[Federal Register Volume 65, Number 213 (Thursday, November 2, 2000)]
[Rules and Regulations]
[Pages 65736-65752]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-28137]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 240

[Release Nos. 33-7912, 34-43487, IC-24715; File No. S7-26-99]
RIN 3235-AH66


Delivery of Proxy Statements and Information Statements to 
Households

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to the proxy rules under the 
Securities Exchange Act of 1934. These amendments permit companies and 
intermediaries to satisfy the delivery requirements for proxy 
statements and information statements with respect to two or more 
security holders sharing the same address by delivering a single proxy 
statement or information statement to those security holders. This 
method of delivery, often referred to as ``householding,'' will reduce 
the amount of duplicative information that security holders receive and 
lower printing and mailing costs for companies. These amendments also 
modify the rules for householding annual reports. Finally, we are 
amending Rule 154 under the Securities Act of 1933 to permit 
householding of proxy statements combined with prospectuses.

EFFECTIVE DATE: The rule amendments will be effective December 4, 2000. 
This is the date on which companies can rely on these rules to begin 
householding. Companies may begin to solicit consents to householding 
prior to the effective date of these rules.

FOR FURTHER INFORMATION CONTACT: Heather Maples, Attorney-Adviser, 
Division of Corporation Finance, at (202) 942-2900.

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SUPPLEMENTARY INFORMATION: We are adopting amendments to Rule 154 \1\ 
under the Securities Act of 1933 \2\ and Rules 14a-2,\3\ 14a-3,\4\ 14a-
7,\5\ 14b-1,\6\ 14b-2,\7\ 14c-3,\8\ and Schedules 14A and 14C \9\ under 
the Securities Exchange Act of 1934.\10\
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    \1\ 17 CFR 230.154.
    \2\ 15 U.S.C. 77a et seq.
    \3\ 17 CFR 240.14a-2.
    \4\ 17 CFR 240.14a-3.
    \5\ 17 CFR 240.14a-7.
    \6\ 17 CFR 240.14b-1.
    \7\ 17 CFR 240.14b-2.
    \8\ 17 CFR 240.14c-3.
    \9\ 17 CFR 240.14a-101 and 240.14c-101.
    \10\ 15 U.S.C. 78a et seq.
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I. Background

    The federal securities laws generally require public companies to 
deliver a ``proxy statement'' when they solicit proxy voting authority 
from their security holders.\11\ Even when they are not soliciting 
proxy voting authority, these companies must deliver an ``information 
statement'' to security holders when they are taking certain corporate 
actions. Lastly, in connection with the delivery of a proxy statement 
or information statement, when directors are being elected, these 
companies must send security holders an annual report.\12\ As a result 
of 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 delivered to a single household.\13\
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    \11\ The proxy rules apply only to companies with equity 
securities registered under Section 12 of the Exchange Act and to 
investment companies registered under the Investment Company Act of 
1940 [15 U.S.C. 80a et seq.].
    \12\ Rule 14a-3(b) [17 CFR 240.14a-3(b)].
    \13\ See Delivery of Disclosure Documents to Households, 
Securities Act Release No. 7475 (Nov. 13, 1997) [62 FR 61933 (Nov. 
20, 1997)], at nn.1-6 and accompanying text.
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    We are adopting amendments to the proxy rules to reduce the amount 
of this duplicative information that security holders receive.\14\ 
Today's amendments expand upon rules we adopted in November 1999 that 
permit companies to household prospectuses, annual reports and 
investment company semi-annual reports if the document is delivered to 
a shared address and security holders properly consent to 
householding.\15\
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    \14\ We proposed these amendments in Delivery of Proxy 
Statements and Information Statements to Households, Securities Act 
Release No. 7767 (Nov. 4, 1999) [64 FR 62548 (Nov. 16, 1999)] 
(``Proposing Release'').
    \15\ See Delivery of Disclosure Documents to Households, 
Securities Act Release No. 7766 (Nov. 4, 1999) [64 FR 62540 (Nov. 
16, 1999)].
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    At the time we originally proposed those rules, we did not propose 
rules to permit householding of proxy statements and information 
statements. However, in response to those original proposals, several 
commenters suggested that we consider further action to permit the 
householding of proxy materials. A number of commenters noted that 
householding proxy materials would facilitate the common practice of 
mailing the annual report together with the proxy statement or 
information statement. A few commenters further suggested that we 
extend the proposed householding provisions expressly to permit broker-
dealers and banks (``intermediaries'') to household delivery of annual 
reports, proxy statements and information statements to beneficial 
owners of equity securities.
    In response to these comments, when we adopted the rules to permit 
the householding of prospectuses, annual reports and investment company 
semi-annual reports, we also proposed to permit delivery of one proxy 
statement or information statement to security holders who share an 
address. We proposed these rules to reduce the number of duplicate 
documents delivered to security holders and conform the provisions 
regarding the householding of proxy statements and information 
statements to the amendments that permit the householding of 
prospectuses, annual reports and investment company semi-annual 
reports.
    We received 16 comment letters in response to the proposals.\16\ 
Commenters generally supported householding of proxy statements and 
information statements, but many suggested changes that would affect 
the scope and conditions of the rules. We are adopting the proposed 
amendments, with a number of modifications that address issues raised 
by commenters. The adopted rules differ from the proposed rules in that 
they will
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    \16\ The commenters included one individual, one corporate 
issuer, four financial institutions (investment advisers, mutual 
fund complexes and broker-dealers), six trade associations, one 
state regulatory commission, one consultant and two providers of 
security holder communication services. Some commenters endorsed 
letters submitted by other commenters. These comment letters and a 
summary of comments prepared by our staff are available for public 
inspection and copying in our Public Reference Room, 450 Fifth 
Street, N.W., Washington, D.C. 20549, in File No. S7-26-99. Public 
comments submitted by electronic mail are on our website, 
www.sec.gov.
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     Expand the permitted forms of addressing householded 
annual reports and proxy statements or information statements to 
include any form to which each security holder included in a 
householded group consents in writing;
     Shorten the notification period for householding by 
implied consent to 60, rather than 90, days;
     Eliminate the proposed requirement that the notice of 
intent to household by implied consent be delivered separately from any 
other communications; and
     Permit intermediaries to household only if the company 
does not object.
    Rule 154, as originally adopted, prohibited the householding of 
combination proxy statement-prospectuses delivered for business 
combinations, exchange offers or reclassifications of securities 
registered on Forms N-14,\17\ S-4 \18\ and F-4.\19\ To coordinate Rule 
154 with today's amendments to the proxy rules, we are adopting, as 
proposed, an amendment to Rule 154 that removes the prohibition on 
householding of those combination proxy statement-prospectuses.
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    \17\ 17 CFR 239.23.
    \18\ 17 CFR 239.25.
    \19\ 17 CFR 239.34.
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I. Discussion

A. Purpose of the Amendments

    Companies, intermediaries and security holders have indicated to us 
in the past that the distribution of multiple copies of the same 
document to security holders who share the same address often inundates 
security holders with unwanted mail and causes the company to incur 
higher than necessary printing and mailing costs. Today's amendments 
will alleviate these concerns by allowing companies and intermediaries 
to household proxy statements and information statements to both record 
and beneficial security holders in the same manner as they may 
household prospectuses and annual reports to security holders.

B. Delivery of Proxy Statements and Information Statements to a 
Household

1. Today's Amendments
    Exchange Act Rule 14a-3 requires a company to furnish a proxy 
statement to security holders before soliciting proxy voting authority 
for a matter submitted to a security holder vote.\20\ Companies are 
able to deliver proxy statements directly only to their security 
holders of record; they generally must deliver proxy statements to 
their beneficial security holders indirectly through 
intermediaries.\21\
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    \20\ See Rule 14a-3(a) [17 CFR 240.14a-3(a)].
    \21\ Under Rules 14b-1 and 14b-2, an intermediary is required to 
forward proxy soliciting materials and forms of proxy or requests 
for voting instructions to beneficial owners on whose behalf the 
intermediary holds securities. In Regulation of Communications Among 
Shareholders, Exchange Act Release No. 31326 (Oct. 16, 1992) [57 FR 
48276 (Oct. 22, 1992)], we indicated that companies and their 
security holders may mail proxy soliciting materials directly to 
non-objecting or consenting beneficial owners, provided that they 
also disseminate the materials through the record holders and 
provide adequate disclosure concerning the need for the record 
holders to execute the proxies.

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[[Page 65738]]

    If the proxy solicitation relates to a meeting at which directors 
will be elected, an annual report to security holders must accompany or 
precede the proxy statement. That annual report to security holders 
must include specified financial information about the company.\22\
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    \22\ See Rule 14a-3(b).
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    In November 1999, we adopted amendments to Rule 14a-3 to permit 
companies to household the annual report to security holders. When the 
annual report must accompany or precede the proxy statement, companies 
generally mail the annual report with the proxy statement in the same 
envelope.\23\ As a result, a company's inability to household its proxy 
statement limits its ability to reduce costs by householding the annual 
report.
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    \23\ Some companies have chosen to deliver proxy statements and 
annual reports in electronic rather than paper format. Section 
II.B.2.d. of this release discusses householding of electronic 
documents.
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    Under today's amendments, a proxy statement is considered delivered 
to all security holders at a shared address,\24\ for purposes of the 
federal securities laws, if \25\
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    \24\ A company may household annual reports, proxy statements or 
information statements to a single security holder holding the same 
securities in two or more accounts with the same address without 
having to comply with the householding provisions relating to annual 
reports, proxy statements or information statements. This also is 
true when a security holder is acting as custodian for securities 
(1) in an account created under a state Uniform Gifts to Minors Act 
or Uniform Transfers to Minors Act and the security holder also 
holds the same security in his or her own account, with the same 
address; or (2) in two or more accounts created under a state UGMA 
or UTMA. See Delivery of Disclosure Documents to Households, 
Securities Act Release No. 7766 (Nov. 4, 1999) [64 FR 62540 (Nov. 
16, 1999)], at n. 6.
    \25\ Rule 14a-3(e)(1) [17 CFR 240.14a-3(e)(1)].
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     The company or intermediary relying on the rules delivers 
the document to the shared address;
     The company or intermediary relying on the rules addresses 
the document in accordance with the rules;
     The security holders consent to delivery of a single 
document in accordance with the rules;
     If the document is a proxy statement, the company includes 
a separate proxy card for each security holder sharing an address; and
     The company includes an undertaking regarding prompt 
delivery of separate copies of the document in the proxy statement.
    We are amending Rule 14c-3 to permit companies to household 
information statements in the same manner as they may household proxy 
statements under Rule 14a-3.\26\
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    \26\ Rule 14c-3(c) [17 CFR 240.14c-3(c)].
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2. Conditions to Today's Amendments
    a. Consent.
    Amended Rule 14a-3 requires a company to obtain consent from each 
security holder who will be included in a householded group.\27\ A 
company could either obtain an affirmative written consent from a 
security holder or rely on an implied consent obtained in accordance 
with the rules we adopt today.\28\
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    \27\ Rule 14a-3(e)(1)(i)(C) [17 CFR 240.14a-3(e)(1)(i)(C)].
    \28\ Rule 14a-3(e)(1)(ii) [17 CFR 240.14a-3(e)(1)(ii)].
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    i. Affirmative written consent.
    A company may household the proxy statement or information 
statement to related or unrelated security holders sharing an address 
if each of the security holders consents in writing \29\ to the 
company's delivery of one proxy statement or information statement to 
the shared address. In order to satisfy the written consent 
requirement, a security holder would need to consent specifically to 
householding of proxy statements and information statements. In 
addition, in order for a written consent to be considered valid, a 
security holder must be informed of the following, prior to giving 
written consent:
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    \29\ Securities Act Rule 154, Exchange Act Rule 14a-3(e)(1) and 
Investment Company Act Rule 30d-1 do not prevent security holders 
from consenting or revoking consent electronically.
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     The duration of the consent,
     The procedures the security holder must follow to revoke 
consent, and
     The company's obligation to begin sending individual 
copies to a security holder within 30 days after the security holder 
revokes consent.
    ii. Implied consent.
    Today's amendments permit a company to deliver a single proxy 
statement or information statement to multiple security holders who 
share an address without obtaining affirmative written consent to 
householding from those security holders, if all of the following 
conditions are met.\30\
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    \30\ Rule 14a-3(e)(1)(ii)(B) [17 CFR 240.14a-3(e)(1)(ii)(B)].
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     Each security holder at the shared address has the same 
last name as the other security holders (or the company reasonably 
believes that they all are members of the same family).\31\
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    \31\ Rule 14a-3(e)(1)(ii)(B)(1) [17 CFR 240.14a-
3(e)(1)(ii)(B)(1)]. Some commenters expressed concern about the 
ability to discern whether certain security holders residing at the 
same address are members of the same family (e.g., a husband and 
wife with different surnames). We believe that companies relying on 
the rule may, in many cases, be able to base their reasonable belief 
on information already provided by the security holder (e.g., in an 
account agreement).
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     At least 60 days before beginning delivery by 
householding, the company sends each record security holder at the 
shared address a separate written notice in plain English \32\ of its 
intention to household proxy statements and information statements.\33\
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    \32\ See Note to Rule 14a-3(e)(1)(ii)(B)(2) [17 CFR 240.14a-
3(e)(1)(ii)(B)(2)]. This Note refers to Securities Act Rule 
421(d)(2) [17 CFR 230.421(d)(2)].
    \33\ An intermediary may household proxy statements or 
information statements to beneficial owners of the company's 
securities so long as the company does not object. In that event, 
the intermediary, rather than the company, must send the required 
written notice of its intention to household. See the Notes to Rules 
14b-1(b)(2) [17 CFR 240.14b-1(b)(2)] and 14b-2(b)(3) [17 CFR 
240.14b-2(b)(3)] and Section II.C. of this release.
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     The notice or envelope in which the notice is mailed 
includes the following prominent statement, or similar clear and 
understandable statement, in boldface type: ``Important Notice 
Regarding Delivery of Security Holder Documents.'' If the notice is 
mailed with other security holder communications, both the notice and 
the envelope containing the notice must include this prominent 
statement.\34\
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    \34\ Rule 14a-3(e)(1)(ii)(B)(2)(vii) [17 CFR 240.14a-
3(e)(1)(ii)(B)(2)(vii)].
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     The notice provides security holders who object to 
householding with a reply form or toll-free telephone number to object 
to householding.\35\
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    \35\ Rule 14a-3(e)(1)(ii)(B)(2)(iii) [17 CFR 240.14a-
3(e)(1)(ii)(B)(2)(iii)]. In addition to providing a reply form or 
toll-free telephone number, the notice also may provide supplemental 
methods of opting out of householding, such as sending the reply 
form to a facsimile telephone number or responding by e-mail. Reply 
forms to be returned by mail 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.
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     The notice states the duration of the consent and explains 
how a security holder can revoke consent to householding.\36\
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    \36\ Rule 14a-3(e)(1)(ii)(B)(2)(iv) and (v) [17 CFR 240.14a-
3(e)(1)(ii)(B)(2)(iv) and (v)].
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     The company does not receive notice that the security 
holders object to householding within the 60-day waiting period.\37\
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    \37\ Rule 14a-3(e)(1)(ii)(B)(3) [17 CFR 240.14a-
3(e)(1)(ii)(B)(3)]. If the company receives notice that one or more 
security holders object to householding within the 60-day waiting 
period, but there are two or more security holders at the shared 
address who do not object, the company would be able to household to 
the non-objecting security holders.

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[[Page 65739]]

     The company delivers householded proxy statements or 
information statements only to a post office box or residential street 
address.\38\
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    \38\ Rule 14a-3(e)(1)(ii)(B)(4) [17 CFR 240.14a-
3(e)(1)(ii)(B)(4)]. One of the conditions to householding proxy 
statements and information statements by implied consent requires 
delivery of the householded document to a post office box or 
residential street address. As a result, the rules do not permit 
householding by implied consent to an electronic address. Section 
II.B.2.d. of this release discusses householding of electronic 
documents.
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    (A) Same last name or members of same family.
    Almost all of the commenters supported householding by implied 
consent, noting that an implied consent procedure will reduce the costs 
of obtaining householding consents. Although several commenters urged 
us to relax this requirement for householding by implied consent,\39\ 
two commenters supported the requirement that a company could only use 
implied consent for members of the same household who share the same 
last name or who the company reasonably believes are members of the 
same family. This, they thought, is a useful safeguard to ensure that 
all security holders at a shared address have access to the proxy 
statement or information statement.\40\
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    \39\ See comment letters of ADP Investor Communication Services, 
the American Society of Corporate Secretaries, the Corporate Actions 
Division of the Securities Industry Association, Fidelity Management 
& Research Company, the Investment Company Institute, Prudential 
Securities, and the Association of Publicly Traded Companies. These 
commenters noted that individuals often share a household without 
sharing the same last name or otherwise belonging to the same 
family. In addition, these commenters were concerned that the 
process of gathering information necessary to form a reasonable 
belief that security holders are members of the same family may 
offend some individuals' sense of privacy and, in any event, may not 
yield a clear indication that two clients sharing the same residence 
are related. These commenters generally believed that security 
holders sharing a residence would be more than adequately protected 
by the rules' notice and consent revocation procedures.
    \40\ See comment letters of the Alabama Securities Commission 
and the North American Securities Administrators Association.
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    As discussed in the proposing release for Rule 154, we designed the 
prospectus householding rule so that householding by implied consent 
would be limited to circumstances suggesting that the security holders 
not receiving a separate disclosure document would wish to consent and 
that they would have access to the disclosure document if delivered to 
another security holder. This was because householding without 
affirmative consent creates the risk that a security holder who wishes 
to receive a document will not receive one. Due to these concerns, and 
in response to the comments supporting the restrictions as necessary to 
safeguard security holders, we are retaining the requirement as 
proposed and will limit householding by implied consent to 
circumstances where the security holders share the same last name or 
the company reasonably believes they are members of the same 
family.\41\ This approach also will help ensure consistency with the 
procedures required by Rule 154 regarding householding of prospectuses.
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    \41\ As explained in the release adopting Rule 154, we believe 
companies may use information they have previously obtained from 
security holders or other sources to form a reasonable belief that 
security holders are members of the same family. However, a company 
may not form a reasonable belief that security holders are members 
of the same family based solely on the fact that the security 
holders reside at the same address.
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    (B) 60-day waiting period.
    We originally proposed that companies be required to send the 
notice of their intention to household at least 90 days before 
beginning delivery of householded documents. The majority of commenters 
felt that a 90-day waiting period would be too long. Today's amendments 
require that companies send the notice at least 60 days in advance of 
beginning householding. In addition to maintaining consistency with 
Rule 154, we believe the 60-day waiting period adequately protects 
security holders by allowing them a reasonable time to respond. We 
caution companies, however, to carefully examine their schedules for 
proxy printing and delivery so that they can allow additional time 
necessary to avoid interfering with the proxy statement mailing 
schedule.\42\
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    \42\ A company should not mail householded materials until the 
60-day waiting period for implied consent has run and the company 
has processed any objections received during the 60-day waiting 
period. Also, companies should consider how their obligations under 
Rule 14a-13 [17 CFR 240.14a-13] affect their schedule. Rule 14a-13 
generally requires companies to request the number of sets of 
materials needed by intermediaries for delivery to beneficial owners 
20 business days before the company's record date. The number of 
security holders receiving householded documents will affect the 
number of sets of materials needed by intermediaries.
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    (C) Required legend on the notice.
    The proposed proxy statement and information statement householding 
rules would have required companies to mail the notice of intent to 
household separately from other security holder communications. We have 
relaxed that requirement to allow those notices to be mailed with other 
communications, such as, for example, account statements, dividend 
checks or security holder reports.\43\ However, because of this change, 
we also have revised the legending requirement from the proposal.\44\ 
We proposed to require companies to include a prominent statement 
reading ``Important Notice Regarding Delivery of Security Holder 
Documents,'' or a similar clear and understandable statement, in bold-
face type on either the notice itself or the envelope in which the 
notice was mailed. Because the notice may now be included in the same 
package as other materials, we believe it is appropriate to revise this 
section to make it consistent with Rule 154, which requires the legend 
to appear on both the notice and the envelope containing it if the 
notice is mailed with other security holder communications.
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    \43\ Although the notice may be mailed in the same package with 
other communications, it must be a separate written document.
    \44\ Rule 14a-3(e)(1)(ii)(B)(2)(vii).
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    (D) Implied consent only for post office boxes or residential 
street addresses.
    There was limited objection to the proposed requirement that 
companies deliver documents householded by implied consent only to a 
residential street address or post office box. Under Rule 14a-3(e)(1), 
a company can assume that any street address is residential unless the 
company has information indicating that the address is a business.\45\ 
We have adopted the requirement as originally proposed. We intend that 
the residential street address requirement will prevent companies, 
absent affirmative written consent, from householding a proxy statement 
or information statement to security holders with the same last name 
who share a business address but are not related.
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    \45\ See Note to Rule 14a-3(e)(1)(ii)(B)(4).
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    b. Duration of consent.
    Companies could solicit from security holders a consent to 
householding of perpetual duration that is valid until revoked, or a 
consent of limited duration such as one year or a specified number of 
years. If a company relies on implied consent to householding, the 
required 60-day notice to security holders must state clearly whether 
the company intends to household indefinitely or for a specified 
period.\46\ Security holders may revoke their consent to householding 
at any time by instructing the company orally or in writing. A company 
could not continue to household the proxy statement or information 
statement more than 30

[[Page 65740]]

days after receiving a revocation instruction from a security 
holder.\47\
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    \46\ Rule 14a-3(e)(1)(ii)(B)(2)(iv). Even if a company solicits 
``perpetual'' consent to householding from all of its security 
holders, it will have to solicit consent from new security holders 
as they open their accounts or at a later time.
    \47\ Rule 14-3(e)(1)(iii) [17 CFR 240.14a-3(e)(1)(iii)].
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    c. Addressing.
    We are adopting, as proposed, provisions that allow companies the 
flexibility to address the householded copy of the proxy statement or 
information statement either to security holders as a group (e.g., 
``ABC Corporation Security Holders,'' ``Jane Doe and Household'' or 
``Household of Jane Doe'') or to each of the security holders sharing 
the address (e.g., ``Jane Doe and Mary Doe'').\48\ We understand from 
the comments received that it may be less costly in some instances for 
companies to address the householded proxy materials using an existing 
account title (e.g., to one individual in the household), rather than 
using a group address. In response to these comments, the final rule 
allows an additional alternative; security holders may consent to an 
alternative, specific means of addressing, if the company so 
requests.\49\ The alternative addressing provision will allow companies 
to vary only the recipient line of the address; companies may not use 
this provision to deliver a householded document to an address that is 
not shared by each security holder included in the householded group. A 
company may rely on the alternative addressing provision only if each 
security holder to be included in the householded group consents, in 
writing, to the specific form of address the company will use. A 
company will not be required to comply with security holder requests to 
address the materials in any format not suggested by the company. 
However, if a security holder indicates that his or her consent is 
contingent on a particular form of addressing, that consent will not be 
valid unless the company addresses the materials in the format 
requested by the security holder.
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    \48\ Rule 14a-3(e)(1)(i)(B) [17 CFR 240.14a-3(e)(1)(i)(B)].
    \49\ Note, however, that Rule 154, as amended, does not allow 
companies to use an alternative addressing format.
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    Companies may request that those security holders to be included in 
a householded group consent to addressing the materials to only one of 
the security holders. However, before using that form of address, a 
company must receive a written consent to using the company-suggested 
form of address from each security holder to be included in the 
householded group.
    The term ``address,'' for purposes of today's amendments, means a 
street address, post office box number, an electronic mail address, 
facsimile telephone number or similar destination to which paper or 
electronic documents are delivered. If a company has reason to believe 
that an address is a street address of a multi-unit building, the 
address also would have to include the unit number.
    d. Electronic householding.
    Some companies have chosen to deliver proxy statements and annual 
reports in electronic rather than paper format. Because the potential 
benefits of householding electronic documents appeared to be 
minimal,\50\ we did not propose and the amendments we adopt today will 
not allow companies or intermediaries to rely on implied consent to 
household electronically delivered proxy statements and information 
statements.
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    \50\ In response to our proposals regarding householding of 
prospectuses and annual reports to security holders, none of the 
comments stated that householding electronically delivered documents 
would save money or that security holders had been requesting this 
form of delivery. See Delivery of Proxy Statements and Information 
Statements to Households, Securities Act Release No. 7767 (Nov. 4, 
1999) [64 FR 62548 (Nov. 16, 1999)] at n. 43.
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    However, a company may household documents delivered 
electronically, provided it obtains a valid consent to electronic 
delivery of documents and a valid affirmative written consent to 
householding. We have previously issued interpretive guidance on the 
procedures a company should follow to obtain valid consent to 
electronic delivery of documents.\51\ In this regard, we note that the 
recently enacted Electronic Signatures Act \52\ also addresses 
consenting to receive information electronically. We are still 
considering that legislation and will address how it may impact our 
previous interpretive guidance at a later time.
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    \51\ Those procedures were set forth in Use of Electronic Media, 
Securities Act Release No. 7856 (April 28, 2000) [65 FR 25843 (May 
4, 2000)]; Use of Electronic Media for Delivery Purposes, Securities 
Act Release No. 7233 (Oct. 6, 1995) [60 FR 53548 (Oct. 13, 1995)]; 
and Use of Electronic Media by Broker-Dealers, Transfer Agents, and 
Investment Advisers for Delivery of Information, Securities Act 
Release No. 7288 (May 9, 1996) [61 FR 24644 (May 15, 1996)].
    \52\ Electronic Signatures in Global and National Commerce Act, 
Pub. L. No. 106-229 (2000).
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    Under Rule 14a-3(e)(1)(i)(B), a company must address a householded 
document to the security holders as a group, to each of the security 
holders individually, or to the security holders in a form to which 
each of the security holders has consented in writing. Securities Act 
Rule 154 and Investment Company Act Rule 30d-1 require a company to 
address a householded document to the security holders as a group or to 
each of the security holders individually. A company householding 
electronically delivered documents may satisfy those provisions by 
including either of the two specified group address formats in the 
subject line of the electronically delivered document. A company 
householding electronically under Rule 14a-3(e)(1) may, in the 
alternative, obtain the affirmative written consent of each security 
holder at the shared electronic address to deliver the documents to 
that electronic address (e.g., [email protected]).\53\ Companies and 
intermediaries should also note that because householded documents must 
be delivered to a shared address, they may not deliver householded 
documents electronically to security holders who share the same street 
address but who do not share the same electronic address.
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    \53\ We would not consider two security holders who have 
separate electronic addresses under one internet service provider 
account to share an electronic address. For example, a security 
holder using the electronic address [email protected] does not share 
an electronic address with a security holder using the electronic 
address [email protected], even though the two addresses may be 
provided under the same internet service account.
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3. Disclosure Regarding Householding and Undertaking to Provide 
Additional Copies of Householded Documents
    When a company households an annual report, proxy statement or 
information statement, it must undertake, in its proxy statements and 
information statements, to deliver a separate copy of the document to 
any security holder who did not receive an individual copy of the 
householded document and who requests an extra copy.\54\ The company 
must provide instructions as to how a security holder may notify the 
company that the security holder wishes to receive an additional copy 
of an annual report, proxy statement or information statement. Although 
the proposed rules did not include a requirement that companies include 
specific instructions to inform security holders how to request 
additional copies, we believe this information is necessary for the 
required undertaking to adequately protect security holders. Providing 
a single point of contact for security holders requesting additional 
copies also will allow companies to respond more efficiently to these 
requests. The company would have to deliver the separate copy promptly 
after receiving a security holder request.
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    \54\ The security holder must be allowed to request an extra 
copy orally or in writing. See Rule 14a-3(e)(1)(i)(E) [17 CFR 
240.,14a-3(e)(1)(i)(E)], Item 23 of Schedule 14A [17 CFR 240.14a-
101]; and Item 5 of Schedule 14C [17 CFR 240.14c-101].
---------------------------------------------------------------------------

    This undertaking requirement ensures that a security holder who has 
consented to householding, but then

[[Page 65741]]

experiences a change in circumstances that makes sharing a householded 
document impractical, still has access to the annual report, proxy 
statement or information statement. Although the 1999 amendment to Rule 
14a-3 did not require this undertaking, today's amendments impose the 
requirement not only for proxy statements and information statements 
but also for annual reports.
    We have revised Rule 14a-3(e)(1)(i)(E) from the proposal to clarify 
that a company must include the undertaking in each proxy statement or 
information statement if the company or any intermediary delivers 
annual reports, proxy statements or information statements in 
householded form to either record or beneficial security holders. In 
addition, at the company's option, it may restate the undertaking in 
any document delivered in householded form. We have amended Schedules 
14A \55\ and 14C \56\ to require the undertaking.
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    \55\ See Item 23 of Schedule 14A.
    \56\ See Item 5 of Schedule 14C.
---------------------------------------------------------------------------

    We also have amended Schedules 14A \57\ and 14C \58\ to require a 
company that chooses to household the annual report, proxy statement or 
information statement to include the following information in the proxy 
statement or information statement:
---------------------------------------------------------------------------

    \57\ See Item 23 of Schedule 14A.
    \58\ See Item 5 of Schedule 14C.
---------------------------------------------------------------------------

     A statement that only one annual report, proxy statement 
or information statement is being delivered to multiple security 
holders sharing an address unless the company has received contrary 
instructions from one or more of the security holders;
     The phone number and mailing address of a point of contact 
the security holder can use to notify the company that the security 
holder wishes to receive a separate annual report, proxy statement or 
information statement in the future; and
     Instructions as to how security holders can request 
householding if they are receiving multiple copies of the annual 
report, proxy statement or information statement.
    We received no comments objecting to the proposed content of the 
required disclosure.\59\ Companies should note that they will be 
responsible for providing this disclosure if any intermediary 
households proxy statements or information statements to beneficial 
owners.\60\
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    \59\ Some commenters said that we should be more flexible as to 
the location of the required disclosures. The information will be 
more useful to security holders if it is included in a document that 
is actually delivered to security holders, rather than in a document 
that is filed with the Commission but not delivered. We, therefore, 
think the more appropriate location for the disclosure is in proxy 
statements and information statements.
    \60\ See Section II.C. of this release for a further discussion.
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    4. Inclusion of Multiple Proxy Cards with Single Proxy Statement
    Rule 14a-4(f) \61\ forbids any person conducting a proxy 
solicitation to deliver a form of proxy, often referred to as a ``proxy 
card,'' to a security holder unless it is accompanied or preceded by a 
proxy statement. Therefore, security holders generally receive the 
proxy card in the same envelope that contains the company's proxy 
statement and annual report. Proxy cards are addressed based on the 
security holder account titles appearing on a company's list of 
registered holders.
---------------------------------------------------------------------------

    \61\ 17 CFR 240.14a-4(f).
---------------------------------------------------------------------------

    Under today's amendments, a company would need to continue sending 
a separate proxy card with the householded proxy statement for each 
separate security holder account with respect to which proxy authority 
is being solicited. For example, if a husband and wife each hold the 
same company's securities in their own individual accounts, a company 
could deliver a single proxy statement and annual report to them but 
would have to provide two separate proxy cards and designate the proxy 
cards individually based on the two account titles.
    We understand that inserting multiple proxy cards with a single set 
of proxy materials may not be the best solution for all companies or 
intermediaries. Several commenters indicated, for instance, that they 
may include one proxy card with the householded materials and mail the 
remaining proxy cards in separate envelopes. In order to comply with 
Rule 14a-4(f), which requires a definitive proxy statement to accompany 
or precede any proxy card delivered, companies may presume that they 
meet the requirements of that rule if any proxy cards to be delivered 
separately are mailed after the householded definitive proxy statement 
is mailed and the proxy cards and proxy statement are mailed using the 
same method of delivery (e.g., first class mail).
    5. State Law Requirements Concerning Notice of Meeting
    Many state corporate codes contain provisions requiring companies 
to provide security holders of record with written notices of meetings 
and adjourned meetings. The provisions generally state that written 
notice of a meeting at which security holders are required or permitted 
to take action must be sent to each security holder of record a 
specified number of days before the meeting date. For example, the 
Delaware General Corporate Code states that written notice of any 
meeting shall be given not less than 10 nor more than 60 days before 
the date of the meeting to each security holder entitled to vote at the 
meeting.\62\ This notice typically is transmitted with the proxy 
statement.
---------------------------------------------------------------------------

    \62\ 8 Del. C. Section 222 (1999).
---------------------------------------------------------------------------

    Because it is unclear whether a householded proxy statement that 
includes the meeting notice would satisfy state law requirements that 
companies deliver a notice to each record security holder, we solicited 
comment on whether and how companies could meet state law notice 
requirements under the proposed rules. Although two commenters 
indicated that state law meeting notice requirements present neither 
legal nor practical obstacles to householding, \63\ one commenter 
expressed the view that the Commission should work with the states to 
make clear that the householding rules apply to security holder meeting 
notices delivered pursuant to state law.\64\ We wish to clarify that 
the requirements for security holder meeting notices are governed by 
state law, rather than by the Commission's proxy rules, and these rule 
amendments are not intended to preempt state law. Therefore, any 
company choosing to household the proxy statement will have to consider 
the possible need to deliver separately the notice of meeting to each 
security holder in the household to satisfy state law requirements.
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    \63\ See comment letters of Lucent and the American Society of 
Corporate Secretaries.
    \64\ See comment letter of Charles Schwab.
---------------------------------------------------------------------------

6. Business Combination Proxy Statement-Prospectuses
    As adopted in November 1999, Securities Act Rule 154 prohibited the 
householding of prospectuses delivered in connection with business 
combination transactions, exchange offers and reclassifications of 
securities.\65\ In the release proposing Rule 154,\66\ we requested 
comment on whether companies should be permitted to household those 
types of prospectuses, given that they generally

[[Page 65742]]

are accompanied by proxy cards or tender offer material that must be 
executed by each security holder. Several commenters on the proposed 
proxy householding rules supported broadening Rule 154 to permit 
householding of those types of prospectuses.\67\
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    \65\ This prohibition was in paragraph (e) of Rule 154 [17 CFR 
230.154(e)]. That paragraph prohibited reliance on Rule 154 in 
connection with the delivery of a prospectus filed as part of a 
registration statement on Forms N-14, S-4 or F-4 or delivered in 
connection with a business combination transaction, exchange offer 
or reclassification of securities. As part of today's amendments, we 
are rescinding paragraph (e) of Rule 154.
    \66\ Delivery of Disclosure Documents to Households, Securities 
Act Release No. 7475 (Nov. 13, 1997) [62 FR 61933 (Nov. 20, 1997)].
    \67\ See comment letters of the American Society of Corporate 
Secretaries, the Corporate Actions Division of the Securities 
Industry Association, Charles Schwab, the Investment Company 
Institute, and Fidelity Management & Research Company.
---------------------------------------------------------------------------

    Upon consideration of these comments, and because the proposals 
described in this release would permit the householding of proxy 
statements, we are amending Rule 154 to expand its coverage to include 
combined proxy statement-prospectuses delivered in connection with 
business combinations, exchange offers or reclassifications of 
securities. As with householding of proxy statements that are not 
combined with prospectuses, companies householding the combined proxy 
statement-prospectuses would continue to have to include separate proxy 
cards that need to be executed by each individual security holder in 
the household. Similarly, amended Rule 154 does not affect any other 
applicable requirement of state or federal law concerning the delivery 
of any document that requires individual execution, such as a security 
holder response to a tender offer.

C. Householding of Proxy Statements and Information Statements by 
Intermediaries to Beneficial Owners

    Rule 14b-1 sets forth obligations of registered brokers and dealers 
to forward company communications to beneficial owners. Rule 14b-2 sets 
forth similar obligations of banks, associations and other entities 
that exercise fiduciary powers. We proposed changes to Rules 14b-1 and 
14b-2 that would have permitted these intermediaries, on their own 
initiative or at the request of a company, to household the annual 
report, proxy statement or information statement to beneficial owners 
sharing an address if the householding requirements were met.
    We received significant comment on this proposal. Commenters agreed 
that it was appropriate to allow intermediaries to household materials 
in the same manner as companies.\68\ However, comment was divided 
regarding whether intermediaries should be permitted to household 
without the consent of companies,\69\ whether companies may require 
intermediaries to household \70\ and whether intermediaries or 
companies should bear the expense related to the gathering of consents 
to householding. \71\
---------------------------------------------------------------------------

    \68\ See comment letters of ADP Investor Communication Services, 
the American Society of Corporate Secretaries, the Corporate Actions 
Division of the Securities Industry Association, Fidelity Management 
& Research Company, the Securities Industry Association, the 
Investment Company Institute, Charles Schwab, Prudential Securities, 
and Lucent. We received no comments objecting to householding by 
intermediaries.
    \69\ Fidelity Management & Research Company and the Investment 
Company Institute supported a requirement that intermediaries obtain 
company consent before householding, noting concerns that companies 
be able to control their expenses and that companies ultimately 
retain the responsibility to provide the disclosure documents. The 
American Society of Corporate Secretaries, ADP Investor 
Communication Services, Charles Schwab, Prudential Securities and 
the Securities Industry Association thought that intermediaries 
should not have to obtain company consent, with some noting that the 
requirement to obtain each company's consent might prevent the most 
cost-effective implementation of householding.
    \70\ Lucent, the Investment Company Institute, Fidelity 
Management & Research Company and the American Society of Corporate 
Secretaries indicated that companies should be able to direct 
intermediaries to household. These commenters cited maximum 
realization of savings and control of company or fund expenses as 
support for their views. In contrast, ADP Investor Communication 
Services and the Corporate Actions Division of the Securities 
Industry Association opposed giving companies the ability to direct 
intermediaries to household. These commenters noted that 
intermediaries would potentially face differing instructions from 
various companies. They also indicated that intermediaries would 
have to make substantial changes to their systems in order to 
accommodate householding at the company level.
    \71\ ADP Investor Communication Services and the American 
Society of Corporate Secretaries commented that companies should 
reimburse intermediaries for the cost of soliciting consents to 
householding if the company requests the solicitation. Charles 
Schwab and Prudential felt that companies should be required to 
reimburse intermediaries for implementing householding irrespective 
of whether the company consents to householding. The Corporate 
Actions Division of the Securities Industry Association argued that 
companies should reimburse intermediaries for expenses incurred in 
obtaining consents to householding, but did not clearly indicate 
whether intermediaries should be required to obtain company consent 
before householding.
---------------------------------------------------------------------------

    In response to the commentary on this proposal, we believe that it 
is appropriate that companies and intermediaries mutually agree to the 
householding of materials. Therefore, we are adding notes to Rules 14b-
1(b)(2) and 14b-2(b)(3) to permit, but not require, an intermediary to 
household annual reports, proxy statements and information statements 
\72\ either
---------------------------------------------------------------------------

    \72\ Pursuant to today's amendment to Rule 154, intermediaries 
also would be able to household combined proxy statement-
prospectuses to beneficial owners.
---------------------------------------------------------------------------

     At the request of the company, or
     On its own initiative, but only if the company does not 
object.
    An intermediary need not obtain an affirmative consent from a 
company before beginning householding. We think it is sufficient if the 
intermediary provides advance notice to a company that it intends to 
begin householding, with specific instructions as to how the company 
may object to householding. The intermediary should direct this notice 
to the company's senior officer in charge of security holder 
communications or other person the company specifies for this purpose. 
If a company objects, the intermediary may not household that company's 
documents. An intermediary must cease householding a company's 
documents if the company objects at any time.
    Under amended Rules 14b-1(b)(2) and 14b-2(b)(3), an intermediary, 
rather than the company, would follow the procedures described in Rule 
14a-3(e)(1), with the exception of Rule 14a-3(e)(1)(i)(E), and obtain 
consent to householding from beneficial owners.\73\ Intermediaries 
using voting instruction forms to elicit information from beneficial 
owners as to how their shares should be voted would have to include a 
separate form for each beneficial owner who will receive a householded 
proxy statement.\74\ This is similar to the requirement that companies 
must include a separate proxy card for each individual record holder 
who receives a householded proxy statement.
---------------------------------------------------------------------------

    \73\ A signature on a new bank or broker-dealer account 
agreement will not satisfy the written consent requirement if the 
agreement merely refers to or incorporates by reference another 
document, such as the proxy statement or information statement, and 
does not describe the householding procedures.
    \74\ Intermediaries generally use a form of voting instruction 
rather than a form of proxy to facilitate automated processing of 
the beneficial owners' voting instructions regarding non-routine 
matters. The voting instruction form contains the same information 
as the proxy card with respect to the items presented for security 
holder vote. Once the intermediary tabulates the results from the 
voting instruction forms, it executes a proxy card in its own name 
and returns it to the company or the company's designated agent. An 
intermediary would have to include a separate voting instruction 
form for each beneficial owner who will receive a householded proxy 
statement in order to fulfill the requirement of Rule 14a-
3(e)(1)(i)(D), as required by the Notes to Rules 14b-1(b)(2) and 
14b-2(b)(3).
---------------------------------------------------------------------------

    Several commenters discussed whether the company or the 
intermediary should be responsible for satisfying the undertaking to 
provide an additional copy of the householded materials upon request 
from a security holder. We believe that the company should bear this 
responsibility. However, as today's amendments permit intermediaries to 
household only when there is mutual agreement between the company and 
the intermediary, those two parties may agree otherwise.
    Under today's amendments, intermediaries or their agents may offer

[[Page 65743]]

security holders the option of consenting to householding of proxy 
statements and information statements relating only to a particular 
company or to householding of all proxy statements or information 
statements the intermediary is required to forward to the security 
holder. Today's amendments, however, do not require that intermediaries 
give security holders the option of limiting their consent to a 
particular company.
    Today's amendments state that intermediaries must exclude annual 
reports, proxy statements and information statements that will be 
eliminated pursuant to householding procedures in responding to company 
requests concerning the number of the intermediaries' customers that 
are beneficial owners of the companies' securities.\75\
---------------------------------------------------------------------------

    \75\ Rules 14b-1(c)(3) and 14b-2(c)(4) [17 CFR 240.14b-1(c)(3) 
and 240.14b-2(c)(4)].
---------------------------------------------------------------------------

    Because intermediaries will be permitted to household unless a 
company objects, we believe it is appropriate that they bear the burden 
of the consent solicitation expenses, unless the company affirmatively 
agrees to pay these expenses. In particular, we note that 
intermediaries may receive consents from security holders to household 
materials from numerous companies. That being the case, it is not clear 
how intermediaries would apportion the costs of the consent 
solicitations between companies. Furthermore, we note that 
intermediaries are under no obligation to household and that including 
the implied consent notice with other security holder communications 
will allow the intermediaries to conduct the consent solicitation at a 
much lower cost than under our proposed rules. We also note that 
companies will retain the obligation to provide additional copies of 
householded documents and include appropriate disclosure regarding 
householding in their proxy statements and information statements.
    The proxy rules do not require intermediaries to forward 
information promptly to beneficial security holders if a company does 
not provide assurance of reasonable reimbursement of the 
intermediaries' reasonable expenses, both direct and indirect, incurred 
in performing those obligations.\76\ The proxy rules do not include a 
schedule of ``reasonable fees,'' but the NYSE rules and rules of other 
self-regulatory organizations do include a fee schedule.\77\ Nearly all 
large broker and many bank intermediaries currently outsource the proxy 
material distribution function for beneficial security holders to ADP 
Investor Communications Services. ADP, as agent for intermediaries, is 
able to charge companies for the proxy distribution services in 
accordance with applicable fee schedules. Today's amendments will not 
affect the fees that ADP or other security holder communication agents 
may charge companies on behalf of intermediaries. Fees for forwarding 
proxy statements, information statements and annual reports must be 
charged in accordance with any applicable self-regulatory organization 
fee schedules.
---------------------------------------------------------------------------

    \76\ See Rules 14b-1(c)(2) and 14b-2(c)(2) [17 CFR 240.14b-
1(c)(2) and 240.14b-2(c)(2)].
    \77\ See, e.g., 2 NYSE Guide (CCH), Rules of Board, Rules 451 
and 465; NASD Manual (CCH), Conduct Rules, Rules 2260 and IM-2260.
---------------------------------------------------------------------------

D. Householding of Proxy Statements by Security Holders

    Today's amendments permit security holders who deliver a proxy 
statement to other security holders to household the proxy statement to 
record and beneficial holders if the company or intermediary previously 
has obtained security holder consent to householding in accordance with 
the procedures in Rule 14a-3(e)(1).\78\ Rule 14a-7 sets forth the 
obligations of companies either to provide a security holder list to a 
requesting security holder or to mail the security holder's proxy 
materials. The rule provides that the company has the option to provide 
the list or mail the security holder's materials, except when the 
company is soliciting proxies in connection with going private or roll-
up transactions. In those cases, the security holder has the option to 
request the list or have the company mail its materials. In addition to 
requiring that the company supply householding information that it 
previously has obtained when providing the security holder list, 
today's amendments require companies to share the benefit of written or 
implied consents to householding that they have obtained when mailing 
materials on a security holder's behalf.\79\
---------------------------------------------------------------------------

    \78\ See the Note to Rule 14a-3(e)(1) [17 CFR 240.14a-3(e)(1)].
    \79\ See Rules 14a-7(a)(2)(i) and (ii) [17 CFR 240.14a-
7(a)(2)(i) and (ii)].
---------------------------------------------------------------------------

    Intermediaries generally deliver proxy materials on behalf of 
soliciting parties other than the company under the conditions set 
forth in Exchange Act Rules 14b-1 and 14b-2.\80\ We requested but 
received no supportive comment as to whether Rules 14b-1 and 14b-2 
should be revised explicitly to require this practice. We, therefore, 
have not included such a requirement at this time. Nonetheless, under 
today's amendments, an intermediary would still be permitted to 
household proxy materials delivered on behalf of soliciting parties 
other than the company.
---------------------------------------------------------------------------

    \80\ For example, the soliciting party agrees to reimburse the 
intermediary for reasonable expenses incurred by the intermediary to 
forward the proxy statement to beneficial owners even though these 
rules are silent with respect to any such obligations.
---------------------------------------------------------------------------

III. Delivery of Proxy Materials to Registered Investment Advisers 
and Investment Managers

    Many of the self-regulatory organizations have adopted rules that 
allow registered investment advisers designated by beneficial owners 
and investment managers designated by named fiduciaries of ERISA plans 
to vote proxies and receive proxy material on behalf of the beneficial 
owners or ERISA plans.\81\ Our proposed householding rules did not 
include any specific provisions regarding householding of proxy 
materials to these designated advisers and plan managers. We did, 
however, request comment on whether
---------------------------------------------------------------------------

    \81\ See Order Approving Proposed Rule Changes by the NASD, 
Exchange Act Release No. 35681 (May 5, 1995) [60 FR 25749 (May 12, 
1995)]; Order Approving Proposed Rule Changes by the New York Stock 
Exchange, Exchange Act Release No. 34596 (Aug. 25, 1994) [59 FR 
45050 (Aug. 31, 1994)]; and Order Approving Proposed Rule Changes by 
the American Stock Exchange, Exchange Act Release No. 34294 (July 1, 
1994) [59 FR 35152 (July 8, 1994)]. The SRO rules require the 
beneficial owner to notify the member organization in writing of the 
name of the investment adviser and specify that the investment 
adviser has been designated to receive the proxy and related 
materials and vote the proxy. In an Information Memo to its member 
organizations, the NYSE stated that the member organizations may 
wish to provide consolidated proxies and related materials to 
investment advisers designated by beneficial owners to exercise 
voting discretion.
---------------------------------------------------------------------------

     Companies and intermediaries should be able to household 
proxy materials to these investment advisers and investment managers 
without having to rely on the proposed householding rules since it is 
unlikely that a single person or entity making the proxy voting 
decision on behalf of others would need more than one copy of the proxy 
materials; and
     Companies and intermediaries should be allowed to 
household proxy material without written or implied consent to 
trustees, executors, administrators, guardians or persons who act in 
similar capacities and who have been vested with proxy voting 
authority.
    Two commenters supported householding by implied consent to

[[Page 65744]]

investment advisers \82\ and three commenters indicated we should 
permit householding to investment advisers without requiring compliance 
with the householding rules.\83\ The commenters did not indicate what 
procedures companies and intermediaries have followed in implementing 
householding to investment advisers. While we believe that companies 
and intermediaries could easily comply with the householding rules by 
obtaining either written or implied consent from investment advisers, 
we are also persuaded that, in most cases, companies and intermediaries 
should be allowed to continue to household to investment advisers as 
they have in the past. Thus, we will allow such householding to 
continue outside the scope of the rules we adopt today, provided that 
the investment adviser is eligible to vote the proxies under the self-
regulatory organization rules and does not object to householding.
---------------------------------------------------------------------------

    \82\ See comment letters of Prudential Securities and the 
Corporate Actions Division of the Securities Industry Association.
    \83\ See comment letters of the Investment Company Institute, 
Fidelity Management & Research Company and Charles Schwab.
---------------------------------------------------------------------------

    In contrast, we are not persuaded that companies and intermediaries 
should be able to household proxy materials to trustees, executors, 
administrators, guardians or persons who act in similar capacities and 
who have been vested with proxy voting authority without first 
obtaining their written or implied consent. Given the lack of a 
supplementary regulatory regime and the uncertainty as to whether all 
of these individuals would share the same level of sophistication as 
investment advisers covered by the self-regulatory organization rules, 
we conclude that these categories of individuals should be covered by 
the provisions of the rules we adopt today.

IV. Paperwork Reduction Act

    Certain provisions of the rule amendments adopted today contain 
``collection of information'' requirements within the meaning of the 
Paperwork Reduction Act of 1995.\84\ We published notice soliciting 
comments on the collection of information requirements relating to 
Schedules 14A and 14C in the proposing release,\85\ and submitted these 
requirements 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 those collections of information are: ``Regulation 14A 
(Commission Rules 14a-1 through 14b-2 and Schedule 14A)''; and 
``Regulation 14C (Commission Rules 14c-1 through 14c-7 and Schedule 
14C).'' OMB approved the regulations' information collection 
requirements and subsequently approved a revision to the regulations' 
collection of information requirements in connection with our proposal 
to revise the Commission's auditor independence requirements.\86\ All 
burden estimates in this section have been revised from the proposing 
release to include the increased paperwork burdens approved in the 
subsequent revision.\87\
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    \84\ 44 U.S.C. 3501 et seq.
    \85\ Delivery of Proxy and Information Statements to Households, 
Securities Act Release No. 7767 (Nov. 4, 1999) [64 FR 62548 (Nov. 
16, 1999)].
    \86\ See Revision of the Commission's Auditor Independence 
Requirements, Securities Act Release No. 7870 (June 30, 2000) [65 FR 
43148 (July 12, 2000)].
    \87\ The OMB control numbers for the rules are as follows: Rules 
14a-2, 14a-3, 14a-7, 14b-1, 14b-2 and Schedule 14A, contained in 
Regulation 14A (3235-0059, expires September 30, 2003); Rules 14c-3 
and Schedule 14C, contained in Regulation 14C (3235-0057, expires 
September 30, 2003). An agency may not conduct or sponsor, and a 
person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
---------------------------------------------------------------------------

    We did not receive any comments that address specifically the 
estimated paperwork burdens associated with the proposed collections of 
information. The comments we received primarily addressed the costs and 
benefits of the proposals in general terms, rather than issues relating 
to the collection of information. Those concerns are addressed more 
fully in the cost-benefit and other sections of this release.
    The rule amendments permit delivery of a single annual report, 
prospectus, proxy statement or information statement to a household to 
satisfy the delivery requirements with respect to two or more security 
holders in the household. A person relying on one of the rules must 
obtain either written or implied consent to householding from each 
security holder who will no longer receive a separate copy of the 
document. The rules require persons who wish to household with implied 
consent to send a notice to each security holder stating that the 
security holders in the household will receive one annual report, 
prospectus, proxy statement or information statement in the future 
unless the security holders provide contrary instructions. The purpose 
of this requirement is to give reasonable assurance that all security 
holders have access to the annual report, prospectus, proxy statement 
or information statement.
    The rule amendments also require companies choosing to household 
proxy statements or information statements to provide disclosure in 
their proxy statements or information statements informing security 
holders how they can revoke their consent to householding, request 
householding or request extra copies of any householded document. The 
purpose of this requirement is to allow security holders whose 
circumstances have changed to revise their delivery arrangements in 
order to ensure that they continue to have convenient access to the 
disclosure documents.
    Preparing and sending the initial notice that a company intends to 
household by implied consent and preparing the proxy statement and 
information statement householding disclosure are collections of 
information. Companies and intermediaries are the primary respondents. 
The information collection requirements imposed by the rule amendments 
are required for those companies, banks or broker-dealers that decide 
to rely on the rules to obtain the benefit of sending fewer documents 
to each household. Those companies, banks, and broker-dealers that 
decide not to obtain that benefit are not required to rely on or comply 
with the rule amendments. Responses to the collection of information 
will not be kept confidential.
    We estimate that 9,892 respondents are subject to Regulation 14A 
and 253 respondents are subject to Regulation 14C. We estimate that 10% 
of these respondents will deliver the notice that they intend to 
household by implied consent and prepare the Schedule 14A or Schedule 
14C householding disclosure. Taking into account today's amendments, we 
estimate that the total respondent reporting burdens for Schedules 14A 
and 14C, in terms of hours, are 179,966 hours and 4632 hours, 
respectively, or approximately 18 hours per respondent under each 
schedule. These estimates include 5,192 and 131 hours for respondents 
subject to Regulations 14A and 14C, respectively, to prepare and 
deliver the notice of intent to household and to prepare and include 
the required proxy statement and information statement disclosure 
regarding householding.\88\ In addition to

[[Page 65745]]

the internal hours they will expend, we expect that issuers will hire 
outside counsel to help prepare the required disclosures. The internal 
hours issuers will require to comply with Regulations 14A and 14C are 
reflected as Hours in the table below; the additional costs they will 
incur to comply with those regulations are reflected as Cost. The total 
dollar costs of complying with Regulations 14A and 14C, revised to 
include the additional outside counsel costs expected from today's 
amendments, are estimated to be $92,461,000 and $2,395,000, 
respectively. The increases in the burden hours and total costs 
required to comply with the regulations are primarily attributable to 
increases in the number of respondents subject to Regulations 14A and 
14C.
---------------------------------------------------------------------------

    \88\ We estimate that registrants will prepare 25% of the 
required notices and householding disclosures and that outside 
counsel will prepare the remaining 75%. Accordingly, 25% of the 
total burden resulting from our householding rules is reflected as 
burden hours and the remaining 75% is reflected in the total cost of 
complying with the information collection requirements. We used an 
estimated hourly rate of $175 to determine the estimated cost to the 
respondent of the disclosure prepared by outside counsel. The 
Commission arrived at that hourly rate estimate after consulting 
with several private law firms.

------------------------------------------------------------------------
                                                     Hours       Cost
------------------------------------------------------------------------
Schedule 14A.....................................   179,966  $92,461,000
Schedule 14C.....................................     4,632    2,935,000
------------------------------------------------------------------------

    When the Commission proposed rules in 1997 to permit householding 
of annual reports by implied consent,\89\ it submitted a request for 
approval of revisions to Regulations 14A and 14C to OMB. OMB approved 
the revisions and they were adopted with some modification.\90\ In that 
submission, the Commission estimated that the time required to prepare 
and arrange delivery of the notice (required to be mailed by companies 
choosing to solicit implied consent to householding of the annual 
report from security holders) would be approximately 20 hours per 
respondent per year. Because the annual report and proxy statement or 
information statement generally are mailed to security holders together 
in the same package, it is likely that companies and intermediaries 
will be able to mail only one notice to obtain consent to householding 
of both the annual report and the proxy statement or information 
statement. In connection with our 1997 proposals, we increased our 
estimated paperwork burden associated with Regulations 14A and 14C to 
include 20 hours per respondent for the time they would spend preparing 
and mailing the notice of implied consent to household annual reports. 
Because we anticipate that respondents will mail only one notice of 
implied consent to household both annual reports and proxy statements 
or information statements, we do not believe the requirement that 
companies and intermediaries send out this notice if they intend to 
rely on implied consent to household proxy statements and information 
statements will result in a greater paperwork burden than previously 
approved.
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    \89\ Delivery of Disclosure Documents to Households, Securities 
Act Release No. 7475 (Nov. 13, 1997) [62 FR 61933 (Nov. 20, 1997)].
    \90\ See Delivery of Disclosure Documents to Households, 
Securities Act Release No. 7766 (Nov. 4, 1999) [64 FR 62540 (Nov. 
16, 1999)].
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    We have, however, adjusted our estimate of the paperwork burden 
associated with Regulations 14A and 14C to reflect the increased number 
of respondents required to file proxy statements and information 
statements in compliance with those regulations. In 1997, when we 
proposed to allow companies to household annual reports by implied 
consent, there were only 9321 respondents subject to Regulation 14A and 
150 respondents subject to Regulation 14C. There are now 9892 and 253 
respondents subject to regulations 14A and 14C, respectively. We have, 
therefore, increased the burden hours companies will require to prepare 
and deliver the notices that they intend to household by implied 
consent under Regulations 14A and 14C by 285 hours and 50 hours, 
respectively. We calculated the increase in burden hours under 
Regulation 14A by multiplying the difference in the number of estimated 
householders by 20, our estimate of the total amount of time it will 
take a company and its outside counsel to prepare and deliver the 
notices. We then increased our estimate of the company's total burden 
hours by 25% of that figure, as we estimate companies will bear 
approximately 25% of the increased reporting burden. The remaining 75% 
is attributed to the total cost of complying with the regulation, as we 
assume that outside counsel will be responsible for approximately 75% 
of the reporting burden increase. Thus, we have also increased the 
total costs associated with Regulations 14A and 14C by approximately 
$150,000 and $26,000, respectively.
    We believe that it would be inappropriate to increase our 
previously approved burden estimate for complying with Rule 154,\91\ as 
companies and intermediaries can inform security holders of their 
intent to household combination proxy statement-prospectuses delivered 
for business combinations, exchange offers, or reclassifications of 
securities registered on Forms N-14, S-4 and F-4 using the same implied 
consent notice that they would send to notify security holders of their 
intent to household proxy statements, information statements and annual 
reports.
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    \91\ In connection with our adoption of Rule 154, we submitted 
the collection of information requirements contained in Rule 154, as 
originally adopted, to the Office of Management and Budget. The 
title for that collection of information is ``Rule 154 under the 
Securities Act of 1933, Delivery of prospectuses to investors at the 
same address.'' (OMB control number 3235-0495, expires Feb. 28, 
2001).
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    We estimate that the time to respond to the disclosure requirements 
of Schedules 14A and 14C will be approximately one hour per respondent 
per year. We previously increased our estimate of the burden hours and 
approximate cost associated with Regulation 14A by 247 hours and 
$130,000 to reflect the increased burden respondents will face as a 
result of the disclosure requirements. Our estimates of the burden 
hours and approximate cost associated with Regulation 14C were likewise 
previously increased by 6 hours and $3,000, respectively.

V. Cost-Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by 
its rules on affected persons and entities. In November 1999, the 
Commission adopted rules allowing companies to deliver one copy of an 
annual report or prospectus (except those required to be delivered for 
business combinations, exchange offers or reclassifications of 
securities) to consenting security holders at a shared residential 
address. We refer to the shared delivery of a disclosure document as 
householding. Several commenters on the rules adopted in November 1999 
noted that the ability of companies to household annual reports would 
be limited by their inability also to household proxy statements and 
information statements, as annual reports are often delivered in the 
same package as proxy statements or information statements. Those 
commenters encouraged the Commission to adopt similar rules permitting 
the householding of proxy and information statements. We are now 
adopting rules that will permit companies and intermediaries to 
household proxy and information statements, as well as prospectuses 
delivered in connection with business combinations, exchange offers and 
reclassifications of securities. The rules we adopt today will permit 
companies and intermediaries 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. Security 
holders will benefit from the decrease in delivery costs paid by 
companies and from no longer being burdened with duplicate documents. 
The rules require companies and intermediaries who rely on the rules to 
comply with certain procedures, including obtaining either written

[[Page 65746]]

consents from security holders or delivering notices 60 days in advance 
of householding. In addition, companies relying on the rules will need 
to include certain householding disclosure in their proxy and 
information statements. Because householding is voluntary, the 
Commission expects that the rules will not have any negative impact on 
small businesses and that companies, banks, and broker-dealers 
generally will rely on the rules only if the benefits of householding 
outweigh the costs.
    In the proposing release, the Commission noted that companies would 
incur costs in obtaining consents and sending notices to security 
holders, and estimated that the cost savings to companies would far 
exceed the costs of obtaining the consents and mailing notices. The 
Commission also noted that the cost of providing proxy statement or 
information statement disclosure regarding householding would be 
minimal, as the disclosure would be included in proxy statements or 
information statements already being prepared by each company. 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 the costs and 
increase the benefits of the rules.

A. Benefits

    Several respondents commented on the potential benefits of the 
amended rules. Every commenter who addressed the issue indicated that 
allowing companies and intermediaries to household proxy statements, 
information statements and prospectuses used in connection with 
business combinations would allow companies to significantly reduce the 
costs of printing and mailing those documents. Many of those commenters 
also indicated that they had received numerous complaints from security 
holders expressing disapproval of duplicative wasteful mailings.
    One commenter estimated that U.S. security holders would save 
somewhere between $200 and $400 million annually if companies and 
intermediaries were allowed to household proxy and information 
statements. He extrapolated that range from his estimate that almost 
every company would save at least 10% of their printing and mailing 
costs and that companies with ``household names'' could save as much as 
60% of their printing and mailing costs. He assumed that the advance 
notices would not be delivered separately and the company or 
intermediary could address the package of householded materials to any 
one security holder in the household. He did not explain the precise 
methodology and assumptions he used to obtain that figure, and one of 
his assumptions was inconsistent with the rules we adopt today. As 
discussed below, the rules we adopt today will allow companies and 
intermediaries to include the notice of householding with other 
security holder communications. However, the rules will not allow 
companies to address the materials to any one security holder without 
obtaining the written consent of each security holder in the household. 
That would impact the above estimate as some commenters noted that the 
group addressing requirement would increase the cost of complying with 
the required householding procedures.
    Charles Schwab estimated that if its proprietary fund family were 
allowed to household a hypothetical proxy statement, fund shareholders 
could save approximately $862,000, or 16% of total expenses for a 
shareholder meeting, in printing, packaging and mailing expenses.
    ADP Investor Communication Services, a company that handles the 
proxy material distribution function for nearly all large broker and 
many bank intermediaries, commented that each percentage point 
reduction in mailings that results from householding, using ADP's base 
of anticipated proxy mailings, equates to a savings of approximately 
$11.6 million in the aggregate to companies, assuming a unit cost of $5 
for the printing of an annual report, notice of proxy and proxy 
statement, and postage of $1.30. Other commenters stated more generally 
that allowing the householding rules to be in place for the last proxy 
season would have produced consequent savings of many millions of 
dollars, and that they expect the cost savings to companies to far 
exceed the cost of obtaining the consents and mailing the advance 
notices required for householding by implied consent. While some 
commenters noted that they might need to continue to separately deliver 
each security holder's proxy voting card, they noted that the savings 
likely to be generated from the reduction in printing and postage 
expenses would fully justify the householding of proxy statements even 
if the proxy voting cards continued to be mailed separately.
    Relying on the savings estimates provided by Charles Schwab and 
ADP, the Commission estimates that the incremental benefit from each 
eliminated mailing would be approximately $6, assuming a savings of $5 
from printing and $1.30 from mailing a proxy package, and $.32 cost for 
mailing the proxy card separately.\92\
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    \92\ New York Stock Exchange members may also incur a $.50 fee 
for each eliminated proxy mailing under the NYSE fee schedule for 
proxy mailings. Payment of that fee would result in those companies 
saving $.50 less on each eliminated mailing.
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B. Costs

    The Commission requested, but did not receive, any estimates of the 
total cost of soliciting and obtaining consent and providing the 
required householding disclosure in a company's proxy and information 
statements. Likewise, the Commission did not receive any comment 
estimating the cost of determining which security holders could be 
householded by implied consent or implementing programming or software 
changes necessary to track consents or print and mail proxy packages.
    Most of the comments the Commission received on the costs of the 
rules were qualitative comments identifying provisions which commenters 
felt needlessly raised the costs of householding. In particular, most 
commenters who addressed the issue argued that the rules should permit 
householding based on implied consent for all security holders sharing 
a household, whether or not the security holders shared the same last 
name. These commenters indicated their belief that security holders 
would be adequately protected by the implied consent notice and 
revocation disclosure procedures. As adopted, the rules will not permit 
householding by implied consent to security holders who do not share 
the same last name, unless the company or intermediary relying on the 
rules reasonably believes the security holders are members of the same 
family. However, the rules will allow companies or intermediaries to 
encourage those security holders who must give written consent to 
submit their consents via electronic mail. This procedure should enable 
companies and intermediaries to minimize compliance costs associated 
with the rules while still ensuring that, absent their affirmative 
consent, security holders who wish to receive separate copies of the 
disclosure documents will continue to receive them.
    Several commenters also indicated their view that requiring 
companies to address the householded materials to the group of security 
holders, rather than any one of them, would unnecessarily increase the 
cost of householding without providing additional security holder 
protection. These commenters noted that in order to

[[Page 65747]]

comply with the group addressing requirement, they may need to print 
and include an extra sheet of paper in the householded proxy materials 
package, and would thus face higher printing and possibly higher 
mailing costs than they would if they could simply show one of the 
security holder's names through the envelope window. One commenter 
indicated that requiring group addressing might result in fewer 
companies adopting the benefits of householding. Another indicated that 
group addressing may require transfer agents to implement costly 
programming changes and changes in the processes used to place proxy 
materials in envelopes, with the costs of those changes passed on to 
companies. That commenter noted that addressing the householded 
material to any one of the individual stockholders would require much 
more modest and manageable programming and operational changes.
    The Commission is sensitive to these concerns but believes the 
householded materials should be addressed in such a manner that 
security holders will be aware that the householded package is intended 
for the group of security holders included in the household. Therefore, 
we have decided to allow alternative forms of addressing but only if 
each security holder in the household has consented in writing to the 
alternative form of address. We believe that the non-quantifiable 
benefit from security holders being easily able to understand that 
documents are to be shared by the household fully justifies the costs 
of the addressing requirements, as adopted.
    Many commenters opposed the proposed requirement that the company 
mail separately its advance notice of its intention to deliver 
documents in householded form. These commenters argued that separate 
delivery of the notice would unnecessarily increase costs without 
providing additional security holder protection. They recommended that 
companies and intermediaries be allowed to include the notice with 
other security holder communications, as they may do when they 
distribute an advance notice of their intention to household 
prospectuses under Securities Act Rule 154. In response to those 
comments, we have modified the rule; as adopted, the rule will permit 
companies and intermediaries to mail the notice of their intent to 
household with other security holder communications, so long as the 
notices are mailed to each individual in the household and both the 
notice and the envelope in which it is mailed contain a prominent 
legend alerting security holders of the importance of the contents. The 
elimination of the separate delivery requirement will reduce the cost 
to companies and intermediaries of complying with the rules.
    Finally, some commenters thought that requiring intermediaries to 
obtain the consent of each company to household its materials would 
increase the costs of compliance with the rule. ADP noted that 
attempting to limit the householding option on a company-by-company 
basis is operationally very difficult and impractical to implement for 
nominee intermediaries. ADP argued that without widespread support of 
intermediaries, which will come with standardized practices and 
operations, costs for implementation could offset benefits and perhaps 
stall the initiative. ADP also indicated that it anticipated there 
would be very limited requests from companies to suppress householding 
to their security holders. Another commenter stated that having to 
limit its ability to household only where the company consents would 
add unnecessary complexity and expense and that placing restrictions on 
an intermediary's ability to household would increase the costs and 
reduce the benefits of householding. The Securities Industry 
Association also indicated that it would oppose any provision that 
makes householding contingent on approval by each company, because 
requiring specific procedures for individual holdings within an account 
would result in less efficiency and higher costs. Conversely, one 
company indicated that in order for the rules to generate the intended 
savings, companies must have ways to require intermediaries to 
household at a reasonable cost to companies. The Investment Company 
Institute commented that the Commission should allow intermediaries to 
household only at the direction of the company, as companies bear the 
ultimate responsibility to provide the disclosure document and 
reimburse the intermediaries' expenses of distributing the proxy 
materials. Fidelity Management and Research Co. also believes that fund 
companies should have the right to decide whether intermediaries 
household proxy statements, as the decision of whether to household 
could affect fund expenses. We had originally proposed that 
intermediaries be able to household to beneficial owners at their own 
discretion.
    Because of the importance of the required proxy and information 
statement disclosure, the necessity of some entity retaining an 
inventory of extra copies of the disclosure documents, as well as our 
agreement that companies must have ways to control their expenses, we 
ultimately concluded that companies should be able to object to 
intermediary householding. However, as there is not yet enough 
empirical data to determine the true cost of householding, from the 
perspectives of both companies and intermediaries, we believe it is 
appropriate for all entities involved to retain the ability to opt out 
of householding. We recognize that many intermediaries will incur large 
start-up costs to implement householding. However, we note that 
companies remain required to reimburse intermediaries for their 
reasonable proxy distribution expenses, and that many intermediaries 
may be able to recoup some of their expenses through the imposition of 
a paper and postage elimination fee.
    The Commission estimates that the cost of obtaining a security 
holder's consent, using the implied consent procedure allowed by the 
amendments, would be less than $.80 per implied consent notice. The 
actual cost of obtaining an implied consent may in fact be less, as the 
above estimate assumes that the notice will be mailed separately from 
other communications. Under the rules adopted today, companies and 
intermediaries may mail the notice with other security holder 
communications as long as a prominent legend is included on both the 
notice and the envelope containing the notice. Companies and 
intermediaries will also incur costs in determining which security 
holders may be mailed materials in householded form, implementing 
programming or software changes necessary to track consents, 
implementing programming changes necessary for the printing and mailing 
of householded packages, and providing the proxy and information 
statement disclosure required under today's rules. Other 
nonquantifiable costs will include the costs to security holders who, 
for whatever reason, wish to but do not receive disclosure documents 
\93\ and the costs that companies and intermediaries will incur in 
responding to security holder consent revocations. We do not expect 
those costs to be significant. The Commission anticipates that the only 
recurring cost of today's rules would be the cost of including the 
required

[[Page 65748]]

disclosure in the proxy and information statements, and that such cost 
will be marginal as the disclosure will be included in documents that 
would otherwise be required. The Commission estimated in the proposing 
release that the time required to prepare this disclosure would be 
approximately one hour per respondent per year. Assuming that the 
disclosure is prepared by outside counsel, the Commission estimates 
that the disclosure requirement would cost companies who elect to 
household an additional $175 per year.
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    \93\ For example, a security holder might not receive a 
disclosure document if the security holder changes his or her 
mailing address without notifying the company or intermediary, or if 
the security holder neglects to read and respond to a notice that 
the company intends to household using the implied consent 
procedures.
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    We understand companies and intermediaries will incur costs to 
revise their proxy printing and mailing systems to comply with the 
rules we adopt today. We have not received enough information to 
estimate those costs with any reliability. However, as discussed above, 
the cost savings from householding are potentially substantial. 
Assuming a cost savings of $6 for each set of materials eliminated 
through householding, that approximately 245 million sets of proxy 
materials are mailed annually, that companies and intermediaries will 
be able to household 16 percent of the mailings they would otherwise be 
required to deliver individually, and that 10% of all companies will 
choose to household their proxy statements and information statements, 
householding could result in aggregate cost savings of up to $23.5 
million annually. The Commission derived its estimate of the total 
annual proxy mailings by assuming that ADP's mailings represent 
approximately 75% of the total annual proxy mailings. That assumption 
is based on the Commission's recognition that ADP controls nearly 100% 
of the market \94\ for delivery of proxy materials to security holders 
whose securities are held in street name and that approximately 70-80% 
of all outstanding securities are held in street name.\95\ ADP Investor 
Communication Services commented that, assuming a unit cost of $6.30 
for each eliminated mailing, companies could save approximately $11.6 
million in the aggregate for each percentage point reduction in ADP's 
base of anticipated proxy mailings. Using those figures, the Commission 
estimated ADP's anticipated base of mailings to be approximately 184 
million. The percent of estimated consents was based on the comment 
letter of Charles Schwab & Co., which estimated that if Schwab's 
proprietary fund family were allowed to household a hypothetical proxy 
statement, fund security holders could save approximately 16% of total 
expenses, in printing, packaging and mailing expenses for a security 
holder meeting.\96\ We assume that the reduction in expenses would be 
proportional to the reduction in eliminated mailings.
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    \94\ See Self-Regulatory Organizations; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change by the New York 
Stock Exchange, Inc., Extending the Pilot Fee Structure Governing 
the Reimbursement of Member Organizations for Costs Incurred in the 
Transmission of Proxy and Other Shareholder Communication Materials, 
Exchange Act Release No. 42433 (Feb. 16, 2000) [65 FR 10137 (Feb. 
25, 2000)].
    \95\ See Self-Regulatory Organizations; New York Stock Exchange, 
Inc., Exchange Act Release No. 41177 (Mar. 16, 1999) [64 FR 14294 
(Mar. 24, 1999)] (stating that research provided by the NYSE 
indicates that approximately 70 to 80 percent of all outstanding 
shares are held in street name).
    \96\ See also comment letter of Lucent.
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    Based on information provided in the comment letters and its own 
analysis, the Commission believes that the rule amendments adopted 
today will permit companies and intermediaries to cost-effectively 
reduce the number of mailings they are required to distribute to 
security holders and that, in the long term, the benefits of the rules 
adopted today will justify the costs of implementing householding and 
complying with the householding rules.

VI. Effects on Efficiency, Competition, and Capital Formation

    As required by Section 23(a) of the Exchange Act,\97\ we considered 
the impact any new Exchange Act rule would have on competition. We 
requested comment on any anti-competitive effects of the proposals. We 
received one comment letter responding to that request. That commenter 
noted its belief that the proposals would not have an adverse effect on 
competition. We believe that the amendments will not have any anti-
competitive effect, as the rules are voluntary and are designed to 
allow companies and intermediaries to decrease their current printing 
and mailing costs.
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    \97\ 15 U.S.C. 78w(a).
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    In addition, Section 2(b) of the Securities Act \98\ and Section 
3(f) of the Exchange Act \99\ require us, in adopting a rule that 
requires a public interest finding, to consider whether the proposed 
rule will promote efficiency, competition and capital formation. We 
sought comment on how these changes would affect competition, capital 
formation and market efficiency. The sole commenter on these issues 
indicated its view that the proposals would promote efficiency, not 
adversely affect competition, and have no effect on capital formation. 
Because the householding of proxy and information statements will 
eliminate many unwanted duplicate mailings and allow companies to save 
printing and mailing costs, we believe the amendments will have a 
positive effect on efficiency and capital formation. We do not believe 
the amendments will have any effect on competition.
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    \98\ 15 U.S.C. 77b(b).
    \99\ 15 U.S.C. 78c(f).
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VII. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis (``FRFA'') has been 
prepared in accordance with the Regulatory Flexibility Act. It relates 
to amendments to: Securities Act Rule 154, Exchange Act Rules 14a-2, 
14a-3, 14a-7, 14b-1, 14b-2, 14c-3, and Schedules 14A and 14C.

A. Need for the Rule Amendments

    The new rule amendments are designed to enable companies and 
intermediaries to reduce the number of identical mailings sent to 
security holders sharing the same household. The Commission is adopting 
the rule amendments in order to permit companies and intermediaries to 
household proxy and information statements as well as prospectuses 
delivered in connection with business combinations, exchange offers and 
reclassifications of securities.

B. Significant Issues Raised by Public Comment

    The Initial Regulatory Flexibility Analysis (``IRFA''), which was 
prepared in accordance with 5 U.S.C. 603, was published in the 
proposing release. We received no comments on the IRFA.

C. Small Entities Subject to the Rule Amendments

    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.\100\ The only small 
businesses subject to the proxy rules are those that have securities 
registered under Section 12 of the Exchange Act. There are 
approximately 771 reporting companies that have assets of $5 million or 
less. The actual number of reporting companies affected by the proxy 
rules may be less than 771, as not all reporting companies are subject 
to the proxy rules. As stated above, the proposed householding rules 
would be optional. Under amended Rules 14b-1 and 14b-2, broker-dealers 
and banks are required to forward security holder communications to 
beneficial owners on

[[Page 65749]]

whose behalf they hold securities. Under Exchange Act Rule 0-10, a 
broker or dealer is considered a small business if it has less than 
$500,000 total capital, calculated in accordance with Rule 0-10(c)(1). 
In addition, a broker or dealer will not be considered a small business 
if it is affiliated with any person (other than a natural person) that 
is not a small business or small organization as defined in Rule 0-10. 
The Exchange Act rules do not contain a definition of small banks. The 
Regulatory Flexibility Act defines the term ``small entity'' by 
reference to definitions published by the Small Business 
Administration.\101\ The Small Business Administration has defined a 
``small entity'' for banking purposes as a national or commercial bank, 
savings institution or credit union with less than $100 million in 
assets.\102\
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    \100\ 17 CFR 240.0-10.
    \101\ See 5 U.S.C. 601.
    \102\ See 13 CFR 121.201.
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    The rule amendments would define the circumstances under which 
broker-dealers and banks could household materials to security holders 
on whose behalf they hold securities. There are approximately 913 
broker-dealers registered with the Commission that would be considered 
small businesses under Rule 0-10. We estimate that there are 
approximately 4946 entities potentially subject to Rule 14b-2 that 
could be considered small businesses under the Small Business 
Administration's size regulations.
    An indeterminable number of entities could be affected by the 
amendment to Rule 154, as companies who have not previously registered 
with the Commission can use the forms prescribed for business 
combinations, exchange offers, or reclassifications of securities. 
However, as discussed above, there are approximately 771 reporting 
companies that have assets of $5 million or less.

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The primary goal of the rule amendments is to remove unnecessary 
regulatory requirements. The amended rules, however, will require a 
company or other party choosing to solicit implied consent to 
householding from security holders to mail a separate written notice of 
its intention to household proxy and information statements. The 
proposed rules also will require companies to undertake in the proxy 
statement or information statement to provide, upon written or oral 
request, a separate copy of the annual report, proxy statement or 
information statement to a security holder residing at an address to 
which the company or intermediary delivered a householded copy. 
Additionally, companies choosing to household the annual report and 
proxy statement or information statement would have to provide 
instructions in the proxy statement or information statement as to how: 
(1) a security holder can revoke consent to householding; (2) security 
holders sharing an address can request householding; and (3) security 
holders can request extra copies of the annual report, proxy statement 
or information statement. It is likely that the company's notice of its 
intent to household generally would not exceed one page, and the proxy 
statement or information statement disclosure would be only a paragraph 
or two in length.

E. Agency Action To Minimize Effects on Small Entities

    As required by Sections 603 and 604 of the Regulatory Flexibility 
Act, the Commission has considered the following alternatives to 
minimize the economic impact of the rule amendments on small entities: 
(1) the establishment of differing compliance or reporting requirements 
or timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation or simplification of 
compliance and reporting requirements under the rule amendments for 
small entities; (3) the use of performance rather than design 
standards; and (4) an exemption from the coverage of the rule, or any 
part thereof, for small entities.
    The adopted rules are intended to remove regulatory requirements 
for all companies, including those that are small entities. Because 
householding is voluntary, the Commission expects that the rules will 
not have any negative impact on small businesses and that companies, 
banks, and broker-dealers generally will rely on the rules only if the 
benefits of householding outweigh the costs. The Commission considered 
exempting small entities that are reporting companies from the notice, 
undertaking, and disclosure requirements, but believes that security 
holders in companies of all sizes should be notified that a company 
intends to household any disclosure document and have the opportunity 
to object. Because the proposed rules will be optional and should 
benefit small entities, it was unnecessary to consider exempting them 
from coverage of the adopted rules.

VIII. Statutory Authority

    We are amending Rule 154 pursuant to the authority set forth in 
Section 19(a) of the Securities Act. We are amending Rules 14a-2, 14a-
3, 14a-7, 14a-101, 14b-1, 14b-2, 14c-3, and 14c-101 under the authority 
set forth in sections 12, 14 and 23(a) of the Exchange Act.

List of Subjects

17 CFR Part 230

    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, 
77z-3, 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.
* * * * *


Sec. 230.154  [Amended]

    2. Section 230.154 is amended by removing paragraph (e).

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-2 is amended by revising paragraph (a)(1)(ii) to 
read as follows:


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

    (a) * * *
    (1) * * *
    (ii) Furnishes promptly to the person solicited (or such person's 
household in accordance with Sec. 240.14a-3(e)(1)) a copy of all 
soliciting material with respect to the same subject matter or meeting 
received from all persons who shall furnish copies thereof for such 
purpose and who shall, if requested, defray the reasonable expenses to 
be

[[Page 65750]]

incurred in forwarding such material, and
* * * * *

    5. Section 240.14a-3 is amended by revising paragraph (e)(1) 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 or proxy statement to all security holders of record who 
share an address if:
    (A) The registrant delivers one annual report or proxy statement, 
as applicable, to the shared address;
    (B) The registrant addresses the annual report or proxy statement, 
as applicable, to the security holders as a group (for example, ``ABC 
Fund [or Corporation] Security Holders,'' ``Jane Doe and Household,'' 
``The Smith Family''), to each of the security holders individually 
(for example, ``John Doe and Richard Jones'') or to the security 
holders in a form to which each of the security holders has consented 
in writing;

    Note to paragraph (e)(1)(i)(B): Unless the company addresses the 
annual report or proxy statement to the security holders as a group 
or to each of the security holders individually, it must obtain, 
from each security holder to be included in the householded group, a 
separate affirmative written consent to the specific form of address 
the company will use.

    (C) The security holders consent, in accordance with paragraph 
(e)(1)(ii) of this section, to delivery of one annual report or proxy 
statement, as applicable;
    (D) With respect to delivery of the proxy statement, the registrant 
delivers, together with or subsequent to delivery of the proxy 
statement, a separate proxy card for each security holder at the shared 
address; and
    (E) The registrant includes an undertaking in the proxy statement 
to deliver promptly upon written or oral request a separate copy of the 
annual report or proxy statement, as applicable, to a security holder 
at a shared address to which a single copy of the document was 
delivered.
    (ii) Consent. (A) Affirmative written consent. Each security holder 
must affirmatively consent, in writing, to delivery of one annual 
report or proxy statement, as applicable. A security holder's 
affirmative written consent will only be considered valid if the 
security holder has been informed of:
    (1) The duration of the consent;
    (2) The specific types of documents to which the consent will 
apply;
    (3) The procedures the security holder must follow to revoke 
consent; and
    (4) The registrant's obligation to begin sending individual copies 
to a security holder within thirty days after the security holder 
revokes consent.
    (B) Implied consent. The registrant need not obtain affirmative 
written consent from a security holder for purposes of paragraph 
(e)(1)(ii)(A) of this section if all of the following conditions are 
met:
    (1) The security holder has the same last name as the other 
security holders at the shared address or the registrant reasonably 
believes that the security holders are members of the same family;
    (2) 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 and proxy statements to that security 
holder. The notice must:
    (i) Be a separate written document;
    (ii) State that only one annual report or proxy statement, as 
applicable, will be delivered to the shared address unless the 
registrant receives contrary instructions;
    (iii) 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 the security 
holder wishes to receive a separate annual report or proxy statement;
    (iv) State the duration of the consent;
    (v) Explain how a security holder can revoke consent;
    (vi) State that the registrant will begin sending individual copies 
to a security holder within thirty days after the security holder 
revokes consent; and
    (vii) Contain the following prominent statement, or similar clear 
and understandable statement, in bold-face type: ``Important Notice 
Regarding Delivery of Security Holder 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 security holders, this statement may appear either on 
the notice or on the envelope in which the notice is delivered.

    Note to paragraph (e)(1)(ii)(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) 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 or proxy statement, as 
applicable, within 60 days after the registrant sent the notice; and
    (4) The registrant delivers the document to a post office box or 
residential street address.

    Note to paragraph (e)(1)(ii)(B)(4):  The registrant can assume 
that a street address is residential unless the registrant has 
information that indicates the street address is a business.

    (iii) Revocation of consent. If a security holder, orally or in 
writing, revokes consent to delivery of one annual report or proxy 
statement to a shared address, the registrant must begin sending 
individual copies to that security holder within 30 days after the 
registrant receives revocation of the security holder's consent.
    (iv) Definition of address. Unless otherwise indicated, 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.

    Note to paragraph (e)(1): A person other than the registrant 
making a proxy solicitation may deliver a single proxy statement to 
security holders of record or beneficial owners who have separate 
accounts and share an address if: (a) the registrant or intermediary 
has followed the procedures in this section; and (b) the registrant 
or intermediary makes available the shared address information to 
the person in accordance with Sec. 240.14a-7(a)(2)(i) and (ii).

* * * * *

    6. Section 240.14a-7 is amended by revising paragraphs (a)(2)(i) 
and (ii) and designating the existing note to Sec. 240.14a-7 as Note 1, 
revising the heading to the notes and adding Note 2, to read as 
follows:


Sec. 240.14a-7  Obligations of registrants to provide a list of, or 
mail soliciting materials to, security holders.

* * * * *
    (a) * * *
    (2) * * *
    (i) Mail copies of any proxy statement, form of proxy or other 
soliciting material furnished by the security holder to the record 
holders, including banks, brokers, and similar entities, designated by 
the security holder. A sufficient number of copies must be mailed to 
the banks, brokers, and similar entities for distribution to all 
beneficial owners designated by the security holder. If the registrant 
has received affirmative written or implied consent to deliver a single 
proxy

[[Page 65751]]

statement to security holders at a shared address in accordance with 
the procedures in Sec. 240.14a-3(e)(1), a single copy of the proxy 
statement furnished by the security holder shall be mailed to that 
address. The registrant shall mail the security holder material with 
reasonable promptness after tender of the material to be mailed, 
envelopes or other containers therefor, postage or payment for postage 
and other reasonable expenses of effecting such mailing. The registrant 
shall not be responsible for the content of the material; or
    (ii) Deliver the following information to the requesting security 
holder within five business days of receipt of the request: a 
reasonably current list of the names, addresses and security positions 
of the record holders, including banks, brokers and similar entities 
holding securities in the same class or classes as holders which have 
been or are to be solicited on management's behalf, or any more limited 
group of such holders designated by the security holder if available or 
retrievable under the registrant's or its transfer agent's security 
holder data systems; the most recent list of names, addresses and 
security positions of beneficial owners as specified in Sec. 240.14a-
13(b), in the possession, or which subsequently comes into the 
possession, of the registrant; and the names of security holders at a 
shared address that have consented to delivery of a single copy of 
proxy materials to a shared address, if the registrant has received 
written or implied consent in accordance with Sec. 240.14a-3(e)(1). All 
security holder list information shall be in the form requested by the 
security holder to the extent that such form is available to the 
registrant without undue burden or expense. The registrant shall 
furnish the security holder with updated record holder information on a 
daily basis or, if not available on a daily basis, at the shortest 
reasonable intervals, provided, however, the registrant need not 
provide beneficial or record holder information more current than the 
record date for the meeting or action.
* * * * *
    Notes to Sec. 240.14a-7.
    1. * * *
    2. When providing the information required by Sec. 240.14a-
7(a)(1)(ii), if the registrant has received affirmative written or 
implied consent to delivery of a single copy of proxy materials to a 
shared address in accordance with Sec. 240.14a-3(e)(1), it shall 
exclude from the number of record holders those to whom it does not 
have to deliver a separate proxy statement.

    7. Section 240.14a-101 is amended by adding Item 23 to read as 
follows:


Sec. 240.14a-101  Schedule 14A Information required in proxy statement.

* * * * *
    Item 23. Delivery of documents to security holders sharing an 
address.
    If one annual report or proxy statement is being delivered to two 
or more security holders who share an address in accordance with 
Sec. 240.14a-3(e)(1), furnish the following information:
    (a) State that only one annual report or proxy statement, as 
applicable, is being delivered to multiple security holders sharing an 
address unless the registrant has received contrary instructions from 
one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report or proxy statement, as applicable, 
to a security holder at a shared address to which a single copy of the 
documents was delivered and provide instructions as to how a security 
holder can notify the registrant that the security holder wishes to 
receive a separate copy of an annual report or proxy statement, as 
applicable;
    (c) Provide the phone number and mailing address to which a 
security holder can direct a notification to the registrant that the 
security holder wishes to receive a separate annual report or proxy 
statement, as applicable, in the future; and
    (d) Provide instructions how security holders sharing an address 
can request delivery of a single copy of annual reports or proxy 
statements if they are receiving multiple copies of annual reports or 
proxy statements.
    8. Section 240.14b-1 is amended by adding a note following 
paragraph (b)(2) and by adding paragraph (c)(3) to read as follows:


Sec. 240.14b-1  Obligation of registered brokers and dealers in 
connection with the prompt forwarding of certain communications to 
beneficial owners.

* * * * *
    (b)(2) * * *

    Note to paragraph (b)(2): At the request of a registrant, or on 
its own initiative so long as the registrant does not object, a 
broker or dealer may, but is not required to, deliver one annual 
report, proxy statement or information statement to more than one 
beneficial owner sharing an address if the requirements set forth in 
Sec. 240.14a-3(e)(1) (with respect to annual reports and proxy 
statements) and Sec. 240.14c-3(c) (with respect to annual reports 
and information statements) applicable to registrants, with the 
exception of Sec. 240.14a-3(e)(1)(i)(E), are satisfied instead by 
the broker or dealer.

* * * * *
    (c) * * *
    (3) In its response pursuant to paragraph (b)(1) of this section, a 
broker or dealer shall not include information about annual reports, 
proxy statements or information statements that will not be delivered 
to security holders sharing an address because of the broker or 
dealer's reliance on the procedures referred to in the Note to 
paragraph (b)(2) of this section.

    9. Section 240.14b-2 is amended by adding a note following 
paragraph (b)(3) and by adding paragraph (c)(4) to read as follows:


Sec. 240.14b-2  Obligation of banks, associations and other entities 
that exercise fiduciary powers in connection with the prompt forwarding 
of certain communications to beneficial owners.

* * * * *
    (b)(3) * * *

    Note to paragraph (b)(3): At the request of a registrant, or on 
its own initiative so long as the registrant does not object, a bank 
may, but is not required to, deliver one annual report, proxy 
statement or information statement to more than one beneficial owner 
sharing an address if the requirements set forth in Sec. 240.14a-
3(e)(1) (with respect to annual reports and proxy statements) and 
Sec. 240.14c-3(c) (with respect to annual reports and information 
statements) applicable to registrants, with the exception of 
Sec. 240.14a-3(e)(1)(i)(E), are satisfied instead by the bank.

* * * * *
    (c) * * *
    (4) In its response pursuant to paragraph (b)(1)(ii)(A) of this 
section, a bank shall not include information about annual reports, 
proxy statements or information statements that will not be delivered 
to security holders sharing an address because of the bank's reliance 
on the procedures referred to in the Note to paragraph (b)(3) of this 
section.
    10. Section 240.14c-3 is amended by revising paragraph (c) 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 or information statement to security holders of record who share 
an address if the requirements set forth in Sec. 240.14a-3(e)(1) are 
satisfied with respect to the annual report or information statement, 
as applicable.

    11. Section 240.14c-101 is amended by adding Item 5 to read as 
follows:

[[Page 65752]]

Sec. 240.14c-101  Schedule 14C. Information required in information 
statement.

* * * * *
    Item 5. Delivery of documents to security holders sharing an 
address.
    If one annual report or information statement is being delivered to 
two or more security holders who share an address, furnish the 
following information in accordance with Sec. 240.14a-3(e)(1):
    (a) State that only one annual report or information statement, as 
applicable, is being delivered to multiple security holders sharing an 
address unless the registrant has received contrary instructions from 
one or more of the security holders;
    (b) Undertake to deliver promptly upon written or oral request a 
separate copy of the annual report or information statement, as 
applicable, to a security holder at a shared address to which a single 
copy of the documents was delivered and provide instructions as to how 
a security holder can notify the registrant that the security holder 
wishes to receive a separate copy of an annual report or information 
statement, as applicable;
    (c) Provide the phone number and mailing address to which a 
security holder can direct a notification to the registrant that the 
security holder wishes to receive a separate annual report or proxy 
statement, as applicable, in the future; and
    (d) Provide instructions how security holders sharing an address 
can request delivery of a single copy of annual reports or information 
statements if they are receiving multiple copies of annual reports or 
information statements.

    Dated: October 27, 2000.

By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 00-28137 Filed 11-1-00; 8:45 am]
BILLING CODE 8010-01-P