shareholder's or group's compliance with the requirements of Schedule
14N would result in 720 aggregate burden hours (9 notices x 40 hours/
notice x 2 nominees/shareholder) each year, which corresponds to 540
hours of shareholder time (9 notices x 40 hours/notice x 2 nominees/
shareholder x .75) and costs of $72,000 for the services of outside
professionals (9 notices x 40 hours/notice x 2 nominees/shareholder x
.25 x $400). Therefore, we estimate that the total burden hours would
be 4,640 for all reporting companies, including investment companies,
broken down into 3,480 hours of shareholder time

and $464,000 for services of outside professionals.
---------------------------------------------------------------------------

    \324\ In this regard, we estimated that approximately 97
shareholder proponents would submit proposals regarding nomination
procedures or disclosures related to shareholder nominations. For
purposes of this analysis, we assume that approximately half (49) of
those shareholders would be eligible to submit a nomination pursuant
to applicable state law provisions or a company's governing
documents.
    \325\ In this regard, we estimated that approximately 18
shareholder proponents would submit proposals to registered
investment companies regarding nomination procedures or disclosures
related to shareholder nominations. We estimate that approximately
half (9) of those shareholders would be eligible to submit a
nomination pursuant to applicable state law provisions or a
company's governing documents.
---------------------------------------------------------------------------

    We assume that all nominating shareholders or groups that submit a
nominee or nominees pursuant to an applicable state law provision or a
company's governing documents would prepare a statement of support for
the nominee or nominees,\326\ and we estimate the disclosure burden for
the nominating shareholder or group to prepare a statement of support
for its nominee or nominees to be approximately 10 burden hours per
nominee. This results in an aggregate burden of 980 hours (49
statements x 10 hours/statement x 2 nominees/shareholder) for
shareholders of reporting companies (other than registered investment
companies), which corresponds to 735 hours of shareholder time (49
statements x 10 hours/statement x 2 nominees/shareholder x .75) and
$98,000 for services of outside professionals (49 statements x 10
hours/statement x 2 nominees/shareholder x .25 x $400). For registered
investment companies, this results in an aggregate burden of 180 hours
(9 statements x 10 hours/statement x 2 nominees/shareholder), which
would correspond to 135 hours of shareholder time (9 statements x 10
hours/statement x 2 nominees/shareholder x .75) and $18,000 for
services of outside professionals (9 statements x 10 hours/statement x
2 nominees/shareholder x .25 x $400). This results in a total of 1,160
burden hours, broken down into 870 hours of shareholder time and
$116,000 for the services of outside professionals.
---------------------------------------------------------------------------

    \326\ We are assuming for PRA purposes that any applicable state
law provision or company's governing documents would allow for
inclusion of such a statement by the nominating shareholder or
group.
---------------------------------------------------------------------------

4. Proposed Amendments to Exchange Act Form 8-K
    Under proposed Rule 14a-11, a nominating shareholder or group would
have to provide a notice to the company, on Schedule 14N, of its intent
to require that the company include the nominating shareholder's or
group's nominee in the company's proxy materials by the date specified
by the company's advance notice provision or, where no such provision
is in place, no later than 120 calendar days before the date that the
company mailed its proxy materials for the prior year's annual
meeting.\327\ If the company did not hold an annual meeting during the
prior year, or if the date of the meeting has changed more than 30 days
from the prior year, then the nominating shareholder or group would be
required to provide notice a reasonable time before the company mails
its proxy materials, as specified by the company in a Form 8-K filed
pursuant to proposed Item 5.07. We also are proposing to require a
registered investment company that is a series company to file a Form
8-K disclosing the company's net assets as of June 30 of the calendar
year immediately preceding the calendar year of the meeting and the
total number of the company's shares that are entitled to vote for the
election of directors at the annual meeting of shareholders (or, in
lieu of such an annual meeting, a special meeting of shareholders) as
of the end of the most recent calendar quarter.
---------------------------------------------------------------------------

    \327\ The proposed amendment to Rule 14a-8(i)(8) is not expected
to impact Form 8-K, so the burden estimates solely reflect the
burden changes resulting from proposed Rule 14a-11.
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that approximately 4% of
reporting companies (other than registered investment companies) would
be required to file an Exchange Act Form 8-K because the company did
not hold an annual meeting during the prior year, or the date of the
meeting has changed by more than 30 days from the prior year.\328\
Based on our estimate that there are approximately 11,000 reporting
companies (other than registered investment companies), this
corresponds to 440 companies that would be required to file a Form 8-K.
In accordance with our current estimate of the burden of preparing a
Form 8-K, we estimate 5 burden hours to prepare, review and file the
Form 8-K, for a total burden of 2,200 hours (440 filings x 5 hours/
filing). This total burden corresponds to 1,650 hours of company time
(440 filings x 5 hours/filing x .75) and $220,000 for services of
outside professionals (440 filings x 5 hours/filing x .25 x $400).
---------------------------------------------------------------------------

    \328\ Based on information obtained in 2003 from the Investor
Responsibility Research Center, 3.7% of companies (other than
registered investment companies) filed Form 8-Ks because they did
not hold an annual meeting during the prior year or the date of the
meeting has changed by more than 30 days from the prior year. See
also footnote 195 in the 2003 Proposal.
---------------------------------------------------------------------------

    In the case of registered investment companies, we estimate that,
similar to reporting companies other than registered investment
companies, 4% of registered closed-end management investment companies
subject to Rule 14a-11 that are traded on an exchange would be required
to file an Exchange Act Form 8-K because the company did not hold an
annual meeting during the prior year or the date of the meeting has
changed by more than 30 days from the prior year.\329\ We estimate that
approximately 650 of the 1,225 registered investment companies
responding to Investment Company Act Rule 20a-1 are closed-end funds
that are traded on an exchange, resulting in 26 closed-end funds that
would be required to file Form 8-K for these purposes (650 registered
closed-end management investment companies x .04).\330\ However, we
estimate that few, if any, registered open-end management investment
companies regularly hold annual meetings. Therefore, we estimate that
575 registered investment companies are not closed-end investment
companies and would be required to file Form 8-K. This results in a
total of 601 registered investment companies required to file Form 8-K
(26 closed-end management investment companies + 575 other registered
investment companies) and 3,005 burden hours (601 filings x 5 hours/
filing). This total burden corresponds to 2,254 hours of company time
(601 filings x 5 hours/filing x .75) and $300,500 for services of
outside professionals (601 filings x 5 hours/filing x .25 x $400).\331\
Adding the totals for reporting companies (other than registered
investment companies) and registered investment companies results in a
total burden of 5,205, which corresponds to 3,904 hours of company time
and $520,500 for services of outside professionals. This includes the
requirement for a registered investment company that is a series
company to file a Form 8-K disclosing the company's net assets as of
June 30 of the calendar year immediately preceding the calendar year of
the meeting and the total number of the company's shares that are
entitled to vote for the election of directors at the annual meeting of
shareholders (or, in lieu of such an annual meeting, a special meeting
of

shareholders) as of the end of the most recent calendar quarter.
---------------------------------------------------------------------------

    \329\ We believe that the percentage for registered closed-end
investment companies would be similar to other reporting companies
because such investment companies are traded on an exchange and are
required to hold annual meetings of shareholders.
    \330\ We estimate that 1,225 registered investment companies
hold annual meetings each year based on the number of responses to
Rule 20a-1. Based on data provided by Lipper, the Commission
estimates that approximately 650 registered closed-end management
investment companies are traded on an exchange.
    \331\ Consistent with the current estimates for Form 8-K, we
estimate that 75% of the burden of preparation of Form 8-K is
carried by the company and that 25% of the burden of preparation of
Form 8-K is carried by outside professionals at an average cost of
$400 per hour. The burden includes disclosure of the date by which a
nominating shareholder or group must submit the notice required by
proposed Rule 14a-11(c) as well as disclosure of net assets,
outstanding shares, and voting.
---------------------------------------------------------------------------

5. Form ID Filings \332\
---------------------------------------------------------------------------

    \332\ The proposed amendment to Rule 14a-8(i)(8) is not expected
to affect Form ID filings, so the burden estimates solely reflect
the burden changes resulting from proposed Rule 14a-11.
---------------------------------------------------------------------------

    Under proposed Rule 14a-11(c), a shareholder who submits a nominee
or nominees for inclusion in the company's proxy statement must provide
notice on Schedule 14N to the company of its intent to require that the
company include the nominee or nominees in the company's proxy
materials and file the Schedule 14N with the Commission. We anticipate
that some shareholders that submit a nominee or nominees for inclusion
in a company's proxy materials will not previously have filed an
electronic submission with the Commission and will file a Form ID. Form
ID is the application form for access codes to permit filing on EDGAR.
The proposed rules are not changing the form itself, but we anticipate
that the number of Form ID filings may increase due to shareholders
filing Schedule 14N when submitting a nominee or nominees to a company
for inclusion in its proxy materials pursuant to proposed Rule 14a-11.
We estimate that 90% of the shareholders who submit a nominee or
nominees for inclusion in the company's proxy materials will not have
filed previously an electronic submission with the Commission and would
be required to file a Form ID.\333\ As noted above, we estimate that
approximately 208 reporting companies (other than registered investment
companies) and 61 registered investment companies will receive
shareholder nominations submitted pursuant to proposed Rule 14a-11.
This corresponds to 242 additional Form ID filings. In addition, as
noted above, we estimate that approximately 49 reporting companies
(other than registered investment companies) and 9 registered
investment companies will receive shareholder nominations submitted
pursuant to an applicable state law provision or a company's governing
documents. This corresponds to an additional 52 Form ID filings. As a
result, the additional annual burden would be 44 hours (294 filings x
.15 hours/filing).\334\ For purposes of the PRA, we estimate that the
additional burden cost resulting from the proposed amendments will be
zero because we estimate that 100 percent of the burden will be borne
internally by the nominating shareholder.
---------------------------------------------------------------------------

    \333\ We estimate that 326 nominating shareholders or groups
will submit nominations pursuant to Rule 14a-11, applicable state
law provisions or a company's governing documents. As noted earlier,
approximately 32 proxy contests were conducted in 2008. Of the 326
nominating shareholders or groups, we believe that 32 will have
obtained EDGAR filer codes previously; therefore we estimate
approximately 294 will need to file a Form ID. This results in an
estimate of 90%.
    \334\ We currently estimate the burden associated with Form ID
is 0.15 hours per response.
---------------------------------------------------------------------------

D. Revisions to PRA Reporting and Cost Burden Estimates

    Table 1 below illustrates the incremental annual compliance burden
of the collection of information in hours and in cost for proxy and
information statements and current reports under the Exchange Act. The
burden was calculated by multiplying the estimated number of responses
by the estimated average number of hours each entity spends completing
the form. We estimate that 75% of the burden of preparation of the
proxy and information statement and current reports is carried by the
company internally, while 25% of the burden of preparation is carried
by outside professionals at an average cost of $400 per hour. We
estimate that 75 percent of the burden of preparation of Schedule 14N
and Schedule 14A (with regard to the legend required for additional
soliciting materials) will be carried by the nominating shareholder or
group internally and that 25 percent of the burden of preparation will
be carried by outside professionals retained by the nominating
shareholder or group. We estimate that 25 percent of the burden of
preparation of Schedule 13G (for nominating shareholder groups that
exceed 5%) will be carried by the nominating shareholder or group
internally and that 75 percent of the burden of preparation will be
carried by outside professionals retained by the nominating shareholder
or group. The portion of the burden carried by outside professionals is
reflected as a cost, while the portion of the burden carried internally
by the company and the nominating shareholder or group is reflected in
hours.

                                               Table 1--Calculation of Incremental PRA Burden Estimates *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                 Current      Proposed                               Proposed
                                                  annual       annual      Current    Increase in     burden       Current     Increase in    Proposed
                                                responses    responses      burden       burden       hours     professional  professional  professional
                                                   (A)          (B)       hours (C)    hours (D)     (E)=C+D      costs (F)     costs (G)     costs =F+G
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sch 14A......................................        7,300        7,300      555,683       14,692      570,375   $63,709,987    $1,958,760   $65,668,747
Sch 14C......................................          680          680       52,337        1,632       53,969     5,951,639       217,640     6,169,279
Sch 14N......................................            0          269            0       28,565       28,565             0     3,808,600     3,808,600
Form 8-K.....................................      108,424      109,465      406,590        3,904      410,494    54,212,000       520,500    54,732,500
Form ID......................................       65,700       65,994        9,855           44        9,899             0             0             0
Sch 13G......................................       12,500       12,546       25,577          484       26,061    42,694,200       580,320    43,274,520
Rule 20a-1...................................        1,225        1,225      130,095        4,085      134,180    18,375,000       544,600    18,919,600
    Total....................................  ...........  ...........  ...........       53,406  ...........  ............     7,630,420  ............
--------------------------------------------------------------------------------------------------------------------------------------------------------
* The incremental burden estimate for Rule 20a-1 includes the disclosure that would be required on Schedule 14A and 14C, discussed above, with respect
  to funds.

E. Solicitation of Comment

    We request comment on the accuracy of our estimates. Pursuant to 44
U.S.C. 3506(c)(2)(B), the Commission solicits comments to: (i) Evaluate
whether the proposed collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information will have practical utility; (ii) evaluate the accuracy
of the Commission's estimate of burden of the proposed collection of
information; (iii) determine whether there are ways to enhance the
quality, utility, and clarity of the information to be collected; and
(iv) evaluate 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.

    We request comment and supporting empirical data for purposes of
the PRA on:
     How likely it would be for shareholders or groups to be
able to meet the requirements under proposed Rule 14a-11;
     In how many instances qualifying shareholders or groups
would use Rule 14a-11 to include disclosure concerning a nominee or
nominees in a company's proxy materials;
     How many nominees qualifying shareholders or group might
offer; and
     Whether there would be an increase in the number of
shareholder proposals submitted pursuant to Rule 14a-8 that companies
receive as a result of the proposed amendments.
    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. S7-10-09. Requests for materials submitted
to OMB by the Commission with regard to these collections of
information should be in writing, refer to File No. S7-10-09, 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. Background

    The Commission is proposing new rules that would, under certain
circumstances, require companies to include in their proxy materials
shareholder nominees for election as director, as well as other
disclosure regarding those nominees and the nominating shareholder or
group. In addition, the new rules would require companies to include in
their proxy statements, under certain circumstances, shareholder
proposals that would amend, or that request an amendment to, a
company's governing documents regarding nomination procedures, or
disclosures related to shareholder nominations, provided the proposal
does not conflict with proposed Rule 14a-11. The proposed rules are
intended to remove certain impediments that the federal proxy process
currently impose on shareholders' ability to exercise their state law
right to nominate directors, and thereby reduce the costs to
shareholders of exercising their rights. Below, we describe the
additional disclosures shareholders would receive if the proposed rules
are adopted and the direct and indirect economic effects of such new
disclosures. Our discussion of the economic effects takes into account
the incentives and actions of parties who would be able under the
rulemaking to affect its scope and influence. These parties include
shareholders, the board, and state legislatures.
    Proposed Rule 14a-11 would require companies, where applicable, to
include disclosures of shareholder nominations for director and
disclosure about the nominating shareholder or group and the nominee or
nominees in company proxy materials if, among other things, the
nominating shareholder or group meets the requisite ownership threshold
and has held the shares for at least one year prior to the date the
shareholder provides notice on Schedule 14N of its intent to require
the company to include a nominee or nominees in the company's proxy
materials pursuant to Rule 14a-11. The nominating shareholder or group
also would be required to represent that he or she intends to hold the
shares through the date of the meeting. A nominating shareholder that
includes a nominee or nominees in a company's proxy materials pursuant
to Rule 14a-11 would be required to provide to the company, in its
notice on Schedule 14N, disclosure similar to the disclosure required
in a proxy contest.\335\ Pursuant to proposed Item 7(e) of Schedule 14A
(and, in the case of registered investment companies and business
development companies, proposed Item 22(b)(18) of Schedule 14A), the
company would be required to include the information in its proxy
materials, where applicable. In addition, the proposed rules would
enable shareholders to engage in limited solicitations to form
nominating shareholder groups and engage in solicitations in support of
their nominee or nominees without disseminating a proxy statement.\336\
---------------------------------------------------------------------------

    \335\ See proposed Rule 14a-18.
    \336\ See proposed Rule 14a-2(b)(7)-(8).
---------------------------------------------------------------------------

    The Commission also is proposing an amendment to Rule 14a-8 to
narrow the exclusion in paragraph (i)(8), which addresses director
elections. Under the proposed amendment, the company would not be
permitted to rely on Rule 14a-8(i)(8) to omit from its proxy statement
a shareholder proposal that would amend, or that requests an amendment
to, a company's governing documents regarding nomination procedures, or
disclosures related to shareholder nominations, although any such
proposals that conflict with proposed Rule 14a-11 or state law could
still be excluded from the company's proxy materials. The current
procedural requirements for submitting a proposal pursuant to Rule 14a-
8 would remain the same.
    No additional disclosures would be required from any shareholder
that submits such a proposal; however, a nominating shareholder that
includes a nominee or nominees in a company's proxy materials pursuant
to an applicable state law provision or the company's governing
documents would be required to provide to the company, in its notice on
Schedule 14N, disclosure similar to the disclosure required in a proxy
contest.\337\ Pursuant to proposed Item 7(f) of Schedule 14A (and, in
the case of registered investment companies and business development
companies, proposed Item 22(b)(19) of Schedule 14A), the company would
be required to include the information in its proxy materials. We
believe this information will provide shareholders with information
that is useful to an informed voting decision.
---------------------------------------------------------------------------

    \337\ See proposed Rule 14a-19 and Rule 14n-1.
---------------------------------------------------------------------------

    The direct effect of proposed Rule 14a-11 and the related
disclosure requirements would be to reduce shareholders' cost of
nominating directors, which can otherwise be prohibitive since, to be
successful, shareholders generally must conduct their own proxy
contest. The amendments would do so without eliminating the traditional
method of conducting a proxy contest. Therefore, were these amendments
to become effective, the first-order economic effect would be that
shareholders seeking to nominate directors may choose to move away from
soliciting their own proxies for their nominees and instead require the
company to include their nominee or nominees in the company proxy
materials. The second-order economic effect would be that, due to the
lowered

cost of effectively nominating directors, where applicable, there may
be an increase in shareholder nominees for director.
    The amendment to Rule 14a-8(i)(8) would narrow the exclusion and no
longer permit a company to exclude shareholder proposals that would
amend, or request an amendment to, a company's governing documents
regarding nomination procedures, or disclosures related to shareholder
nominations could result in additional shareholders being able to
submit nominees for inclusion in a company's proxy materials, if
approved by shareholders. Using Rule 14a-8 in this way could result in
a two-year process to gain access to a company's proxy materials. The
two-year process could result in different economic effects to those
discussed above for proposed Rule 14a-11, depending on the proponent's
success (e.g., the inclusion of the proposal in the company's proxy
materials and adoption of a binding bylaw proposal by appropriate
shareholder vote), and the likelihood that the proponent would initiate
the two-year process. The likelihood that the proponent would initiate
the two-year process could be limited by the costs of the procedure
arising from the additional time (including opportunity costs of
holding securities where the shareholder may consider the company's
board composition to be sub-optimal) and the risk of failure.\338\
---------------------------------------------------------------------------

    \338\ In this regard, we note that we are proposing new rules
that would require a shareholder submitting a nominee or nominees
pursuant to an applicable state law provision or a company's
governing documents to provide disclosure similar to what is
required currently in a proxy contest.
---------------------------------------------------------------------------

    The extent of the economic effect of proposed Rule 14a-11 and the
related disclosure requirements may be affected by several factors.
These factors include future possible actions by boards and states.
They also include limits on the number of shareholder director nominees
that must be disclosed in the company's proxy materials. Another
relevant factor is how the requirement that a shareholder that intends
to rely on proposed Rule 14a-11 may not be holding the securities it
owns in the company ``for the purpose of or with the effect of changing
control'' of the company would be applied in practice.
    In the case of the proposed amendments to Rule 14a-8, future
actions of boards may affect applicability of the rule. If Rule 14a-
8(i)(8) is amended as proposed, a company would not be permitted to
exclude a shareholder proposal that would amend, or that requests an
amendment to, a company's governing documents to address shareholder
nomination procedures or disclosures related to shareholder director
nominations. It is reasonable to expect that at least some shareholders
will submit this type of proposal--shareholder groups may be most
likely to attempt to take this action when they perceive that the board
does not currently represent their interests. Even if these proposals
are no longer excludable pursuant to Rule 14a-8(i)(8), companies may
submit a no-action request to exclude these shareholder proposals from
the proxy statement pursuant to other procedural or substantive bases
for exclusion. In contrast, we believe that applicability of proposed
Rule 14a-11 is not likely to be affected by future actions of
companies, because it is our understanding that under existing state
laws companies generally may not prohibit shareholders from nominating
directors.\339\
---------------------------------------------------------------------------

    \339\ We are not aware of any state laws that do so, but we seek
comments on whether states currently have any prohibitions on
shareholders' right to nominate directors, and whether, to the
extent such a right is not explicitly allowed, shareholders are
presumed to have nomination rights.
---------------------------------------------------------------------------

    Future actions of the states also could affect the applicability of
the proposed amendments. Proposed Rule 14a-11, for instance, would not
apply to companies incorporated in states that prohibit nominations of
directors by shareholders or permit companies to prohibit such
nominations and where the company's governing documents do so.
Additionally, the proposed rule requires that the nominee's board
candidacy and membership be consistent with state law. Under Rule 14a-
8, shareholder proposals must be proper subjects for action by
shareholders under state law. States may have incentives to affect the
director nomination process, and these incentives may lead them to
consider changes that could affect the availability of proposed Rule
14a-11 or Rule 14a-8. To the extent that states change their laws, for
example, to prohibit the nomination of directors by shareholders,
proposed Rule 14a-11 and Rule 14a-8 would apply less broadly.
    The application of the term ``changing control'' affects the
shareholders that may rely on the proposed amendments to require
disclosure of their board nominees. The certification by the nominating
shareholder or group on Schedule 14N that it does not hold the
securities it owns in the company with the purpose or effect of
changing control of the company will limit the shareholders that can
use the procedure in proposed Rule 14a-11. Whether this requirement
applies to a nominating shareholder or group will depend, however, on
the facts and circumstances of each nominating shareholder or group. It
is certainly not the Commission's intent that this requirement would
restrict shareholders from using the new rule merely because it is
nominating directors pursuant to the new rule. Nevertheless, other
factors in addition to the nomination may support a finding of control.
    The economic effects of the proposed rulemaking also are affected
by the requirement that shareholders cannot nominate more than a
maximum of one director or 25% of the existing board. In addition to
this direct requirement, the cap on shareholder nominees may have
additional, indirect implications for the economic effects of proposed
Rule 14a-11. First, the number of shareholder nominees that can be
included in the company's proxy materials overall is limited. If one
shareholder or group nominates the maximum allowable number of
candidates, any other shareholder's or group's nominees are not
required to be disclosed in the same proxy statement. Second, if the
maximum allowable number of existing shareholder nominees is currently
in place on the board, additional shareholder nominees are not required
to be disclosed in the proxy statement. Third, boards seeking to limit
the effect of shareholder nominated directors under the proposed rule
may, in some instances, choose to expand the board size to dilute, to
an extent, those directors.\340\
---------------------------------------------------------------------------

    \340\ As an example, a board of eight with two new shareholder-
nominated directors, may expand to up to 11, diluting the influence
of the shareholder-nominated directors without expanding the number
of director slots for which they must place shareholder-nominated
directors in the proxy statement because the proposed 25% limits in
proposed Rule 14a-11 would include a provision allowing companies to
round down the number of directors.
---------------------------------------------------------------------------

    Below we consider the benefits and costs of these economic effects
of the proposed amendments.

B. Benefits

    We anticipate that the proposals, where applicable, would result in
(1) a reduction in the cost to shareholders of soliciting votes in
support of a nominated candidate for election to the board of
directors; (2) improved disclosure of shareholder nominated director
candidates; (3) potential improved board performance; and (4) enhanced
ability for shareholders and companies to adopt their preferred
shareholder nomination procedures.

1. Reduction in Costs Related to Shareholder Nominations
    Generally, a shareholder who attempts to nominate directors must
conduct a proxy contest in which the shareholder is responsible for
collecting information, preparing proxy materials with required
disclosures concerning the director nomination, and mailing the proxy
materials to each shareholder solicited. A shareholder conducting a
proxy contest incurs large costs involved with preparing a proxy
statement and soliciting on behalf of his or her nominee.\341\ The
costs can make it prohibitively expensive for shareholders to exercise
their state law rights to nominate and elect directors. In addition,
collective action concerns may discourage any one shareholder or group
from assuming such costs for the benefit of other shareholders.\342\
---------------------------------------------------------------------------

    \341\ As noted in footnote 303, above, in 2008 there were at
least 32 contested elections.
    \342\ See, e.g., Lynn A. Stout, The Mythical Benefit of
Shareholder Control, 93 Va. L. Rev. 789, 789 (2007) (``In a public
company with widely dispersed share ownership, it is difficult and
expensive for shareholders to overcome obstacles to collective
action and wage a proxy battle to oust an incumbent board.''),
available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=978775.
---------------------------------------------------------------------------

    Proposed new Rule 14a-11 would reduce both the direct and indirect
costs of the proxy solicitation process. In particular, proposed new
Rule 14a-11 would allow shareholders to avoid the direct costs of
conducting a proxy contest and would mitigate collective action and
free rider concerns that otherwise may deter many shareholders from
engaging in a traditional proxy contest. In regard to the latter, the
proposed rule changes would likely ameliorate the need for collective
action among shareholders, because qualifying shareholders will have
direct access to a company's proxy materials to more effectively
nominate directors. To the extent that shareholders substitute use of
Rule 14a-11 for engaging in traditional election contests, the proposal
could also help companies avoid potential disruptions and the diversion
of resources resulting from traditional proxy contests that might take
place in the absence of the proposed amendments. Because the level of
this benefit is affected by the extent to which shareholders make such
substitutions, it is also checked by the extent that use of proposed
Rule 14a-11 is not a perfect substitute for traditional election
contests. For example, the proposed rule restricts the number of
shareholder director nominees that a company would be required to
include in its proxy materials and the proposed rule would be available
only to shareholders that do not hold the securities in the company
with the purpose of, or with the effect of, changing control of the
company. These elements of the proposed rule impose restrictions that
are not present in a traditional proxy contest. Proxy contests also
would still be available where shareholders have a control intent.
    According to a study of proxy contests conducted during 2003, 2004,
and 2005, the average cost to a soliciting shareholder of a proxy
contest is $368,000.\343\ The costs included those associated with
proxy advisors and solicitors, processing fees, legal fees, public
relations, advertising, and printing and mailing.\344\ Approximately
95% of the cost was unrelated to printing and postage.\345\ The cost of
printing and postage averaged approximately $18,000.\346\ Based on this
information, we estimate that a shareholder using proposed Rule 14a-11
to submit a nominee or nominees for director to be included in a
company's proxy statement will save at least $18,000 on average and may
save more as a result of being able to use the company's proxy
materials to solicit other shareholders. The nominating shareholder or
group may or may not engage in public relations and advertising, or
engage proxy solicitors, therefore, the extent of any cost savings may
be greater.
---------------------------------------------------------------------------

    \343\ See comment letter from Automatic Data Processing, Inc.
(April 20, 2006) on File No. S7-10-05.
    \344\ See id.
    \345\ See id.
    \346\ See id.
---------------------------------------------------------------------------

    The benefits of this reduction in costs also may be enhanced to the
extent that companies' governing documents are modified to allow
inclusion of additional shareholder nominees for director in company
proxy materials. The instances of such changes in provisions in
governing documents may increase as a result of the proposed amendment
to Rule 14a-8(i)(8) to preclude companies from excluding proposals that
would amend, or that request an amendment to, a company's governing
documents regarding nomination procedures or disclosures related to
shareholder nominations, provided the proposal does not conflict with
proposed Rule 14a-11.
2. Improved Disclosure of Shareholder Nominated Director Candidates
    The proposed new disclosure requirements in Rules 14a-11, 14a-18,
and 14n-1 would require additional information to be provided on
Schedule 14N, including certifications by shareholders who submit a
nominee under proposed Rule 14a-11 about the nominee's independence,
and disclosure of the information similar to that currently required in
a proxy contest regarding the nominating shareholder and nominee.
Proposed Rules 14a-19 and 14n-1 would require similar disclosures when
a shareholder uses an applicable state law provision or company's
governing documents to include shareholder nominees for director in the
company's proxy materials. The information provided by such
certifications and disclosures would help provide transparency to
shareholders in voting on shareholder nominees for director and
therefore may lead to better informed voting decisions. The information
also will provide consistent and comparable information about
shareholder nominated candidates across companies. With respect to Rule
14a-8(i)(8), companies have been permitted to exclude proposals to
establish procedures to include shareholder nominees in company proxy
materials. The Commission was concerned that allowing such proposals
would result in contested elections without the disclosure that
otherwise would be required in a traditional proxy contest.\347\ The
proposed disclosure requirements are designed to address that concern.
---------------------------------------------------------------------------

    \347\ See Shareholder Proposal Proposing Release (proposing
amendments to Rule 14a-8 to ``make clear that director nominations
made pursuant to [bylaw amendments concerning shareholder
nominations of directors] would be subject to the disclosure
requirements currently applicable to proxy contests'' and noting
that such disclosure is of ``great importance'' to an informed
voting decision by shareholders).
---------------------------------------------------------------------------

3. Potential Improved Board Performance and Company Performance
    Both proposed Rule 14a-11 and the amendments to Rule 14a-8(i)(8)
may result in improved company performance, arising from improvements
in board performance. First, both proposals, by increasing the chances
of a shareholder-nominated director to be elected to the board, may
increase the potential for incumbent directors to face closer scrutiny
from outsiders. Faced with this new prospect, incumbent directors may
work more diligently to signal their value to the company through
efforts to improve the performance of the board and, relatedly, the
company. \348\ Company performance

may improve to the extent some directors are replaced by other
directors whose actions are better aligned with the interests of
shareholders.\349\ Even where incumbents are not replaced, the
requirements of the rule can lead to greater accountability on the part
of incumbent directors. The level of board accountability will depend
on the extent to which directors see a close link between their
performance and the prospect of removal.\350\
---------------------------------------------------------------------------

    \348\ The academic literature indicates the benefit to
shareholders of having an independent, active and committed board of
directors. See, e.g., Fitch Ratings, ``Evaluating Corporate
Governance'' (December 12, 2007), available at: http://
www.fitchratings.com/corporate/reports/report_frame.cfm?rpt_
id=363502. Moreover, empirical evidence has indicated that the
ability of significant shareholders to hold corporate managers
accountable for activity that does not benefit investors may reduce
agency costs and increase shareholder value. See, e.g., Brad M.
Barber, ``Monitoring the Monitor: Evaluating CalPERS' Activism''
(November 2006), available at: http://papers.ssrn.com/sol3/
papers.cfm?abstract_id=890321. See also Deutsche Bank, Global
Equity Research, ``Beyond the Numbers: Corporate Governance in
Europe,'' (March 5, 2005).
    \349\ See, e.g., Chris Cernich, et al., ``Effectiveness of
Hybrid Boards,'' IRRC Institute for Corporate Responsibility (May
2009) available at: http://www.irrcinstitute.org/pdf/IRRC_05_09_
EffectiveHybridBoards.pdf (finding that in a study of 120 ``hybrid''
boards--boards formed when activist shareholders, through actual or
threatened proxy contests, were able to elect dissident directors
but not gain control of the entire board--such boards increased
shareholder value at ongoing companies by 19.1% (16.6 percentage
points more than peers) from the contest period through the board's
one-year anniversary).
    \350\ The current proposal, by facilitating a reduction in the
cost of nominating ``outside'' directors, would create a new threat
of removal to incumbent directors, which can bring about increased
accountability that would benefit investors. Economists have put
forth theory and evidence on the link between incentives that are
associated with accountability and performance. See, e.g., Benjamin
E. Hermalin and Michael S. Weisbach, ``Endogenously Chosen Board of
Directors and Their Monitoring of the Board'' 88 American Economic
Review 96 (1998), available at: http://<IP_ADDRESS>/eps/mic/papers/
9602/9602001.ps.gz. Milton Harris and Artur Raviv ``Control of
Corporate Decisions: Shareholders vs. Management'' (May 29, 1998),
available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=965559.
---------------------------------------------------------------------------

    Similarly, the inclusion in company proxy materials of shareholder
nominees for director under proposed Rule 14a-11, or the possibility of
shareholder nominees being included in company proxy materials pursuant
to shareholder-initiated amendments to a company's governing documents
permitted by the proposed amendments to Rule 14a-8, may enhance the
quality of the shareholders' voice and result in a board whose
interests are better aligned with shareholders' interests.\351\
---------------------------------------------------------------------------

    \351\ Published research has reported that when chief executive
officers are more involved in the nomination of independent
directors, stock price reactions to independent director
appointments are significantly lower, and companies appoint fewer
independent directors. See Anil Shivdasani & David Yermack, ``CEO
Involvement in the Selection of New Board Members: An Empirical
Analysis,'' 54 J. Finance 1829 (1999). This evidence is consistent
with the idea that limiting total management control of the
nomination process improves accountability.
---------------------------------------------------------------------------

    Second, the possibility of shareholder nominated candidates being
submitted for inclusion in a company's proxy materials, as well as the
possibility of the shareholder nominee's election, may lead to enhanced
board performance. If the proposed rules are adopted, the
responsiveness of boards may increase in an effort to alleviate
concerns expressed by shareholders on certain matters and thereby avoid
shareholders submitting nominees pursuant to the new rules. The board
may feel a need to be more attentive to the company's operations as a
result of this enhanced accountability to shareholders. In addition,
having a shareholder-nominated director elected to and serving on the
board may increase the transparency in boards' decision-making process,
which would make it easier for shareholders to monitor the board. This
increased monitoring could enhance board performance and ultimately
lead to improved corporate performance.\352\
---------------------------------------------------------------------------

    \352\ One benefit of corporate transparency is that it reduces
information differences between the entities (e.g., the board of
directors and the shareholders), and hence lowers the cost of
trading the firm's securities and the firm's cost of capital. See,
e.g., Diamond, Douglas W. and Robert E. Verrecchia, ``Disclosure,
Liquidity, and the Cost of Capital,'' Journal of Finance, September
1991, 46 (4), 1325-1359. For empirical evidence, see, e.g.,
Christian Leuz and Robert E. Verrecchia, ``The Economic Consequences
of Increased Disclosure,'' Journal of Accounting Research, 2000, 38
(supplement), 91-124.
---------------------------------------------------------------------------

    Third, increasing shareholders' access to company proxy materials
for the inclusion of shareholder nominees for director may result in a
larger pool of qualified director nominees to choose from. To the
extent that a company does not include shareholder nominees for
director in its proxy materials, thereby reducing the pool of qualified
nominees, an opportunity cost may be incurred by the company and thus
the shareholders. Therefore, proposed Rule 14a-11 may reduce the
opportunity costs to companies and shareholders.
4. Enhanced Ability for Shareholders and Companies To Adopt Procedures
    The proposed amendment to Rule 14a-8(i)(8) also may facilitate
shareholders and companies working together to tailor companies'
governing documents to suit the specific interests of the company and
its shareholders. The proposed amendment would allow shareholders to
use Rule 14a-8 to submit proposals that would amend, or that request an
amendment to, a company's governing documents regarding nomination
procedures or disclosures related to shareholder nominations, as long
as the proposal does not conflict with Rule 14a-11. This may provide
shareholders a more effective voice than simply being able to recommend
candidates to the nominating committee or being able to nominate
candidates in person at a shareholder meeting.
    The overall benefit of allowing shareholders to include director
nominees in a company's proxy materials may depend on the extent to
which shareholders choose to exercise their rights and on shareholders'
perception of the merits of the nominees that are advanced by
nominating shareholders.

C. Costs

    We anticipate that the amendments, where applicable, may result in
costs related to (1) potential adverse effects on company and board
performance; (2) potential complexity of the proxy process; and (3)
preparing the required disclosures, printing and mailing, and costs of
additional solicitations.
1. Costs Related to Potential Adverse Effects on Company and Board
Performance
    The proposals would impose some direct costs on the companies that
would be subject to the new rules. These costs would arise from
potential changes to corporate behavior and potential lower board
quality.
    Most, if not all, companies have director nomination procedures.
The proposed changes may lead some companies to incur costs associated
with re-examining those procedures, especially if the company is
subject to, or thinks it likely will be subject to, shareholder
nominated director candidates. Companies accustomed to uncontested
director elections may incur costs of adjusting their practices.\353\
Further, the possibility of contested director elections may adversely
influence corporate behavior. To the extent that incumbent board
members may feel a greater need to respond to shareholders' various
concerns, the board may incur costs in attempting to institute policies
and procedures they believe will address shareholder concerns. It is
possible that the time a board spends on shareholder relations could
reduce the time that it would otherwise spend on strategic and long-
term thinking and overseeing management, which may negatively

affect shareholder value.\354\ These costs are limited by the extent to
which the additional communication results in better decision-making by
the board, as well as shareholders' understanding that the board's time
and other resources are in scarce supply and take these considerations
into account in deciding to nominate directors.
---------------------------------------------------------------------------

    \353\ See, e.g., comment letter on the 2007 Proposals (SEC File
Nos. S7-16-07 and S7-17-07) from the U.S. Chamber of Commerce
(October 2, 2007) (``Chamber 2007'').
    \354\ See, e.g., Stout, footnote 342, above, at 792 (``Perhaps
the most obvious [economic function of board governance] is
promoting more efficient and informed business decisionmaking. It is
difficult and expensive to arrange for thousands of dispersed
shareholders to express their often-differing views on the best way
to run the firm.''); see generally Stephen M. Bainbridge, Director
Primacy and Shareholder Disempowerment, 199 Harv. L. Rev. 1, 25-27
(2006) (discussing how concern for accountability may undermine
decision making discretion and authority). But see Lucian Arye
Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L.
Rev. 833, 883 (2005) (``[M]ere recognition that back-seat driving
might sometimes be counter-productive is hardly sufficient to
mandate general deference to management. Such mandated deference
would follow only if one assumes that shareholders are so irrational
or undisciplined that they cannot be trusted to decide for
themselves whether deference would best serve their interests.'').
See also, comment letter on the 2007 Proposals (SEC File Nos. S7-16-
07 and S7-17-07) from ABA 2007.
---------------------------------------------------------------------------

    In addition, the rule proposals could, in some cases, result in
lower quality boards.\355\ If a shareholder nominee is elected and
disruptions or polarization in boardroom dynamics occur as a result,
the disruptions may delay or impair the board's decision-making
process.\356\ In companies in which boards are already well-
functioning, dissent can be counterproductive and could delay the
board's decision-making process. Such a delay or impairment in the
decision-making process could constitute an indirect economic cost to
shareholder value.
---------------------------------------------------------------------------

    \355\ See, e.g., comment letter on the 2007 Proposals (SEC File
Nos. S7-16-07 and S7-17-07) from Chamber 2007; Stephen M.
Bainbridge, ``A Comment on the SEC Shareholder Access Proposal''
(November 14, 2003) at 17, available at: http://ssrn.com/
abstract=470121 (``The likely effects of electing a shareholder
representative therefore will not be better governance. It will be
an increase in affectional conflict. * * * It will be a reduction in
the trust-based relationships that causes horizontal monitoring
within the board to provide effective constraints on agency
costs.'').
    \356\ See, e.g., comment letter on the 2007 Proposals (SEC File
Nos. S7-16-07 and S7-17-07) from the Society of Corporate
Secretaries & Governance Professionals (October 5, 2007).
---------------------------------------------------------------------------

    Companies may expend more resources on efforts to defeat the
election of shareholder nominees for director. Commenters have drawn
attention to the potential to turn every director election into an
election contest.\357\ This may be the case, for instance, if company
directors determine to spend company resources to defeat shareholder
nominees they believe are not in the best interests of the company (or
for other reasons).\358\ Such a reaction could discourage qualified
board members from running. This potential would be limited by
shareholders' understanding that board dynamics can be important, and
that changing them may not always be beneficial. It also would be
limited to the extent that company directors do not seek to substitute
their judgment for the judgment of the shareholders when the question
is who should comprise the board of directors.\359\ We also have
assumed that boards generally would be cautious in expending resources
to defeat shareholder nominees insofar as incumbent board members
generally are interested in the outcome of elections and in the
corporation's policy in connection with opposing shareholder nominees.
Nevertheless, to the extent that company directors make large
expenditures to defeat shareholder nominees, those expenditures would
represent a cost to shareholders. An additional cost could arise from
the potential placement of directors who have insufficient experience
or capabilities to serve effectively, as some commenters have
suggested.\360\ But to the extent that shareholders understand that
experience and competence are important director qualifications, any
associated costs may be limited.
---------------------------------------------------------------------------

    \357\ See 2003 Summary of Comments and comment letters from ASCS
and McKinnell, BRT.
    \358\ See 2003 Summary of Comments; see also comment letters
from ABA; Charlotte M. Bahin, ACB; The Allstate Corporation
(December 23, 2003) (``Allstate''); Ashland; Richard H. Ayers
(November 18, 2003) (``Ayers''); Callaway Golf Company (December 22,
2003) (``Callaway''); Caterpillar, Inc. (December 17, 2003)
(``Caterpillar''); Cigna Corporation (January 2, 2004) (``Cigna'');
ConocoPhillips (October 3, 2003) (``ConocoPhillips''); Cummins, Inc.
(November 23, 2003) (``Cummins''); Debevoise & Plimpton (December
17, 2003); Exelon Corporation (December 22, 2003) (``Exelon'');
FirstEnergy Corp. (December 10, 2003) (``FirstEnergy''); Ganske,
Kelley & Profusek; General Mills (December 19, 2003); Roger L. Howe
(November 26, 2003); Reed Hundt (December 16, 2003); International
Paper (December 22, 2003); Letter Type D (representing 8 individuals
or entities); Letter Type H (representing 7 individuals or
entities); Letter Type N (representing 38 individuals or entities);
Letter Type Q (representing 4 individuals or entities); McDATA
Corporation (December 22, 2003) (``McDATA''); Pfizer, Inc. (December
11, 2003) (``Pfizer''); MDU Resources (December 22, 2003) (``MDU'');
Malcolm S. Morris (November 6, 2003); National Association of
Corporate Directors (March 26, 2004) (``NACD''); Office Depot, Inc.
(December 22, 2003); Kerr-McGee Corporation (December 22, 2003);
Progress Energy (December 22, 2003); Tribune Company (December 18,
2003); and Wachtell.
    \359\ Cf. Blasius Indus. v. Atlas Corp., 564 A.2d 651, 663 (Del.
Ch. 1988) (stating that ``[although the] premise [that the board
knows better than do the shareholders what is in the corporation's
best interest] is no doubt true for any number of matters, it is
irrelevant (except insofar as the shareholders wish to be guided by
the board's recommendation) when the question is who should comprise
the board of directors.'').
    \360\ See, e.g., comment letter from Exelon Corporation
(December 22, 2003) on the 2003 Proposal.
---------------------------------------------------------------------------

    Finally, the proposals could introduce a cost to shareholders to
the extent that the nomination procedure is used by shareholders to
promote an agenda that conflicts with other shareholders' interests.
For example, it would be possible for an investor to try to maximize
his private gains through board decisions at the expense of other
shareholders.\361\ This cost, however, is limited to the extent these
nominees would be required to make certain disclosures designed to
elicit their interests and relationships, and must ultimately be
elected by the shareholders.\362\
---------------------------------------------------------------------------

    \361\ See, e.g, Stout, footnote 342 above, at 794 (``[B]y making
it easier for large shareholders in public firms to threaten
directors, a more effective shareholder franchise might increase the
risk of intershareholder ``rent-seeking'' in public companies.'').
    \362\ See, e.g., Bebchuk, note 354 above, at 883 (arguing that
proposals by special interest shareholders are generally unlikely to
be adopted by the majority).
---------------------------------------------------------------------------

2. Costs Related to Potential Complexity of Proxy Process
    Under the proposed amendments, the process of determining which
shareholder director nominee will be on the form of proxy and the
limitations on the number of shareholder-nominated directors to appear
in the company's proxy materials and eventually serve on the board may
create a degree of complexity. If several shareholders or groups desire
(and qualify) to nominate the maximum number of directors they are
allowed to place in the company's proxy materials, only the first
shareholder or group to submit a Schedule 14N will succeed.
Additionally, under proposed Rule 14a-11, if the maximum allowable
number of shareholder nominees is currently serving on the board, a
company would not be required to include additional shareholder
nominees in the company's proxy materials.
    Under the proposed amendments to Rule 14a-8, shareholders would
need to wait for two proxy seasons to utilize the particular procedures
and disclosures adopted through a shareholder proposal under Rule 14a-
8--the first season to establish a shareholder director nomination
procedure and the second season to nominate and elect directors.
    These sources of complexity and any uncertainty that may arise in
implementing the proposed amendments could result in costs to
companies, to shareholders seeking to nominate directors, and to
shareholder director nominees. For example, both

companies and shareholders could incur costs to seek legal advice in
connection with shareholder nominations submitted pursuant to Rule 14a-
11, the inclusion of shareholder nominees in company proxy materials,
and the process for submission of a notice of intent to exclude a
nominee or nominees included in the rule.\363\ A company that receives
a shareholder nomination for director has no obligation to make a
submission under Rule 14a-11 unless it intends to exclude the nominee
from its proxy materials. Companies and shareholders also could incur
costs to seek legal advice in connection with shareholder proposals
submitted pursuant to Rule 14a-8 and the notice of intent to exclude
process related to it. A company that receives a shareholder proposal
has no obligation to make a submission under Rule 14a-8 unless it
intends to exclude the proposal from its proxy materials. To the extent
disputes on whether to include particular nominees or proposals are not
resolved internally, companies and/or shareholders might seek recourse
in courts, which would increase costs.
---------------------------------------------------------------------------

    \363\ For example, the comment letter from ASCS on the 2003
Proposal estimated based on survey results that the cost of outside
counsel in connection with opposing a shareholder nominee and
supporting the company's nominees for directors would be 59.4 hours
and $44,460.
---------------------------------------------------------------------------

    The proposed amendments to Rule 14a-8 would no longer permit
companies to exclude from their proxy materials proposals that would
amend, or that request an amendment to, a company's governing documents
regarding nomination procedures or disclosures related to shareholder
nominations, provided the proposal does not conflict with proposed Rule
14a-11. Expanding the types of proposals permitted under Rule 14a-8 may
increase the number of shareholder proposals submitted to companies.
This would likely result in increased costs to the company related to
reviewing and processing such proposals to determine matters such as
shareholder eligibility, and whether there is a basis for excluding the
proposal under Rule 14a-8. In this regard, in a comment letter
submitted in connection with the 2003 Proposal, a commenter submitted
information from a survey conducted about the costs associated with
including a shareholder proposal in the company's proxy materials,
estimating that preparation and submission of a notice of intent to
exclude the proposal to the SEC regarding a shareholder proposal would
average 65 hours per proposal.\364\ For purposes of PRA, we estimate
that shareholders will submit approximately 97 proposals regarding
nomination procedures or disclosures related to director nominations to
companies per year. Assuming that 90% of companies prepare and submit a
notice of intent to exclude these proposals, the resulting costs to
companies would result in approximately 4,241 hours and $565,500 for
the services of outside professionals. Alternatively, such costs could
decrease to the extent that proposed Rule 14a-8 provides a clearer
indication of which proposals are excludable.
---------------------------------------------------------------------------

    \364\ See 2003 Summary of Comments; see also letter from
McKinnell, BRT (providing information from surveys conducted of BRT
and ASCS members). See also footnote 311, above.
---------------------------------------------------------------------------

3. Costs Related to Preparing Disclosure, Printing and Mailing and
Costs of Additional Solicitations
    The proposals may impose additional direct costs on companies and
shareholders subject to the new rules, related to the preparation of
required disclosure, printing and mailing costs and costs of additional
solicitations that may be undertaken as a result of including one or
more shareholder nominees for director in the company proxy materials.
    For purposes of the PRA analysis, we estimate that the disclosure
burden of the proposed amendments to reporting companies (other than
registered investment companies) is 15,652 hours of personnel time and
$2,087,000 for services of outside professionals. We also estimate for
purposes of the PRA analysis that the disclosure burden to shareholders
of the proposed amendments will be 31,865 hours of shareholder time and
$4,758,420 for services of outside professionals. For registered
investment companies, we estimate for purposes of the PRA analysis that
the burden of the proposed amendments will be 5,888 hours of company
time and $785,000 for the services of outside professionals.
    Companies would incur additional printing and mailing costs to
include shareholder nominees in the company's proxy materials pursuant
to Rule 14a-11, an applicable state law provision, or a company's
governing documents as a result of the proposed amendment to Rule 14a-
8(i)(8).\365\ These incremental printing and mailing costs could
include the expense of adding the name and background information of
shareholder nominees for director in their proxy materials as well as
the increased weight of a company's proxy materials. The printing and
mailing costs would increase as the number of shareholder nominees to
be included in the company proxy materials increases. As noted above,
this may result in a decrease in costs to shareholders that would have
to conduct proxy contests in the absence of proposed Rule 14a-11, but
may increase the costs for companies. The increased costs for companies
may not be as much as would otherwise result if that shareholder
engaged in a proxy contest.\366\
---------------------------------------------------------------------------

    \365\ We note that these increased costs may be less for
companies using notice and access. See Internet Availability of
Proxy Materials, Release No. 34-55146 (January 22, 2007) (``Internet
Proxy Availability Release'').
    \366\ One commenter on the 2003 Proposal estimated that a Rule
14a-11 contest would cost a company approximately one-third what a
full proxy contest costs. See comment letter from Bainbridge. Based
on this assumption, this commenter estimated, relying on data from a
late 1980s survey, that the costs of such a contest to a public
company would be $500,000. This commenter also cited data estimating
companies' annual expenditures on Rule 14a-8 shareholder proposals
to be $90 million. While this commenter noted that it is unlikely
that there will be as many Rule 14a-11 election contests as Rule
14a-8 shareholder proposals, the commenter asserted that incumbent
boards are likely to spend considerably more on opposing each Rule
14a-11 contest than on opposing a Rule 14a-8 shareholder proposal.
This commenter estimated that $100 million may be an appropriate
estimate for the lower boundary of the range within which Rule 14a-
11's direct costs will fall. By contrast, another commenter
estimated that under current rules the total cost of proxy contests
for companies would exceed $15 million. See comment letter from
McKinnell, BRT in connection with the 2003 Proposal (estimate was
based on data provided in response to a 2003 survey of members of
the Business Roundtable and the American Society of Corporate
Secretaries).
---------------------------------------------------------------------------

    Companies also would incur printing and mailing costs with respect
to the inclusion of a shareholder proposal related to changes to the
company's governing documents regarding inclusion of shareholder
nominees in company proxy materials. We have two sources of information
estimating such costs. According to the information provided by one
commenter, the average cost to a company to print and mail one
shareholder proposal in its proxy materials is $15,324 and 34
hours.\367\ The responses to a questionnaire that the Commission made
available in 1997 relating to 1998 amendments to Rule 14a-8, however,
suggest such costs to the companies responding averaged $50,000.\368\
As noted above, we believe

that the proposed amendment to Rule 14a-8(i)(8) could result in an
additional 38 shareholder proposals submitted annually.\369\ Based on
this information, for purposes of our analysis, we assume printing and
mailing costs of one shareholder proposal in a company's proxy
materials could be in the range of approximately $15,000 to $50,000.
Assuming each of these proposals were included in company proxy
materials, it could result in a total cost of approximately $570,000 to
$1,900,000 for the affected companies.
---------------------------------------------------------------------------

    \367\ See ASCS letter. We also note that these increased costs
may be less for companies using notice and access. See Internet
Proxy Availability Release.
    \368\ In the adopting release for the amendments to Rule 14a-8
in 1998, we noted that responses to a questionnaire we made
available in February 1997 suggested the average cost spent on
printing costs (plus any directly related costs, such as additional
postage and tabulation expenses) to include shareholder proposals in
company proxy materials was approximately $50,000. The responses
received may have accounted for the printing of more than one
proposal.
    \369\ We estimated that approximately 97 proposals would be
submitted regarding nomination procedures or disclosures related to
nomination procedures, however, our estimate assumed that 59
proposals that otherwise would have been submitted on other
governance topics would instead relate to nomination procedures or
disclosures related to nomination procedures. Assuming the 59
proposals would already be accounted for in companies' costs, we
estimate that 38 additional proposals would be submitted to
companies annually.
---------------------------------------------------------------------------

    The proposed rules also would present direct costs due to
disclosure requirements. For example, companies that determine that
they may exclude a shareholder nominee are required to provide a notice
to the nominating shareholder or group regarding any eligibility or
procedural deficiencies in the nomination and provide to the Commission
notice of the basis for its determination.\370\ Nominating shareholders
or groups and the nominees also would be required to disclose
information about themselves, which may be costly.\371\ Most of this
disclosure will be provided by the nominating shareholder or group in
the notice to the company, which would be filed on new Schedule 14N.
The Schedule 14N also would include information regarding the length of
ownership, certifications, and other information.
---------------------------------------------------------------------------

    \370\ For purposes of the PRA analysis, we estimate these
disclosure requirements would result in 2,633 burden hours of
company time, and $351,000 for services of outside professionals.
    \371\ For purposes of the PRA analysis, we estimate the Schedule
14N disclosure requirements for shareholders submitting nominees
pursuant to Rule 14a-11 or a company's governing documents would
result in a total of 28,565 hours of shareholder time and $3,808,600
for services of outside professionals.
---------------------------------------------------------------------------

    We also anticipate the possibility of increased direct costs
associated with additional solicitations by both companies and
shareholders. Companies may increase solicitations to vote against
shareholder proposals or to vote for their slate of directors.
Shareholders may increase solicitations to vote for shareholder
proposals, to withhold votes for a company's nominees for director, or
to vote for the shareholder nominee or nominees. In addition, companies
may face additional costs for solicitations if shareholders or groups
submit nominees for inclusion in company proxy materials pursuant to
Rule 14a-11, an applicable state law, or a company's governing
documents.

D. Small Business Issuers

    Based on our staff's review of Rule 14a-8 shareholder proposals, it
seems that smaller companies tend to receive relatively fewer
shareholder proposals. Therefore, we assume that the proposed amendment
to the rule would not substantially increase the number of shareholder
proposals to smaller companies and likely would have little impact on
small entities. With respect to proposed Rule 14a-11, there is some
indication that proxy contests may occur disproportionately at smaller
companies.\372\ Accordingly, we assume that proposed Rule 14a-11 is
likely to have a greater effect than the proposed amendments to Rule
14a-8 on smaller companies.\373\
---------------------------------------------------------------------------

    \372\ See, e.g., Bebchuk 2007 Article.
    \373\ For further discussion on the impact of the proposed
amendments on smaller reporting companies, see discussion of Initial
Regulatory Flexibility Act below.
---------------------------------------------------------------------------

E. Request for Comment

    We have identified certain costs and benefits imposed by these
proposals. In addition to the requests for comment throughout the
release on the potential impact of the proposed rules, we specifically
request comment on all aspects of this cost-benefit analysis, including
identification of any additional costs and benefits. We encourage
commenters to identify and supply relevant data concerning the costs
and benefits of the proposed amendments. We also solicit comment on how
the use of electronic proxy materials \374\ may reduce the costs for
companies that would be required to include shareholder nominees or
shareholder proposals, as well as for shareholders that otherwise would
be required to conduct a proxy contest.
---------------------------------------------------------------------------

    \374\ See Internet Proxy Availability Release.
---------------------------------------------------------------------------

    We also request comment on the following specific concerns:
     We solicit quantitative data to assist our assessment of
the benefits and costs of enhanced shareholder access to company proxy
materials. Will proposed Exchange Act Rule 14a-11 reduce shareholders'
cost of nominating directors?
     We solicit quantitative data on how often shareholders
meeting the proposed Rule 14a-11 thresholds would invoke the rule to
propose nominees.
     We solicit quantitative data on the potential increases,
if any, of shareholder proposals under Exchange Act Rule 14a-8(i)(8) as
a result of these proposed rules.
     We solicit quantitative data on the incremental cost of
mailing and printing company proxies that may be longer due to the
inclusion of shareholder nominees. How does this compare with the cost
of a stand-alone printing of the additional material, such as would be
borne by a shareholder engaged in a proxy contest under the current
rules?
     We solicit quantitative data on the time and cost spent by
shareholders nominating directors through a proxy contest under the
current rules.

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

    Section 23(a)(2) of the Exchange Act \375\ requires us, when
adopting rules under the Exchange Act, to consider the impact that any
new rule would have on competition. In addition, Section 23(a)(2)
prohibits us 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 3(f) of the Exchange Act \376\ and Section
2(c) of the Investment Company Act \377\ require us, when engaging in
rulemaking that requires us to consider or determine whether an action
is necessary or appropriate in the public interest, to consider, in
addition to the protection of investors, whether the action will
promote efficiency, competition and capital formation.
---------------------------------------------------------------------------

    \375\ 15 U.S.C. 78w(a)(2).
    \376\ 15 U.S.C. 78c(f).
    \377\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The proposed rules are intended to remove impediments to the
exercise of shareholders' rights to nominate and elect directors and
provide shareholders with information about nominating shareholders and
their nominees for director. The proposed rules, if adopted, would
establish a process for inclusion of shareholder nominees for director
in company proxy materials pursuant to Rule 14a-11 and disclosure
regarding the nominating shareholder and nominees submitted pursuant to
Rule 14a-11. The proposed rules also would provide an avenue for
shareholders to submit proposals that would amend, or that request an
amendment to, a company's governing documents regarding nomination
procedures or disclosures related to shareholder

nominations. In addition, the proposed rules would require disclosure
of information regarding nominating shareholders or groups and any
nominees submitted pursuant to an applicable state law provision or a
company's governing documents, which would provide shareholders a
better informed basis for deciding how to vote for nominees for
election to the board of directors. Enabling shareholders to submit
shareholder proposals that would amend, or that request an amendment
to, a company's governing documents regarding nomination procedures or
disclosures related to shareholder nominations should better reflect
shareholders' preferences regarding shareholder director nomination
procedures and disclosure. We expect the proposed rules to promote the
efficiency of the exercise of shareholders' rights to nominate and
elect directors.
    We expect proposed Rule 14a-11 would increase efficiency because a
shareholder will not have to engage in a formal proxy contest if the
shareholder only wants to nominate a small number of directors and is
not seeking control of a company's board. We also note that the
proposal would increase efficiency because all or most nominees will be
included on one proxy card with clear disclosure for shareholders to
evaluate when deciding whether and how to grant authority to vote their
shares by proxy, rather than having to evaluate more than one set of
proxy materials sent by a company and an insurgent shareholder.
    If a company is required to include shareholder nominees in its
proxy materials, competition for board seats could increase, which
might encourage or discourage qualified candidates from running. To the
extent that this would discourage less-qualified candidates from
running, or alternatively, would increase the quality of board members
due to increased competition, investors may be more or less willing to
invest in companies that receive shareholder nominees pursuant to the
proposed rules. The proposed rules should improve and streamline
information flow between investors and with the company, which we
believe would give more direct effect to shareholder preferences
regarding shareholder nominations for director.
    Shareholders and the company's relationship with shareholders may
benefit from the board devoting additional time to considering
shareholder concerns; however, one possible adverse impact on
efficiency, competition, and capital formation is that boards may
devote less time to fulfilling their other responsibilities as a
result. However, we believe that investors may be able to evaluate a
company's board of directors more effectively and make more informed
investment decisions as a result of the proposed rules. We also believe
that these developments may have some positive impact on the efficiency
of markets and capital formation because it may help to increase
investor confidence during this time of uncertainty in our markets.
    We request comment on whether the proposals, if adopted, would
promote efficiency, competition and capital formation or have an impact
or burden on competition. Commenters are requested to provide empirical
data and other factual support for their view, if possible.

VII. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Act Analysis has been prepared
in accordance with 5 U.S.C. 603. It relates to proposed revisions to
the rules and forms under the Exchange Act and the Investment Company
Act that would, under certain limited circumstances, require companies
to include in their proxy materials shareholder nominees for election
as director. It also relates to the proposed revisions to the rules and
forms that would prohibit companies from excluding shareholder
proposals that would amend, or that request an amendment to, a
company's governing documents regarding nomination procedures or
disclosures related to shareholder nominations. The proposals are
intended to improve the ability of shareholders to receive consistent
and comparable disclosure regarding, and participate meaningfully in,
the nomination and election of directors.

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

    Today's proposals include features from the proposals on this topic
in 2003 and 2007, and reflect much of what we learned through the
public comment that the Commission has received concerning this topic
over the past six years. The proposals are intended to remove
impediments to shareholders' ability to participate meaningfully in the
nomination and election of directors, to promote the exercise of
shareholders' rights to nominate and elect directors, to open up
communication between a company and its shareholders, and to provide
shareholders with better information to make an informed voting
decision by requiring disclosure about a nominating shareholder or
group, as well as nominees for director submitted by a nominating
shareholder or group. In particular, the proposed rules would create a
process for long-term shareholders, or groups of long-term
shareholders, with significant holdings to have their nominees for
director included in company proxy materials. In addition, the proposed
amendment to Rule 14a-8(i)(8) would narrow the exclusion and would not
permit companies to exclude shareholder proposals that would amend, or
that request an amendment to, a company's governing documents regarding
nomination procedures or disclosures related to shareholder
nominations, provided the proposal does not conflict with proposed Rule
14a-11, when certain conditions are met.
    The rule proposals are intended to achieve the stated objectives
without unduly burdening companies. We seek to limit the cost and
burden on companies by limiting proposed Rule 14a-11 to nominations by
shareholders who have maintained a significant continuous beneficial
ownership in the company for at least one year at the time the notice
of nomination is submitted. These limitations would lower the cost to
companies while still improving disclosure in the company's proxy
materials and thereby improve shareholders' ability to participate
meaningfully in the nomination and election of directors. This
increased participation may improve corporate governance by increasing
director accountability and responsiveness and aligning the interests
of the board and shareholders, thereby giving investors greater
confidence that the board is serving the interests of shareholders.
This may, in turn, enhance the value of shareholders' investments.

B. Legal Basis

    We are proposing amendments to the forms and rules under the
authority set forth in Sections 3(b), 13, 14, 15, 23(a) and 36 of the
Securities Exchange Act of 1934, as amended, and Sections 10, 20(a) and
38 of the Investment Company Act of 1940, as amended.

C. Small Entities Subject to the Proposed Rules

    The Regulatory Flexibility Act defines ``small entity'' to mean
``small business,'' ``small organization,'' or ``small governmental
jurisdiction.'' \378\ The Commission's rules define ``small business''
and ``small organization'' for purposes of the Regulatory Flexibility
Act for each of the types of entities regulated by the Commission.\379\
A

``small business'' and ``small organization,'' when used with reference
to an issuer other than an investment company, generally means an
issuer with total assets of $5 million as a company with total assets
of $5 million or less on the last day of its most recent fiscal year.
We estimate that there are approximately 1,229 issuers that may be
considered small entities.\380\
---------------------------------------------------------------------------

    \378\ 5 U.S.C. 601(6).
    \379\ Exchange Act Rule 0-10 [17 CFR 240.0-10].
    \380\ The estimated number of reporting small entities is based
on 2008 data, including the Commission's EDGAR database and Thomson
Financial's Worldscope database.
---------------------------------------------------------------------------

    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.\381\ We estimate that approximately 178 registered investment
companies and 34 business development companies meet this definition.
The proposed rules may affect each of the approximately 212 issuers
that may be considered small entities, to the extent companies and
shareholders take advantage of the proposed rules.
---------------------------------------------------------------------------

    \381\ Rule 0-10 under the Investment Company Act [17 CFR 270.0-
10] contains the applicable definition.
---------------------------------------------------------------------------

    We request comment on the number of small entities that would be
impacted by our proposals, including any empirical data.

D. Reporting, Recordkeeping and Other Compliance Requirements

    The proposals would, under certain circumstances, require all
companies subject to the federal proxy rules, including small entities,
to permit certain shareholders to submit nominees for inclusion in the
company's proxy materials. A company would be required to include
shareholder nominees for director in its proxy materials unless state
law or a company's governing documents prohibits shareholders from
nominating directors. Nominating shareholders, including nominating
shareholders that are small entities, would be required to provide
disclosure in proposed Schedule 14N about the nominating shareholders
and the nominee, and companies would be required to include the
disclosure provided by the nominating shareholder or group in the
company's proxy materials.
    The proposals also would permit shareholders to submit proposals
that would amend, or that request an amendment to, a company's
governing documents regarding nomination procedures or disclosures
related to shareholder nominations, provided the proposal does not
conflict with proposed Rule 14a-11. A nominating shareholder or group,
including a nominating shareholder or group that is a small entity,
using an applicable state law provision or a provision in the company's
governing documents to submit a nomination for director would be
required to provide disclosure in proposed Schedule 14N about the
nominating shareholder or group and the nominee. Companies also would
be required to include disclosure about the nominating shareholder or
group and the nominee in the company's proxy materials when a
shareholder submits a nomination for director pursuant to an applicable
state law provision or a company's governing documents.
    Based on our staff's review of Rule 14a-8 shareholder proposals, it
seems that smaller companies tend to receive relatively fewer
shareholder proposals. Therefore, we assume that the proposed amendment
to the rule would not substantially increase the number of shareholder
proposals to smaller companies and likely would have little impact on
small entities. With respect to proposed Rule 14a-11, there is some
indication that proxy contests may occur disproportionately at smaller
companies.\382\ Accordingly, we assume that proposed Rule 14a-11 is
likely to have a greater effect than the proposed amendments to Rule
14a-8 on smaller companies.
---------------------------------------------------------------------------

    \382\ See, e.g., Bebchuk 2007 Article.
---------------------------------------------------------------------------

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 the
rule's compliance and reporting requirements for small entities;
     the use of performance 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 while minimizing the impact on small entities. As
one possible approach, we considered requiring companies to include
shareholder nominees for director in a company's proxy materials upon
the occurrence of certain events so that the rule would apply only in
situations where there was a demonstrated failure in the proxy process
related to director nominations and elections in 2003. We have not
taken this approach in the current proposal because we believe that it
is important to remove impediments to shareholders' exercise of their
right to nominate directors at all companies subject to the proxy rules
rather than only at those companies where specified events have
occurred. Alternatively, we considered changes to Rule 14a-8(i)(8) that
would enable shareholders to have their proposals for bylaw amendments
regarding the procedures for nominating directors included in the
company's proxy materials provided the shareholder submitting the
proposal made certain disclosures and beneficially owned more than 5%
of the company's shares in 2007. We did not take this approach because
we seek to provide shareholders with a more immediate and direct means
of effecting change in the boards of directors of the companies in
which they invest. For these reasons, as well as the reasons discussed
throughout the release, we believe that today's proposals may better
achieve the Commission's objectives.
    We have sought comment on whether the proposed tiered approach--
under which shareholders or shareholder groups at larger companies
would have to satisfy a lower ownership threshold than shareholders or
shareholder groups at smaller companies in order to rely on Rule 14a-
11--is appropriate and workable. The effect of the tiered approach may
make it less likely that shareholders at smaller companies will
nominate directors under Rule 14a-11. We are not proposing different
disclosure standards based on the size of the issuer. We believe the
proposed uniform disclosure will be helpful to voting decisions on
shareholder nominated directors at issuers of all sizes. However, we
seek comment on whether the disclosure can be tiered based on the size
of the company and still provide useful information to shareholders. We
also have included requests for comment regarding the appropriate
ownership threshold for non-accelerated filers. As noted, based on our
staff's review of Rule 14a-8 shareholder proposals, it seems that
smaller companies tend to receive

relatively fewer shareholder proposals. Therefore, we assume that the
proposed rule would not substantially increase the number of
shareholder proposals to smaller companies and likely would have little
impact on small entities. With respect to proposed Rule 14a-11, there
is some indication that proxy contests may occur disproportionately at
smaller companies.\383\ Accordingly, we assume that proposed Rule 14a-
11 is likely to have a greater effect than the proposed amendments to
Rule 14a-8 on smaller companies.
---------------------------------------------------------------------------

    \383\ See id.
---------------------------------------------------------------------------

    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 design standards to
the extent that we believe compliance with particular requirements are
necessary. However, to the extent possible, we are proposing rules that
impose performance standards. For example, under Rule 14a-11,
shareholder nominees can provide a 500 word statement of support
concerning their nominee or nominees for director, but we do not
specify the content. Similarly, shareholders can propose any nomination
procedures or disclosures related to shareholder nominations under the
proposed amendment to Rule 14a-8(i)(8), provided they do not conflict
with Rule 14a-11. By allowing shareholders to submit proposals that
would amend, or that request an amendment to, a company's governing
documents regarding nomination procedures or disclosures related to
shareholder nominations, we seek to provide shareholders and companies
with a measure of flexibility to tailor the means through which they
can comply with the standards.
    We request comment on whether separate requirements for small
entities would be appropriate. The purpose of the proposed rules is to
remove impediments to the exercise of shareholders' rights to nominate
and elect directors to company boards of directors and thereby enable
shareholders to participate meaningfully in the nomination and election
of directors at the companies in which they invest. Exempting small
entities would not appear to be consistent with these goals. An
exemption or separate requirements for small entities may not address
the impediments to the exercise of shareholders' rights to nominate and
elect directors to company boards of directors that may affect small
entities as much as they would affect large companies. The
establishment of any differing compliance or reporting requirements or
timetables or any exemptions for smaller reporting companies may not be
in keeping with the objective 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:
     How our rules could achieve their objective while lowering
any burden on smaller entities;
     The number of small entities that may be affected by the
proposals;
     The existence or nature of the potential impact of the
proposals on small entities discussed in the analysis; and
     How to quantify the impact of the proposed rules.
    We solicit comments as to whether the proposed changes could have
an effect that we have not considered. 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 1996,\384\ a rule is ``major'' if it has resulted, or is likely
to result in:
---------------------------------------------------------------------------

    \384\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the 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 our proposals would be a ``major
rule'' for purposes of SBREFA. 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 Basis and Text of Proposed Amendments

    The amendments are proposed pursuant to Sections 3(b), 13, 14, 15,
23(a) and 36 of the Securities Exchange Act of 1934, as amended, and
Sections 10, 20(a) and 38 of the Investment Company Act of 1940, as
amended.

List of Subjects

17 CFR Part 200

    Freedom of information, Reporting and recordkeeping requirements,
Securities.

17 CFR Parts 232, 240, and 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements,
Securities.
    In accordance with the foregoing, the Securities and Exchange
Commission proposes to amend Title 17, chapter II of the Code of
Federal Regulations as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS

Subpart D--Information and Requests

    1. The authority citation for part 200, subpart D, continues to
read, in part, as follows:

    Authority:  5 U.S.C. 552, as amended, 15 U.S.C. 77f(d), 77s,
77ggg(a), 77sss, 78m(F)(3), 78w, 80a-37, 80a-44(a), 80a-44(b), 80b-
10(a), and 80b-11.
* * * * *
    2. Add Sec.  200.82a to read as follows:

Sec.  200.82a  Public availability of materials filed pursuant to Sec.
240.14a-11(f) and related materials.

    Materials filed with the Commission pursuant to Rule 14a-11(f)
under the Securities Exchange Act of 1934 (17 CFR 240.14a-11(f)),
written communications related thereto received from any person, and
each related no-action letter or other written communication issued by
the staff of the Commission, shall be made available to any person upon
request for inspection or copying.

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS

    3. The authority citation for part 232 continues to read, in part,
as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77z-3,
77sss(a), 78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 80a-6(c),
80a-8, 80a-29, 80a-30, 80a-37, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *
    4. Amend Sec.  232.13 by revising paragraph (a)(4) introductory
text (the note remains unchanged) to read as follows:

Sec.  232.13  Date of filing; adjustment of filing date.

    (a) * * *
    (4) Notwithstanding paragraph (a)(2) of this section, a Form 3, 4
or 5 (Sec. Sec.  249.103, 249.104, and 249.105 of this chapter) or a
Schedule 14N (Sec.  240.14n-101 of this chapter) submitted by direct
transmission on or before 10 p.m. Eastern Standard Time or Eastern
Daylight Saving Time, whichever is currently in effect, shall be deemed
filed on the same business day.
* * * * *

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

    5. 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.
* * * * *
    6. Amend Sec.  240.13a-11 by revising paragraph (b) to read as
follows:

Sec.  240.13a-11  Current reports on Form 8-K (Sec.  249.308 of this
chapter).

* * * * *
    (b) This section shall not apply to foreign governments, foreign
private issuers required to make reports on Form 6-K (17 CFR 249.306)
pursuant to Sec.  240.13a-16, issuers of American Depositary Receipts
for securities of any foreign issuer, or investment companies required
to file reports pursuant to Sec.  270.30b1-1 of this chapter under the
Investment Company Act of 1940, except where such an investment company
is required to file:
    (1) Notice of a blackout period pursuant to Sec.  245.104 of this
chapter;
    (2) Disclosure pursuant to Instruction 2 to Sec.  240.14a-11(a) of
the date by which a shareholder or shareholder group must submit the
notice required pursuant to Sec.  240.14a-11(c); or
    (3) Disclosure pursuant to Instruction 3 to Sec.  240.14a-11(b) of
information concerning net assets, outstanding shares, and voting.
* * * * *
    7. Amend Sec.  240.13d-1 by revising paragraphs (b)(1)(i) and
(c)(1) and adding Instruction 1 to paragraph (b)(1) and Instruction 1
to paragraph (c)(1) to read as follows:

Sec.  240.13d-1  Filing of Schedules 13D and 13G.

* * * * *
    (b)(1) * * *
    (i) Such person has acquired such securities in the ordinary course
of his business and not with the purpose nor with the effect of
changing or influencing the control of the issuer, nor in connection
with or as a participant in any transaction having such purpose or
effect, including any transaction subject to Sec.  240.13d-3(b), other
than activities solely in connection with a nomination under Sec.
240.14a-11; and
* * * * *
    Instruction 1 to paragraph (b)(1). For purposes of paragraph
(b)(1)(i) of this section, the exception for activities solely in
connection with a nomination under Sec.  240.14a-11 will not be
available after the election of a director nominated pursuant to Sec.
240.14a-11.
* * * * *
    (c) * * *
    (1) Has not acquired the securities with any purpose, or with the
effect, of changing or influencing the control of the issuer, or in
connection with or as a participant in any transaction having that
purpose or effect, including any transaction subject to Sec.  240.13d-
3(b), other than activities solely in connection with a nomination
under Sec.  240.14a-11;
* * * * *
    Instruction 1 to paragraph (c)(1). For purposes of paragraph (c)(1)
of this section, the exception for activities solely in connection with
a nomination under Sec.  240.14a-11 will not be available after the
election of a director nominated pursuant to Sec.  240.14a-11.
* * * * *
    8. Amend Sec.  240.14a-2 by:
    a. Revising paragraph (b) introductory text; and
    b. Adding paragraphs (b)(7) and (b)(8).
    The revision and additions read as follows:

Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.
240.14a-15 apply.

* * * * *
    (b) Sections 240.14a-3 to 240.14a-6 (other than paragraphs 14a-6(g)
and 14a-6(p)), Sec.  240.14a-8, Sec.  240.14a-10, and Sec. Sec.
240.14a-12 to 240.14a-15 do not apply to the following:
* * * * *
    (7) Any solicitation by or on behalf of any shareholder in
connection with the formation of a nominating shareholder group
pursuant to Sec.  240.14a-11, provided that:
    (i) Each written communication includes no more than:
    (A) A statement of each soliciting shareholder's intent to form a
nominating shareholder group in order to nominate a director under
Sec.  240.14a-11;
    (B) Identification of, and a brief statement regarding, the
potential nominee or nominees or, where no nominee or nominees have
been identified, the characteristics of the nominee or nominees that
the shareholder intends to nominate, if any;
    (C) The percentage of securities that each soliciting shareholder
beneficially owns or the aggregate percentage owned by any group to
which the shareholder belongs; and
    (D) The means by which shareholders may contact the soliciting
party.
    (ii) Any soliciting material published, sent or given to
shareholders in accordance with this paragraph must be filed by the
shareholder with the Commission, under the registrant's Exchange Act
file number, or, in the case of a registrant that is an investment
company registered under the Investment Company Act of 1940, under the
registrant's Investment Company Act file number, no later than the date
the material is first published, sent or given to shareholders. Three
copies of the material must at the same time be filed with, or mailed
for filing to, each national securities exchange upon which any class
of securities of the registrant is listed and registered. The
soliciting material must include a cover page in the form set forth in
Schedule 14A (Sec.  240.14a-101) and the appropriate box on the cover
page must be marked.
    (8) Any written solicitation by or on behalf of a nominating
shareholder or nominating shareholder group in support of a nominee
placed on the registrant's form of proxy in accordance with Sec.
240.14a-11 or against the registrant's nominee or nominees, provided
that:
    (i) The soliciting party does not, at any time during such
solicitation, seek directly or indirectly, either on its own or
another's behalf, the power to act as proxy for a shareholder and does
not furnish or otherwise request, or act on behalf of a person who
furnishes or requests, a form of revocation, abstention, consent or
authorization;
    (ii) Each written communication includes:
    (A) The identity of each nominating shareholder and a description
of his or her direct or indirect interests, by security holdings or
otherwise;
    (B) A prominent legend in clear, plain language advising
shareholders that a shareholder nominee is or may be included in the
registrant's proxy statement and to read the registrant's proxy
statement when it becomes available because it includes important
information (or, if the registrant's proxy statement is publicly
available, advising shareholders of that fact and

encouraging shareholders to read the registrant's proxy statement
because it includes important information). The legend also must
explain to shareholders that they can find the registrant's proxy
statement, and any other relevant documents, at no charge on the
Commission's Web site; and
    (iii) Any soliciting material published, sent or given to
shareholders in accordance with this paragraph must be filed by the
nominating shareholder with the Commission, under the registrant's
Exchange Act file number, or, in the case of a registrant that is an
investment company registered under the Investment Company Act of 1940,
under the registrant's Investment Company Act file number, no later
than the date the material is first published, sent or given to
shareholders. Three copies of the material must at the same time be
filed with, or mailed for filing to, each national securities exchange
upon which any class of securities of the registrant is listed and
registered. The soliciting material must include a cover page in the
form set forth in Schedule 14A (Sec.  240.14a-101) and the appropriate
box on the cover page must be marked.
    9. Amend Sec.  240.14a-4 by:
    a. Revising the first sentence of paragraph (b)(2) introductory
text; and
    b. Adding a sentence to the end of the undesignated paragraph
following paragraph (b)(2)(iv).
    The revision and addition read as follows:

Sec.  240.14a-4  Requirements as to proxy.

* * * * *
    (b) * * *
    (2) A form of proxy that provides for the election of directors
shall set forth the names of persons nominated for election as
directors, including any person whose nomination by a shareholder or
shareholder group satisfies the requirements of Sec.  240.14a-11, an
applicable state law provision, or a registrant's governing documents
as they relate to the inclusion of shareholder director nominees in the
registrant's proxy materials. * * *
* * * * *
    (iv) * * *
    * * * Means to grant authority to vote for any nominees as a group
or to withhold authority for any nominees as a group may not be
provided if the form of proxy includes one or more shareholder nominees
in accordance with Sec.  240.14a-11, an applicable state law provision,
or a registrant's governing documents as they relate to the inclusion
of shareholder director nominees in the registrant's proxy materials.
* * * * *
    10. Amend Sec.  240.14a-6 by:
    a. Redesignating paragraphs (a)(4), (a)(5) and (a)(6) as paragraphs
(a)(5), (a)(6) and (a)(7) respectively;
    b. Adding new paragraph (a)(4);
    c. Adding a sentence at the end of Note 3; and
    d. Adding paragraph (p).
    The revisions and additions read as follows:

Sec.  240.14a-6  Filing requirements.

    (a) * * *
    (4) A shareholder nominee for director included pursuant to Sec.
240.14a-11, an applicable state law provision, or a registrant's
governing documents as they relate to the inclusion of shareholder
director nominees in the registrant's proxy materials.
* * * * *

    Note 3.  * * * The inclusion of a shareholder nominee in the
registrant's proxy materials pursuant to Sec.  240.14a-11, an
applicable state law provision, or a registrant's governing
documents as they relate to the inclusion of shareholder director
nominees in the registrant's proxy materials does not constitute a
``solicitation in opposition,'' even if the registrant opposes the
shareholder nominee and solicits against the shareholder nominee and
in favor of a registrant nominee.

* * * * *
    (p) Solicitations subject to Sec.  240.14a-11. Any soliciting
material that is published, sent or given to shareholders in connection
with Sec.  240.14a-2(b)(7) or (b)(8) must be filed with the Commission
as specified in that section.
    11. Amend Sec.  240.14a-8 by revising paragraph (i)(8) as follows:

Sec.  240.14a-8  Shareholder proposals.

* * * * *
    (i) * * *
    (8) Director elections: If the proposal:
    (i) Would disqualify a nominee who is standing for election;
    (ii) Would remove a director from office before his or her term
expired;
    (iii) Questions the competence, business judgment, or character of
one or more nominees or directors;
    (iv) Nominates a specific individual for election to the board of
directors, other than pursuant to Sec.  240.14a-11, an applicable state
law provision, or the company's governing documents; or
    (v) Otherwise could affect the outcome of the upcoming election of
directors.
* * * * *
    12. Amend Sec.  240.14a-9 by adding a paragraph (c) and removing
the authority citation following the section to read as follows:

Sec.  240.14a-9  False or misleading statements.

* * * * *
    (c) No nominee, nominating shareholder or nominating shareholder
group, or any member thereof, shall cause to be included in a
registrant's proxy materials, either pursuant to the federal proxy
rules, an applicable state law provision, or a registrant's governing
documents as they relate to including shareholder nominees for director
in registrant proxy materials, any statement which, at the time and in
the light of the circumstances under which it is made, is false or
misleading with respect to any material fact, or which omits to state
any material fact necessary in order to make the statements therein not
false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of a proxy for
the same meeting or subject matter which has become false or
misleading.
* * * * *
    13. Add Sec.  240.14a-11 to read as follows:

Sec.  240.14a-11  Shareholder nominations.

    (a) Applicability. In connection with an annual meeting of
shareholders (or a special meeting in lieu of the annual meeting) at
which directors are elected, a registrant (other than a registrant
subject to the proxy rules solely because it has a class of debt
registered under Exchange Act Sec.  12) will be required to include in
its proxy statement and form of proxy the name of a person or persons
nominated by a shareholder or group of shareholders for election to the
board of directors and include in its proxy statement the disclosure
about such nominee or nominees and the nominating shareholder or
members of a nominating shareholder group that is specified in Sec.
240.14a-18(e)-(l), provided that:
    (1) Applicable state law or the registrant's governing documents do
not prohibit the registrant's shareholders from nominating a candidate
or candidates for election as a director;
    (2) The nominee's candidacy or, if elected, board membership would
not violate controlling state law, the registrant's governing
documents, federal law, or rules of a national securities exchange or
national securities association applicable to the registrant (other
than rules of a national securities exchange or national securities
association regarding director independence);
    (3) The nominating shareholder or members of the nominating
shareholder group have satisfied the eligibility

requirements in paragraph (b) of this section;
    (4) All information required to be included in the notice to the
registrant required pursuant to paragraph (c) of this section is so
included;
    (5) No representation or certification required to be included in
the notice to the registrant required pursuant to paragraph (c) of this
section is false or misleading in any material respect; and
    (6) The provisions of paragraph (d) of this section limiting the
number of nominees required to be included would not necessitate
exclusion of the nominee.
    Instruction 1 to paragraph (a). A nominating shareholder will not
be deemed an ``affiliate'' of the registrant under the Securities Act
of 1933 (15 U.S.C. 77a et seq.) or the Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.) solely as a result of nominating a candidate
for director or soliciting for the election of such a director nominee
or against a registrant's nominee pursuant to this section. Where a
shareholder nominee is elected, and the nominating shareholder or
nominating shareholder group does not have an agreement or relationship
with that director, otherwise than relating to the director's
nomination pursuant to Sec.  240.14a-11, solicitation for the election
of the shareholder director nominee or against a registrant's nominee,
or the election of the shareholder director nominee, the nominating
shareholder or nominating shareholder group will not be deemed an
affiliate solely by virtue of having nominated that director.
    Instruction 2 to paragraph (a). If the registrant did not hold an
annual meeting the previous year, or if the date of the current year's
annual meeting has been changed by more than 30 calendar days from the
date of the previous year's annual meeting, the registrant must
disclose pursuant to Item 5.07 of Form 8-K (Sec.  249.308 of this
chapter) the date by which a shareholder or shareholder group must
submit the notice required pursuant to paragraph (c) of this section,
which date shall be a reasonable time prior to the date the registrant
mails its proxy materials for the meeting.
    (b) Nominating shareholder eligibility. A shareholder or group of
shareholders nominating a person or persons must satisfy the following
requirements:
    (1) The shareholder individually, or the shareholder group in the
aggregate, must beneficially own, as of the date the shareholder or
group of shareholders provides notice to the registrant on Schedule 14N
of their intent to include a nominee or nominees in the registrant's
proxy materials pursuant to Sec.  240.14a-11:
    (i) For large accelerated filers as defined in Sec.  240.12b-2, and
investment companies registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1 et seq.) with net assets of $700 million or more,
at least 1% of the registrant's securities that are entitled to be
voted on the election of directors at the annual meeting of
shareholders (or a special meeting in lieu of the annual meeting);
    (ii) For accelerated filers as defined in Sec.  240.12b-2, and
investment companies registered under the Investment Company Act of
1940 with net assets of $75 million or more but less than $700 million,
at least 3% of the registrant's securities that are entitled to be
voted on the election of directors at the annual meeting of
shareholders (or a special meeting in lieu of the annual meeting); and
    (iii) For non-accelerated filers as defined in Sec.  240.12b-2, and
investment companies registered under the Investment Company Act of
1940 with net assets of less than $75 million, at least 5% of the
registrant's securities that are entitled to be voted on the election
of directors at the annual meeting of shareholders (or a special
meeting in lieu of the annual meeting); and
    (2) The shareholder or each member of the shareholder group must
have held the securities that are used for purposes of determining the
applicable ownership threshold required by paragraph (b)(1) of this
section continuously for at least one year as of the date it provides
notice to the registrant on Schedule 14N and intend to continue to hold
those securities through the date of the subject election of directors.
    Instruction 1 to paragraph (b). In the case of a registrant other
than an investment company registered under the Investment Company Act
of 1940, for purposes of (b)(1) of this section, in determining the
securities that are entitled to be voted on the election of directors,
the nominating shareholder or nominating shareholder group may rely on
information set forth in the registrant's most recent quarterly or
annual report, and any current report subsequent thereto, filed with
the Commission pursuant to this Act, unless the nominating shareholder
or nominating shareholder group knows or has reason to know that the
information contained therein is inaccurate. In the case of a
registrant that is an investment company registered under the
Investment Company Act of 1940, for purposes of paragraph (b)(1) of
this section, in determining the securities that are entitled to be
voted on the election of directors, the nominating shareholder or
nominating shareholder group may rely on information set forth in the
following documents, unless the nominating shareholder or nominating
shareholder group knows or has reason to know that the information
contained therein is inaccurate:
    a. In the case of a registrant that is a series company as defined
in Rule 18f-2(a) under the Investment Company Act of 1940 (Sec.
270.18f-2(a) of this chapter), the Form 8-K described in Instruction 3
to paragraph (b); or
    b. In the case of other investment companies, the registrant's most
recent annual or semi-annual report filed with the Commission on Form
N-CSR (17 CFR 249.331; 17 CFR 274.128).
    Instruction 2 to paragraph (b). For purposes of paragraph (b)(1) of
this section, the amount of net assets of an investment company
registered under the Investment Company Act of 1940 shall be the amount
of net assets of the company as of the end of the company's second
fiscal quarter in the fiscal year immediately preceding the fiscal year
of the meeting, as disclosed in the registrant's Form N-CSR filed with
the Commission, except that, for a series company (as defined in Sec.
270.18f-2(a) of this chapter), the amount of net assets shall be the
amount disclosed in the Form 8-K described in Instruction 3 to
paragraph (b).
    Instruction 3 to paragraph (b). If the registrant is an investment
company that is a series company (as defined in Sec.  270.18f-2(a) of
this chapter), the registrant must disclose pursuant to Item 5.07 of
Form 8-K (Sec.  249.308 of this chapter):
    a. The registrant's net assets as of June 30 of the calendar year
immediately preceding the calendar year of the meeting; and
    b. The total number of shares of the registrant outstanding and
entitled to be voted (or if the votes are to be cast on a basis other
than one vote per share, then the total number of votes entitled to be
voted and the basis for allocating such votes) at an annual meeting of
shareholders (or, in lieu of such an annual meeting, a special meeting
of shareholders) as of the end of the most recent calendar quarter.
    (c) Shareholder notice. To have a nominee included in the
registrant's proxy statement and form of proxy, the nominating
shareholder must provide notice to the registrant on Schedule 14N as
specified by Sec.  240.14n-1 of its intent to require that the
registrant include that shareholder's nominee on the registrant's form
of proxy and include

the disclosures required pursuant to Sec.  240.14a-18. This notice must
be filed with the Commission on the date provided to the registrant.
    (d) Number of shareholder nominees. (1) The registrant will not be
required to include in its proxy statement and form of proxy more than
one shareholder nominee or the number of nominees that represents 25
percent of the registrant's board of directors, whichever is greater;
    (2) Where the registrant has one or more directors currently
serving on its board of directors who were elected as a shareholder
nominee pursuant to this section, and the term of that director or
directors extends past the date of the meeting of shareholders for
which it is soliciting proxies, the registrant will not be required to
include in the proxy statement or form of proxy more shareholder
nominees than could result in the total number of directors who were
elected as shareholder nominees pursuant to Sec.  240.14a-11 and
serving on the board being more than one shareholder nominee or 25
percent of the registrant's board of directors, whichever is greater;
and
    (3) In the event that more than one shareholder or group of
shareholders is otherwise permitted to nominate a person or persons to
a registrant's board of directors pursuant to Sec.  240.14a-11, the
registrant shall include in the proxy statement and form of proxy the
nominee or nominees of the first nominating shareholder or nominating
shareholder group from which the registrant receives timely notice as
specified in paragraph (c) of this section, up to and including the
total number required to be included by the registrant pursuant to this
paragraph. Where the first nominating shareholder or nominating
shareholder group to deliver timely notice as specified in paragraph
(c) of this section does not nominate the maximum number of directors
required to be included by the registrant, the nominee or nominees of
the next nominating shareholder or nominating shareholder group from
which the registrant receives timely notice as specified in paragraph
(c) of this section would be included in the registrant's proxy
materials, up to and including the total number required to be included
by the registrant.
    Instruction 1 to paragraph (d). Depending on board size, 25% of the
board may not result in a whole number. In those instances, the maximum
number of shareholder nominees for director that a registrant will be
required to include in its proxy materials will be the closest whole
number below 25%.
    Instruction 2 to paragraph (d). If a nominee, a nominating
shareholder, or any member of a nominating shareholder group has any
agreement with the registrant or any affiliate of the registrant
regarding the nomination of a candidate for election as a member of the
registrant's board of directors, any such nominee or any nominee of
such nominating shareholder or nominating shareholder group shall not
be included in calculating the number of nominees required under this
section.
    (e) False or misleading statements. The registrant is not
responsible for any information in the notice from the nominating
shareholder or nominating shareholder group submitted as required by
paragraph (c) of this section or otherwise provided by the nominating
shareholder or nominating shareholder group, except where the
registrant knows or has reason to know that the information is false or
misleading.
    (f) Determinations regarding eligibility. (1) Upon the registrant's
receipt of a notice described in paragraph (c) of this section, the
registrant shall determine whether any of the events permitting
exclusion of a shareholder nominee has occurred;
    (2) If the registrant determines that it will include a shareholder
nominee, it must notify in writing the nominating shareholder or
nominating shareholder group no later than 30 calendar days before it
files its definitive proxy statement and form of proxy with the
Commission. The registrant is responsible for providing this notice in
a manner that evidences its timely receipt by the nominating
shareholder or each member of the nominating shareholder group;
    (3) If the registrant determines that it may exclude a shareholder
nominee, the registrant must notify in writing the nominating
shareholder or nominating shareholder group of this determination. This
notice must be postmarked or transmitted electronically no later than
14 calendar days after the registrant receives the notice required by
paragraph (c) of this section. The registrant is responsible for
providing this notice in a manner that evidences its timely receipt by
the nominating shareholder or each member of the nominating shareholder
group;
    (4) The registrant's notice to the nominating shareholder or
nominating shareholder group under paragraph (f)(3) of this section
that it has determined that it may exclude a shareholder nominee must
include an explanation of the registrant's basis for determining that
it may exclude the nominee;
    (5) The nominating shareholder or nominating shareholder group
shall have 14 calendar days after receipt of the registrant's notice
under paragraph (f)(3) of this section to respond to the registrant's
notice and correct any eligibility or procedural deficiencies
identified in that notice, as required by paragraph (f)(4) of this
section. The nominating shareholder's or nominating shareholder group's
response must be postmarked, or transmitted electronically, within the
timeframe identified in the preceding sentence. The nominating
shareholder or nominating shareholder group is responsible for