............................................................................................................. $30.0 

813212 ......... Voluntary Health Organizations .................................................................................................... $25.5 

813219 ......... Other Grantmaking and Giving Services ...................................................................................... $35.5 

813311 ......... Human Rights Organizations ........................................................................................................ $25.5 

813312 ......... Environment, Conservation and Wildlife Organizations ................................................................ $14.0 

813319 ......... Other Social Advocacy Organizations .......................................................................................... $7.0 

813410 ......... Civic and Social Organizations ..................................................................................................... $7.0 

813910 ......... Business Associations ................................................................................................................... $7.0 

813920 ......... Professional Organizations ........................................................................................................... $14.0 

813930 ......... Labor Unions and Similar Labor Organizations ............................................................................ $7.0 

813940 ......... Political Organizations ................................................................................................................... $7.0 

813990 ......... Other Similar Organizations (except Business, Professional, Labor, and Political Organizations).$7.0 

* * * * * 

Dated October 9, 2009. 

Karen G. Mills, 

Administrator. 

[FR Doc. E9–25199 Filed 10–20–09; 8:45 am] 

BILLING CODE 8025–01–P 

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. 

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 rulecomments@sec.gov. 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. 


pwalker on DSK8KYBLC1PROD with PROPOSALS
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 53955 

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. 

5See Facilitating Shareholder Director 

Nominations, Release No. 33–9046 (June 10, 2009) 

[74 FR 29024]. 

6See Proxy Disclosure and Solicitation 

Enhancements, Release No. 33–9052 (July 10, 2009) 

[74 FR 35076]. 

7See 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]. 

8See 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. 

9The 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. 

10See Exchange Act Rule 14a–16(b) and (d) [17 

CFR 240.14a–16(b) and (d)]. 

11See Exchange Act Rule 14a–16(a) [17 CFR 

240.14a–16(a)]. 

12See Exchange Act Rule 14a–16(l) [17 CFR 

240.14a–16(l)]. 

13See Exchange Act Rule 14a–16(j) [17 CFR 

240.14a–16(j)]. 

14See Exchange Act Rule 14a–16(n) [17 CFR 

240.14a–16(n)]. 

15See 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. 

16The Commission has long had an interest in 

facilitating shareholder participation in corporate 

Continued 

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

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

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 costefficient 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. 

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. 

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

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 noticeonly 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS
53956 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

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. 

17The 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. 

18According 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%). 

19According 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%. 

20The 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. 

21Our 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. 

23For example, when the amendments to NYSE 

Rule 452 were approved, we noted our support for 

the establishment of an Investor Education SubCommittee 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. 

24 17 CFR 240.14a–16(d). 

25 17 CFR 240.14a–16(d)(1). 

26 17 CFR 240.14a–16(d)(3). 

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. 

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. 

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. 

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 email 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 


pwalker on DSK8KYBLC1PROD with PROPOSALS
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 53957 

27Registered 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)]. 

28See 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. 

29 17 CFR 240.14a–4. 

30See note 21 above. 

31See proposed Exchange Act Rule 14a– 

16(f)(2)(iv). 

32As 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. 

33Through 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. 

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). 

35We 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)]. 

36See 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). 

37See 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). 

that may distract shareholders from the 

Notice. 

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 preaddressed, 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. 

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. 

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.). 

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

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

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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53958 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

38 17 CFR 240.14a–16(l)(2)(i) and (ii). 

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 noticeonly 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 noticeonly 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

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 


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39See Internet Availability of Proxy Materials, 

Release No. 34–52926 (Dec. 8, 2005) [70 FR 74597] 

(‘‘Internet Availability of Proxy Materials Proposing 

Release’’). 

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

41We 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. 

42The 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. 

the soliciting person’s proxy 

materials.39

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. 

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. 

B. Regulation 14A and 14C 

The titles for the collections of 

information for operating companies 

are: 42

• 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 


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53960 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

43See Internet Availability of Proxy Materials 

Proposing Release in note 39 above. 

44See the Internet Availability of Proxy Material 

Adopting Release in note 8 above. 

45As 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. 

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). 

51See the Internet Availability of Proxy Material 

Adopting Release in note 8 above. 

52 1,225 Notices × 1.5 hours per Notice × .75 = 

1,378 hours. 

53 1,225 Notices × $400 per hour × 1.5 hours per 

Notice × .25 = $735,000. 

54Use 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). 

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. 

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. 

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 

responses 

Incremental 

hours/form 

Incremental 

burden 

75% Issuer 25% Professional $400 Professional cost 

(A) (B) (C)=(A)*(B) 

(D)=(C)*0.75 (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. 

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. 

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. 

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 


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56 1,225 filings with an estimated one filing per 

issuer or soliciting person × 5 hours = 6,125 hours. 

This estimate is based on the PRA burden for 

issuers other than investment companies to 

maintain these records. 

57 1,225 notices × 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. 

58This estimate is based on the PRA burden for 

intermediaries for issuers other than investment 

companies to maintain records. 59 44 U.S.C. 3506(c)(2)(B). 

60We 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. 

maintain these records.56 Because this is 

an internal recordkeeping requirement, 

we do not expect a cost for hiring 

outside counsel. 

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

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

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

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

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. 


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61Since 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. 

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). 

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. 

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. 

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. 


pwalker on DSK8KYBLC1PROD with PROPOSALS
Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 53963 

66 17 CFR 240.0–10(a). 

67 17 CFR 270.0–10. 

68 17 CFR 240.0–10(c)(1). 

69These numbers are based on a review by the 

Commission’s Office of Economic Analysis of 2005 

FOCUS Report filings reflecting registered brokerdealers. This number does not include brokerdealers that are delinquent on FOCUS Report 

filings. 

70 13 CFR 121.201. 

71An 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. 

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. 

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. 

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 

§ 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

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 


pwalker on DSK8KYBLC1PROD with PROPOSALS
53964 Federal Register / Vol. 74, No. 202 / Wednesday, October 21, 2009 / Proposed Rules 

72Public Law 104–121, Title II, 110 Stat. 857 

(1996). 

1996,72 a rule is ‘‘major’’ if it has 

resulted, or is likely to result in: 

• 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 § 230.498 by revising 

paragraph (f)(2) to read as follows: 

§ 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 

§ 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 § 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: 

§ 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 § 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 

DEPARTMENT OF HOMELAND 

SECURITY 

Bureau of Customs and Border 

Protection 

DEPARTMENT OF THE TREASURY 

19 CFR PARTS 162 and 163 

[USCBP–2009–0029] 

RIN 1505–AC00 

Use of Sampling Methods and 

Offsetting of Overpayments and OverDeclarations in CBP Audit Procedures; 

Sampling Under Prior Disclosure 

AGENCY: Customs and Border Protection, 

Department of Homeland Security; 

Department of the Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document proposes to 

amend the Customs and Border 

Protection (CBP) regulations to provide 

further guidance for the use of sampling 

methods in CBP audits and prior 

disclosure cases. It also provides 

guidance for the offsetting of 

overpayments and over-declarations 

when an audit involves a calculation of 

lost revenue or monetary penalties 


pwalker on DSK8KYBLC1PROD with PROPOSALS