[Federal Register Volume 62, Number 224 (Thursday, November 20, 1997)]
[Proposed Rules]
[Pages 61933-61942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30430]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230, 240 and 270
[Release Nos. 33-7475, 34-39321, IC-22884; File No. S7-27-97]
RIN 3235-AG98
Delivery of Disclosure Documents to Households
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Commission is proposing for public comment a new rule
under the Securities Act of 1933 to enable issuers and broker-dealers
to satisfy the Act's prospectus delivery requirements, with respect to
two or more investors sharing the same address, by sending a single
prospectus, subject to certain conditions. The Commission is proposing
similar amendments to the rules under the Securities Exchange Act of
1934 and the Investment Company Act of 1940 that govern the delivery of
annual and (in the case of investment companies) semiannual reports to
shareholders. The proposed rule and rule amendments seek to provide
greater convenience for investors and cost savings for issuers by
reducing the amount of duplicative information that investors receive.
DATES: Comments must be received on or before February 2, 1998.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 5th Street,
N.W., Stop 6-9, Washington, D.C. 20549. Comments also may be submitted
electronically at the following E-mail address: rule-comments@sec.gov.
All comment letters should refer to File No. S7-27-97; this file number
should be included on the subject line if E-mail is used. Comment
letters will be available for public inspection and copying in the
Commission's Public Reference Room, 450 5th Street, N.W., Washington,
D.C. 20549. Electronically submitted comment letters also will be
posted on the Commission's Internet web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Marilyn Mann, Senior Counsel, at (202)
942-0690, Office of Regulatory Policy, Division of Investment
Management, Stop 10-2, or Elizabeth M. Murphy, Special Counsel, at
(202) 942-2900, Office of Chief Counsel, Division of Corporation
Finance, Stop 4-2, Securities and Exchange Commission, 450 5th Street,
N.W., Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The Commission today is requesting public
comment on proposed rule 154 under the Securities Act of 1933 (15
U.S.C. 77a) (the ``Securities Act'') and proposed amendments to rules
14a-3 (17 CFR 240.14a-3), 14c-3 (17 CFR 240.14c-3) and 14c-7 (17 CFR
240.14c-7) under the Securities Exchange Act of 1934 (15 U.S.C. 78a)
(the ``Exchange Act''), and rules 30d-1 (17 CFR 270.30d-1) and 30d-2
(17 CFR 270.30d-2) under the Investment Company Act of 1940 (15 U.S.C.
80a) (the ``Investment Company Act'').
Table of Contents
I. Discussion
A. Delivery of Prospectuses to a Household
1. Scope of Rule and General Conditions
2. Householding Without Written Consent
3. Revocation of Consent
[[Page 61934]]
B. Delivery of Shareholder Reports to a Household
C. General Request for Comment
II. Cost-Benefit Analysis
III. Paperwork Reduction Act
IV. Summary of Initial Regulatory Flexibility Analysis
V. Statutory Authority
Text of Proposed Rules
I. Discussion
The Securities Act generally prohibits an issuer or underwriter
from delivering a security for sale unless a prospectus meeting certain
requirements accompanies or precedes the security. 1 If
several persons purchase the same security and share the same
household, the prospectus delivery requirements may result in the
mailing of multiple copies of the same prospectus to a household.
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\1\ See Securities Act sections 2(a)(10), 4(1), 5(b) (15 U.S.C.
77b(a)(10), 77d(1), 77e(b)). In connection with secondary market
transactions in certain securities, a dealer may also be required to
deliver a prospectus for a specified period after the commencement
of the offering. See Securities Act section 4(3) (15 U.S.C. 77d(3));
rule 174 (17 CFR 230.174). Dealers selling shares of open-end
management investment companies or units of unit investment trusts
(``UITs'') are required to deliver a prospectus if the issuer
(including the sponsor of a UIT) is currently offering shares or
units for sale. Investment Company Act section 24(d) (15 U.S.C. 80a-
24(d)); see also Form N-7 for Registration of Unit Investment Trusts
Under the Securities Act of 1933 and the Investment Company Act of
1940, Investment Company Act Release No. 15612 (Mar. 9, 1987) (52 FR
8268, 8269 (Mar. 17, 1987)) (because the sponsor of a UIT is
considered to be an issuer of the UIT's units under section 2(a)(4)
of the Securities Act, resales of units by the sponsor must be made
pursuant to a prospectus).
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Although the proposed rule is not limited to investment company
prospectuses, the problem of delivery of multiple prospectuses is
particularly significant in the case of open-end management investment
companies (``mutual funds''),2 and has grown as the
popularity of mutual funds as an investment vehicle for many families
has increased.3 The same mutual fund may be used by a family
as a regular investment as well as for family members' individual
retirement accounts, 401(k) or other tax-deferred retirement plans, and
for trusts or accounts established for the benefit of minor children.
Although one family member may make investment decisions on behalf of
each family, a fund that delivers an updated prospectus to investors
annually must deliver a copy to each family member in whose name shares
are purchased.
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\2\ Mutual funds generally offer their shares on a continuous
basis and, as a result, are required to file periodic ``post-
effective'' amendments to their registration statements in order to
maintain a ``current'' prospectus required by section 10(a)(3) of
the Securities Act (15 U.S.C. 77j(a)(3)). Post-effective amendments
also satisfy the requirement that mutual funds amend their
Investment Company Act registration statements annually. See 17 CFR
270.8b-16. The Securities Act requires mutual funds to send updated
prospectuses only to those shareholders who make additional
purchases. (A reinvestment through a dividend reinvestment plan
generally does not trigger this obligation.) In practice, many
mutual funds send an updated prospectus annually to all of their
shareholders. Because closed-end funds do not offer their shares to
the public on a continuous basis, they generally do not update their
prospectuses periodically. See Division of Investment Management,
SEC, Protecting Investors: A Half Century of Investment Company
Regulation 354 (1992) (discussing greater effect of Securities Act
prospectus delivery requirements on mutual funds as compared to
other issuers); see also Staff Interpretive Position Relating to
Fiduciary Duty of Directors of a Registered Investment Company in
Connection with Proposed Arrangement to Impose Sales Load on
Reinvestment of Income Dividends and Continuously Offer Fund Shares
Only in Connection with Dividend Reinvestments, Investment Company
Act Release No. 6480 (May 10, 1971) (36 FR 9627 (May 27, 1971)).
\3\ An estimated 63 million individuals, making up 36.8 million
households, owned mutual funds either directly or through a
retirement plan as of April 1996. Fund-owning households represented
37 percent of all U.S. households. Investment Company Institute,
Mutual Fund Ownership in the U.S., Fundamentals, Dec. 1996, at 1.
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Mutual funds, closed-end management investment companies
(collectively, ``funds'') and certain unit investment trusts (``UITs'')
are required by Commission rules to send semiannual reports to their
security holders.4 The problem of delivery of duplicate
documents to a household frequently arises with respect to these
reports. 5 Public companies that are not investment
companies also are required to furnish security holders an annual
report that accompanies or precedes the delivery of a proxy or
information statement.6 Sending multiple copies of the same
document to investors who share the same address often inundates
households with extra mail, annoys investors, and results in higher
printing and mailing costs for issuers, underwriters and other broker-
dealers. In many cases, these costs are ultimately borne by investors.
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\4\ See Investment Company Act section 30(e) (15 U.S.C. 80a-
29(e)); rule 30d-1 (17 CFR 270.30d-1). UITs that invest
substantially all of their assets in shares of a fund must send
their unitholders annual and semiannual reports containing financial
information on the underlying fund. See Investment Company Act
section 30(e) (15 U.S.C. 80a-29(e)); rule 30d-2 (17 CFR 270.30d-2).
\5\ The Commission staff has issued no-action letters permitting
just one copy of a fund's shareholder report to be sent to
shareholders who share the same address. See Oppenheimer Funds, SEC
No-Action Letter (July 20, 1994); Scudder Group of Funds, SEC No-
Action Letter (June 19, 1990); see also Allstate Enterprises Stock
Fund, Inc., SEC No-Action Letter (July 22, 1973). The funds' letters
requesting relief noted shareholder complaints about duplicate
reports and sought to reduce printing and mailing expenses.
\6\ The proxy rules currently include provisions that allow
registrants to send a single annual report to security holders
sharing the same address under certain conditions. Rule 14a-3(e) (17
CFR 240.14a-3(e)); Note 2 to rule 14c-7 (17 CFR 240.14c-7 note 2);
see also 2 N.Y.S.E. Guide (CCH) Paras. 2451.90, 2451.95, 2465.20,
2465.25 (New York Stock Exchange rules permitting householding).
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To reduce the number of duplicative disclosure documents delivered
to investors, the Commission is proposing rules to permit, under
certain circumstances, delivery of a single prospectus or shareholder
report to a household (``householding'') to satisfy the applicable
delivery requirements. Proposed rule 154 under the Securities Act, and
proposed amendments to rules 30d-1 and 30d-2 under the Investment
Company Act and to rules 14a-3, 14c-3 and 14c-7 under the Exchange Act,
would provide that delivery of a disclosure document to one investor
would be deemed to have occurred with respect to all other investors
who share the same address, provided certain conditions are met. The
conditions are designed to assure that every security holder in the
household either receives or has convenient access to a copy of the
prospectus or report delivered to a member of the household.
A. Delivery of Prospectuses to a Household
1. Scope of Rule and General Conditions
Under proposed rule 154, a prospectus would be deemed delivered,
for purposes of sections 5(b) and 2(a)(10) of the Securities Act, to
all investors at a shared address if the person relying on the rule
delivers the prospectus to a natural person who shares that address and
the other investors consent to delivery of a single
prospectus.7 The proposed rule would be available for all
persons who have a prospectus delivery obligation under the Securities
Act except when the prospectus is required to be delivered in
connection with business combination transactions, exchange offers or
reclassifications of securities.8 Those prospectuses
generally are accompanied by proxies or tender offer material that must
be executed by each individual investor. Comment is requested whether
companies should be permitted to rely on the rule for delivery of those
types of prospectuses. Are there other types of prospectuses that rule
154 should not cover? Should the rule be limited to fund prospectuses?
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\7\ Proposed rule 154(a).
\8\ The proposed rule would not apply to the delivery of a
prospectus filed as part of a registration statement on Form N-14,
S-4 or F-4, or to the delivery of any other prospectus in connection
with a business combination transaction, exchange offer or
reclassification of securities. See 17 CFR 239.23, 239.25, 239.34;
proposed rule 154(e).
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[[Page 61935]]
For purposes of the rule, the term ``address'' would not be limited
to a postal address and could include an electronic
address.9 Thus, investors who share an electronic mail
address could consent to receive one prospectus at the shared address
even if they had different postal addresses.10 Conversely,
investors who share a street address could consent to the delivery of
one prospectus to the household, and an investor could receive the
prospectus electronically, even if the other investors do not share
that investor's electronic address.
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\9\ ''Address'' would be defined to include ``a street address,
a post office box number, an electronic mail address, a facsimile
telephone number or other similar destination to which paper or
electronic documents are delivered, unless otherwise provided in
this section.'' Proposed rule 154(f). The Commission has issued two
interpretive releases expressing its views on the electronic
delivery of documents, including prospectuses and investment company
annual and semiannual reports (the ``Interpretive Releases''). Use
of Electronic Media for Delivery Purposes, Securities Act Release
No. 7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] (``1995
Interpretive Release''); Use of Electronic Media by Broker-Dealers,
Transfer Agents, and Investment Advisers for Delivery of
Information; Additional Examples Under the Securities Act of 1933,
Securities Exchange Act of 1934, and Investment Company Act of 1940,
Securities Act Release No. 7288 (May 9, 1996) [61 FR 24644 (May 15,
1996)] (``1996 Interpretive Release''); see also Howard M. Friedman,
Securities Regulation in Cyberspace (1997).
The Interpretive Releases discuss issues of notice and access
that should be considered in determining whether the legal
requirements pertaining to delivery of documents have been
satisfied. The releases state that persons using electronic delivery
of information should obtain informed consent from the intended
recipient or otherwise have reason to believe that any electronic
means so selected will result in satisfaction of the delivery
requirements. See 1995 Interpretive Release, supra, at 53460-61;
1996 Interpretive Release, supra, at 24646-47. In the case of a
passive delivery system such as an Internet web site, the proposed
rule would permit delivery of a notice of the availability of the
prospectus on the web site to a single investor at the shared
address. The conditions of the proposed rule and the requirements
for electronic delivery would both have to be satisfied. The
National Association of Securities Dealers also has issued guidance
on the use of electronic communications. See, e.g., NASD Notice to
Members 96-50 (July 1996).
\10\ By contrast, certain rule provisions permitting delivery
without written consent under the rule would require that the
investors share a street address that meets certain requirements.
See proposed rule 154(b)(5)(i), (iii); see infra part I.A.2.
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An investor may give limited consent to the householding of
prospectuses for a particular security only, or may give general
consent concerning any prospectuses that an issuer, underwriter, or
dealer has or will have an obligation to deliver.11 So that
an investor has the capacity to notify other members of the household
that the prospectus is available, the proposed rule would require that
the prospectus be addressed to a natural person.12
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\11\ Thus, for example, the distributor for a family of mutual
funds could obtain consent from persons that share an address with
respect to all funds in the family of funds, including funds that
may be created in the future. With respect to non-investment
companies, a security holder could give limited consent to a broker-
dealer concerning delivery of a particular security or general
consent concerning any prospectuses that the broker-dealer has or
will have an obligation to deliver.
\12\ See proposed rule 154(a)(2).
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The notion of a household under the rule would not be limited to a
family unit or a residence. Any group of persons who share the same
address could be delivered a single prospectus as long as each investor
provides written consent. The proposed rule, for example, would permit
the delivery of a single prospectus for multiple investors at a shared
business address, or for investors that include a business entity. The
rule therefore should afford significant flexibility for persons that
have a prospectus delivery obligation.
The rule also does not require that a prospectus be delivered to an
investor at the address that is shared with the other investors. If two
investors live in the same house and consent to householding, for
example, a prospectus could be delivered to the address where one
investor receives his or her mail, such as a business address or a post
office box. Comment is requested whether the rule should require that
the prospectus be delivered to the investors' shared address.
As explained above, delivery to a natural person would facilitate
the sharing of the prospectus among the investors at the shared
address. In order to allow for changing the investor who receives the
prospectus (e.g., if the investor moves to a different address), the
investors at the shared address would consent to the manner of
prospectus delivery specified in the rule without designating the
specific person to whom the prospectus will be delivered. The
Commission requests comment whether the rule should require the
investors to specify the name of the investor who will receive the
prospectus. Comment is also requested whether there should be any
restrictions on who can receive a prospectus on behalf of the other
investors. For example, should that investor be required to be an
adult?
The proposed rule would not permit delivery of a prospectus to a
group of persons (e.g., ``The Smith household,'' or ``ABC Stock Fund
Shareholders''). The Commission is concerned that the use of such
general addressing may reduce the likelihood that a prospectus will be
opened and read (because the person receiving it may assume it is
``junk mail'').13 In addition, addressing the prospectus to
a family-name household could increase the risk that someone other than
an investor may receive it. The Commission requests comment on the
advantages and disadvantages of addressing a document to a particular
person in a household and whether the rule should permit the prospectus
to be addressed to a group of persons in the household.
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\13\ See, e.g., Owen T. Cunningham (with George Wachtel),
Everything You Need to Know About Mailing Lists But Were Afraid to
Ask!, Bank Marketing, Mar. 1997, at 41, 44.
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Comment also is requested on the proposed application of the rules
when documents are delivered electronically. In order to satisfy
delivery requirements, a person relying on the rule also may obtain
consent, from an investor who receives a prospectus, concerning
delivery through a specified electronic medium.14 If the
investor decides to receive the prospectus electronically, should the
other investors in the household also have to consent to electronic
delivery to that investor?
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\14\ See 1995 Interpretive Release, supra note 9, at 53460.
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2. Householding Without Written Consent
Consent may be difficult to obtain, even from persons who
presumably would wish to consent to the delivery of documents to
another person in their household. Many investors may not respond to
requests for consent, and thus many of the benefits of householding
would not be realized. At the same time, householding without consent
creates the risk that an investor who wishes to receive a prospectus
will not receive one. Therefore, the Commission is proposing to permit
householding without consent only under certain conditions and only if
the investors have opened an account with the person relying on the
rule before the effective date of the rule.
The conditions are designed to limit householding to circumstances
that suggest that the investors not receiving the disclosure documents
would wish to consent and that they will have access to the prospectus
if delivered to another investor. Under the proposal, the investors in
the household would have to be provided with notice, 60 days before
initial reliance on the rule, that future prospectuses will be
delivered to only one person who shares the address.15 In
addition, the investors in
[[Page 61936]]
the household must have the same last name or, if they have different
last names, a person who relies on the rule must reasonably believe
they are members of the same family.16 Finally, the
prospectus must be delivered to a street address that the person
reasonably believes is a residence.17 Alternatively, the
prospectus could be delivered to a shared post office box, or to an
electronic address if the investors are reasonably believed to share a
residence.18
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\15\ The proposed rule would require the notice to be a separate
written statement delivered to each investor in the household at
least 60 days before delivery of the first document delivered in
reliance on the rule. The notice would explain that each investor at
the address could request to continue to receive his or her own copy
of the prospectus, and the notice would be accompanied by a reply
form and a convenient means for returning it. See proposed rule
154(b)(3); see also infra Part I.A.3. The notice could be enclosed
in the same envelope with other printed matter, or could be
transmitted electronically if the guidelines for electronic delivery
were met. See 1995 Interpretive Release, supra note 9, at 53460-61.
\16\ See proposed rule 154(b)(2).
\17\ See proposed rule 154(b)(5)(i). A reasonable belief may be
based on the address supplied by the shareholder and the Zip Code
assigned to the address. See proposed rule 154(c).
Zip Codes are assigned to addresses by the United States Postal
Service (the ``USPS''). The most complete Zip Code is a 9-digit
number consisting of five numbers, a hyphen, and four numbers, which
the USPS describes by its trademark ``ZIP+4.'' The first
five digits represent the five-digit Zip Code; the final four digits
identify geographic units such as a side of a street between
intersections, both sides of a street between intersections, a
building, a floor or group of floors in a building, or a business.
Many apartment buildings and businesses are assigned one or more
unique ZIP+4 Codes. Domestic Mail Manual, at A010.2.1,
A010.2.3, A010.3.2 (Sept. 1, 1995) (incorporated by reference at 39
CFR 111.1). Information on Zip Codes for particular addresses may be
obtained through address matching software. See id. at A950. In
addition, software is available through which the number of
duplicates in a mailing can be reduced. See, e.g., Owen T.
Cunningham, supra note , at 41, 44; Raymond F. Melissa, How to Save
Money on Printing and Postage, Nonprofit World, Mar./Apr. 1996, at
23; How to Mail More, Mail Smarter, and Spend Less, Nonprofit World,
May/June 1995, at 26; United States Postal Service, National
Customer Support Center http://www.usps.gov/ncsc>.
\18\ See proposed rule 154(b)(5)(ii), (iii).
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The Commission requests comment whether the proposed conditions for
householding without written consent give reasonable assurance that the
prospectus will be available to all persons in the household who wish
to review it. Should there be any additional safeguards? Do any of the
conditions impose unnecessary costs? Comment is requested on the
requirement that notice be given 60 days before reliance on the rule.
Would a shorter or longer time period be more appropriate? Should any
additional disclosure about prospectus delivery to the household be
required after householding begins (e.g., in future account
statements)?
As discussed above, householding without consent would be limited
to persons who established accounts before the effective date of the
rule. The Commission presumes that after the effective date of the
rule, persons who rely on the rule can establish procedures to obtain
the consent of investors who open new accounts. Mutual fund
distributors and other broker-dealers typically require prospective
investors to select various account options at that time, disclose
information to assist in suitability determinations, and provide other
information necessary to establish an account.19 Thus it
seems reasonable to expect that there will be an adequate opportunity
to request consent at that time.
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\19\ See, e.g., Michael T. Reddy, Securities Operations 336-41
(2d ed. 1995) (discussing new account forms and procedures for
opening new accounts).
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The Commission requests comment generally on the appropriateness of
permitting householding for purposes of prospectus delivery when
investors have not given written consent. Are investors likely to
ignore requests for written consent if they have already established an
account? Comment is also requested whether the Commission's assumptions
discussed above are correct, and whether most investors are likely to
give general consent concerning any prospectuses that a person may have
an obligation to deliver in the future.20 Should the
Commission permit householding without consent for accounts opened
after the effective date of the rule?
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\20\ Investors may instead decline to consent or may be willing
to give only a limited consent concerning prospectuses for a
particular security only. See supra note and accompanying text.
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3. Revocation of Consent
The proposed rule would require that, if an investor requests
resumption of delivery of prospectuses, the person relying on the rule
must resume individual delivery of future documents after 30
days.21 Comment is requested on the time period for resuming
individual delivery. Is 30 days an appropriate time period to
accommodate revision of mailing lists, or should a shorter or longer
time period be permitted?
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\21\ See proposed rule 154(d).
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B. Delivery of Shareholder Reports to a Household
The Commission is proposing amendments to rules 30d-1 and 30d-2
under the Investment Company Act to permit investment companies to
deliver one shareholder report per household. The conditions for using
the proposed amendments would be substantially the same as those in
proposed rule 154.22 The Commission staff has issued no-
action letters addressing householding with respect to delivery of
shareholder reports to fund shareholders.23 Unlike the no-
action letters, the proposed amendments would not require prospectus
disclosure of an investment company's householding policies. Instead,
the advance notice or written consent requirements would serve to
notify shareholders about householding. Comment is requested whether
householding for purposes of delivering investment company shareholder
reports should be subject to different conditions than householding for
purposes of prospectus delivery.
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\22\ See proposed rules 30d-1(f), 30d-2(b).
\23\ See, e.g., Oppenheimer Funds, supra note 5 (permitting
householding of shareholders with the same last name and record
address provided there is initial notice, prospectus disclosure
concerning the practice, and opportunity for shareholders to opt out
of householding); Scudder Group of Funds, supra note 5 (permitting
householding of shareholders with the same record address under the
same conditions).
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The Commission also is proposing similar amendments to Exchange Act
proxy rules 14a-3, 14c-3, and 14c-7. The proxy rules currently provide
that, in connection with the delivery of a proxy or information
statement, a company is not required to send an annual report to a
security holder of record having the same address as another security
holder, if the security holders do not hold the company's securities in
street name, at least one report is sent to a security holder at the
address, and the holders to whom a report is not sent have consented in
writing.24 Because the amended rules would include an
implied consent provision, a company would not have to receive written
consent to householding from an investor who became a security holder
before the date the amendments become effective.25
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\24\ See rule 14a-3(e)(1) [17 CFR 240.14a-3(e)(1)]; Note 2 to
rule 14c-7 [17 CFR 240.14c-7 note 2]. Rule 14c-7 contains
requirements concerning registrants' obligations to provide copies
of information statements and annual reports to brokers, banks and
other intermediaries for forwarding to beneficial owners. The
Commission proposes to delete the note to rule 14c-7 and add a
householding provision to rule 14c-3, because rule 14c-3 contains
the requirement that registrants furnish an annual report to
security holders and is analogous to the rule 14a-3 provision.
\25\ See proposed rule 14a-3(e)(1)(ii).
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The amendments also would eliminate the requirement that the
security holders not hold the securities in street name. It is expected
that the requirement to transmit the annual report to a natural person
who shares an address with other investors would
[[Page 61937]]
preclude registrants from householding reports to a street name
intermediary.
Comment is requested whether householding for purposes of
delivering annual reports of issuers other than investment companies
should be subject to different conditions than householding for
purposes of delivering investment company shareholder reports. Comment
also is requested whether the conditions contained in the proposed
amendments to rules 14a-3 and 14c-3 are appropriate. Should revised
rules 14a-3 and 14c-3 require consent from investors who became
security holders before the proposed rule amendments are effective?
C. General Request for Comment
Any interested persons wishing to submit written comments on the
proposed rule and rule amendments that are the subject of this Release,
to suggest additional provisions or changes to the rules, or to submit
comments on other matters that might have an effect on the proposals
contained in this Release, are requested to do so. The Commission also
requests comment whether the proposals, if adopted, would have an
adverse effect on competition that is neither necessary nor appropriate
in furthering the purposes of the Exchange Act. The Commission requests
comment whether the proposals, if adopted, would promote efficiency,
competition, and capital formation. Comments will be considered by the
Commission in compliance with its responsibilities under section 2(b)
of the Securities Act,26 section 2(c) of the Investment
Company Act,27 and sections 3(f) and 23(a) of the Exchange
Act.28 The Commission encourages commenters to provide
empirical data or other facts to support their views.
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\26\ 15 U.S.C. 77b(b).
\27\ 15 U.S.C. 80a-2(c).
\28\ 15 U.S.C. 78c(f), 78w(a).
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II. Cost-Benefit Analysis
The Commission is sensitive to the costs and benefits imposed by
its rules. The proposed rules would permit issuers and broker-dealers
to send fewer copies of disclosure documents than they currently must
send, and therefore, as discussed below, should provide substantial
benefits to persons who have an obligation under the securities laws to
deliver disclosure documents. The rules also are voluntary on the part
of persons that have a delivery obligation; therefore, to the extent
that the rules would require the printing and delivery of additional
information concerning householding, or would result in other costs of
changing procedures, and the costs outweigh the benefits of
householding, persons with a delivery obligation may decide not to rely
on the rules. The Commission requests comment on the costs and benefits
of the rules. Specific data also is requested concerning the
anticipated costs and benefits.
Based on preliminary information provided by two large mutual fund
complexes, the Commission estimates that a prospectus costs
approximately 45 cents to print and deliver, and a shareholder report
costs approximately 52 cents to print and deliver.29 In
addition, the Commission estimates that, if a mutual fund were to
deliver one prospectus to each household, the average decline in the
number of prospectuses delivered would be between 10 and 30 percent.
Currently there are approximately 150 million shareholder accounts
investing in mutual funds.30 For the purpose of calculating
benefits, the Commission assumes that 50 percent of mutual funds
deliver an updated prospectus to every shareholder each year, resulting
in the 150 million shareholder accounts receiving a total of
approximately 75 million updated prospectuses each year. Based on these
estimates and assumptions, the potential annual benefit in reduced
delivery of mutual fund prospectuses as a result of the proposed rules
would be between $3.4 million and $10.1 million.
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\29\ One of these fund complexes stated that the printing,
postage, and handling costs for each prospectus for a large money
market fund was 47 cents. The other complex provided similar costs
for 6 of its funds, which ranged from 41 to 49 cents for
prospectuses and 45 to 59 cents for annual reports. The midpoints of
these ranges are 45 cents and 52 cents.
\30\ Investment Company Institute, 1997 Mutual Fund Fact Book
111.
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With respect to the delivery of annual and semiannual reports to
mutual fund shareholders,31 the Commission estimates that
the average decline in the number of reports delivered would be between
10 and 30 percent. As stated above, there are approximately 150 million
shareholder accounts investing in mutual funds. Each shareholder
receives two shareholder reports per year per fund and, as stated
above, each report costs an estimated 52 cents to print and deliver.
Based on these estimates, the benefit would be between $15.6 million
and $46.8 million. The net benefit would be less, depending on the
number of mutual funds that currently deliver one report to each
household, in reliance on prior staff no-action relief.
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\31\ See rules 30d-1 and 30d-2 under the Investment Company Act.
---------------------------------------------------------------------------
With respect to the delivery of prospectuses of issuers other than
investment companies, the benefits of the rules probably would be less
than the benefits discussed above, because these companies will
continue to mail confirmations of sale to individual purchasers. The
final prospectus would accompany or precede the confirmation. If more
than one confirmation is delivered to a household, a company should be
able to send one prospectus to an investor in the household, and send
each other investor a confirmation without a prospectus. Based on
preliminary data, the Commission estimates that the printing cost of
each prospectus is approximately 15 cents. The Commission is unable to
estimate the percentage of non-investment companies that would rely on
proposed rule 154. The Commission requests any information that would
be helpful in making such an estimate.
There are not likely to be significant costs and benefits
associated with the amendment of the proxy rule provisions
32 permitting the householding of annual reports in
connection with the delivery of proxy and information statements
because the amended rules would be substantively similar to as the
current provisions. Although the proposed rules would permit
householding for certain investors without written consent, the
Commission currently is unable to predict the reduction in annual
reports delivered to investors that might result from this change.
---------------------------------------------------------------------------
\32\ See rules 14a-3, 14c-3, and 14c-7 under the Exchange Act.
---------------------------------------------------------------------------
Persons who rely on the rules would incur costs in obtaining
consents from and sending notices to investors. As discussed above in
part I.A.2, the Commission anticipates that after the effective date of
the rule, procedures will be established to obtain the consent of
investors who open new accounts. A portion of a new account form, for
example, could explain householding briefly and request consent.
Comment is requested on the costs of these new procedures.
The proposed rules would require that the notice be a separate
written statement and be accompanied by a reply form. The notice could
be enclosed in the same envelope with other printed matter (e.g., an
account statement, prospectus or report). Therefore, the costs
associated with sending the notice should be limited to printing costs
and some increased postage costs that may result from enclosing the
notice and reply form in an envelope with other documents.
[[Page 61938]]
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996,33 the Commission also requests information
regarding the potential impact of the proposed rule on the economy on
an annual basis. Commenters are requested to provide empirical data to
support their views.
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\33\ Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
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III. Paperwork Reduction Act
Certain provisions of the proposed rule and rule amendments contain
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act of 1995,34 and the Commission has
submitted them to the Office of Management and Budget (``OMB'') for
review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. The
titles for the collections of information are: ``Rule 154 under the
Securities Act of 1933, Delivery of prospectuses to investors at the
same address''; ``Regulation 14A, Commission Rules 14a-1 through 14a-14
and Schedule 14A''; ``Regulation 14C, Commission Rules 14c-1 through
14c-7 and Schedule 14C''; ``Rule 30d-1 under the Investment Company Act
of 1940, Reports to stockholders of management companies''; and ``Rule
30d-2 under the Investment Company Act of 1940, Reports to shareholders
of unit investment trusts.'' Rule 30d-1, Regulation 14A and Regulation
14C, which the Commission is proposing to amend, contain currently
approved collections of information under OMB control numbers 3235-
0025, 3235-0059 and 3235-0057, respectively. An agency may not sponsor,
conduct, or require response to an information collection unless a
currently valid OMB control number is displayed.
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\34\ 44 U.S.C. 3501-3520.
---------------------------------------------------------------------------
Proposed rule 154 would permit, under certain circumstances,
delivery of a single prospectus to a household to satisfy the
prospectus delivery requirements of the Securities Act with respect to
two or more investors in the household. The rule would require a person
that relies on the rule to obtain the written consent of investors who
will not receive prospectuses. Alternatively, for investors who
established accounts with the sender before the effective date of the
rule, a person that relies on the rule could send a notice to each
investor stating that the investors in the household will receive one
prospectus in the future unless they provide contrary instructions.
The purpose of the consent and notification requirements is to give
reasonable assurance that all investors have access to the prospectus.
Preparing and sending the notice is a collection of information.
Because notices would only be sent to existing investors, companies
that choose to rely on the rule would probably send them primarily in
the first year after the rule is adopted. In addition, the Commission
expects that, for cost reasons, the notice is likely to be a short,
one-page statement that is enclosed with other written material sent to
shareholders, such as account statements. Accordingly, the average
annual number of burden hours spent preparing and arranging delivery of
the notices is expected to be low. The Commission estimates 20 hours
per respondent.
Although rule 154 is not limited to investment companies, the
Commission believes that it would be used mainly by mutual funds and by
broker-dealers that deliver mutual fund prospectuses. The Commission is
unable to estimate the number of issuers other than mutual funds that
would rely on the rule, and requests comment on this matter. There are
approximately 2700 mutual funds, approximately 650 of which engage in
direct marketing and therefore deliver their own prospectuses. The
Commission estimates that each direct marketed mutual fund would spend
an average of 20 hours per year complying with the notice requirement
of the rule, for a total of 13,000 hours. The Commission estimates that
there are approximately 750 broker-dealers that carry customer accounts
and, therefore, may be required to deliver mutual fund prospectuses.
The Commission estimates that each affected broker-dealer also will
spend, on average, approximately 20 hours complying with the notice
requirement of the rule, for a total of 15,000 hours. Therefore, the
total number of respondents for rule 154 is 1400 (650 mutual funds plus
750 broker-dealers), and the estimated total hour burden is 28,000
hours (13,000 hours for mutual funds plus 15,000 hours for broker-
dealers).
With respect to the amendments to rules 30d-1 and 30d-2 under the
Investment Company Act, rule 30d-1 requires management investment
companies to send annual and semiannual reports to their shareholders.
Rule 30d-2 requires UITs that invest substantially all of their assets
in shares of a management investment company to send their unitholders
annual and semiannual reports containing financial information on the
underlying company. The proposed amendments to rules 30d-1 and 30d-2
would permit householding for these shareholder reports under
substantially the same conditions as those in rule 154.
Every registered management investment company is subject to the
reporting requirements of rule 30d-1. As of August 1997, there were
approximately 3220 registered management investment companies. The
Commission currently estimates that the hour burden associated with
rule 30d-1 is approximately 181 hours per company. As discussed above,
the Commission estimates that the burden associated with the notice
requirement of the amendments to rules 30d-1 and 30d-2 is approximately
20 hours per company. Therefore, the Commission estimates that the
burden associated with rule 30d-1, including the burden of sending the
notices, is 201 hours per company, or a total of 647,220 hours. In
addition, the Commission estimates that the cost of contracting for
outside services associated with the rule is $47,994 per respondent
(421 hours times $114 per hour for independent auditor services), for a
total cost of $154,540,680 ($47,994 times 3220 respondents).
Rule 30d-2 applies to approximately 500 UITs. The Commission
estimates that the annual burden associated with rule 30d-2 is 120
hours per respondent, including the estimated 20 hours associated with
the notice requirement contained in the proposed amendment to rule 30d-
2. The total hourly burden is therefore approximately 60,000 hours. The
Commission estimates that the annual financial cost of complying with
rule 30d-2 (in addition to the hourly cost) is $9120 per respondent (80
hours times $114 per hour for independent auditor services), or a total
of $4,560,000.
With respect to the amendments to rules 14a-3, 14c-3 and 14c-7,
Regulations 14A and 14C are existing information collections that set
forth proxy and information statement disclosure requirements.
Companies that have a class of securities registered under section 12
of the Exchange Act are subject to these requirements. The Commission
estimates that the time required to prepare and arrange delivery of the
notice would be approximately 20 hours per respondent per year. The
Commission estimates that 9321 respondents are subject to Regulation
14A and that approximately 932 of these would deliver the notice. The
Commission estimates that the burden associated with Regulation 14A as
revised per registrant delivering the notice would be approximately 105
hours, and 85 hours per registrant not delivering the notice, for a
total annual burden of 810,925 hours. An estimated
[[Page 61939]]
150 respondents are subject to Regulation 14C and it is estimated that
15 of these would deliver the notice. The estimated burden associated
with Regulation 14C as revised per registrant delivering the notice is
105 hours, and 85 hours for a registrant not delivering the notice, for
a total annual burden of 13,050 hours.
The information collection requirements imposed by the rules are
required for those issuers or broker-dealers that decide to rely on the
rule to obtain the benefit of sending fewer documents to each
household. Those issuers or broker-dealers that decide not to obtain
that benefit are not required to rely on the rule. Responses to the
collection of information will not be kept confidential.
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments in order to: (i) Evaluate whether the proposed collections of
information are necessary for the proper performance of the functions
of the agency, including whether the information will have practical
utility; (ii) evaluate the accuracy of the agency's estimate of the
burden of the proposed collections of information; (iii) enhance the
quality, utility, and clarity of the information to be collected; and
(iv) minimize the burden of the collections of information on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Persons wishing to submit comments on the collection of information
requirements should direct them to the following persons: (i) Desk
Officer for the Securities and Exchange Commission, Office of
Information and Regulatory Affairs, Office of Management and Budget,
Room 3208, New Executive Office Building, Washington, D.C. 20503; and
(ii) Jonathan G. Katz, Secretary, Securities and Exchange Commission,
450 5th Street, N.W., Stop 6-9, Washington, D.C. 20549, with reference
to File No. S7-27-97. OMB is required to make a decision concerning the
collections of information between 30 and 60 days after publication;
therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication.
IV. Summary of Initial Regulatory Flexibility Analysis
The Commission has prepared an Initial Regulatory Flexibility
Analysis (``IRFA'') in accordance with 5 U.S.C. 603 regarding proposed
rule 154 and proposed amendments to rules 14a-3, 14c-3, 14c-7, 30d-1
and 30d-2. The following summarizes the IRFA.
When two or more investors in a household purchase the same
security, the prospectus delivery requirements of the Securities Act
and shareholder report delivery rules under the Investment Company Act
and Exchange Act may result in the mailing of multiple copies of the
same document to the household. Sending multiple copies of the same
document to investors who share the same address often inundates them
with extra mail and results in higher costs for the senders.
To reduce the number of duplicative disclosure documents delivered
to investors, the Commission is proposing rules to permit, under
certain circumstances, delivery of a single prospectus or shareholder
report to a household to satisfy the applicable delivery requirements.
The Commission is proposing rule 154 pursuant to section 19(a) of the
Securities Act, the amendments to rules 14a-3, 14c-3, and 14c-7
pursuant to sections 12, 14 and 23(a) of the Exchange Act, and the
amendments to rules 30d-1 and 30d-2 pursuant to sections 30(e) and
38(a) of the Investment Company Act.
An issuer, other than an investment company, generally is a small
entity if, on the last day of its most recent fiscal year, it had total
assets of $5,000,000 or less and is engaged or proposing to engage in
small business financing.35 An issuer is considered to be
engaged or proposing to engage in small business financing if it is
conducting or proposing to conduct an offering of securities that does
not exceed $5,000,000.36 Most of these small issuers can
conduct their offerings under Regulation A, which exempts offerings
from the registration requirements of the Securities Act if the sum of
all cash and other consideration to be received for the securities does
not exceed $5,000,000, subject to a number of conditions.37
Thus, the Commission estimates that among issuers other than investment
companies, very few small issuers will be affected by rule 154.
---------------------------------------------------------------------------
\35\ See 17 CFR 230.157.
\36\ Id.
\37\ See 17 CFR 230.251--230.263.
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An investment company generally is a small entity if it has net
assets of $50,000,000 or less as of the end of its most recent fiscal
year.38 The Commission estimates that there are
approximately (i) 2700 active registered open-end investment companies,
of which 620 are small entities, (ii) 520 active registered closed-end
investment companies, of which 46 are small entities, and (iii) 629
UITs, about 50 of which are small entities. Closed-end investment
companies and UITs will be affected by rule 154 only if they are
currently offering their shares.
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\38\ See 17 CFR 230.157.
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A broker-dealer generally is a small entity if it has total capital
(i.e., net worth plus subordinated liabilities) of less than $500,000
in its prior audited financial statements or, if it is not required to
file such statements, on the last business day of the preceding fiscal
year.39 The delivery of prospectuses and shareholder reports
is likely to be handled only by broker-dealers that carry public
customer accounts. As of December 31, 1996, broker-dealers carrying
public customer accounts numbered approximately 750 firms, 125 of which
were small businesses.
---------------------------------------------------------------------------
\39\ See 17 CFR 240.0-10(c)(1).
---------------------------------------------------------------------------
Rule 30d-1 applies to registered management investment companies.
It is estimated that out of approximately 3,220 active management
investment companies, approximately 666 are considered small
entities.40 Rule 30d-2 applies to registered UITs,
substantially all the assets of which consist of securities issued by a
management investment company. It is estimated that out of
approximately 500 registered UITs that are subject to rule 30d-2,
approximately 20 are considered small entities.
---------------------------------------------------------------------------
\40\ See 17 CFR 270.0-10.
---------------------------------------------------------------------------
Rule 0-10 under the Exchange Act defines the term ``small
business'' as a company whose total assets on the last day of its most
recent fiscal year were $5 million or less.41 There are
approximately 1000 reporting companies that have assets of $5 million
or less.
---------------------------------------------------------------------------
\41\ Rule 0-10 [17 CFR 240.0-10].
---------------------------------------------------------------------------
Persons who rely on the rules would be required to either obtain
written consent of householded persons or provide them with advance
notice as specified in the rules. Those persons also must determine
whether certain householded investors are natural persons and, for
investors householded in accordance with the advance notice (rather
than written consent) provisions, must have certain information
concerning each householded investor's address. These requirements are
designed to provide reasonable assurance that the prospectus or report
will be made readily available to all investors at the address.
The Regulatory Flexibility Act directs the Commission to consider
significant alternatives that would accomplish the stated objective,
while minimizing any significant adverse impact on small entities. In
connection with the proposed rule and proposed
[[Page 61940]]
amendments, the Commission considered: (i) Establishing differing
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (ii) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (iii)
the use of performance rather than design standards; and (iv) an
exemption from coverage of the rule, or any part thereof, for such
small entities.
The information persons would be required to have in order to rely
on the rules without written consent is information that they already
have or would be required to obtain in order to conduct mailings at
reduced rates through the U.S. Postal Service. Other information, such
as whether investors are natural persons, is readily available.
Therefore, the Commission does not believe differing or simplified
compliance or reporting requirements or timetables are necessary for
small entities. In addition, differing requirements for small entities
would not be consistent with investor protection and the purposes of
section 5 of the Securities Act.
The proposed rules are designed to result in cost savings for all
issuers and broker-dealers, while maintaining protections for
investors. The Commission believes that small issuers and broker-
dealers will generally rely on the rules in a particular instance only
to the extent that cost savings can be achieved. The Commission also
believes that the rules will not impose a burden on small entities. The
rule, if relied upon, will lower burdens for small entities; thus, it
is not appropriate or necessary to exempt small entities from the rule
or any part of it.
The Commission encourages the submission of comments on matters
discussed in the IRFA. Comment specifically is requested on the number
of small entities that would be affected by the proposed rule and rule
amendments. Comment also is requested on the impact of the rule and
rule amendments on issuers and broker-dealers that are small entities.
Commenters are asked to describe the nature of any impact and provide
empirical data supporting the extent of the impact. These comments will
be placed in the same public file as comments on the proposed rule and
rule amendments themselves.
A copy of the IRFA may be obtained by contacting Marilyn Mann,
Securities and Exchange Commission, 450 5th Street, N.W., Stop 10-2,
Washington, D.C. 20549.
V. Statutory Authority
The Commission is proposing new rule 154 pursuant to the authority
set forth in section 19(a) of the Securities Act [15 U.S.C. 77s(a)].
The Commission is proposing to amend rules 30d-1 and 30d-2 pursuant to
the authority set forth in sections 30(e) and 38(a) of the Investment
Company Act [15 U.S.C. 80a-29(e) and 80a-37(a)], and rules 14a-3, 14c-
3, and 14c-7 pursuant to the authority set forth in sections 12, 14 and
23(a) of the Exchange Act [15 U.S.C. 78l, 78n and 78w(a)].
List of Subjects
17 CFR Parts 230 and 270
Investment companies, Reporting and recordkeeping requirements,
Securities.
17 CFR Part 240
Reporting and recordkeeping requirements, Securities.
Text of Proposed Rules
For the reasons set out in the preamble, Title 17, Chapter II of
the Code of Federal Regulations is proposed to be amended as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
1. The authority citation for Part 230 continues to read, in part,
as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and
80a-37, unless otherwise noted.
* * * * *
2. Section 154 is added to read as follows:
Sec. 230.154 Delivery of prospectuses to investors at the same
address.
(a) Delivery of a single prospectus. If you must deliver a
prospectus under the federal securities laws, for purposes of sections
5(b) and 2(a)(10) of the Act (15 U.S.C. 77e(b) and 77b(a)(10)), you
will be considered to have delivered a prospectus to investors who
share an address if:
(1) You deliver the prospectus to at least one of the investors, at
any address of that investor;
(2) You address the prospectus to a natural person; and
(3) The other investors consent in writing to this manner of
delivery.
(b) Implied consent. You do not need to obtain written consent from
an investor if the following conditions are all met.
(1) The investor established an account with you before [effective
date of the rule].
(2) The investor has the same last name as the investor to whom you
delivered the prospectus, or you reasonably believe that the investors
are members of the same family.
(3) You have sent the investor a notice at least 60 days before you
begin to rely on this section concerning delivery of prospectuses to
that investor. The notice must be a separate written statement, and
must state that prospectuses will be delivered to only one investor at
the shared address unless you receive contrary instructions. The notice
must include a reply form that is easy to return and that includes the
name and, if applicable, account number of the investor.
(4) You have not received the reply form from the investor
indicating the investor wishes to receive the prospectus, within 60
days after you sent the notice.
(5) You deliver the prospectus to:
(i) A shared street address that you reasonably believe is a
residence;
(ii) A shared post office box; or
(iii) An electronic address of the investor to whom the prospectus
is delivered, if the investors share a street address that you
reasonably believe is a residence.
(c) Reasonable belief. For purposes of paragraph (b)(5) of this
section, you can reasonably believe that an address is a residence
unless the investor provides any information, or the U.S. Postal
Service assigns a Zip Code, that indicates to the contrary.
(d) Revocation of consent. If you receive a request from an
investor that prospectuses be delivered directly to the investor in the
future, you may not continue to rely on this section, with respect to
that investor, for more than 30 days after you receive the request.
(e) Exclusion of some prospectuses. This section does not apply to
the delivery of a prospectus filed as part of a registration statement
on Form N-14 (17 CFR 239.23), Form S-4 (17 CFR 239.25) or Form F-4 (17
CFR 239.34), or to the delivery of any other prospectus in connection
with a business combination transaction, exchange offer or
reclassification of securities.
(f) Definition of address. For purposes of this section, address
means a street address, a post office box number, an electronic mail
address, a facsimile telephone number, or other similar destination to
which paper or electronic documents are delivered, unless otherwise
provided in this section. If you have reason to believe that the
address is a street address of a multi-unit building (for example,
based on the Zip Code), the address must include the unit number.
[[Page 61941]]
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
3. The authority citation for Part 240 continues to read, in part,
as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee,
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78k, 78k-1,
78l, , 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 79q,
79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless
otherwise noted.
* * * * *
4. Section 14a-3 is amended by revising paragraph (e)(1) and the
introductory text of paragraph (e)(2) to read as follows:
Sec. 240.14a-3 Information to be furnished to security holders.
* * * * *
(e)(1)(i) A registrant will be considered to have delivered an
annual report to security holders of record who share an address if:
(A) The registrant delivers the annual report to at least one of
the security holders, at any address of that security holder;
(B) The registrant addresses the prospectus to a natural person;
and
(C) The other security holders consent in writing to this manner of
delivery.
(ii) The registrant need not obtain written consent from a security
holder if the following conditions are all met.
(A) The security holder first purchased securities of the
registrant before [effective date of the rule].
(B) The security holder has the same last name as the security
holder to whom the registrant delivered the annual report, or the
registrant reasonably believes that the security holders are members of
the same family.
(C) The registrant has sent the security holder a notice at least
60 days before the registrant begins to rely on this section concerning
delivery of annual reports to that security holder. The notice must be
a separate written statement, and must state that annual reports will
be delivered to only one investor at the shared address unless the
registrant receives contrary instructions. The notice must include a
reply form that is easy to return and that includes the name and, if
applicable, account number of the security holder.
(D) The registrant has not received the reply form from the
security holder indicating the security holder wishes to receive the
annual report, within 60 days after the registrant sent the notice.
(E) The registrant sends the report to:
(1) A shared street address that the registrant reasonably believes
is a residence;
(2) A shared post office box; or
(3) An electronic address of the security holder to whom the report
is sent, if the security holders share a street address that the
registrant reasonably believes is a residence.
(iii) For purposes of paragraph (e)(1)(ii)(E) of this section, the
registrant can reasonably believe that an address is a residence unless
the security holder provides any information, or the U.S. Postal
Service assigns any Zip Code, that indicates to the contrary.
(iv) If the registrant receives a request from a security holder
that the annual report be sent directly to the security holder in the
future, the registrant may not continue to rely on this section, with
respect to that security holder, for more than 30 days after the
registrant receives the request.
Note to paragraph(e)(1). For purposes of this section, the term
address means a street address, a post office box number, an electronic
mail address, a facsimile telephone number, or other similar
destination to which paper or electronic documents are delivered,
unless otherwise provided in this section. If the registrant has reason
to believe that the address is a street address of a multi-unit
building (for example, based on the Zip Code), the address must include
the unit number.
(2) Notwithstanding paragraphs (a) and (b) of this section, unless
state law requires otherwise, a registrant is not required to send an
annual report or proxy statement to a security holder if:
* * * * *
5. In Sec. 240.14c-3, paragraph (c) is added to read as follows:
Sec. 240.14c-3 Annual report to be furnished security holders.
* * * * *
(c) A registrant will be considered to have delivered an annual
report to security holders of record who share an address if the
requirements set forth in Sec. 240.14a-3(e)(1) are satisfied.
6. In Sec. 240.14c-7, Note 2 is removed and Notes 3 and 4 are
redesignated as Notes 2 and 3.
PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940
7. The authority citation for Part 270 continues to read, in part,
as follows:
Authority: 15 U.S.C. 80a-1 et seq., 80a-37, 80a-39 unless
otherwise noted;
* * * * *
8. Section 30d-1 is amended by adding paragraph (f) to read as
follows:
Sec. 270.30d-1 Reports to stockholders of management companies.
* * * * *
(f)(1) A company will be considered to have transmitted a report to
shareholders who share an address if:
(i) The company transmits the report to at least one of the
shareholders, at any address of that shareholder;
(ii) The company addresses the report to a natural person; and
(iii) The other shareholders consent in writing to this manner of
delivery.
(2) The company need not obtain written consent from a shareholder
if the following conditions are all met.
(i) The shareholder first purchased securities of the company
before [effective date of the rule].
(ii) The shareholder has the same last name as the shareholder to
whom the company delivered the report, or the company reasonably
believes that the shareholders are members of the same family.
(iii) The company has transmitted a notice to the shareholder at
least 60 days before the company begins to rely on this section
concerning transmission of reports to that shareholder. The notice must
be a separate written statement, and must state that reports will be
delivered to only one shareholder at the shared address unless the
company receives contrary instructions. The notice must include a reply
form that is easy to return and that includes the name and, if
applicable, account number of the shareholder.
(iv) The company has not received the reply form from the
shareholder indicating the shareholder wishes to receive the report,
within 60 days after the company sent the notice.
(v) The company transmits the report to:
(A) A shared street address that the company reasonably believes is
a residence;
(B) A shared post office box; or
(C) An electronic address of the shareholder to whom the report is
transmitted, if the shareholders share a street address that the
company reasonably believes is a residence.
(3) For purposes of paragraph (f)(2)(v) of this section, the
company can reasonably believe that an address is a residence unless
the shareholder provides any information, or the U.S. Postal Service
assigns a Zip Code, that indicates to the contrary.
(4) If the company receives a request from a shareholder that
reports be transmitted directly to the shareholder in the future, the
company may not continue to rely on this section, with respect to that
shareholder, for more than 30 days after the company receives the
request.
(5) For purposes of this section, address means a street address, a
post
[[Page 61942]]
office box number, an electronic mail address, a facsimile telephone
number, or other similar destination to which paper or electronic
documents are transmitted, unless otherwise provided in this section.
If the company has reason to believe that the address is a street
address of a multi-unit building (for example, based on the Zip Code),
the address must include the unit number.
9. Section 30d-2 is revised to read as follows:
Sec. 270.30d-2 Reports to shareholders of unit investment trusts.
(a) At least semiannually every registered unit investment trust
substantially all the assets of which consist of securities issued by a
management company must transmit to each shareholder of record
(including record holders of periodic payment plan certificates), a
report containing all the applicable information and financial
statements or their equivalent, required by Sec. 270.30d-1 to be
included in reports of the management company for the same fiscal
period. Each such report must be transmitted within the period allowed
the management company by Sec. 270.30d-1 for transmitting reports to
its stockholders.
(b) Any report required by this section will be considered
transmitted to a shareholder of record if the unit investment trust
satisfies the conditions set forth in Sec. 270.30d-1(f) with respect to
that shareholder.
By the Commission.
Dated: November 13, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-30430 Filed 11-19-97; 8:45 am]
BILLING CODE 8010-01-P
