[Federal Register Volume 64, Number 220 (Tuesday, November 16, 1999)]
[Rules and Regulations]
[Pages 62540-62547]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29531]



[[Page 62539]]

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Part III





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Parts 230, 240 and 270



Delivery of Disclosure Documents to Households; Final Rule



17 CFR Parts 230 and 240



Delivery of Proxy and Information Statements to Households; Proposed 
Rule

  Federal Register / Vol. 64, No. 220 / Tuesday, November 16, 1999 / 
Rules and Regulations  

[[Page 62540]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 270

[Release Nos. 33-7766, 34-42101, IC-24123; File No. S7-27-97]
RIN 3235-AG98


Delivery of Disclosure Documents to Households

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Commission is adopting a new rule under the Securities Act 
of 1933 to permit 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. We are adopting similar amendments to the rules 
under the Securities Exchange Act of 1934 and the Investment Company 
Act of 1940 that require the delivery of shareholder reports. The rules 
will provide greater convenience for investors and cost savings for 
issuers by reducing the number of duplicate documents that investors 
receive.

EFFECTIVE DATE: The new rule and rule amendments will be effective 
December 20, 1999.

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

SUPPLEMENTARY INFORMATION: The Commission today is adopting rule 154 
[17 CFR 230.154] under the Securities Act of 1933 [15 U.S.C. 77a] (the 
``Securities Act'') \1\ and amendments to rules 14a-3, 14c-3, and 14c-7 
[17 CFR 240.14a-3, 240.14c-3, 240.14c-7] under the Securities Exchange 
Act of 1934 [15 U.S.C. 78a] (the ``Exchange Act''), and rules 30d-1 and 
30d-2 [17 CFR 270.30d-1, 270.30d-2] under the Investment Company Act of 
1940 [15 U.S.C. 80a] (the ``Investment Company Act'').
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    \1\ Unless otherwise noted, all references to ``rule 154'' are 
to 17 CFR 230.154 as adopted in this release.
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I. Background

    The federal securities laws generally require the delivery of 
prospectuses and shareholder reports to investors.\2\ As a result of 
increased ownership of securities by individuals through different 
types of accounts, such as brokerage accounts, individual retirement 
accounts and custodial accounts for minors, duplicate copies of these 
documents often are mailed to a single household.\3\
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    \2\ The Securities Act requires the delivery of prospectuses to 
investors who buy securities from an issuer or from underwriters or 
dealers who participate in a registered distribution of securities. 
See Securities Act sections 2(a)(10), 4(1), 4(3), 5(b) [15 U.S.C. 
77b(a)(10), 77d(1), 77d(3), 77e(b)]; see also rule 174 under the 
Securities Act [17 CFR 230.174] (regarding the prospectus delivery 
obligation of dealers); rule 15c2-8 under the Exchange Act [17 CFR 
240.15c2-8] (prospectus delivery obligations of brokers and 
dealers). The Investment Company Act requires most registered 
investment companies (``funds'') to send annual and semiannual 
reports to their investors. See section 30(e) [15 U.S.C. 80a-29(e)]; 
rules 30d-1, 30d-2 under the Investment Company Act [17 CFR 270.30d-
1, 270.30d-2]. Rules under the Exchange Act require other types of 
issuers (such as operating companies subject to Exchange Act 
reporting requirements) to send annual reports to their investors. 
See rules 14a-3, 14c-3 [17 CFR 240.14a-3, 240.14c-3].
    \3\ See Delivery of Disclosure Documents to Households, 
Securities Act Release No. 7475 (Nov. 13, 1997) [62 FR 61933 (Nov. 
20, 1997)] (``Proposing Release''), at nn.1-6 and accompanying text. 
The problem of delivery of duplicate documents is particularly 
significant in the case of open-end management investment companies 
(``mutual funds''), which are required to send their investors 
annual and semiannual reports, and which generally send investors 
updated prospectuses each year. See id. at nn.1-2 and accompanying 
text.
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    To reduce the number of duplicate disclosure documents delivered to 
investors, the Commission proposed rules in November 1997 to permit, 
under certain conditions, delivery of one prospectus or shareholder 
report to investors who share an address (``householding'').\4\ We 
received 51 comment letters in response to the proposal.\5\ Commenters 
generally supported householding, but many suggested changes that would 
affect the scope and conditions of the rules. The Commission is 
adopting the proposed amendments, with certain modifications that 
reflect many of the issues raised by commenters.
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    \4\ See Proposing Release, supra note 3.
    \5\ The commenters included 29 individual investors or their 
representatives, 15 corporate issuers, 11 financial institutions 
(investment advisers, mutual fund complexes, broker-dealers and bank 
holding companies), 3 trade associations, 1 consultant, and 1 stock 
exchange. Two commenters submitted two letters each, and some 
comment letters were signed by more than one person. The comment 
letters and a summary of the comments are available for public 
inspection and copying in the Commission's Public Reference Room, 
450 5th Street, NW, Washington, DC (File No. S7-27-97).
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II. Discussion

A. Delivery of Prospectuses to a Household

    Under new rule 154, a prospectus is considered delivered to all 
investors at a shared address, for purposes of the federal securities 
laws, if the person relying on the rule delivers the prospectus to the 
shared address and the investors consent to delivery of a single 
prospectus.\6\ The rule applies to prospectuses and to prospectus 
supplements.
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    \6\ Rule 154(a). Some commenters asked us to clarify that if a 
single investor holds the same security in two or more accounts with 
the same address, the prospectus delivery requirements of section 5 
of the Securities Act are satisfied if one copy of the prospectus is 
delivered to the investor, without the need to rely on the rule. We 
agree that the delivery of a single prospectus in those 
circumstances meets the delivery requirements of the Securities Act. 
Delivery of a single shareholder report also would meet the delivery 
requirements of the federal securities laws for shareholder reports, 
in similar circumstances. In addition, we believe that delivery of a 
single prospectus or shareholder report is sufficient if the 
investor is acting as custodian for securities in one or more 
accounts created under a state Uniform Gifts to Minors Act 
(``UGMA'') or Uniform Transfers to Minors Act (``UTMA'') statute.
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1. Scope of the Rule
    As adopted, rule 154 permits the householding of all types of 
prospectuses except those required to be delivered for business 
combinations, exchange offers, or reclassifications of securities.\7\ 
Although the Commission did not request comment on the householding of 
proxy materials, many commenters suggested that we consider rule 
amendments to permit the householding of those materials. Today in a 
companion release we are proposing amendments to Exchange Act rules to 
permit the householding of proxy and information statements.\8\ The 
release also proposes to expand the coverage of rule 154 to include 
prospectuses for business combinations, exchange offers, or 
reclassifications of securities.
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    \7\ See rule 154(e).
    \8\ See Delivery of Proxy and Information Statements to 
Households, Securities Act Release No. 33-7767 (Nov. 4, 1999) 
(``Companion Release'').
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2. Addressing to Investors
    Proposed rule 154 would have required the prospectus to be 
addressed to one person rather than a group of persons (e.g., ``The 
Smith Household''). The Commission expressed concern in the Proposing 
Release that mail addressed to a group may be less likely to be opened 
and read, because it might be viewed as ``junk mail.'' Several 
commenters argued that addressing to a group may actually increase the 
chance

[[Page 62541]]

that the envelope containing the prospectus would be opened, and would 
be consistent with the idea that the prospectus was intended for all 
the investors. The Commission agrees that this form of address should 
be acceptable. The rule as adopted therefore permits addressing to 
investors as a group, and the group may be designated by reference to 
any of the investors who is receiving the prospectus (e.g., ``Jane Doe 
and Household'' or ``Household of Jane Doe'').\9\ The rule also permits 
addressing to individuals rather than a group if each investor is 
included in the address (e.g., ``Jane Doe and Bob Jones'').\10\
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    \9\ See rule 154(a)(2).
    \10\ See id. This requirement is designed to reduce confusion 
about whether an individual is receiving a prospectus on behalf of 
other investors in the household.
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    The proposed rule also would have permitted householding only if 
the prospectus was addressed to a natural person. Some commenters 
pointed out that this provision would prohibit addressing a prospectus 
to a family business that owns securities and operates out of a 
household shared by individual investors. Another commenter added that 
it may be difficult in many cases to determine whether the investor is 
a natural person. We agree, and the rule as adopted does not include 
the natural person requirement.
    Proposed rule 154 would have permitted delivery of a prospectus to 
any address of an investor who shares an address with other investors 
consenting to householding, even if the other investors do not share 
the address to which the prospectus is delivered. Some commenters 
opposed this provision, either because the investors who do not share 
the delivery address might not have access to the prospectus, or 
because of the extra recordkeeping involved in sending the prospectus 
to an unshared address. Upon further consideration, we agree that 
delivery to one investor at an address that is not shared creates a 
risk that the other investors will not have access to the prospectus, 
and the rule as adopted requires that the prospectus be sent to the 
investors' shared address.\11\
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    \11\ See rule 154(a)(1).
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    The proposed rule also would have permitted delivery of a 
prospectus to an electronic address, for example, an electronic mail 
account. Several commenters noted the difficulty of permitting 
electronic delivery of householded documents. One individual investor 
emphasized the risks involved in using electronic delivery, especially 
the ease with which electronic messages might be deleted by 
accident.\12\ Because of these concerns, we believe that investors who 
are householded through electronic delivery should specifically consent 
to this type of delivery. The rule as adopted permits the householding 
of prospectuses that are delivered to investors electronically only if 
delivery is made to a shared electronic address and the investors give 
written consent to householding.\13\
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    \12\ The commenter also stated that there may be difficulties in 
forwarding messages from a discontinued e-mail account with an 
Internet service provider.
    \13\ See rule 154(b)(4) (limiting householding without written 
consent to prospectuses delivered to a post office box or a 
residential street address). Consent issues are discussed below.
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3. Investor Consent
    a. Written Consent. Rule 154 permits delivery of one prospectus on 
behalf of two or more investors at a shared address who have given 
written consent to householding.\14\ The investors need not be related, 
and the shared address can be a residential, commercial, or electronic 
address.\15\
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    \14\ Rule 154(a). A signature on a new account application form 
would not satisfy the written consent requirement if the account 
form merely refers to or incorporates by reference another document, 
such as the prospectus, and does not describe the householding of 
prospectuses. An investor can be given the option of consenting to 
householding for prospectuses relating only to a particular 
security, or consenting to delivery of any prospectus a person is 
required to deliver to the investor. The rule, however, does not 
require that investors be given this option of limiting their 
consent to a particular security.
    \15\ The Proposing Release noted the general requirements for 
electronic delivery of documents to investors. The Commission has 
issued two interpretive releases expressing its views on the 
electronic delivery of documents, including prospectuses and 
investment company semiannual reports. 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 Proposing Release, 
supra note 3, at n.9; Use of Electronic Media for Delivery Purposes, 
Securities Act Release No. 7233 (Oct. 6, 1995) [61 FR 53458 (Oct. 
13, 1995)]; 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)].
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    b. Implied Consent. Rule 154 permits delivery of one prospectus on 
behalf of two or more investors at a shared address without written 
consent, if four conditions are met.\16\ First, the investors must have 
the same last name or the person relying on the rule must reasonably 
believe that they are members of the same family.\17\ Second, at least 
60 days before householding begins each investor must have received 
written notice \18\ with an opportunity to respond and opt out of 
householding.\19\ The opportunity to respond must be provided by a 
toll-free telephone number disclosed in the notice or a reply form that 
accompanies the notice.\20\ Third, the investors must not opt out of 
householding during the 60-day period. Fourth, the person relying on 
the rule must deliver the prospectus to a residential street address or 
a post office box.\21\
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    \16\ Rule 154(b)(1)--(4).
    \17\ Some commenters expressed concern about their ability to 
discern whether certain investors at the same address are members of 
the same family. We believe that persons relying on the rule may, in 
many cases, be able to base their reasonable belief on information 
already provided by investors (e.g., on an account application) or 
on any information they may have obtained from other sources. For 
example, it would be reasonable to infer that two persons residing 
at the same address are members of the same family if they have 
opened a joint account or have opened an account under an UGMA or 
UTMA statute.
    \18\ The notice must be a separate written statement. See rule 
154(b)(2). The notice, as well as the envelope containing the 
notice, also must contain a prominent statement such as ``Important 
Notice Regarding Delivery of Shareholder Documents.'' See rule 
154(b)(2)(vi). As an alternative to this requirement, if the notice 
is sent in a separate mailing, the prominent statement may appear 
either on the envelope or on the notice itself. Id.
    \19\ The notice also must state whether the consent will be for 
a limited or unlimited period of time, explain how the investor can 
revoke consent, and explain that individual delivery will resume no 
later than 30 days after the investor revokes consent. See rule 
154(b)(2)(iii)--(v). In order to make the notice understandable to 
investors, it should be written in plain English. See rule 154(b)(2) 
note. Securities Act rule 421(d)(2) [17 CFR 230.421(d)(2)] lists the 
following plain English principles: (i) Short sentences; (ii) 
definite, concrete, everyday words; (iii) active voice; (iv) tabular 
presentation or bullet lists for complex material, whenever 
possible; (v) no legal jargon or highly technical terms; and (vi) no 
multiple negatives.
    \20\ The reply form must be pre-addressed, and returnable by 
business reply mail or by another method in which the person relying 
on the rule pays the postage. See rule 154(b)(2)(ii). The notice 
also may list additional methods of opting out of householding, such 
as sending the reply form to a facsimile telephone number or 
responding by e-mail.
    \21\ Rule 154 clarifies that unless the person relying on the 
rule has information that indicates the address is a business 
address, that person can assume that the address is a residence. See 
rule 154(b)(4). The rule also provides that if the sender has reason 
to believe that an address is that of a multi-unit building, the 
address must include the unit number. See rule 154(d). This 
requirement is designed to prevent the assumption that investors who 
live in different apartments in an apartment building are members of 
the same household.
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    The Commission proposed to limit householding without written 
consent to situations in which investors had opened their accounts 
before the effective date of the new rule. We understood that persons 
relying on the rule would find it difficult to obtain consent from 
existing investors, and

[[Page 62542]]

were concerned that the failure of many of those investors to respond 
to requests for consent would preclude the benefits of householding 
from being realized. In the case of new investors, however, we believed 
that consent could be obtained when the investor opened his or her 
account.\22\
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    \22\ See Proposing Release, supra note 3, at n.20 and 
accompanying text.
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    Fourteen commenters, representing primarily advisers to registered 
investment companies (``funds'') and their trade associations, urged 
the Commission to eliminate the written consent requirement.\23\ Some 
of these commenters asserted that numerous administrative and 
compliance difficulties would be created by distinguishing between 
investors who must give written consent and those who need not.\24\ We 
also received comments from 25 individual investors who urged the 
Commission to adopt the rule as proposed but did not specifically 
address the consent requirement.\25\
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    \23\ Four commenters recommended that the rule permit 
householding without written consent and without implied consent 
under the proposed conditions. Instead, they favored permitting 
householding if the company were to disclose its householding 
policies in its prospectus and provide investors a means to opt out 
of householding. One of these commenters suggested that investors be 
informed about householding through an article in an investor 
newsletter. We do not believe that investor consent can reasonably 
be inferred from silence after disclosure in a prospectus or 
newsletter. The suggested approach also would not necessarily work 
for issuers that do not periodically deliver prospectuses or 
newsletters.
    \24\ Two of these commenters stated that distinguishing between 
accounts that could be householded with notice, and accounts that 
could be householded only with written consent, would be costly and 
burdensome to administer, and potentially confusing for investors.
    \25\ Another individual investor supported requiring written 
consent from all investors.
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    In consideration of the potential benefits of householding to 
investors, the Commission has decided not to require written consent as 
a prerequisite to householding with respect to all new investors. The 
rule permits householding with implied consent under limited conditions 
(discussed above) in which investors could be presumed to need only one 
copy of the document delivered to the household. These investors should 
have adequate advance notice of householding and will be able to 
request individual delivery of prospectuses at any time.\26\ The rule 
as adopted also requires that, at least once a year, persons relying on 
the rule for the householding of open-end management investment company 
prospectuses explain to investors who have provided written or implied 
consent how they can revoke their consent.\27\
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    \26\ We are adopting as proposed the requirement that, if an 
investor requests resumption of individual delivery, the person 
relying on the rule must resume individual delivery after 30 days. 
See rule 154(c).
    \27\ Id. Unlike other issuers, open-end management investment 
companies (i.e., mutual funds) typically send investors updated 
prospectuses annually. See supra note 3. Persons relying on the rule 
can make the explanation required by the rule through any means 
reasonably designed to reach these investors, such as in a 
prospectus, shareholder report, or investor newsletter. See rule 
154(c).
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B. Shareholder Reports

    The Commission is adopting amendments to rules 30d-1 and 30d-2 
under the Investment Company Act and rules 14a-3, 14c-3 and 14c-7 under 
the Exchange Act, to permit householding of annual and semiannual 
reports under substantially the same conditions as those in rule 154 
with respect to prospectuses.\28\ Commenters supported requiring the 
same conditions for householding of these two types of documents.\29\
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    \28\ One difference between the conditions for householding 
prospectuses and semiannual reports and the conditions for 
householding annual reports, is that the implied consent notice 
concerning annual reports must be delivered separately from other 
communications. See 17 CFR 240.14a-3(e)(1)(ii)(B)(1). This condition 
for the householding of annual reports corresponds to the proposed 
conditions for the householding of proxy and information statements, 
with which annual reports are typically delivered. See Companion 
Release, supra note 8, at note 28.
    \29\ Some mutual funds already household shareholder reports in 
reliance on no-action letters issued by the Commission staff. See 
Oppenheimer Funds, SEC No-Action Letter (July 20, 1994); Scudder 
Group of Funds, SEC No-Action Letter (June 19, 1990); Allstate 
Enterprises Stock Fund, Inc., SEC No-Action Letter (July 22, 1973). 
These funds may continue to household shareholder reports of 
investors whose reports are already being householded, without 
sending notices or obtaining written consent under rules 30d-1 and 
30d-2. If the investors revoke consent to householding, however, the 
funds should comply with the revocation provisions of the rules. In 
addition, if the funds household prospectuses, the funds would need 
to comply fully with rule 154.
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III. Cost-Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by 
its rules. The rules adopted today permit issuers and broker-dealers to 
send fewer copies of disclosure documents than they currently must 
send, and therefore should result in savings in printing, postage, and 
other delivery costs for issuers and broker-dealers. Investors will 
benefit from the decrease in delivery costs paid by issuers and from no 
longer being burdened with duplicate documents. The rules require 
issuers and broker-dealers who rely on the rules to comply with certain 
procedures, including obtaining either written consents from investors 
or delivering notices 60 days in advance of householding. Because 
exemptions provided by the rules are voluntary, the Commission expects 
that issuers and broker-dealers generally will rely on the rules only 
if the benefits of householding outweigh the costs.
    In the Proposing Release, the Commission requested comment on the 
costs and benefits of the rules. Commenters generally supported the 
goals of the proposal but advocated certain changes that they believed 
would decrease its costs and increase its benefits. In particular, most 
commenters who addressed the issue stated that the rule should permit 
householding based on implied consent for new investors, and that 
obtaining written consent would be too costly in many cases. As 
adopted, the rules permit householding based on either implied consent 
or written consent for new as well as existing investors.\30\ This 
regulatory flexibility should enable issuers and broker-dealers to 
minimize compliance costs associated with the rules.
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    \30\ The ability to household documents based on implied consent 
should help maximize the number of investors householded, because it 
is likely that few investors who receive notices will object to 
being householded. One large fund complex stated in its comment 
letter that when it notified approximately 3 million customers of 
its plans to household shareholder reports, only 1,703 (.057%) asked 
to continue receiving separate mailings for each account.
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    Several commenters estimated the percentage of prospectuses and 
annual reports mailed to their investors that could be eliminated 
through householding. One large fund complex stated that householding 
would yield savings in mailing costs for its funds in the range of 5 to 
21 percent, depending on the fund. Another fund and brokerage firm 
estimated that householding would reduce prospectus and shareholder 
report mailings to investors in its non-proprietary open-end funds 
(``mutual funds'') by approximately 9 percent, a reduction of over 2 
million mail pieces and a savings of approximately $1 million, assuming 
production, printing and mailing costs of $.50 per piece. This firm 
also estimated that householding would reduce prospectus mailings to 
its proprietary mutual fund customers by almost half (over 1.5 million 
mail pieces out of 3.2 million), for a savings of approximately 
$750,000. A corporate issuer stated that approximately 10 percent of 
its shareholders of record have the same mailing address. These 
estimates, although they vary from one issuer to another, show that the 
cost savings produced by householding would be considerable. The 
commenters' estimates also appear to be consistent with the estimates 
made in the Proposing Release.

[[Page 62543]]

    Based on information provided by two mutual fund complexes, the 
Commission estimates that a prospectus costs approximately $.45 to 
print and deliver, and a shareholder report costs approximately $.52 to 
print and deliver.\31\ The Commission also estimates that the average 
decline in the number of prospectuses and shareholder reports delivered 
would be between 10 and 30 percent. As of 1997, there were 
approximately 170 million shareholder accounts invested in mutual 
funds.\32\ Assuming that 80 percent of mutual fund accounts receive an 
updated prospectus each year, resulting in the 170 million shareholder 
accounts receiving a total of approximately 136 million prospectuses 
each year, the approximate potential benefit in reduced delivery of 
mutual fund prospectuses as a result of rule 154 would be between $6.1 
and $18.4 million per year. Each shareholder receives two reports per 
year, and the approximate potential benefit from adoption of the 
amendments to rules 30d-1 and 30d-2 would be between $17.7 and $53.0 
million per year. We note, however, that the savings from the adoption 
of the amendments to rules 30d-1 and 30d-2 will be reduced somewhat 
because many funds already household reports based on Commission staff 
no-action positions.\33\ Therefore, it is not possible to precisely 
estimate the number of accounts for which householding of shareholder 
reports will be initiated based on the amendments to rules 30d-1 and 
30d-2.
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    \31\ See Proposing Release, supra note 3, at n.29 and 
accompanying text.
    \32\ See Investment Company Institute, 1998 Mutual Fund Fact 
Book 116.
    \33\ See Proposing Release, supra note 3, at n.5.
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    With respect to the delivery of prospectuses of issuers other than 
mutual funds, the benefits of rule 154 would be less than the benefits 
discussed above, because these companies do not send prospectuses to 
their shareholders on an annual basis. It is likely, however, that some 
broker-dealers will rely on rule 154 to deliver prospectuses of issuers 
other than mutual funds in cases in which the broker-dealers have 
obtained either written or implied consent from their customers to 
household documents.
    With respect to the delivery of annual reports by issuers other 
than mutual funds, these companies probably would not realize 
significant savings as a result of the amendments to rules 14a-3 and 
14c-3 because rules 14a-3 and 14c-7 already include provisions 
permitting householding of the annual report, although those rules did 
not permit implied consent to householding. In addition, corporate 
commenters on the Proposing Release stated that because they generally 
mail the annual report together with the proxy or information 
statement, their ability to household the annual report is limited by 
their inability under current rules to household the proxy statement. 
As discussed above, the Commission is proposing to permit companies to 
household proxy and information statements in a companion release.\34\
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    \34\ See supra note 8.
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    Persons who rely on the rules would incur costs in obtaining 
consents from and sending notices to investors. The principal costs 
associated with sending the notice should be the printing costs and 
postage costs. These printing and postage costs should be less than the 
cost of sending reports to investors, and the costs should be non-
recurring because the notice generally will only have to be sent once 
to each investor in a household. Costs of the annual explanation 
concerning the right to revoke consent should be low, because the 
explanation can be included with other matter that is routinely sent 
out, such as a client newsletter.

IV. Effects on Competition, Efficiency and Capital Formation

    Section 23(a) of the Exchange Act requires the Commission, in 
adopting rules under the Exchange Act, to consider the competitive 
effects of such rules, if any, and to refrain from adopting a rule that 
would impose a burden on competition not necessary or appropriate in 
furthering the purposes of the Exchange Act.\35\ In addition, section 
3(f) of the Exchange Act and section 2(c) of the Investment Company Act 
provide that when the Commission is engaged in rulemaking and is 
required to consider whether an action is necessary or appropriate in 
the public interest, it must consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, and 
capital formation.\36\
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    \35\ 15 U.S.C. 78w(a).
    \36\ 15 U.S.C. 78c(f), 80a-2(c).
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    The Commission does not believe the amendments to rules 14a-3, 14c-
3 and 14c-7 will impose any burden on competition. Based on the reasons 
stated in the cost-benefit analysis above, as well as the reasons 
stated elsewhere in this release, the Commission believes that those 
rules, as well as the amendments to rules 30d-1 and 30d-2, will promote 
efficiency, competition, and capital formation. The rules will enable 
brokers and issuers to decrease printing and mailing costs. These 
decreased costs should promote efficiency and capital formation. The 
rules may also promote competition in shareholder services.

V. Paperwork Reduction Act

    Certain provisions of rule 154 and the rule amendments contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995 (``PRA'').\37\ The Commission submitted 
the collection of information requirements contained in the rules to 
the Office of Management and Budget for review in accordance with 44 
U.S.C. 3507(d) and 5 CFR 1320.11.\38\ An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless the agency displays a valid OMB control number.\39\
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    \37\ 44 U.S.C. 3501-3520.
    \38\ 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.'' The OMB control numbers for the rules are as follows: rule 
154 (3235-0495, expires 2/28/2001); rule 14a-3, contained in 
Regulation 14A (3235-0059, expires 1/31/2002); rules 14c-3 and 14c-
7, contained in Regulation 14C (3235-0057, expires 1/31/2002); rule 
30d-1 (3235-0025, expires 2/28/2001); rule 30d-2 (3235-0494, expires 
2/28/2001).
    \39\ 44 U.S.C. 3506(c)(1)(B)(v).
---------------------------------------------------------------------------

    The rules permit delivery of a single prospectus or shareholder 
report to a household to satisfy the delivery requirements with respect 
to two or more investors in the household. A person relying on one of 
the rules must obtain either written or implied consent to householding 
from each investor. The rules require persons who wish to household 
with implied consent to send a notice to each investor stating that the 
investors in the household will receive one prospectus or report in the 
future unless the investors provide contrary instructions.\40\ The 
purpose of this requirement is to give reasonable assurance that all 
investors have access to the prospectus or report. Preparing and 
sending the initial notice and the annual explanation of the right to 
revoke are collections of information. The Commission did not receive 
any comments in response to its request for comments on the Paperwork 
Reduction Act analysis in the Proposing Release.
---------------------------------------------------------------------------

    \40\ Under the proposed rules, implied consent could be used 
only for investors who had already opened an account as of the 
effective date of the rules. The rules as adopted also permit the 
use of implied consent for new investors.
---------------------------------------------------------------------------

    Because notices will need to be sent to an investor before 
householding of

[[Page 62544]]

that investor's documents begins, persons that choose to rely on the 
rule will probably send the greatest number of notices in the first 
year after the rule is adopted. The Commission expects that most 
notices will be short, one-page 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. In addition, the Commission estimates 1 hour per 
respondent for preparing and delivering the annual explanation of the 
right to revoke.
    Although rule 154 is not limited to investment companies, the 
Commission believes that it will 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 
will rely on the rule.
    The Commission estimates that there are approximately 2,900 mutual 
funds, approximately 545 of which engage in direct marketing and 
therefore deliver their own prospectuses. The Commission estimates that 
each direct marketed mutual fund will spend an average of 20 hours per 
year complying with the notice requirement of the rule, for a total of 
10,900 hours. The Commission estimates that each direct marketed fund 
will spend 1 hour complying with the explanation of the right to revoke 
requirement of the rule, for a total of 545 hours. The Commission 
estimates that as of year-end 1998 there were approximately 300 broker-
dealers that carry customer accounts and, therefore, may be required to 
deliver mutual fund prospectuses. The Commission estimates that each 
affected broker-dealer will spend, on average, approximately 20 hours 
complying with the notice requirement of the rule, for a total of 6,000 
hours. Each broker-dealer would also spend 1 hour complying with the 
annual explanation of a right to revoke requirement, for a total of 300 
hours. Therefore, the total number of respondents for rule 154 is 845 
(545 mutual funds plus 300 broker-dealers), and the estimated total 
hour burden is 17,745 hours (11,445 hours for mutual funds plus 6,300 
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 unit investment trusts (``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 
amendments to rules 30d-1 and 30d-2 will permit management investment 
companies and UITs to household 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. We estimate that there are 
approximately 3,515 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. The Commission estimates that the burden 
associated with the explanation of the right to revoke is 1 hour per 
company. Therefore, the Commission estimates that the total burden 
associated with rule 30d-1 is 202 hours per company, or a total of 
710,030 hours. In addition, the Commission estimates that the cost of 
contracting for outside services associated with the rule is $63,150 
per respondent (421 hours times $150 per hour for independent auditor 
services), for a total cost of $221,972,250 ($63,150 times 3,515 
respondents).
    Rule 30d-2 applies to approximately 637 UITs. The Commission 
estimates that the annual burden associated with rule 30d-2 is 121 
hours per respondent, including the estimated 20 hours associated with 
the notice requirement and the 1 hour associated with the explanation 
of a right to revoke requirement. The total hourly burden is therefore 
approximately 77,077 hours. The Commission estimates that the annual 
financial cost of complying with rule 30d-2 (in addition to the hourly 
cost) is $12,000 per respondent (80 hours times $150 per hour for 
independent auditor services), or a total of $7,644,000.
    With respect to the amendments to rules 14a-3, 14c-3 and 14c-7, 
those rules are included in Regulations 14A and 14C, which contain 
information collection requirements related to proxy and information 
statements. 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 will be approximately 20 hours per respondent 
per year. The Commission estimates that 9,892 respondents are subject 
to Regulation 14A and that approximately 989 of these will deliver the 
notice. The Commission estimates that the burden associated with 
Regulation 14A as revised per registrant delivering the notice will be 
approximately 74 hours, and 54 hours per registrant not delivering the 
notice, for a total annual burden of 553,948 hours. An estimated 253 
respondents are subject to Regulation 14C and it is estimated that 25 
of these will deliver the notice. The estimated burden associated with 
Regulation 14C as revised per registrant delivering the notice is 74 
hours, and 54 hours for a registrant not delivering the notice, for a 
total annual burden of 14,162 hours.

------------------------------------------------------------------------
                                                  Hours        Cost
------------------------------------------------------------------------
Rule 154......................................    17,745              NA
Rule 30d-1....................................   710,030    $221,972,250
Rule 30d-2....................................    77,077      $7,644,000
Rule 14A......................................   553,948              NA
Rule 14C......................................    14,162              NA
------------------------------------------------------------------------

    The information collection requirements imposed by the new rule and 
rule amendments 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.

VI. Summary of Final Regulatory Flexibility Analysis

    The Commission has prepared a Final Regulatory Flexibility Analysis 
(``FRFA'') in accordance with 5 U.S.C. 604 relating to the adopted rule 
and amendments. A summary of the Initial Regulatory Flexibility 
Analysis (``IRFA''), which was prepared in accordance with 5 U.S.C. 
603, was published in the Proposing Release. No comments were received 
on the IRFA.
    The FRFA discusses the need for, and objectives of, new rule 154 
and the amendments to rules 14a-3, 14c-3, 14c-7, 30d-1, and 30d-2. The 
FRFA states that duplicate copies of prospectuses and shareholder 
reports are often mailed to a household if more than one investor in 
the household owns the same security. The new rule and amendments are 
designed to reduce the number of duplicate documents delivered to 
investors by permitting the delivery of one prospectus or shareholder 
report to two or more investors who share an address.
    The FRFA provides descriptions and estimates of the number of small 
entities

[[Page 62545]]

to which the rules will apply. The term ``small business'' or ``small 
organization'' (collectively, ``small entity''), when used with 
reference to an issuer other than a fund, is defined by rule 157 under 
the Securities Act to include an issuer that, on the last day of its 
most recent fiscal year, had total assets of $5 million or less and is 
engaged or proposing to engage in small business financing.\41\ 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 million subject to a 
number of conditions.\42\ These issuers do not need to deliver 
prospectuses. Thus, the Commission estimates that among issuers other 
than registered investment companies, very few small issuers, as 
defined in rule 157 under the Securities Act, will be affected by rule 
154.
---------------------------------------------------------------------------

    \41\ See 17 CFR 230.157 (1997). 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 the $5 million limitation prescribed by section 3(b) 
of the Securities Act. The Commission last year amended certain 
definitions under the Securities Act, Exchange Act, and Investment 
Company Act for purposes of the Regulatory Flexibility Act. See 
Definitions of ``Small Business'' or ``Small Organization'' Under 
the Investment Company Act of 1940, the Investment Advisers Act of 
1940, the Securities Exchange Act of 1934 and the Securities Act of 
1933, Securities Act Release No. 7548 (June 24, 1998) [63 FR 35508 
(June 30, 1998)]. Because the IRFA for this proposal relied on the 
earlier definitions (which were broader), the FRFA also relies on 
the earlier definitions.
    \42\ See 17 CFR 230.251-.263.
---------------------------------------------------------------------------

    As defined in rule 157, a fund generally is a small entity if it 
has net assets of $50 million or less as of the end of its most recent 
fiscal year.\43\ The Commission staff estimates that there are 
approximately (i) 2,900 active open-end funds, of which 475 are small 
entities, (ii) 678 active closed-end funds, of which 115 are small 
entities, and (iii) 745 active registered UITs, about 81 of which are 
small entities. Closed-end funds and UITs will be affected by rule 154 
only when they are offering their shares.
---------------------------------------------------------------------------

    \43\ See 17 CFR 230.157 (1997).
---------------------------------------------------------------------------

    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.\44\ The delivery of prospectuses and shareholder reports is 
likely to be handled only by broker-dealers that carry public customer 
accounts. The Commission staff estimates that as of year-end 1998, 
broker-dealers carrying public customer accounts numbered approximately 
300 firms, 40 of which were small businesses.
---------------------------------------------------------------------------

    \44\ See 17 CFR 240.0-10(c)(1) (1997).
---------------------------------------------------------------------------

    Rule 30d-1 applies to management funds (i.e., open-end and closed-
end funds). The staff estimates that out of approximately 3,515 active 
management funds, approximately 587 are considered small entities.\45\ 
Rule 30d-2 applies to registered UITs, substantially all the assets of 
which consist of securities issued by a management investment company. 
The staff estimates that out of approximately 637 registered UITs that 
are subject to rule 30d-2, approximately 19 are considered small 
entities.
---------------------------------------------------------------------------

    \45\ See CFR 270.0-10 (1997).
---------------------------------------------------------------------------

    Rules 14a-3, 14c-3 and 14c-7 apply to companies that are subject to 
the Exchange Act reporting requirements. 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.\46\ There are approximately 815 reporting companies that have 
assets of $5 million or less.
---------------------------------------------------------------------------

    \46\ See CFR 240.0-10 (1997).
---------------------------------------------------------------------------

    Persons who rely on the rules would be required to obtain 
investors' written or implied consent before householding documents. 
Investors householded with implied consent must receive a notice 60 
days in advance notifying them that their documents will be householded 
unless the person relying on the rule receives contrary instructions. 
The rule also requires that if householding is done with investors' 
implied consent the investors must have the same last name or be 
reasonably believed to be members of the same family, and the address 
must be a post office box or a street address reasonably believed to be 
a residence.
    The FRFA states that in adopting the amendments, the Commission 
considered: (i) The establishment of differing compliance requirements 
that take into account the resources available to small entities; (ii) 
simplification of the rule's requirements for small entities; (iii) the 
use of performance rather than design standards; and (iv) an exemption 
from the rules for small entities. The FRFA states that we concluded 
that different requirements for small entities would be inconsistent 
with investor protection.
    The FRFA is available for public inspection in File No. S7-27-97, 
and a copy may be obtained by contacting Marilyn Mann, Senior Counsel, 
at (202) 942-0690, Office of Regulatory Policy, Division of Investment 
Management, Securities and Exchange Commission, 450 5th Street, NW, 
Washington, DC 20549-0506.

VII. Statutory Authority

    The Commission is adopting rule 154 under the authority set forth 
in section 19(a) of the Securities Act [15 U.S.C. 77s(a)]. The 
Commission is adopting amendments to rules 30d-1 and 30d-2 under the 
authority set forth in section 30(e) and 38(a) of the Investment 
Company Act [15 U.S.C. 80a-29(e) and 80a-37(a)], and amendments to 
rules 14a-3, 14c-3, and 14c-7 under 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 Rules

    For the reasons set out in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is 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, 77r, 77s, 77sss, 
78c, 78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-24, 80a-
28, 80a-29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
    2. Section 230.154 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)) or 
Sec. 240.15c2-8(b) of this chapter, you will be considered to have 
delivered a prospectus to investors who share an address if:
    (1) You deliver a prospectus to the shared address;
    (2) You address the prospectus to the investors as a group (for 
example, ``ABC Fund [or Corporation] Shareholders,'' ``Jane Doe and 
Household,'' ``The Smith Family'') or to each of the investors 
individually (for example, ``John Doe and Richard Jones''); and

[[Page 62546]]

    (3) The investors consent in writing to delivery of one prospectus.
    (b) Implied consent. You do not need to obtain written consent from 
an investor under paragraph (a)(3) of this section if all of the 
following conditions are met:
    (1) The investor has the same last name as the other investors, or 
you reasonably believe that the investors are members of the same 
family;
    (2) 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:
    (i) State that only one prospectus will be delivered to the shared 
address unless you receive contrary instructions;
    (ii) Include a toll-free telephone number or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
investor can use to notify you that he or she wishes to receive a 
separate prospectus;
    (iii) State the duration of the consent;
    (iv) Explain how an investor can revoke consent;
    (v) State that you will begin sending individual copies to an 
investor within 30 days after you receive revocation of the investor's 
consent; and
    (vi) Contain the following prominent statement, or similar clear 
and understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Shareholder Documents.'' This statement also must 
appear on the envelope in which the notice is delivered. Alternatively, 
if the notice is delivered separately from other communications to 
investors, this statement may appear either on the notice or on the 
envelope in which the notice is delivered;

    Note: to paragraph (b)(2): The notice should be written in plain 
English. See Sec. 230.421(d)(2) of this chapter for a discussion of 
plain English principles.

    (3) You have not received the reply form or other notification 
indicating that the investor wishes to continue to receive an 
individual copy of the prospectus, within 60 days after you sent the 
notice; and
    (4) You deliver the prospectus to a post office box or to a 
residential street address. You can assume a street address is a 
residence unless you have information that indicates it is a business.
    (c) Revocation of consent. If an investor, orally or in writing, 
revokes consent to delivery of one prospectus to a shared address 
(provided under paragraphs (a)(3) or (b) of this section), you must 
begin sending individual copies to that investor within 30 days after 
you receive the revocation. If the individual's consent concerns 
delivery of the prospectus of a registered open-end management 
investment company, at least once a year you must explain to investors 
who have consented how they can revoke their consent. The explanation 
must be reasonably designed to reach these investors.
    (d) 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 an address 
is the street address of a multi-unit building, the address must 
include the unit number.
    (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.

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, 78j-1, 78k, 
78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 
80b-11, unless otherwise noted.
* * * * *
    4. Section 240.14a-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 an annual report to the shared address;
    (B) The registrant addresses the prospectus to the security holders 
a group (for example, ``ABC Fund [or Corporation] Shareholders,'' 
``Jane Doe and Household,'' ``The Smith Family'') or to each of the 
security holders individually (for example, ``John Doe and Richard 
Jones''); and
    (C) The security holders consent in writing to delivery of one 
annual report.
    (ii) Implied consent. The registrant need not obtain written 
consent from a security holder under paragraph (e)(1)(i)(C) of this 
section if all of the following conditions are met:
    (A) The security holder has the same last name as the other 
security holders, or the registrant reasonably believes that the 
security holders are members of the same family;
    (B) 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:
    (1) Be a separate written statement that is delivered separately 
from other communications;
    (2) State that only one annual report will be delivered to the 
shared address unless the registrant receives contrary instructions;
    (3) Include a toll-free telephone number or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
security holder can use to notify the registrant that he or she wishes 
to receive a separate annual report;
    (4) State the duration of the consent;
    (5) Explain how a security holder can revoke consent;
    (6) State that the registrant will begin sending individual copies 
to a security holder within 30 days after receipt of revocation of the 
security holder's consent; and
    (7) Contain the following prominent statement, or similar clear and 
understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Shareholder Documents.'' Alternatively, this 
statement may appear on the envelope containing the notice;

    Note: to paragraph (e)(1)(ii)(B): The notice should be written 
in plain English. See Sec. 230.421(d)(2) of this chapter for a 
discussion of plain English principles.

    (C) The registrant has not received the reply form or other 
notification indicating that the security holder wishes to continue to 
receive an individual copy of the annual report, within 60 days after 
the registrant sent the notice; and
    (D) The registrant delivers the report to a post office box or to a 
residential street address. The registrant can assume a street address 
is a residence unless it has information that indicates it is a 
business.
    (iii) Revocation of consent. If a security holder, orally or in 
writing, revokes consent to delivery of one report to a shared address, 
the registrant

[[Page 62547]]

must begin sending individual copies to that security holder within 30 
days after the registrant receives the revocation.
    (iv) 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 the registrant has reason to believe that 
the address is a street address of a multi-unit building, 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 all 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 Note 3 and Note 4 are 
redesignated as Note 2 and Note 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-34(d), 80a-37, 80a-39 
unless otherwise noted:
* * * * *
    8. Section 270.30d-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 a report to the shared address;
    (ii) The company addresses the report to the shareholders as a 
group (for example, ``ABC Fund [or Corporation] Shareholders,'' ``Jane 
Doe and Household,'' ``The Smith Family'') or to each of the 
shareholders individually (for example, ``John Doe and Richard 
Jones''); and
    (iii) The shareholders consent in writing to delivery of one 
report.
    (2) The company need not obtain written consent from a shareholder 
under paragraph (f)(1)(iii) of this section if all of the following 
conditions are met:
    (i) The shareholder has the same last name as the other 
shareholders, or the company reasonably believes that the shareholders 
are members of the same family;
    (ii) 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:
    (A) State that only one report will be delivered to the shared 
address unless the company receives contrary instructions;
    (B) Include a toll-free telephone number or be accompanied by a 
reply form that is pre-addressed with postage provided, that the 
shareholder can use to notify the company that he or she wishes to 
receive a separate report;
    (C) State the duration of the consent;
    (D) Explain how a shareholder can revoke consent;
    (E) State that the company will begin sending individual copies to 
a shareholder within 30 days after the company receives revocation of 
the shareholder's consent; and
    (F) Contain the following prominent statement, or similar clear and 
understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Shareholder Documents.'' This statement also must 
appear on the envelope in which the notice is delivered. Alternatively, 
if the notice is delivered separately from other communications to 
investors, this statement may appear either on the notice or on the 
envelope in which the notice is delivered;

    Note: to paragraph (f)(2)(ii): The notice should be written in 
plain English. See Sec. 230.421(d)(2) of this chapter for a 
discussion of plain English principles.

    (iii) The company has not received the reply form or other 
notification indicating that the shareholder wishes to continue to 
receive an individual copy of the report, within 60 days after the 
company sent the notice; and
    (iv) The company transmits the report to a post office box or to a 
residential street address. The company can assume a street address is 
a residence unless it has information that indicates it is a business.
    (3) At least once a year, the company must explain to shareholders 
who have consented under paragraph (f)(1)(iii) or paragraph (f)(2) of 
this section how they can revoke their consent. The explanation must be 
reasonably designed to reach these investors. If a shareholder, orally 
or in writing, revokes consent to delivery of one report to a shared 
address, the company must begin sending individual copies to that 
shareholder within 30 days after the company receives the revocation.
    (4) 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 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, the address must include the 
unit number.
    9. Section 270.30d-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 of these reports must be transmitted within the period 
allowed the management company by Sec. 270.30d-1 for transmitting 
reports to its shareholders.
    (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.

    Dated: November 4, 1999.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-29531 Filed 11-15-99; 8:45 am]
BILLING CODE 8010-01-P