[Federal Register Volume 62, Number 224 (Thursday, November 20, 1997)]
[Proposed Rules]
[Pages 61933-61942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30430]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 270

[Release Nos. 33-7475, 34-39321, IC-22884; File No. S7-27-97]
RIN 3235-AG98


Delivery of Disclosure Documents to Households

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Commission is proposing for public comment a new rule 
under the Securities Act of 1933 to enable issuers and broker-dealers 
to satisfy the Act's prospectus delivery requirements, with respect to 
two or more investors sharing the same address, by sending a single 
prospectus, subject to certain conditions. The Commission is proposing 
similar amendments to the rules under the Securities Exchange Act of 
1934 and the Investment Company Act of 1940 that govern the delivery of 
annual and (in the case of investment companies) semiannual reports to 
shareholders. The proposed rule and rule amendments seek to provide 
greater convenience for investors and cost savings for issuers by 
reducing the amount of duplicative information that investors receive.

DATES: Comments must be received on or before February 2, 1998.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G. 
Katz, Secretary, Securities and Exchange Commission, 450 5th Street, 
N.W., Stop 6-9, Washington, D.C. 20549. Comments also may be submitted 
electronically at the following E-mail address: [email protected]. 
All comment letters should refer to File No. S7-27-97; this file number 
should be included on the subject line if E-mail is used. Comment 
letters will be available for public inspection and copying in the 
Commission's Public Reference Room, 450 5th Street, N.W., Washington, 
D.C. 20549. Electronically submitted comment letters also will be 
posted on the Commission's Internet web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202) 
942-0690, Office of Regulatory Policy, Division of Investment 
Management, Stop 10-2, or Elizabeth M. Murphy, Special Counsel, at 
(202) 942-2900, Office of Chief Counsel, Division of Corporation 
Finance, Stop 4-2, Securities and Exchange Commission, 450 5th Street, 
N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The Commission today is requesting public 
comment on proposed rule 154 under the Securities Act of 1933 (15 
U.S.C. 77a) (the ``Securities Act'') and proposed amendments to rules 
14a-3 (17 CFR 240.14a-3), 14c-3 (17 CFR 240.14c-3) and 14c-7 (17 CFR 
240.14c-7) under the Securities Exchange Act of 1934 (15 U.S.C. 78a) 
(the ``Exchange Act''), and rules 30d-1 (17 CFR 270.30d-1) and 30d-2 
(17 CFR 270.30d-2) under the Investment Company Act of 1940 (15 U.S.C. 
80a) (the ``Investment Company Act'').

Table of Contents

I. Discussion
    A. Delivery of Prospectuses to a Household
    1. Scope of Rule and General Conditions
    2. Householding Without Written Consent
    3. Revocation of Consent

[[Page 61934]]

    B. Delivery of Shareholder Reports to a Household
    C. General Request for Comment
II. Cost-Benefit Analysis
III. Paperwork Reduction Act
IV. Summary of Initial Regulatory Flexibility Analysis
V. Statutory Authority
Text of Proposed Rules

I. Discussion

    The Securities Act generally prohibits an issuer or underwriter 
from delivering a security for sale unless a prospectus meeting certain 
requirements accompanies or precedes the security. 1 If 
several persons purchase the same security and share the same 
household, the prospectus delivery requirements may result in the 
mailing of multiple copies of the same prospectus to a household.
---------------------------------------------------------------------------

    \1\ See Securities Act sections 2(a)(10), 4(1), 5(b) (15 U.S.C. 
77b(a)(10), 77d(1), 77e(b)). In connection with secondary market 
transactions in certain securities, a dealer may also be required to 
deliver a prospectus for a specified period after the commencement 
of the offering. See Securities Act section 4(3) (15 U.S.C. 77d(3)); 
rule 174 (17 CFR 230.174). Dealers selling shares of open-end 
management investment companies or units of unit investment trusts 
(``UITs'') are required to deliver a prospectus if the issuer 
(including the sponsor of a UIT) is currently offering shares or 
units for sale. Investment Company Act section 24(d) (15 U.S.C. 80a-
24(d)); see also Form N-7 for Registration of Unit Investment Trusts 
Under the Securities Act of 1933 and the Investment Company Act of 
1940, Investment Company Act Release No. 15612 (Mar. 9, 1987) (52 FR 
8268, 8269 (Mar. 17, 1987)) (because the sponsor of a UIT is 
considered to be an issuer of the UIT's units under section 2(a)(4) 
of the Securities Act, resales of units by the sponsor must be made 
pursuant to a prospectus).
---------------------------------------------------------------------------

    Although the proposed rule is not limited to investment company 
prospectuses, the problem of delivery of multiple prospectuses is 
particularly significant in the case of open-end management investment 
companies (``mutual funds''),2 and has grown as the 
popularity of mutual funds as an investment vehicle for many families 
has increased.3 The same mutual fund may be used by a family 
as a regular investment as well as for family members' individual 
retirement accounts, 401(k) or other tax-deferred retirement plans, and 
for trusts or accounts established for the benefit of minor children. 
Although one family member may make investment decisions on behalf of 
each family, a fund that delivers an updated prospectus to investors 
annually must deliver a copy to each family member in whose name shares 
are purchased.
---------------------------------------------------------------------------

    \2\ Mutual funds generally offer their shares on a continuous 
basis and, as a result, are required to file periodic ``post-
effective'' amendments to their registration statements in order to 
maintain a ``current'' prospectus required by section 10(a)(3) of 
the Securities Act (15 U.S.C. 77j(a)(3)). Post-effective amendments 
also satisfy the requirement that mutual funds amend their 
Investment Company Act registration statements annually. See 17 CFR 
270.8b-16. The Securities Act requires mutual funds to send updated 
prospectuses only to those shareholders who make additional 
purchases. (A reinvestment through a dividend reinvestment plan 
generally does not trigger this obligation.) In practice, many 
mutual funds send an updated prospectus annually to all of their 
shareholders. Because closed-end funds do not offer their shares to 
the public on a continuous basis, they generally do not update their 
prospectuses periodically. See Division of Investment Management, 
SEC, Protecting Investors: A Half Century of Investment Company 
Regulation 354 (1992) (discussing greater effect of Securities Act 
prospectus delivery requirements on mutual funds as compared to 
other issuers); see also Staff Interpretive Position Relating to 
Fiduciary Duty of Directors of a Registered Investment Company in 
Connection with Proposed Arrangement to Impose Sales Load on 
Reinvestment of Income Dividends and Continuously Offer Fund Shares 
Only in Connection with Dividend Reinvestments, Investment Company 
Act Release No. 6480 (May 10, 1971) (36 FR 9627 (May 27, 1971)).
    \3\ An estimated 63 million individuals, making up 36.8 million 
households, owned mutual funds either directly or through a 
retirement plan as of April 1996. Fund-owning households represented 
37 percent of all U.S. households. Investment Company Institute, 
Mutual Fund Ownership in the U.S., Fundamentals, Dec. 1996, at 1.
---------------------------------------------------------------------------

    Mutual funds, closed-end management investment companies 
(collectively, ``funds'') and certain unit investment trusts (``UITs'') 
are required by Commission rules to send semiannual reports to their 
security holders.4 The problem of delivery of duplicate 
documents to a household frequently arises with respect to these 
reports. 5 Public companies that are not investment 
companies also are required to furnish security holders an annual 
report that accompanies or precedes the delivery of a proxy or 
information statement.6 Sending multiple copies of the same 
document to investors who share the same address often inundates 
households with extra mail, annoys investors, and results in higher 
printing and mailing costs for issuers, underwriters and other broker-
dealers. In many cases, these costs are ultimately borne by investors.
---------------------------------------------------------------------------

    \4\ See Investment Company Act section 30(e) (15 U.S.C. 80a-
29(e)); rule 30d-1 (17 CFR 270.30d-1). UITs that invest 
substantially all of their assets in shares of a fund must send 
their unitholders annual and semiannual reports containing financial 
information on the underlying fund. See Investment Company Act 
section 30(e) (15 U.S.C. 80a-29(e)); rule 30d-2 (17 CFR 270.30d-2).
    \5\ The Commission staff has issued no-action letters permitting 
just one copy of a fund's shareholder report to be sent to 
shareholders who share the same address. See Oppenheimer Funds, SEC 
No-Action Letter (July 20, 1994); Scudder Group of Funds, SEC No-
Action Letter (June 19, 1990); see also Allstate Enterprises Stock 
Fund, Inc., SEC No-Action Letter (July 22, 1973). The funds' letters 
requesting relief noted shareholder complaints about duplicate 
reports and sought to reduce printing and mailing expenses.
    \6\ The proxy rules currently include provisions that allow 
registrants to send a single annual report to security holders 
sharing the same address under certain conditions. Rule 14a-3(e) (17 
CFR 240.14a-3(e)); Note 2 to rule 14c-7 (17 CFR 240.14c-7 note 2); 
see also 2 N.Y.S.E. Guide (CCH) Paras.  2451.90, 2451.95, 2465.20, 
2465.25 (New York Stock Exchange rules permitting householding).
---------------------------------------------------------------------------

    To reduce the number of duplicative disclosure documents delivered 
to investors, the Commission is proposing rules to permit, under 
certain circumstances, delivery of a single prospectus or shareholder 
report to a household (``householding'') to satisfy the applicable 
delivery requirements. Proposed rule 154 under the Securities Act, and 
proposed amendments to rules 30d-1 and 30d-2 under the Investment 
Company Act and to rules 14a-3, 14c-3 and 14c-7 under the Exchange Act, 
would provide that delivery of a disclosure document to one investor 
would be deemed to have occurred with respect to all other investors 
who share the same address, provided certain conditions are met. The 
conditions are designed to assure that every security holder in the 
household either receives or has convenient access to a copy of the 
prospectus or report delivered to a member of the household.

A. Delivery of Prospectuses to a Household

1. Scope of Rule and General Conditions
    Under proposed rule 154, a prospectus would be deemed delivered, 
for purposes of sections 5(b) and 2(a)(10) of the Securities Act, to 
all investors at a shared address if the person relying on the rule 
delivers the prospectus to a natural person who shares that address and 
the other investors consent to delivery of a single 
prospectus.7 The proposed rule would be available for all 
persons who have a prospectus delivery obligation under the Securities 
Act except when the prospectus is required to be delivered in 
connection with business combination transactions, exchange offers or 
reclassifications of securities.8 Those prospectuses 
generally are accompanied by proxies or tender offer material that must 
be executed by each individual investor. Comment is requested whether 
companies should be permitted to rely on the rule for delivery of those 
types of prospectuses. Are there other types of prospectuses that rule 
154 should not cover? Should the rule be limited to fund prospectuses?
---------------------------------------------------------------------------

    \7\ Proposed rule 154(a).
    \8\ The proposed rule would not apply to the delivery of a 
prospectus filed as part of a registration statement on Form N-14, 
S-4 or F-4, or to the delivery of any other prospectus in connection 
with a business combination transaction, exchange offer or 
reclassification of securities. See 17 CFR 239.23, 239.25, 239.34; 
proposed rule 154(e).

---------------------------------------------------------------------------

[[Page 61935]]

    For purposes of the rule, the term ``address'' would not be limited 
to a postal address and could include an electronic 
address.9 Thus, investors who share an electronic mail 
address could consent to receive one prospectus at the shared address 
even if they had different postal addresses.10 Conversely, 
investors who share a street address could consent to the delivery of 
one prospectus to the household, and an investor could receive the 
prospectus electronically, even if the other investors do not share 
that investor's electronic address.
---------------------------------------------------------------------------

    \9\ ''Address'' would be defined to include ``a street address, 
a post office box number, an electronic mail address, a facsimile 
telephone number or other similar destination to which paper or 
electronic documents are delivered, unless otherwise provided in 
this section.'' Proposed rule 154(f). The Commission has issued two 
interpretive releases expressing its views on the electronic 
delivery of documents, including prospectuses and investment company 
annual and semiannual reports (the ``Interpretive Releases''). Use 
of Electronic Media for Delivery Purposes, Securities Act Release 
No. 7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] (``1995 
Interpretive Release''); Use of Electronic Media by Broker-Dealers, 
Transfer Agents, and Investment Advisers for Delivery of 
Information; Additional Examples Under the Securities Act of 1933, 
Securities Exchange Act of 1934, and Investment Company Act of 1940, 
Securities Act Release No. 7288 (May 9, 1996) [61 FR 24644 (May 15, 
1996)] (``1996 Interpretive Release''); see also Howard M. Friedman, 
Securities Regulation in Cyberspace (1997).
    The Interpretive Releases discuss issues of notice and access 
that should be considered in determining whether the legal 
requirements pertaining to delivery of documents have been 
satisfied. The releases state that persons using electronic delivery 
of information should obtain informed consent from the intended 
recipient or otherwise have reason to believe that any electronic 
means so selected will result in satisfaction of the delivery 
requirements. See 1995 Interpretive Release, supra, at 53460-61; 
1996 Interpretive Release, supra, at 24646-47. In the case of a 
passive delivery system such as an Internet web site, the proposed 
rule would permit delivery of a notice of the availability of the 
prospectus on the web site to a single investor at the shared 
address. The conditions of the proposed rule and the requirements 
for electronic delivery would both have to be satisfied. The 
National Association of Securities Dealers also has issued guidance 
on the use of electronic communications. See, e.g., NASD Notice to 
Members 96-50 (July 1996).
    \10\ By contrast, certain rule provisions permitting delivery 
without written consent under the rule would require that the 
investors share a street address that meets certain requirements. 
See proposed rule 154(b)(5)(i), (iii); see infra part I.A.2.
---------------------------------------------------------------------------

    An investor may give limited consent to the householding of 
prospectuses for a particular security only, or may give general 
consent concerning any prospectuses that an issuer, underwriter, or 
dealer has or will have an obligation to deliver.11 So that 
an investor has the capacity to notify other members of the household 
that the prospectus is available, the proposed rule would require that 
the prospectus be addressed to a natural person.12
---------------------------------------------------------------------------

    \11\ Thus, for example, the distributor for a family of mutual 
funds could obtain consent from persons that share an address with 
respect to all funds in the family of funds, including funds that 
may be created in the future. With respect to non-investment 
companies, a security holder could give limited consent to a broker-
dealer concerning delivery of a particular security or general 
consent concerning any prospectuses that the broker-dealer has or 
will have an obligation to deliver.
    \12\ See proposed rule 154(a)(2).
---------------------------------------------------------------------------

    The notion of a household under the rule would not be limited to a 
family unit or a residence. Any group of persons who share the same 
address could be delivered a single prospectus as long as each investor 
provides written consent. The proposed rule, for example, would permit 
the delivery of a single prospectus for multiple investors at a shared 
business address, or for investors that include a business entity. The 
rule therefore should afford significant flexibility for persons that 
have a prospectus delivery obligation.
    The rule also does not require that a prospectus be delivered to an 
investor at the address that is shared with the other investors. If two 
investors live in the same house and consent to householding, for 
example, a prospectus could be delivered to the address where one 
investor receives his or her mail, such as a business address or a post 
office box. Comment is requested whether the rule should require that 
the prospectus be delivered to the investors' shared address.
    As explained above, delivery to a natural person would facilitate 
the sharing of the prospectus among the investors at the shared 
address. In order to allow for changing the investor who receives the 
prospectus (e.g., if the investor moves to a different address), the 
investors at the shared address would consent to the manner of 
prospectus delivery specified in the rule without designating the 
specific person to whom the prospectus will be delivered. The 
Commission requests comment whether the rule should require the 
investors to specify the name of the investor who will receive the 
prospectus. Comment is also requested whether there should be any 
restrictions on who can receive a prospectus on behalf of the other 
investors. For example, should that investor be required to be an 
adult?
    The proposed rule would not permit delivery of a prospectus to a 
group of persons (e.g., ``The Smith household,'' or ``ABC Stock Fund 
Shareholders''). The Commission is concerned that the use of such 
general addressing may reduce the likelihood that a prospectus will be 
opened and read (because the person receiving it may assume it is 
``junk mail'').13 In addition, addressing the prospectus to 
a family-name household could increase the risk that someone other than 
an investor may receive it. The Commission requests comment on the 
advantages and disadvantages of addressing a document to a particular 
person in a household and whether the rule should permit the prospectus 
to be addressed to a group of persons in the household.
---------------------------------------------------------------------------

    \13\ See, e.g., Owen T. Cunningham (with George Wachtel), 
Everything You Need to Know About Mailing Lists But Were Afraid to 
Ask!, Bank Marketing, Mar. 1997, at 41, 44.
---------------------------------------------------------------------------

    Comment also is requested on the proposed application of the rules 
when documents are delivered electronically. In order to satisfy 
delivery requirements, a person relying on the rule also may obtain 
consent, from an investor who receives a prospectus, concerning 
delivery through a specified electronic medium.14 If the 
investor decides to receive the prospectus electronically, should the 
other investors in the household also have to consent to electronic 
delivery to that investor?
---------------------------------------------------------------------------

    \14\ See 1995 Interpretive Release, supra note 9, at 53460.
---------------------------------------------------------------------------

2. Householding Without Written Consent
    Consent may be difficult to obtain, even from persons who 
presumably would wish to consent to the delivery of documents to 
another person in their household. Many investors may not respond to 
requests for consent, and thus many of the benefits of householding 
would not be realized. At the same time, householding without consent 
creates the risk that an investor who wishes to receive a prospectus 
will not receive one. Therefore, the Commission is proposing to permit 
householding without consent only under certain conditions and only if 
the investors have opened an account with the person relying on the 
rule before the effective date of the rule.
    The conditions are designed to limit householding to circumstances 
that suggest that the investors not receiving the disclosure documents 
would wish to consent and that they will have access to the prospectus 
if delivered to another investor. Under the proposal, the investors in 
the household would have to be provided with notice, 60 days before 
initial reliance on the rule, that future prospectuses will be 
delivered to only one person who shares the address.15 In 
addition, the investors in

[[Page 61936]]

the household must have the same last name or, if they have different 
last names, a person who relies on the rule must reasonably believe 
they are members of the same family.16 Finally, the 
prospectus must be delivered to a street address that the person 
reasonably believes is a residence.17 Alternatively, the 
prospectus could be delivered to a shared post office box, or to an 
electronic address if the investors are reasonably believed to share a 
residence.18
---------------------------------------------------------------------------

    \15\ The proposed rule would require the notice to be a separate 
written statement delivered to each investor in the household at 
least 60 days before delivery of the first document delivered in 
reliance on the rule. The notice would explain that each investor at 
the address could request to continue to receive his or her own copy 
of the prospectus, and the notice would be accompanied by a reply 
form and a convenient means for returning it. See proposed rule 
154(b)(3); see also infra Part I.A.3. The notice could be enclosed 
in the same envelope with other printed matter, or could be 
transmitted electronically if the guidelines for electronic delivery 
were met. See 1995 Interpretive Release, supra note 9, at 53460-61.
    \16\ See proposed rule 154(b)(2).
    \17\ See proposed rule 154(b)(5)(i). A reasonable belief may be 
based on the address supplied by the shareholder and the Zip Code 
assigned to the address. See proposed rule 154(c).
    Zip Codes are assigned to addresses by the United States Postal 
Service (the ``USPS''). The most complete Zip Code is a 9-digit 
number consisting of five numbers, a hyphen, and four numbers, which 
the USPS describes by its trademark ``ZIP+4.'' The first 
five digits represent the five-digit Zip Code; the final four digits 
identify geographic units such as a side of a street between 
intersections, both sides of a street between intersections, a 
building, a floor or group of floors in a building, or a business. 
Many apartment buildings and businesses are assigned one or more 
unique ZIP+4 Codes. Domestic Mail Manual, at A010.2.1, 
A010.2.3, A010.3.2 (Sept. 1, 1995) (incorporated by reference at 39 
CFR 111.1). Information on Zip Codes for particular addresses may be 
obtained through address matching software. See id. at A950. In 
addition, software is available through which the number of 
duplicates in a mailing can be reduced. See, e.g., Owen T. 
Cunningham, supra note , at 41, 44; Raymond F. Melissa, How to Save 
Money on Printing and Postage, Nonprofit World, Mar./Apr. 1996, at 
23; How to Mail More, Mail Smarter, and Spend Less, Nonprofit World, 
May/June 1995, at 26; United States Postal Service, National 
Customer Support Center <http://www.usps.gov/ncsc>.
    \18\ See proposed rule 154(b)(5)(ii), (iii).
---------------------------------------------------------------------------

    The Commission requests comment whether the proposed conditions for 
householding without written consent give reasonable assurance that the 
prospectus will be available to all persons in the household who wish 
to review it. Should there be any additional safeguards? Do any of the 
conditions impose unnecessary costs? Comment is requested on the 
requirement that notice be given 60 days before reliance on the rule. 
Would a shorter or longer time period be more appropriate? Should any 
additional disclosure about prospectus delivery to the household be 
required after householding begins (e.g., in future account 
statements)?
    As discussed above, householding without consent would be limited 
to persons who established accounts before the effective date of the 
rule. The Commission presumes that after the effective date of the 
rule, persons who rely on the rule can establish procedures to obtain 
the consent of investors who open new accounts. Mutual fund 
distributors and other broker-dealers typically require prospective 
investors to select various account options at that time, disclose 
information to assist in suitability determinations, and provide other 
information necessary to establish an account.19 Thus it 
seems reasonable to expect that there will be an adequate opportunity 
to request consent at that time.
---------------------------------------------------------------------------

    \19\ See, e.g., Michael T. Reddy, Securities Operations 336-41 
(2d ed. 1995) (discussing new account forms and procedures for 
opening new accounts).
---------------------------------------------------------------------------

    The Commission requests comment generally on the appropriateness of 
permitting householding for purposes of prospectus delivery when 
investors have not given written consent. Are investors likely to 
ignore requests for written consent if they have already established an 
account? Comment is also requested whether the Commission's assumptions 
discussed above are correct, and whether most investors are likely to 
give general consent concerning any prospectuses that a person may have 
an obligation to deliver in the future.20 Should the 
Commission permit householding without consent for accounts opened 
after the effective date of the rule?
---------------------------------------------------------------------------

    \20\ Investors may instead decline to consent or may be willing 
to give only a limited consent concerning prospectuses for a 
particular security only. See supra note and accompanying text.
---------------------------------------------------------------------------

3. Revocation of Consent
    The proposed rule would require that, if an investor requests 
resumption of delivery of prospectuses, the person relying on the rule 
must resume individual delivery of future documents after 30 
days.21 Comment is requested on the time period for resuming 
individual delivery. Is 30 days an appropriate time period to 
accommodate revision of mailing lists, or should a shorter or longer 
time period be permitted?
---------------------------------------------------------------------------

    \21\ See proposed rule 154(d).
---------------------------------------------------------------------------

B. Delivery of Shareholder Reports to a Household

    The Commission is proposing amendments to rules 30d-1 and 30d-2 
under the Investment Company Act to permit investment companies to 
deliver one shareholder report per household. The conditions for using 
the proposed amendments would be substantially the same as those in 
proposed rule 154.22 The Commission staff has issued no-
action letters addressing householding with respect to delivery of 
shareholder reports to fund shareholders.23 Unlike the no-
action letters, the proposed amendments would not require prospectus 
disclosure of an investment company's householding policies. Instead, 
the advance notice or written consent requirements would serve to 
notify shareholders about householding. Comment is requested whether 
householding for purposes of delivering investment company shareholder 
reports should be subject to different conditions than householding for 
purposes of prospectus delivery.
---------------------------------------------------------------------------

    \22\ See proposed rules 30d-1(f), 30d-2(b).
    \23\ See, e.g., Oppenheimer Funds, supra note 5 (permitting 
householding of shareholders with the same last name and record 
address provided there is initial notice, prospectus disclosure 
concerning the practice, and opportunity for shareholders to opt out 
of householding); Scudder Group of Funds, supra note 5 (permitting 
householding of shareholders with the same record address under the 
same conditions).
---------------------------------------------------------------------------

    The Commission also is proposing similar amendments to Exchange Act 
proxy rules 14a-3, 14c-3, and 14c-7. The proxy rules currently provide 
that, in connection with the delivery of a proxy or information 
statement, a company is not required to send an annual report to a 
security holder of record having the same address as another security 
holder, if the security holders do not hold the company's securities in 
street name, at least one report is sent to a security holder at the 
address, and the holders to whom a report is not sent have consented in 
writing.24 Because the amended rules would include an 
implied consent provision, a company would not have to receive written 
consent to householding from an investor who became a security holder 
before the date the amendments become effective.25
---------------------------------------------------------------------------

    \24\ See rule 14a-3(e)(1) [17 CFR 240.14a-3(e)(1)]; Note 2 to 
rule 14c-7 [17 CFR 240.14c-7 note 2]. Rule 14c-7 contains 
requirements concerning registrants' obligations to provide copies 
of information statements and annual reports to brokers, banks and 
other intermediaries for forwarding to beneficial owners. The 
Commission proposes to delete the note to rule 14c-7 and add a 
householding provision to rule 14c-3, because rule 14c-3 contains 
the requirement that registrants furnish an annual report to 
security holders and is analogous to the rule 14a-3 provision.
    \25\ See proposed rule 14a-3(e)(1)(ii).
---------------------------------------------------------------------------

    The amendments also would eliminate the requirement that the 
security holders not hold the securities in street name. It is expected 
that the requirement to transmit the annual report to a natural person 
who shares an address with other investors would

[[Page 61937]]

preclude registrants from householding reports to a street name 
intermediary.
    Comment is requested whether householding for purposes of 
delivering annual reports of issuers other than investment companies 
should be subject to different conditions than householding for 
purposes of delivering investment company shareholder reports. Comment 
also is requested whether the conditions contained in the proposed 
amendments to rules 14a-3 and 14c-3 are appropriate. Should revised 
rules 14a-3 and 14c-3 require consent from investors who became 
security holders before the proposed rule amendments are effective?

C. General Request for Comment

    Any interested persons wishing to submit written comments on the 
proposed rule and rule amendments that are the subject of this Release, 
to suggest additional provisions or changes to the rules, or to submit 
comments on other matters that might have an effect on the proposals 
contained in this Release, are requested to do so. The Commission also 
requests comment whether the proposals, if adopted, would have an 
adverse effect on competition that is neither necessary nor appropriate 
in furthering the purposes of the Exchange Act. The Commission requests 
comment whether the proposals, if adopted, would promote efficiency, 
competition, and capital formation. Comments will be considered by the 
Commission in compliance with its responsibilities under section 2(b) 
of the Securities Act,26 section 2(c) of the Investment 
Company Act,27 and sections 3(f) and 23(a) of the Exchange 
Act.28 The Commission encourages commenters to provide 
empirical data or other facts to support their views.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 77b(b).
    \27\ 15 U.S.C. 80a-2(c).
    \28\ 15 U.S.C. 78c(f), 78w(a).
---------------------------------------------------------------------------

II. Cost-Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by 
its rules. The proposed rules would permit issuers and broker-dealers 
to send fewer copies of disclosure documents than they currently must 
send, and therefore, as discussed below, should provide substantial 
benefits to persons who have an obligation under the securities laws to 
deliver disclosure documents. The rules also are voluntary on the part 
of persons that have a delivery obligation; therefore, to the extent 
that the rules would require the printing and delivery of additional 
information concerning householding, or would result in other costs of 
changing procedures, and the costs outweigh the benefits of 
householding, persons with a delivery obligation may decide not to rely 
on the rules. The Commission requests comment on the costs and benefits 
of the rules. Specific data also is requested concerning the 
anticipated costs and benefits.
    Based on preliminary information provided by two large mutual fund 
complexes, the Commission estimates that a prospectus costs 
approximately 45 cents to print and deliver, and a shareholder report 
costs approximately 52 cents to print and deliver.29 In 
addition, the Commission estimates that, if a mutual fund were to 
deliver one prospectus to each household, the average decline in the 
number of prospectuses delivered would be between 10 and 30 percent. 
Currently there are approximately 150 million shareholder accounts 
investing in mutual funds.30 For the purpose of calculating 
benefits, the Commission assumes that 50 percent of mutual funds 
deliver an updated prospectus to every shareholder each year, resulting 
in the 150 million shareholder accounts receiving a total of 
approximately 75 million updated prospectuses each year. Based on these 
estimates and assumptions, the potential annual benefit in reduced 
delivery of mutual fund prospectuses as a result of the proposed rules 
would be between $3.4 million and $10.1 million.
---------------------------------------------------------------------------

    \29\ One of these fund complexes stated that the printing, 
postage, and handling costs for each prospectus for a large money 
market fund was 47 cents. The other complex provided similar costs 
for 6 of its funds, which ranged from 41 to 49 cents for 
prospectuses and 45 to 59 cents for annual reports. The midpoints of 
these ranges are 45 cents and 52 cents.
    \30\ Investment Company Institute, 1997 Mutual Fund Fact Book 
111.
---------------------------------------------------------------------------

    With respect to the delivery of annual and semiannual reports to 
mutual fund shareholders,31 the Commission estimates that 
the average decline in the number of reports delivered would be between 
10 and 30 percent. As stated above, there are approximately 150 million 
shareholder accounts investing in mutual funds. Each shareholder 
receives two shareholder reports per year per fund and, as stated 
above, each report costs an estimated 52 cents to print and deliver. 
Based on these estimates, the benefit would be between $15.6 million 
and $46.8 million. The net benefit would be less, depending on the 
number of mutual funds that currently deliver one report to each 
household, in reliance on prior staff no-action relief.
---------------------------------------------------------------------------

    \31\ See rules 30d-1 and 30d-2 under the Investment Company Act.
---------------------------------------------------------------------------

    With respect to the delivery of prospectuses of issuers other than 
investment companies, the benefits of the rules probably would be less 
than the benefits discussed above, because these companies will 
continue to mail confirmations of sale to individual purchasers. The 
final prospectus would accompany or precede the confirmation. If more 
than one confirmation is delivered to a household, a company should be 
able to send one prospectus to an investor in the household, and send 
each other investor a confirmation without a prospectus. Based on 
preliminary data, the Commission estimates that the printing cost of 
each prospectus is approximately 15 cents. The Commission is unable to 
estimate the percentage of non-investment companies that would rely on 
proposed rule 154. The Commission requests any information that would 
be helpful in making such an estimate.
    There are not likely to be significant costs and benefits 
associated with the amendment of the proxy rule provisions 
32 permitting the householding of annual reports in 
connection with the delivery of proxy and information statements 
because the amended rules would be substantively similar to as the 
current provisions. Although the proposed rules would permit 
householding for certain investors without written consent, the 
Commission currently is unable to predict the reduction in annual 
reports delivered to investors that might result from this change.
---------------------------------------------------------------------------

    \32\ See rules 14a-3, 14c-3, and 14c-7 under the Exchange Act.
---------------------------------------------------------------------------

    Persons who rely on the rules would incur costs in obtaining 
consents from and sending notices to investors. As discussed above in 
part I.A.2, the Commission anticipates that after the effective date of 
the rule, procedures will be established to obtain the consent of 
investors who open new accounts. A portion of a new account form, for 
example, could explain householding briefly and request consent. 
Comment is requested on the costs of these new procedures.
    The proposed rules would require that the notice be a separate 
written statement and be accompanied by a reply form. The notice could 
be enclosed in the same envelope with other printed matter (e.g., an 
account statement, prospectus or report). Therefore, the costs 
associated with sending the notice should be limited to printing costs 
and some increased postage costs that may result from enclosing the 
notice and reply form in an envelope with other documents.

[[Page 61938]]

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,33 the Commission also requests information 
regarding the potential impact of the proposed rule on the economy on 
an annual basis. Commenters are requested to provide empirical data to 
support their views.
---------------------------------------------------------------------------

    \33\ Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

III. Paperwork Reduction Act

    Certain provisions of the proposed rule and rule amendments contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995,34 and the Commission has 
submitted them to the Office of Management and Budget (``OMB'') for 
review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The 
titles for the collections of information are: ``Rule 154 under the 
Securities Act of 1933, Delivery of prospectuses to investors at the 
same address''; ``Regulation 14A, Commission Rules 14a-1 through 14a-14 
and Schedule 14A''; ``Regulation 14C, Commission Rules 14c-1 through 
14c-7 and Schedule 14C''; ``Rule 30d-1 under the Investment Company Act 
of 1940, Reports to stockholders of management companies''; and ``Rule 
30d-2 under the Investment Company Act of 1940, Reports to shareholders 
of unit investment trusts.'' Rule 30d-1, Regulation 14A and Regulation 
14C, which the Commission is proposing to amend, contain currently 
approved collections of information under OMB control numbers 3235-
0025, 3235-0059 and 3235-0057, respectively. An agency may not sponsor, 
conduct, or require response to an information collection unless a 
currently valid OMB control number is displayed.
---------------------------------------------------------------------------

    \34\ 44 U.S.C. 3501-3520.
---------------------------------------------------------------------------

    Proposed rule 154 would permit, under certain circumstances, 
delivery of a single prospectus to a household to satisfy the 
prospectus delivery requirements of the Securities Act with respect to 
two or more investors in the household. The rule would require a person 
that relies on the rule to obtain the written consent of investors who 
will not receive prospectuses. Alternatively, for investors who 
established accounts with the sender before the effective date of the 
rule, a person that relies on the rule could send a notice to each 
investor stating that the investors in the household will receive one 
prospectus in the future unless they provide contrary instructions.
    The purpose of the consent and notification requirements is to give 
reasonable assurance that all investors have access to the prospectus. 
Preparing and sending the notice is a collection of information. 
Because notices would only be sent to existing investors, companies 
that choose to rely on the rule would probably send them primarily in 
the first year after the rule is adopted. In addition, the Commission 
expects that, for cost reasons, the notice is likely to be a short, 
one-page statement that is enclosed with other written material sent to 
shareholders, such as account statements. Accordingly, the average 
annual number of burden hours spent preparing and arranging delivery of 
the notices is expected to be low. The Commission estimates 20 hours 
per respondent.
    Although rule 154 is not limited to investment companies, the 
Commission believes that it would be used mainly by mutual funds and by 
broker-dealers that deliver mutual fund prospectuses. The Commission is 
unable to estimate the number of issuers other than mutual funds that 
would rely on the rule, and requests comment on this matter. There are 
approximately 2700 mutual funds, approximately 650 of which engage in 
direct marketing and therefore deliver their own prospectuses. The 
Commission estimates that each direct marketed mutual fund would spend 
an average of 20 hours per year complying with the notice requirement 
of the rule, for a total of 13,000 hours. The Commission estimates that 
there are approximately 750 broker-dealers that carry customer accounts 
and, therefore, may be required to deliver mutual fund prospectuses. 
The Commission estimates that each affected broker-dealer also will 
spend, on average, approximately 20 hours complying with the notice 
requirement of the rule, for a total of 15,000 hours. Therefore, the 
total number of respondents for rule 154 is 1400 (650 mutual funds plus 
750 broker-dealers), and the estimated total hour burden is 28,000 
hours (13,000 hours for mutual funds plus 15,000 hours for broker-
dealers).
    With respect to the amendments to rules 30d-1 and 30d-2 under the 
Investment Company Act, rule 30d-1 requires management investment 
companies to send annual and semiannual reports to their shareholders. 
Rule 30d-2 requires UITs that invest substantially all of their assets 
in shares of a management investment company to send their unitholders 
annual and semiannual reports containing financial information on the 
underlying company. The proposed amendments to rules 30d-1 and 30d-2 
would permit householding for these shareholder reports under 
substantially the same conditions as those in rule 154.
    Every registered management investment company is subject to the 
reporting requirements of rule 30d-1. As of August 1997, there were 
approximately 3220 registered management investment companies. The 
Commission currently estimates that the hour burden associated with 
rule 30d-1 is approximately 181 hours per company. As discussed above, 
the Commission estimates that the burden associated with the notice 
requirement of the amendments to rules 30d-1 and 30d-2 is approximately 
20 hours per company. Therefore, the Commission estimates that the 
burden associated with rule 30d-1, including the burden of sending the 
notices, is 201 hours per company, or a total of 647,220 hours. In 
addition, the Commission estimates that the cost of contracting for 
outside services associated with the rule is $47,994 per respondent 
(421 hours times $114 per hour for independent auditor services), for a 
total cost of $154,540,680 ($47,994 times 3220 respondents).
    Rule 30d-2 applies to approximately 500 UITs. The Commission 
estimates that the annual burden associated with rule 30d-2 is 120 
hours per respondent, including the estimated 20 hours associated with 
the notice requirement contained in the proposed amendment to rule 30d-
2. The total hourly burden is therefore approximately 60,000 hours. The 
Commission estimates that the annual financial cost of complying with 
rule 30d-2 (in addition to the hourly cost) is $9120 per respondent (80 
hours times $114 per hour for independent auditor services), or a total 
of $4,560,000.
    With respect to the amendments to rules 14a-3, 14c-3 and 14c-7, 
Regulations 14A and 14C are existing information collections that set 
forth proxy and information statement disclosure requirements. 
Companies that have a class of securities registered under section 12 
of the Exchange Act are subject to these requirements. The Commission 
estimates that the time required to prepare and arrange delivery of the 
notice would be approximately 20 hours per respondent per year. The 
Commission estimates that 9321 respondents are subject to Regulation 
14A and that approximately 932 of these would deliver the notice. The 
Commission estimates that the burden associated with Regulation 14A as 
revised per registrant delivering the notice would be approximately 105 
hours, and 85 hours per registrant not delivering the notice, for a 
total annual burden of 810,925 hours. An estimated

[[Page 61939]]

150 respondents are subject to Regulation 14C and it is estimated that 
15 of these would deliver the notice. The estimated burden associated 
with Regulation 14C as revised per registrant delivering the notice is 
105 hours, and 85 hours for a registrant not delivering the notice, for 
a total annual burden of 13,050 hours.
    The information collection requirements imposed by the rules are 
required for those issuers or broker-dealers that decide to rely on the 
rule to obtain the benefit of sending fewer documents to each 
household. Those issuers or broker-dealers that decide not to obtain 
that benefit are not required to rely on the rule. Responses to the 
collection of information will not be kept confidential.
    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments in order to: (i) Evaluate whether the proposed collections of 
information are 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 agency's estimate of the 
burden of the proposed collections of information; (iii) enhance the 
quality, utility, and clarity of the information to be collected; and 
(iv) minimize the burden of the collections of information on 
respondents, including through the use of automated collection 
techniques or other forms of information technology.
    Persons wishing to submit comments on the collection of information 
requirements should direct them to the following persons: (i) Desk 
Officer for the Securities and Exchange Commission, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 3208, New Executive Office Building, Washington, D.C. 20503; and 
(ii) Jonathan G. Katz, Secretary, Securities and Exchange Commission, 
450 5th Street, N.W., Stop 6-9, Washington, D.C. 20549, with reference 
to File No. S7-27-97. OMB is required to make a decision concerning the 
collections of information between 30 and 60 days after publication; 
therefore, a comment to OMB is best assured of having its full effect 
if OMB receives it within 30 days of publication.

IV. Summary of Initial Regulatory Flexibility Analysis

    The Commission has prepared an Initial Regulatory Flexibility 
Analysis (``IRFA'') in accordance with 5 U.S.C. 603 regarding proposed 
rule 154 and proposed amendments to rules 14a-3, 14c-3, 14c-7, 30d-1 
and 30d-2. The following summarizes the IRFA.
    When two or more investors in a household purchase the same 
security, the prospectus delivery requirements of the Securities Act 
and shareholder report delivery rules under the Investment Company Act 
and Exchange Act may result in the mailing of multiple copies of the 
same document to the household. Sending multiple copies of the same 
document to investors who share the same address often inundates them 
with extra mail and results in higher costs for the senders.
    To reduce the number of duplicative disclosure documents delivered 
to investors, the Commission is proposing rules to permit, under 
certain circumstances, delivery of a single prospectus or shareholder 
report to a household to satisfy the applicable delivery requirements. 
The Commission is proposing rule 154 pursuant to section 19(a) of the 
Securities Act, the amendments to rules 14a-3, 14c-3, and 14c-7 
pursuant to sections 12, 14 and 23(a) of the Exchange Act, and the 
amendments to rules 30d-1 and 30d-2 pursuant to sections 30(e) and 
38(a) of the Investment Company Act.
    An issuer, other than an investment company, generally is a small 
entity if, on the last day of its most recent fiscal year, it had total 
assets of $5,000,000 or less and is engaged or proposing to engage in 
small business financing.35 An issuer is considered to be 
engaged or proposing to engage in small business financing if it is 
conducting or proposing to conduct an offering of securities that does 
not exceed $5,000,000.36 Most of these small issuers can 
conduct their offerings under Regulation A, which exempts offerings 
from the registration requirements of the Securities Act if the sum of 
all cash and other consideration to be received for the securities does 
not exceed $5,000,000, subject to a number of conditions.37 
Thus, the Commission estimates that among issuers other than investment 
companies, very few small issuers will be affected by rule 154.
---------------------------------------------------------------------------

    \35\ See 17 CFR 230.157.
    \36\ Id.
    \37\ See 17 CFR 230.251--230.263.
---------------------------------------------------------------------------

    An investment company generally is a small entity if it has net 
assets of $50,000,000 or less as of the end of its most recent fiscal 
year.38 The Commission estimates that there are 
approximately (i) 2700 active registered open-end investment companies, 
of which 620 are small entities, (ii) 520 active registered closed-end 
investment companies, of which 46 are small entities, and (iii) 629 
UITs, about 50 of which are small entities. Closed-end investment 
companies and UITs will be affected by rule 154 only if they are 
currently offering their shares.
---------------------------------------------------------------------------

    \38\ See 17 CFR 230.157.
---------------------------------------------------------------------------

    A broker-dealer generally is a small entity if it has total capital 
(i.e., net worth plus subordinated liabilities) of less than $500,000 
in its prior audited financial statements or, if it is not required to 
file such statements, on the last business day of the preceding fiscal 
year.39 The delivery of prospectuses and shareholder reports 
is likely to be handled only by broker-dealers that carry public 
customer accounts. As of December 31, 1996, broker-dealers carrying 
public customer accounts numbered approximately 750 firms, 125 of which 
were small businesses.
---------------------------------------------------------------------------

    \39\ See 17 CFR 240.0-10(c)(1).
---------------------------------------------------------------------------

    Rule 30d-1 applies to registered management investment companies. 
It is estimated that out of approximately 3,220 active management 
investment companies, approximately 666 are considered small 
entities.40 Rule 30d-2 applies to registered UITs, 
substantially all the assets of which consist of securities issued by a 
management investment company. It is estimated that out of 
approximately 500 registered UITs that are subject to rule 30d-2, 
approximately 20 are considered small entities.
---------------------------------------------------------------------------

    \40\ See 17 CFR 270.0-10.
---------------------------------------------------------------------------

    Rule 0-10 under the Exchange Act defines the term ``small 
business'' as a company whose total assets on the last day of its most 
recent fiscal year were $5 million or less.41 There are 
approximately 1000 reporting companies that have assets of $5 million 
or less.
---------------------------------------------------------------------------

    \41\ Rule 0-10 [17 CFR 240.0-10].
---------------------------------------------------------------------------

    Persons who rely on the rules would be required to either obtain 
written consent of householded persons or provide them with advance 
notice as specified in the rules. Those persons also must determine 
whether certain householded investors are natural persons and, for 
investors householded in accordance with the advance notice (rather 
than written consent) provisions, must have certain information 
concerning each householded investor's address. These requirements are 
designed to provide reasonable assurance that the prospectus or report 
will be made readily available to all investors at the address.
    The Regulatory Flexibility Act directs the Commission to consider 
significant alternatives that would accomplish the stated objective, 
while minimizing any significant adverse impact on small entities. In 
connection with the proposed rule and proposed

[[Page 61940]]

amendments, the Commission considered: (i) Establishing differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (ii) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (iii) 
the use of performance rather than design standards; and (iv) an 
exemption from coverage of the rule, or any part thereof, for such 
small entities.
    The information persons would be required to have in order to rely 
on the rules without written consent is information that they already 
have or would be required to obtain in order to conduct mailings at 
reduced rates through the U.S. Postal Service. Other information, such 
as whether investors are natural persons, is readily available. 
Therefore, the Commission does not believe differing or simplified 
compliance or reporting requirements or timetables are necessary for 
small entities. In addition, differing requirements for small entities 
would not be consistent with investor protection and the purposes of 
section 5 of the Securities Act.
    The proposed rules are designed to result in cost savings for all 
issuers and broker-dealers, while maintaining protections for 
investors. The Commission believes that small issuers and broker-
dealers will generally rely on the rules in a particular instance only 
to the extent that cost savings can be achieved. The Commission also 
believes that the rules will not impose a burden on small entities. The 
rule, if relied upon, will lower burdens for small entities; thus, it 
is not appropriate or necessary to exempt small entities from the rule 
or any part of it.
    The Commission encourages the submission of comments on matters 
discussed in the IRFA. Comment specifically is requested on the number 
of small entities that would be affected by the proposed rule and rule 
amendments. Comment also is requested on the impact of the rule and 
rule amendments on issuers and broker-dealers that are small entities. 
Commenters are asked to describe the nature of any impact and provide 
empirical data supporting the extent of the impact. These comments will 
be placed in the same public file as comments on the proposed rule and 
rule amendments themselves.
    A copy of the IRFA may be obtained by contacting Marilyn Mann, 
Securities and Exchange Commission, 450 5th Street, N.W., Stop 10-2, 
Washington, D.C. 20549.

V. Statutory Authority

    The Commission is proposing new rule 154 pursuant to the authority 
set forth in section 19(a) of the Securities Act [15 U.S.C. 77s(a)]. 
The Commission is proposing to amend rules 30d-1 and 30d-2 pursuant to 
the authority set forth in sections 30(e) and 38(a) of the Investment 
Company Act [15 U.S.C. 80a-29(e) and 80a-37(a)], and rules 14a-3, 14c-
3, and 14c-7 pursuant to the authority set forth in sections 12, 14 and 
23(a) of the Exchange Act [15 U.S.C. 78l, 78n and 78w(a)].

List of Subjects

17 CFR Parts 230 and 270

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of Proposed Rules

    For the reasons set out in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

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

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

    Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and 
80a-37, unless otherwise noted.
* * * * *
    2. Section 154 is added to read as follows:


Sec. 230.154  Delivery of prospectuses to investors at the same 
address.

    (a) Delivery of a single prospectus. If you must deliver a 
prospectus under the federal securities laws, for purposes of sections 
5(b) and 2(a)(10) of the Act (15 U.S.C. 77e(b) and 77b(a)(10)), you 
will be considered to have delivered a prospectus to investors who 
share an address if:
    (1) You deliver the prospectus to at least one of the investors, at 
any address of that investor;
    (2) You address the prospectus to a natural person; and
    (3) The other investors consent in writing to this manner of 
delivery.
    (b) Implied consent. You do not need to obtain written consent from 
an investor if the following conditions are all met.
    (1) The investor established an account with you before [effective 
date of the rule].
    (2) The investor has the same last name as the investor to whom you 
delivered the prospectus, or you reasonably believe that the investors 
are members of the same family.
    (3) You have sent the investor a notice at least 60 days before you 
begin to rely on this section concerning delivery of prospectuses to 
that investor. The notice must be a separate written statement, and 
must state that prospectuses will be delivered to only one investor at 
the shared address unless you receive contrary instructions. The notice 
must include a reply form that is easy to return and that includes the 
name and, if applicable, account number of the investor.
    (4) You have not received the reply form from the investor 
indicating the investor wishes to receive the prospectus, within 60 
days after you sent the notice.
    (5) You deliver the prospectus to:
    (i) A shared street address that you reasonably believe is a 
residence;
    (ii) A shared post office box; or
    (iii) An electronic address of the investor to whom the prospectus 
is delivered, if the investors share a street address that you 
reasonably believe is a residence.
    (c) Reasonable belief. For purposes of paragraph (b)(5) of this 
section, you can reasonably believe that an address is a residence 
unless the investor provides any information, or the U.S. Postal 
Service assigns a Zip Code, that indicates to the contrary.
    (d) Revocation of consent. If you receive a request from an 
investor that prospectuses be delivered directly to the investor in the 
future, you may not continue to rely on this section, with respect to 
that investor, for more than 30 days after you receive the request.
    (e) Exclusion of some prospectuses. This section does not apply to 
the delivery of a prospectus filed as part of a registration statement 
on Form N-14 (17 CFR 239.23), Form S-4 (17 CFR 239.25) or Form F-4 (17 
CFR 239.34), or to the delivery of any other prospectus in connection 
with a business combination transaction, exchange offer or 
reclassification of securities.
    (f) Definition of address. For purposes of this section, address 
means a street address, a post office box number, an electronic mail 
address, a facsimile telephone number, or other similar destination to 
which paper or electronic documents are delivered, unless otherwise 
provided in this section. If you have reason to believe that the 
address is a street address of a multi-unit building (for example, 
based on the Zip Code), the address must include the unit number.

[[Page 61941]]

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

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

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee, 
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78k-1, 
78l, , 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 79q, 
79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless 
otherwise noted.
* * * * *
    4. Section 14a-3 is amended by revising paragraph (e)(1) and the 
introductory text of paragraph (e)(2) to read as follows:


Sec. 240.14a-3  Information to be furnished to security holders.

* * * * *
    (e)(1)(i) A registrant will be considered to have delivered an 
annual report to security holders of record who share an address if:
    (A) The registrant delivers the annual report to at least one of 
the security holders, at any address of that security holder;
    (B) The registrant addresses the prospectus to a natural person; 
and
    (C) The other security holders consent in writing to this manner of 
delivery.
    (ii) The registrant need not obtain written consent from a security 
holder if the following conditions are all met.
    (A) The security holder first purchased securities of the 
registrant before [effective date of the rule].
    (B) The security holder has the same last name as the security 
holder to whom the registrant delivered the annual report, or the 
registrant reasonably believes that the security holders are members of 
the same family.
    (C) The registrant has sent the security holder a notice at least 
60 days before the registrant begins to rely on this section concerning 
delivery of annual reports to that security holder. The notice must be 
a separate written statement, and must state that annual reports will 
be delivered to only one investor at the shared address unless the 
registrant receives contrary instructions. The notice must include a 
reply form that is easy to return and that includes the name and, if 
applicable, account number of the security holder.
    (D) The registrant has not received the reply form from the 
security holder indicating the security holder wishes to receive the 
annual report, within 60 days after the registrant sent the notice.
    (E) The registrant sends the report to:
    (1) A shared street address that the registrant reasonably believes 
is a residence;
    (2) A shared post office box; or
    (3) An electronic address of the security holder to whom the report 
is sent, if the security holders share a street address that the 
registrant reasonably believes is a residence.
    (iii) For purposes of paragraph (e)(1)(ii)(E) of this section, the 
registrant can reasonably believe that an address is a residence unless 
the security holder provides any information, or the U.S. Postal 
Service assigns any Zip Code, that indicates to the contrary.
    (iv) If the registrant receives a request from a security holder 
that the annual report be sent directly to the security holder in the 
future, the registrant may not continue to rely on this section, with 
respect to that security holder, for more than 30 days after the 
registrant receives the request.
    Note to paragraph(e)(1). For purposes of this section, the term 
address means a street address, a post office box number, an electronic 
mail address, a facsimile telephone number, or other similar 
destination to which paper or electronic documents are delivered, 
unless otherwise provided in this section. If the registrant has reason 
to believe that the address is a street address of a multi-unit 
building (for example, based on the Zip Code), the address must include 
the unit number.
    (2) Notwithstanding paragraphs (a) and (b) of this section, unless 
state law requires otherwise, a registrant is not required to send an 
annual report or proxy statement to a security holder if:
* * * * *
    5. In Sec. 240.14c-3, paragraph (c) is added to read as follows:


Sec. 240.14c-3  Annual report to be furnished security holders.

* * * * *
    (c) A registrant will be considered to have delivered an annual 
report to security holders of record who share an address if the 
requirements set forth in Sec. 240.14a-3(e)(1) are satisfied.
    6. In Sec. 240.14c-7, Note 2 is removed and Notes 3 and 4 are 
redesignated as Notes 2 and 3.

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

    7. The authority citation for Part 270 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-37, 80a-39 unless 
otherwise noted;
* * * * *
    8. Section 30d-1 is amended by adding paragraph (f) to read as 
follows:


Sec. 270.30d-1  Reports to stockholders of management companies.

* * * * *
    (f)(1) A company will be considered to have transmitted a report to 
shareholders who share an address if:
    (i) The company transmits the report to at least one of the 
shareholders, at any address of that shareholder;
    (ii) The company addresses the report to a natural person; and
    (iii) The other shareholders consent in writing to this manner of 
delivery.
    (2) The company need not obtain written consent from a shareholder 
if the following conditions are all met.
    (i) The shareholder first purchased securities of the company 
before [effective date of the rule].
    (ii) The shareholder has the same last name as the shareholder to 
whom the company delivered the report, or the company reasonably 
believes that the shareholders are members of the same family.
    (iii) The company has transmitted a notice to the shareholder at 
least 60 days before the company begins to rely on this section 
concerning transmission of reports to that shareholder. The notice must 
be a separate written statement, and must state that reports will be 
delivered to only one shareholder at the shared address unless the 
company receives contrary instructions. The notice must include a reply 
form that is easy to return and that includes the name and, if 
applicable, account number of the shareholder.
    (iv) The company has not received the reply form from the 
shareholder indicating the shareholder wishes to receive the report, 
within 60 days after the company sent the notice.
    (v) The company transmits the report to:
    (A) A shared street address that the company reasonably believes is 
a residence;
    (B) A shared post office box; or
    (C) An electronic address of the shareholder to whom the report is 
transmitted, if the shareholders share a street address that the 
company reasonably believes is a residence.
    (3) For purposes of paragraph (f)(2)(v) of this section, the 
company can reasonably believe that an address is a residence unless 
the shareholder provides any information, or the U.S. Postal Service 
assigns a Zip Code, that indicates to the contrary.
    (4) If the company receives a request from a shareholder that 
reports be transmitted directly to the shareholder in the future, the 
company may not continue to rely on this section, with respect to that 
shareholder, for more than 30 days after the company receives the 
request.
    (5) For purposes of this section, address means a street address, a 
post

[[Page 61942]]

office box number, an electronic mail address, a facsimile telephone 
number, or other similar destination to which paper or electronic 
documents are transmitted, unless otherwise provided in this section. 
If the company has reason to believe that the address is a street 
address of a multi-unit building (for example, based on the Zip Code), 
the address must include the unit number.
    9. Section 30d-2 is revised to read as follows:


Sec. 270.30d-2  Reports to shareholders of unit investment trusts.

    (a) At least semiannually every registered unit investment trust 
substantially all the assets of which consist of securities issued by a 
management company must transmit to each shareholder of record 
(including record holders of periodic payment plan certificates), a 
report containing all the applicable information and financial 
statements or their equivalent, required by Sec. 270.30d-1 to be 
included in reports of the management company for the same fiscal 
period. Each such report must be transmitted within the period allowed 
the management company by Sec. 270.30d-1 for transmitting reports to 
its stockholders.
    (b) Any report required by this section will be considered 
transmitted to a shareholder of record if the unit investment trust 
satisfies the conditions set forth in Sec. 270.30d-1(f) with respect to 
that shareholder.

    By the Commission.

    Dated: November 13, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30430 Filed 11-19-97; 8:45 am]
BILLING CODE 8010-01-P