| Release No. 34-30147 Release No. IC-18467 January 6, 1992
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 Table of Contents
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I. EXECUTIVE SUMMARY AND BACKGROUND
The Commission is adopting revisions to the proxy and information statement rules to implement amendments to Exchange Act Sections 14(b)(1) 12 and 14(c) 13 enacted by the SCIA. 14 Prior to revision, there were several regulatory gaps in the rules. First, the rules required Investment Company Act registrants to distribute proxy materials 15 to shareholders, 16 but did not require them to distribute information statements to shareholders in connection with shareholder meetings not involving the solicitation of proxies 17 by the registrant. 18 Second, the rules did not require brokers and banks to forward either the proxy materials or information statements of Investment Company Act registrants to beneficial owners. 19 Third, while the rules required Section 12 registrants to distribute both proxy materials and information statements to shareholders, brokers and banks were required to forward only the proxy materials to beneficial owners. 20
The legislation eliminated these gaps in regulation of shareholder communications by authorizing the Commission to require: (1) Investment Company Act registrants to distribute information statements to shareholders in connection with shareholder meetings not involving the solicitation of proxies by the registrant; and (2) brokers and dealers (brokers) and banks 21 to transmit to beneficial owners of securities the proxy materials and information statements of Investment Company Act registrants and the information statements of Section 12 registrants.
Brokers and banks may obtain reimbursement of their reasonable costs incurred in performing the obligations imposed by the revised proxy and information statement delivery requirements. 22 The Commission is not, however, adopting the proposed surcharge provision permitting banks and brokers to recoup any costs associated with implementation of the amendments, since commenters on the proposal indicated that such a provision is unnecessary. Finally, in response to commenters remarks, the revised rules clarify that the new provision requiring Investment Company Act registrants to distribute information statements to their shareholders applies only to companies that have made a public securities offering. 23
The Commission currently is conducting a comprehensive review of its proxy rules; 24 broader issues concerning the shareholder communications and related rules will be considered in connection with the review. This release, however, is intended solely to implement the SCIA amendments. In addition, minor technical revisions have been adopted to make language throughout the shareholder communications rules consistent with the substantive amendments.
II. DISCUSSION OF AMENDMENTS
A. Information Statement Requirements for Investment Companies
The rule governing registrants obligations to send an information statement to shareholders in connection with a shareholder meeting where proxies are not solicited by or on behalf of the registrant 25 has been amended to include Investment Company Act registrants. In this regard, the term registrant has been defined in the information statement rules to include Investment Company Act registrants that have made a public offering of their securities. 26 In addition, an instruction that directs Investment Company Act registrants to Exchange Act Section 14(c) and related rules requiring information statements to be furnished to security holders in connection with shareholder meetings not involving the solicitation of proxies by the registrant has been added to the Investment Company Act rules. 27
B. Transmission of Shareholder Communications
1.Broker/Bank Obligations
The Commission is adopting amendments to the shareholder communications rules to require brokers and banks to transmit to beneficial owners the proxy materials of Investment Company Act registrants and the information statements both of Investment Company Act registrants and Section 12 registrants. The requirements are substantially similar to those that exist with respect to the forwarding of proxy materials prepared by Section 12 registrants. In order to implement the changes, the rules have been revised and reorganized in several respects. First, a definitional paragraph has been added to each of the two rules that set forth the obligations of brokers and banks to forward shareholder communications to beneficial owners. 28 The paragraph defines the term registrant to mean either an investment company registered under the Investment Company Act or a Section 12 registrant. 29 Second, references to information statements have been added throughout the shareholder communications rules where there previously existed references only to proxies, proxy soliciting materials and annual reports to security holders. 30 Third, the rules have been reorganized to: (a) consolidate requirements concerning brokers and banks obligations to disseminate proxy and information statement materials and provide registrants with beneficial owner information; 31 and (b) list exceptions to the dissemination and beneficial owner information requirements. 32 Fourth, the rules have been amended to cross-reference corresponding rules setting forth the registrants obligations to furnish their information statements to brokers or banks. 33
2.Registrant Obligations
Pursuant to the rules, both Section 12 registrants and Investment Company Act registrants must transmit information statements to their shareholders at least 20 calendar days prior to the shareholder meeting date or, in the case of action by consent or authorization, 20 calendar days prior to the earliest date on which corporate action can be taken. 34 An amendment to the information statement rules requires registrants to make inquiries of brokers and banks as to the number of beneficial owners at least 20 business days prior to the earlier of: (a) the record date for the shareholder meeting or action by written consent; or (b) the mailing date of the information statement. 35 This inquiry requirement is comparable to the requirement already included in the proxy rules, 36 and is equally important to the information statement dissemination process.
C. Reimbursement of Costs for Delivery of Registrant Proxy Materials and Information Statements
As under the former rules, registrants must reimburse brokers and banks for reasonable expenses associated with the transmittal of proxy materials and information statements to beneficial owners. 37 The rules of the self-regulatory organizations provide for specific reimbursement rates with respect to brokers. 38 Although banks are not subject to comparable self-regulatory organization rules, they may rely on a non-exclusive safe-harbor provision providing that amounts charged registrants by banks for forwarding shareholder communications to beneficial owners are reasonable if they do not exceed amounts permitted to be charged by brokers. 39
Based on commenters remarks, the revised rules do not authorize brokers and banks to seek reimbursement of a proposed surcharge amount in connection with implementation of procedures facilitating compliance with the new requirements. The commenters indicated that, as a result of self-regulatory organization requirements and common practice, brokers and banks currently transmit information statements to the beneficial owners of securities of Investment Company Act registrants and have developed processing systems that include the beneficial owner information. The commenters indicated that it is unlikely that brokers and banks will have to modify their systems to a significant extent in order to transmit proxy materials and information statements to the beneficial owners of Investment Company Act registrants or to determine whether such beneficial owners object or consent to disclosure of their identity. Although a specific surcharge provision has not been adopted, the reasonable expenses provision in the proxy and information statement rules 40 will permit reimbursement of the costs incurred by brokers and banks in the uncommon instances where they must modify their procedures to facilitate compliance with the revised rules. 41
The Commission also has not adopted a waiver procedure that, under limited circumstances, would have enabled brokers and banks to seek permission to defer compliance with the new requirements. Commenters indicated that such a deferral procedure is unnecessary.
III. COST-BENEFIT ANALYSIS
In the Proposing Release, commenters were asked to provide information that would assist the Commission in evaluating the costs and benefits that may result from the proposed changes to the shareholder communications, information statement, and related rules. Two commenters expressed general remarks concerning the anticipated costs of the proposed amendments. One suggested that the additional costs of transmitting shareholder communications to beneficial owners who refuse to disclose their names and addresses to registrants should be borne by the beneficial owners themselves. The other stated that the expense of mailing investment company material to beneficial owners would be substantial.
Four commenters expressed specific remarks on the proposed surcharge that has not been adopted by the Commission. All four of the commenters opposed the surcharge on grounds that most brokers and banks have established shareholder communication distribution procedures that can be readily and inexpensively adapted to accommodate the distribution of investment company materials.
The majority of the commenters expressed general support for the proposed amendments and indicated that they were an appropriate means to implement the changes made by the SCIA. The Commission believes that the benefits to be derived from enhanced shareholder communications outweigh the additional costs that will be incurred by the registrants as a result of the new requirements.
IV. FINAL REGULATORY FLEXIBILITY ANALYSIS
A final regulatory flexibility analysis has been prepared regarding the amendments in accordance with 5 U.S.C. 604. A copy of the analysis may be obtained by contacting Elizabeth M. Murphy, Office of Disclosure Policy, Division of Corporation Finance, Securities and Exchange Commission, 450 5th Street, N.W., Washington, D.C. 20549. The corresponding Initial Regulatory Flexibility Analysis appears at 56 FR 41635 (Rel. No. 34-29562).
V. EFFECTIVE DATE
The amendments are effective with respect to shareholder meetings held, or corporate action taken by consent or authorization, on or after March 31, 1992, that have a record date on or after February 10, 1992. Such an effective date is necessary since the shareholder communication rules require registrants to make certain inquiries of brokers and banks 20 business days prior to the record date for a shareholder meeting or corporate action. The Administrative Procedure Act permits effectiveness in fewer than 30 days after publication, inter alia, as provided by the agency for good cause found and published with the rule. 42
To assure that all shareholders receive the proxy and other material in a prompt and orderly manner to facilitate an informed shareholder vote, it is essential that the revised rules be effective for as great as possible a portion of shareholder meetings or actions taken by consent or authorization in the 1992 proxy season. In addition, the Commissions experience and commenters remarks indicate that a distribution structure exists to permit compliance with the rules without undue burden or cost on issuers or others.
VI. STATUTORY BASIS FOR RULES
The amendments to the proxy and information statement rules are being adopted pursuant to Exchange Act Sections 14 and 23(a). The amendment to the investment company rules is being adopted pursuant to Investment Company Act Sections 20(a) and 38(a).
List of Subjects in 17 CFR Parts 240 and 270
Reporting and recordkeeping requirements, Securities, Investment companies.
VII. TEXT OF THE RULES
In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934
1.The authority citation for Part 240 continues to read as follows:
Authority: 15 U.S.C. 77c, 77d, 77s, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 78s, 78w, 78x, 79q, 79t, 80a-29, 80a-37, unless otherwise noted.
2.By amending §240.14a-13 to revise Note 2 to paragraph (a) to read as follows:
§240.14a-13 Obligation of registrants in communicating with beneficial owners.
(a)* * *
Note 2:The attention of registrants is called to the fact that each broker, dealer, bank, association, and other entity that exercises fiduciary powers has an obligation pursuant to §240.14b-1 and §240.14b-2 (except as provided therein with respect to exempt employee benefit plan securities held in nominee name) and, with respect to brokers and dealers, applicable self-regulatory organization requirements to obtain and forward, within the time periods prescribed therein, (a) proxies (or in lieu thereof requests for voting instructions) and proxy soliciting materials to beneficial owners on whose behalf it holds securities, and (b) annual reports to security holders to beneficial owners on whose behalf it holds securities, unless the registrant has notified the record holder or respondent bank that it has assumed responsibility to mail such material to beneficial owners whose names, addresses, and securities positions are disclosed pursuant to §240.14b-1(b)(3) and §240.14b-2(b)(4)(ii) and (iii).
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3.By further amending §240.14a-13 as follows:
(A) in paragraph (a)(1)(i)(C) remove the reference to §240.14b-1(c) or §240.14b-2(e)(2) and (3) and add in its place §240.14b-1(b)(3) or §240.14b-2(b)(4)(ii) and (iii);
(B) in paragraphs (a)(1)(ii)(A), the introductory text of (b), and (c) remove the reference to §240.14b-1(c) and §240.14b-2(e)(2) and (3) and add in its place §240.14b-1(b)(3) and §240.14b-2(b)(4)(ii) and (iii);
(C) in paragraph (a)(2) remove the reference to §240.14b-2(a)(1) and add in its place §240.14b-2(b)(1)(i); and
(D) in paragraph (b)(1) remove the reference to §240.14b-2(e)(1) and add in its place §240.14b-2 (b)(4)(i).
4.By revising §240.14b-1 to read as follows:
§240.14b-1 Obligation of registered brokers and dealers in connection with the prompt forwarding of certain communications to beneficial owners.
(a) Definitions. Unless the context otherwise requires, all terms used in this section shall have the same meanings as in the Act and, with respect to proxy soliciting material, as in §240.14a-1 thereunder and, with respect to information statements, as in §240.14c-1 thereunder. In addition, as used in this section, the term registrant means:
(1)The issuer of a class of securities registered pursuant to Section 12 of the Act; or
(2)An investment company registered under the Investment Company Act of 1940.
(b) Dissemination and beneficial owner information requirements. A broker or dealer registered under Section 15 of the Act shall comply with the following requirements for disseminating certain communications to beneficial owners and providing beneficial owner information to registrants.
(1)The broker or dealer shall respond, by first class mail or other equally prompt means, directly to the registrant no later than seven business days after the date it receives an inquiry made in accordance with §240.14a-13(a) or §240.14c-7(a) by indicating, by means of a search card or otherwise:
(I) The approximate number of customers of the broker or dealer who are beneficial owners of the registrants securities that are held of record by the broker, dealer, or its nominee;
(ii) The number of customers of the broker or dealer who are beneficial owners of the registrants securities who have objected to disclosure of their names, addresses, and securities positions if the registrant has indicated, pursuant to §240.14a-13(a)(1)(ii)(A) or §240.14c-7(a)(1)(ii) (A), that it will distribute the annual report to security holders to beneficial owners of its securities whose names, addresses and securities positions are disclosed pursuant to paragraph (b)(3) of this section; and
(iii) The identity of the designated agent of the broker or dealer, if any, acting on its behalf in fulfilling its obligations under paragraph (b)(3) of this section; Provided, however, that if the broker or dealer has informed the registrant that a designated office(s) or department(s) is to receive such inquiries, receipt for purposes of paragraph (b)(1) of this section shall mean receipt by such designated office(s) or department(s).
(2)The broker or dealer shall, upon receipt of the proxy, other proxy soliciting material, information statement, and/or annual reports to security holders, forward such materials to its customers who are beneficial owners of the registrants securities no later than five business days after receipt of the proxy material, information statement or annual reports.
(3)The broker or dealer shall, through its agent or directly:
(I) Provide the registrant, upon the registrants request, with the names, addresses, and securities positions, compiled as of a date specified in the registrants request which is no earlier than five business days after the date the registrants request is received, of its customers who are beneficial owners of the registrants securities and who have not objected to disclosure of such information; Provided, however, that if the broker or dealer has informed the registrant that a designated office(s) or department(s) is to receive such requests, receipt shall mean receipt by such designated office(s) or department(s); and
(ii) Transmit the data specified in paragraph (b)(3)(i) of this section to the registrant no later than five business days after the record date or other date specified by the registrant.
Note 1:Where a broker or dealer employs a designated agent to act on its behalf in performing the obligations imposed on the broker or dealer by paragraph (b)(3) of this section, the five business day time period for determining the date as of which the beneficial owner information is to be compiled is calculated from the date the designated agent receives the registrants request. In complying with the registrants request for beneficial owner information under paragraph (b)(3) of this section, a broker or dealer need only supply the registrant with the names, addresses, and securities positions of non-objecting beneficial owners.
Note 2:If a broker or dealer receives a registrants request less than five business days before the requested compilation date, it must provide a list compiled as of a date that is no more than five business days after receipt and transmit the list within five business days after the compilation date.
(c) Exceptions to dissemination and beneficial owner information requirements. A broker or dealer registered under Section 15 of the Act shall be subject to the following with respect to its dissemination and beneficial owner information requirements.
(1)With regard to beneficial owners of exempt employee benefit plan securities, the broker or dealer shall:
(i) Not include information in its response pursuant to paragraph (b)(1) of this section or forward proxies (or in lieu thereof requests for voting instructions), proxy soliciting material, information statements, or annual reports to security holders pursuant to paragraph (b)(2) of this section to such beneficial owners; and
(ii) Not include in its response, pursuant to paragraph (b)(3) of this section, data concerning such beneficial owners.
(2)A broker or dealer need not satisfy:
(I) Its obligations under paragraphs (b)(2) and (b)(3) of this section if a registrant does not provide assurance of reimbursement of the brokers or dealers reasonable expenses, both direct and indirect, incurred in connection with performing the obligations imposed by paragraphs (b)(2) and (b)(3) of this section; or
(ii) Its obligation under paragraph (b)(2) of this section to forward annual reports to non-objecting beneficial owners identified by the broker or dealer, through its agent or directly, pursuant to paragraph (b)(3) of this section if the registrant notifies the broker or dealer pursuant to §240.14a-13(c) or §240.14c-7(c) that the registrant will mail the annual report to such non-objecting beneficial owners identified by the broker or dealer and delivered in a list to the registrant pursuant to paragraph (b)(3) of this section.
5.By revising §240.14b-2 to read as follows:
§240.14b-2Obligation of banks, associations and other entities that exercise fiduciary powers in connection with the prompt forwarding of certain communications to beneficial owners.
(a) Definitions. Unless the context otherwise requires, all terms used in this section shall have the same meanings as in the Act and, with respect to proxy soliciting material, as in §240.14a-1 thereunder and, with respect to information statements, as in §240.14c-1 thereunder. In addition, as used in this section, the following terms shall apply:
(1)The term bank means a bank, association, or other entity that exercises fiduciary powers.
(2)The term beneficial owner includes any person who has or shares, pursuant to an instrument, agreement, or otherwise, the power to vote, or to direct the voting of a security.
Note 1: If more than one person shares voting power, the provisions of the instrument creating that voting power shall govern with respect to whether consent to disclosure of beneficial owner information has been given.
Note 2: If more than one person shares voting power or if the instrument creating that voting power provides that such power shall be exercised by different persons depending on the nature of the corporate action involved, all persons entitled to exercise such power shall be deemed beneficial owners; Provided, however, that only one such beneficial owner need be designated among the beneficial owners to receive proxies or requests for voting instructions, other proxy soliciting material, information statements, and/or annual reports to security holders, if the person so designated assumes the obligation to disseminate, in a timely manner, such materials to the other beneficial owners.
(3)The term registrant means:
(I) The issuer of a class of securities registered pursuant to Section 12 of the Act; or
(ii) An investment company registered under the Investment Company Act of 1940.
(b) Dissemination and beneficial owner information requirements. A bank shall comply with the following requirements for disseminating certain communications to beneficial owners and providing beneficial owner information to registrants.
(1)The bank shall:
(I) Respond, by first class mail or other equally prompt means, directly to the registrant, no later than one business day after the date it receives an inquiry made in accordance with §240.14a-13(a) or §240.14c-7(a) by indicating the name and address of each of its respondent banks that holds the registrants securities on behalf of beneficial owners, if any; and
(ii) Respond, by first class mail or other equally prompt means, directly to the registrant no later than seven business days after the date it receives an inquiry made in accordance with §240.14a-13 (a) or §240.14c-7(a) by indicating, by means of a search card or otherwise:
(A) The approximate number of customers of the bank who are beneficial owners of the registrants securities that are held of record by the bank or its nominee;
(B) If the registrant has indicated, pursuant to §240.14a-13(a)(1)(ii)(A) or §240.14c-7(a) (1)(ii) (A), that it will distribute the annual report to security holders to beneficial owners of its securities, whose names, addresses, and securities positions are disclosed pursuant to paragraphs (b)(4)(ii) and (iii) of this section.
(1)With respect to customer accounts opened on or before December 28, 1986, the number of beneficial owners of the registrants securities who have affirmatively consented to disclosure of their names, addresses, and securities positions; and
(2)With respect to customer accounts opened after December 28, 1986, the number of beneficial owners of the registrants securities who have not objected to disclosure of their names, addresses, and securities positions; and
(C) The identity of its designated agent, if any, acting on its behalf in fulfilling its obligations under paragraphs (b)(4)(ii) and (iii) of this section;
Provided, however, that, if the bank or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such inquiries, receipt for purposes of paragraphs (b)(1)(i) and (ii) of this section shall mean receipt by such designated office(s) or department(s).
(2)Where proxies are solicited, the bank shall, within five business days after the record date:
(i) Execute an omnibus proxy, including a power of substitution, in favor of its respondent banks and forward such proxy to the registrant; and
(ii) Furnish a notice to each respondent bank in whose favor an omnibus proxy has been executed that it has executed such a proxy, including a power of substitution, in its favor pursuant to paragraph (b)(2)(i) of this section.
(3)Upon receipt of the proxy, other proxy soliciting material, information statement, and/or annual reports to security holders, the bank shall forward such materials to each beneficial owner on whose behalf it holds securities, no later than five business days after the date it receives such material and, where a proxy is solicited, the bank shall forward, with the other proxy soliciting material and/or the annual report, either:
(i) A properly executed proxy:
(A) indicating the number of securities held for such beneficial owner;
(B) bearing the beneficial owners account number or other form of identification, together with instructions as to the procedures to vote the securities;
(C) briefly stating which other proxies, if any, are required to permit securities to be voted under the terms of the instrument creating that voting power or applicable state law; and
(D) being accompanied by an envelope addressed to the registrant or its agent, if not provided by the registrant; or
(ii) A request for voting instructions (for which registrants form of proxy may be used and which shall be voted by the record holder bank or respondent bank in accordance with the instructions received), together with an envelope addressed to the record holder bank or respondent bank.
(4)The bank shall:
(i) Respond, by first class mail or other equally prompt means, directly to the registrant no later than one business day after the date it receives an inquiry made in accordance with §240.14a-13 (b)(1) or §240.14c-7(b)(1) by indicating the name and address of each of its respondent banks that holds the registrants securities on behalf of beneficial owners, if any;
(ii) Through its agent or directly, provide the registrant, upon the registrants request, and within the time specified in paragraph (b)(4)(iii) of this section, with the names, addresses, and securities position, compiled as of a date specified in the registrants request which is no earlier than five business days after the date the registrants request is received, of:
(A) With respect to customer accounts opened on or before December 28, 1986, beneficial owners of the registrants securities on whose behalf it holds securities who have consented affirmatively to disclosure of such information, subject to paragraph (b)(5) of this section; and
(B) With respect to customer accounts opened after December 28, 1986, beneficial owners of the registrants securities on whose behalf it holds securities who have not objected to disclosure of such information;
Provided, however, that if the record holder bank or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such requests, receipt for purposes of paragraphs (b)(4)(i) and (ii) of this section shall mean receipt by such designated office(s) or department(s); and
(iii) Through its agent or directly, transmit the data specified in paragraph (b)(4)(ii) of this section to the registrant no later than five business days after the date specified by the registrant.
Note 1: Where a record holder bank or respondent bank employs a designated agent to act on its behalf in performing the obligations imposed on it by paragraphs (b)(4)(ii) and (iii) of this section, the five business day time period for determining the date as of which the beneficial owner information is to be compiled is calculated from the date the designated agent receives the registrants request. In complying with the registrants request for beneficial owner information under paragraphs (b)(4)(ii) and (iii) of this section, a record holder bank or respondent bank need only supply the registrant with the names, addresses and securities positions of affirmatively consenting and non-objecting beneficial owners.
Note 2: If a record holder bank or respondent bank receives a registrants request less than five business days before the requested compilation date, it must provide a list compiled as of a date that is no more than five business days after receipt and transmit the list within five business days after the compilation date.
(5)For customer accounts opened on or before December 28, 1986, unless the bank has made a good faith effort to obtain affirmative consent to disclosure of beneficial owner information pursuant to paragraph (b)(4)(ii) of this section, the bank shall provide such information as to beneficial owners who do not object to disclosure of such information. A good faith effort to obtain affirmative consent to disclosure of beneficial owner information shall include, but shall not be limited to, making an inquiry:
(i) Phrased in neutral language, explaining the purpose of the disclosure and the limitations on the registrants use thereof;
(ii) Either in at least one mailing separate from other account mailings or in repeated mailings; and
(iii) In a mailing that includes a return card, postage paid enclosure.
(c) Exceptions to dissemination and beneficial owner information requirements. The bank shall be subject to the following with respect to its dissemination and beneficial owner requirements.
(1)With regard to beneficial owners of exempt employee benefit plan securities, the bank shall not:
(i) Include in its response pursuant to paragraph (b)(1) of this section; or forward proxies (or in lieu thereof requests for voting instructions), proxy soliciting material, information statements, or annual reports to security holders pursuant to paragraph (b)(3) of this section to such beneficial owners; or
(ii) Include information in its response pursuant to paragraphs (b)(4) and (b)(5) of this section data concerning such beneficial owners.
(2)The bank need not satisfy:
(i) Its obligations under paragraphs (b)(2), (b)(3), and (b)(4) of this section if a registrant does not provide assurance of reimbursement of its reasonable expenses, both direct and indirect, incurred in connection with performing the obligations imposed by paragraphs (b)(2), (b)(3), and (b)(4) of this section; or
(ii) Its obligation under paragraph (b)(3) of this section to forward annual reports to consenting and non-objecting beneficial owners identified pursuant to paragraphs (b)(4)(ii) and (iii) of this section if the registrant notifies the record holder bank or respondent bank, pursuant to §240.14a-13(c) or §240.14c-7(c), that the registrant will mail the annual report to beneficial owners whose names addresses and securities positions are disclosed pursuant to paragraphs (b)(4)(ii) and (iii) of this section.
(3)For the purposes of determining the fees which may be charged to registrants pursuant to §240.14a-13(b)(5), §240.14c-7(a)(5), and paragraph (c)(2) of this section for performing obligations under paragraphs (b)(2), (b)(3), and (b)(4) of this section, an amount no greater than that permitted to be charged by brokers or dealers for reimbursement of their reasonable expenses, both direct and indirect, incurred in connection with performing the obligations imposed by paragraphs (b)(2) and (b)(3) of §240.14b-1, shall be deemed to be reasonable.
6.By amending §240.14c-1 to revise paragraph (j) to read as follows:
§240.14c-1Definitions.
* * * * *
(j) Registrant. The term registrant means:
(1)The issuer of a class of securities registered pursuant to Section 12 of the Act; or
(2)An investment company registered under the Investment Company Act of 1940 that has made a public offering of its securities.
* * * * *
7.By amending §240.14c-2 to revise the introductory text of paragraph (a) to read as follows:
§240.14c-2 Distribution of information statement.
(a) In connection with every annual or other meeting of security holders, including the taking of corporate action by the written authorization or consent of security holders, the registrant shall transmit a written information statement containing the information specified in Schedule 14C (§240.14c-101) or written information statements included in registration statements filed under the Securities Act of 1933 on Form S-4 or F-4 (§239.25 or §239.34 of this chapter) or Form N-14 (§239.23 of this chapter), and containing the information specified in such form, to every security holder of the class that is entitled to vote or give an authorization or consent in regard to any matter to be acted upon and from whom a proxy, authorization or consent is not solicited on behalf of the registrant pursuant to Section 14(a) of the Act, Provided, however, That:
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8.By amending §240.14c-7 to remove the and after paragraph (a)(1)(i)(B); to redesignate paragraph (a)(1)(i)(C) as paragraph (a)(1)(i)(D) and to add a new paragraph (a)(1)(i)(C); to redesignate paragraphs (a)(3) and (a)(4) as (a)(4) and (a)(5) and to add a new paragraph (a)(3); and to revise Note 3 to paragraph (a) to read as follows:
§240.14c-7 Providing copies of material for certain beneficial owners.
(a)***
(1)***
(i)***
(C) If the record holder or respondent bank has an obligation under §240.14b-1(b)(3) or §240.14b-2(b)(4)(ii) and (iii), whether an agent has been designated to act on its behalf in fulfilling such obligation, and, if so, the name and address of such agent; and
* * * * *
(a)***
(3)Make the inquiry required by paragraph (a)(1) of this section on the earlier of:
(i) At least 20 business days prior to the record date of the meeting of security holders or the record date of written consents in lieu of a meeting; or
(ii) At least 20 business days prior to the date the information statement is required to be sent or given pursuant to §240.14c-2(b);
Provided, however, That, if a record holder or respondent bank has informed the registrant that a designated office(s) or department(s) is to receive such inquiries, the inquiry shall be made to such designated office(s) or department(s);
* * * * *
Note 3: The attention of registrants is called to the fact that each broker, dealer, bank, association, and other entity that exercises fiduciary powers has an obligation pursuant to §240.14b-1 and §240.14b-2 (except as provided therein with respect to exempt employee benefit plan securities held in nominee name) and, with respect to brokers and dealers, applicable self-regulatory organization requirements to obtain and forward, within the time periods prescribed therein, (a) information statements to beneficial owners on whose behalf it holds securities, and (b) annual reports to security holders to beneficial owners on whose behalf it holds securities, unless the registrant has notified the record holder or respondent bank that it has assumed responsibility to mail such material to beneficial owners whose names, addresses, and securities positions are disclosed pursuant to §240.14b-1(b)(3) and §240.14b-2(b)(4)(ii) and (iii).
* * * * *
9.By further amending §240.14c-7 as follows:
(A) in paragraphs (a)(1)(ii)(A), the introductory text of (b), and (c) remove the reference to §240.14b-1(c) and §240.14b-2(e)(2) and (3) and add in its place §240.14b-1(b)(3) and §240.14b-2(b)(4)(ii) and (iii);
(B) in paragraph (a)(2) remove the reference to §240.14b-2(a)(1) and add in its place §240.14b-2(b)(1)(i); and
(C) in paragraph (b)(1) remove the reference to §240.14b-2(e)(1) and add in its place §240.14b-2(b)(4)(i).
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
10.The authority citation for Part 270 continues to read as follows:
Authority: 15 U.S.C. 80a-1 et seq., 80a-37, 80a-39 unless otherwise noted;
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11.By amending §270.20a-1 to add an instruction at the end of paragraph (c) to read as follows:
§270.20a-1 Solicitation of proxies, consents and authorizations.
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Instruction. Registrants that have made a public offering of securities and that hold security holder votes for which proxies, consents, or authorizations are not being solicited pursuant to the requirements of this section should refer to Section 14(c) of the Securities Exchange Act of 1934 (15 U.S.C. 78n(c)) and the information statement requirements set forth in the rules thereunder.
By the Commission.
115 U.S.C. 78a et seq.
217 CFR 240.14a-13.
317 CFR 240.14b-1.
417 CFR 240.14b-2.
517 CFR 240.14a-1 et seq.
617 CFR 240.14c-1.
717 CFR 240.14c-2.
817 CFR 240.14c-7.
917 CFR 240.14c-1 et seq.
1017 CFR 270.20a-1.
1115 U.S.C. 80a-1 et seq.
1215 U.S.C. 78n(b)(1).
1315 U.S.C. 78n(c).
14Pub. L. 101-550, 104 Stat. 2713. The SCIA amendments were enacted on November 15, 1990. The proposed rule amendments were published in Release No. 34-29562 (August 15, 1991) [56 FR 41635] (Proposing Release). The comments on the proposal and a summary of comments are available for inspection and copying through the Commissions Public Reference Room (File No. S7-23-91).
15The term proxy materials as used in this release refers collectively to proxy cards, consents, authorizations or requests for voting instructions, proxy or other soliciting material, and annual reports to security holders.
16Investment Company Act Section 20(a) [15 U.S.C. 80a-20(a)] and related Rule 20a-1 cause the proxy solicitation rules adopted pursuant to Exchange Act Section 14(a) to apply to Investment Company Act registrants.
17The term proxies as used in this release refers to proxies, consents, or authorizations.
18Prior to the SCIA amendments, Exchange Act Section 14(c), which requires issuers to distribute information statements to shareholders in connection with a shareholder meeting where proxies, consents, or authorizations are not solicited by or on behalf of management of the issuer, pertained only to companies with a class of securities registered under Section 12 of the Exchange Act [15 U.S.C. 78l] (Section 12 registrants). Only a small proportion of investment companies are required to register under Section 12 of the Exchange Act (i.e., closed-end investment companies whose shares are traded on an exchange, and business development companies).
19Prior to the SCIA amendments, brokers and banks were required to forward only the proxy materials of Section 12 registrants to beneficial owners pursuant to Exchange Act Section 14(b)(1) and related Rules 14b-1 and 14b-2.
20Id.
21The term banks includes other institutions that may hold securities in nominee name for their customers including, without limitation, savings and loan associations and savings banks that maintain trust and customer accounts and similar entities that perform comparable fiduciary functions on behalf of customers. See Rules 14a-1(c) [17 CFR 240.14a-1(c)] and 14b-2; Release No. 34-23276 (June 5, 19886) [51 FR 20504].
22Rules 14a-13(b)(5) [17 CFR 240.14a-13(b)(5)], 14b-1(c)(2)(i) [17 CFR 240.14b-1(c)(2)(i)], 14b-2(c)(2)(i) [17 CFR 240.14b-2(c)(2)(i)], and 14c-7(a)(5) [17 CFR 240.14c-7(a)(5)].
23This limited exception has been adopted to address concerns raised by commenters on the proposed amendments that the information statement requirement should not extend to investment companies that are still in the organizational stage but have registered under the Investment Company Act because they propose to make a public offering of securities. See Section 3(c)(1) of the Investment Company Act [15 U.S.C. 80a-3(c)(1)]. Because the obligation of Investment Company Act registrants to deliver proxies to shareholders extends under Investment Company Act Rule 20a-1 to all investment companies registered under the Investment Company Act, brokers and banks would be required to forward proxy materials provided by investment companies registered under the Investment Company Act regardless of whether they had made a public offering of their securities.
24The first rulemaking initiative in connection with this review was issued by the Commission on June 25, 1991. See Release No. 34-29315 (June 25, 1991) [56 FR 28987].
25Rule 14c-2(a) [17 CFR 240.14c-2(a)].
26Rule 14c-1(j) [17 CFR 240.14c-1(j)].
27Rule 20a-1. Pursuant to the amendments, Investment Company Act registrants must refer to Schedule 14C under the Exchange Act [17 CFR 240.14c-101] to determine the information required to be included in an information statement. Among other things, Schedule 14C requires an information statement to include applicable information responsive to certain proxy statement items of Schedule 14A under the Exchange Act [17 CFR 240.14a-101]. Investment Company Act registrants also should include in an information statement all of the applicable information required to be included in a proxy statement by Rules 20a-2 and 20a-3 under the Investment Company Act [17 CFR 270.20a-2 and 270.20a-3].
28Rules 14b-1(a) [17 CFR 240.14b-1(a)] and 14b-2(a) [17 CFR 240.14b-2(a)].
29The new definitional paragraph also states that, unless the context otherwise requires, all terms used in Rules 14b-1 and 14b-2 shall have the same meaning as in the Exchange Act and, with respect to proxy materials and information statements, as in Rules 14a-1 and 14c-1, respectively, thereunder. In addition, Rule 14b-2(a) states that the term bank means a bank, association, or other entity that exercises fiduciary powers. It further states that the term beneficial owner includes any person who has or shares, pursuant to an instrument, agreement, or otherwise the power to vote, or to direct the voting, of a security. The statement explaining use of the term bank tracks the previously existing lead-in language to Rule 14b-2. The beneficial owner definition previously was included in paragraph (j) of the rule [17 CFR 240.14b-2(j)].
30Rules 14b-1(b)(2) [17 CFR 240.14b-1(b)(2)], 14b-1(c) (1)(i) [17 CFR 240.14b-1(c)(1)(i)], 14b-2(b)(3) [17 CFR 240.14b-2(b)(3)], and 14b-2(c)(1)(i) [17 CFR 240.14b-2 (c)(1)(i)].
31The consolidated dissemination and beneficial owner information requirements, as applicable to brokers, are reflected in Rule 14b-1(b) [17 CFR 240.14b-1(b)]. Similar requirements applicable to banks are reflected in Rule 14b-2(b) [17 CFR 240.14b-2(b)].
32The exceptions to banks and brokers forwarding requirements are set forth in new paragraph (c) to Rules 14b-1 and 14b-2. These exceptions applied under the rules prior to revision and relate to: (i) beneficial owners of exempt employee benefit plan securities (with respect to brokers, Rule 14b-1(d) [17 CFR 240.14b-1(d)], and with respect to banks, Rule 14b-2(g) [17 CFR 240.14b-2(g)]); (ii) provision of assurance of reimbursement of reasonable expenses (with respect to brokers, Rule 14b-1(e)(1) [17 CFR 240.14b-1(e)(1)], and with respect to banks, Rule 14b-2(f)(1) [17 CFR 240.14b-2(f)(1)]); and (iii) mailing of annual reports where the registrant assumes this obligation for non-objecting or consenting beneficial owners (with respect to brokers, Rule 14b-1(e)(2) [17 CFR 240.14b-1(e)(2)], and with respect to banks, Rule 14b-2(f)(2) [17 CFR 240.14b-2(f)(2)]). Corresponding changes have been made where these redesignated provisions are cross-referenced in Rules 14a-13 and 14c-7.
33Specifically, cross-references have been added to Rules 14b-1(b)(1) [17 CFR 240.14b-1(b)(1)], 14b-1(c)(2)(ii) [17 CFR 240.14b-1 (c) (2) (ii)], 14b-2(b)(1)(i) [17 CFR 240.14b-2(b) (2)(i)], 14b-2(b)(1)(ii) [17 CFR 240.14b-2(b)(1)(ii)], and 14b-2(b)(1)(ii)(B) [17 CFR 240.14b-2(b)(1)(ii)(B)].
34Rule 14c-2.
35This requirement has been incorporated in Rule 14c-7(a) [17 CFR 240.14c-7(a)] by the addition of a new paragraph (3) (old paragraphs (3) and (4) have been redesignated as paragraphs (4) and (5)). In addition, Note 3 to renumbered paragraph (4) has been revised to reference the obligations of brokers and banks to transmit information statements to beneficial owners, as required under the amended rules. Rule 14c-7 also has been modified to require that registrants inquire of brokers and banks whether an agent has been designated to act on their behalf for purposes of conforming the rule to a similar requirement in Rule 14a-13(a)(1)(C) [17 CFR 240.14a-13(a)(1)(C)] under the proxy rules. Rule 14c-7(a)(1)(i)(C) [17 CFR 240.14c-7(a)(1)(i)(C)].
36Rule 14a-13(a)(3) [17 CFR 240.14a-13(a)(3)]. The new notice requirement is different from that in Rule 14a-13(a)(3) for proxy materials to the extent necessary to conform to the timing requirements for the mailing of information statements. With respect to timing requirements, the Commission recently adopted rules with respect to limited partnership roll-up transactions that include a minimum proxy solicitation and information statement transmittal period of 60 calendar days prior to a meeting or the earliest date of partnership action by consent, or, if shorter, the maximum period permitted under applicable state law. Release No. 34-29883 (Oct. 30, 1991) [56 FR 57237].
37Rules 14a-13(a)(5) [17 CFR 240.14a-13(a)(5)], 14a-13(b)(5), [17 CFR 240.14a-13(b)(5)], 14c-7(a)(5) [17 CFR 240.14c-7(a)(5)], and 14c-7(b)(5) [17 CFR 240.14c-7(b)(5)]. Corresponding reimbursement provisions appear in the rules applicable to brokers and banks and provide that there is no obligation to transmit such materials or to provide beneficial owner information if the broker or bank does not receive assurance of reimbursement of reasonable expenses. Rules 14b-1(c)(2)(i) and 14b-2(c)(2)(i).
38The rules of the self-regulatory organizations, approved by the Commission pursuant to Section 19(b) of the Exchange Act [15 U.S.C. 78s(b)], provide for approved rates of reimbursement of member organizations for all out-of-pocket expenses incurred in connection with proxy solicitations; for example, in connection with a routine annual meeting, the rates are $.60 for each set of proxy material plus postage. Am. Stock Ex. Guide (CCH) 9528.80 at 2716 through 2718 (Rule 576); 2 N.Y.S.E. Guide (CCH) 2451.90 at 3808 (Rule 451); NASD Manual (CCH) 2151 at 2039 (Section 1 of Rules of Fair Practice). These rules included a surcharge, adopted in 1985 and effective for the first two annual meetings after March 28, 1985 ($.20 for each set of proxy materials distributed the first year and $.185 for each set distributed the second year) that enabled brokers to recoup the start-up costs associated with the implementation of the rules requiring brokers to identify non-objecting beneficial owners.
39Rule 14b-2(c)(2). The safe-harbor was adopted in 1986 in conjunction with adoption of the shareholder communications rules applicable to banks. In the release establishing the safe-harbor, the Commission also stated that the surcharge approved for brokers would be included in the reasonable reimbursable expenses of banks. Release No. 34-23847 (December 9, 1986) [51 FR 44627].
40Rules 14b-1(c)(2) and 14b-2(c)(3) [17 CFR 240.14b-1(c)(2) and 240.14b-2(c)(3)]. Reasonable expenses include both direct and indirect costs incurred in performing the obligations imposed by Rule 14b-1(b)(2) and (b)(3) [17 CFR 240.14b-1(b)(3)] and by Rule 14b-2(b)(2), (b)(3) and (b)(4) [17 CFR 240.14b-2(b)(2), 240.14b-2(b)(3), and 240.14b-2(b)(4)].
41The surcharge amounts referred to in n.38, supra, may serve as a useful reference in establishing the reasonableness of any requested cost reimbursement.
425 U.S.C. 553(d)(3).
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