The Securities and Exchange Commission (the “SEC”) recently adopted new proxy rules under the Securities Exchange Act of 1934 for public companies, including investment companies[1] that require, for the first time, that issuers post proxy materials for shareholder meetings on the internet. Under the new rules, public companies may choose between two notice options: (i) a “Notice Only Option” that requires the issuer to mail a specified notice to shareholders regarding the availability of proxy materials on the internet; or (ii) the “Full Set Delivery Option,” where the issuer mails a notice with the traditional full set of proxy materials that references the availability of materials on the website.[2] The rules generally apply to all instances where an issuer is required to furnish proxy materials to shareholders, except for proxy solicitations related to business combination transactions.

Proxy Materials Must Be Posted On the Internet

No matter which notice option is used by an issuer, one key provision of the new rules is the requirement that proxy materials be posted on a publicly accessible website (“Website”), other than the SEC’s EDGAR web page, in a format that allows for both reading and printing of the materials. All proxy materials must be posted, including any soliciting materials used subsequent to the initial proxy. Relevant materials generally must be posted on or before the date the initial notice is mailed to shareholders, and must remain posted until the date of the shareholder meeting. Due to confidentiality requirements in the rule, e-mail addresses provided by a shareholder can only be used to send a copy of requested materials to that shareholder, and the Website is not allowed to have cookies and other tracking features. 

Delivery Options and Notice Requirements

As noted above, the new rules allow issuers two options for making proxy materials available to shareholders: (i) the Notice Only Option; and (ii) the Full Set Delivery Option. An issuer may use the same option for all shareholders or different options for different shareholders. A brief description of the requirements of each option is set forth below:

Notice Only Option. The Notice Only Option allows the issuer to send a notice that proxy information is available on the Website without sending the traditional full set of proxy materials. This type of notice must be sent at least 40 days before the date of the shareholder meeting (the “40 Day Requirement”) and, because the 40 Day Requirement applies to indirect as well as direct shareholders, issuers must remember to provide intermediaries with the information in sufficient time for their mailings to meet the 40 Day Requirement as well. The Notice Only Option also requires the following:

  1. The proxy materials must be posted on the Website;
  2. The notice cannot be sent with any other information; provided, however, that an investment company may send with the notice a copy of its current prospectus, most recent report to shareholders and/or a pre-addressed postage paid reply card so shareholders can request a copy of the proxy materials;
  3. The issuer must provide shareholders with a method to execute proxies (e.g., electronic voting, a toll-free number for voting or a printable or downloadable proxy card);
  4. The issuer must provide a paper or e-mail copy of the proxy materials to shareholders at no charge upon request;
  5. The issuer must provide a toll-free telephone number, an e-mail address and website for shareholders to request a copy of the proxy materials or make a permanent election to receive paper or e-mail copies of the proxy materials on a continuing basis going forward; and
  6. The issuer may not send the shareholders reminder proxy cards until 10 calendar days after the notice was sent to shareholders.

Full Set Delivery Option. The Full Set Delivery Option allows an issuer to use the traditional means of providing proxy materials with the following additional items:

  1. The proxy materials must be posted on the Website; and
  2. The issuer must inform shareholders of the availability of the proxy materials on the Website by either sending a notice with its proxy materials or incorporating the required notice information into its proxy statement and proxy card.

Under this option, the issuer is not required to comply with the 40 Day Requirement, provide shareholders with additional copies of the proxy materials upon request, or provide shareholders with an alternative means to execute proxies (just the traditional proxy card). In addition, the issuer can send reminder proxy cards to shareholders at any time after the full set of proxy materials has been sent.

Compliance Date

Investment companies are permitted to comply with the new proxy rules beginning January 1, 2008. However, compliance with the new rules is not required until January 1, 2009. Therefore, investment companies must comply with the new provisions for proxy solicitations commencing on or after January 1, 2009.

Time to Receive Information under Rule 22c-2 Shareholder Information Agreements

October 16, 2007 was the compliance date for financial intermediaries to begin responding to requests from mutual funds for shareholder identity and transaction information (“Shareholder Information”) regarding omnibus account shareholders pursuant to Rule 22c-2 under the Investment Company Act of 1940, as amended. Rule 22c-2 requires, among other things, that mutual funds enter into written shareholder information agreements (“Shareholder Information Agreements”) with financial intermediaries under which the intermediary agrees to provide, at the mutual fund’s request, Shareholder Information and carry out instructions from the mutual fund to restrict or prohibit further purchases by a shareholder identified by the mutual fund as violating the mutual fund’s frequent trading policies.[3] Under most Shareholder Information Agreements, a financial intermediary will not send a mutual fund Shareholder Information unless requested by the mutual fund. Therefore, we recommend that mutual funds review their frequent trading and market timing polices and ensure that they are requesting appropriate Shareholder Information from financial intermediaries.