Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules 61933

state or local special packaging

standards for such fluoride containing

products.

In accordance with Executive Order

12612 (October 26, 1987), the

Commission certifies that the proposed

rule does not have sufficient

implications for federalism to warrant a

Federalism Assessment.

List of Subjects in 16 CFR Part 1700

Consumer protection, Drugs, Infants

and children, Packaging and containers,

Poison prevention, Toxic substances.

For the reasons given above, the

Commission proposes to amend 16 CFR

part 1700 as follows:

PART 1700—[AMENDED]

1. The authority citation for part 1700

continues to read as follows:

Authority: Pub. L. 91–601, secs. 1–9, 84

Stat. 1670–74, 15 U.S.C. 1471–76. Secs

1700.1 and 1700.14 also issued under Pub. L.

92–573, sec. 30(a), 88 Stat. 1231, 15 U.S.C.

2079(a).

2. Section 1700.14 is amended to

revise paragraph (a)(10)(vii) and to add

paragraph (a)(27) to read as follows

(although unchanged, the introductory

text of paragraphs (a) and (10) are

included below for context):

§ 1700.14 Substances requiring special

packaging.

(a) Substances. The Commission has

determined that the degree or nature of

the hazard to children in the availability

of the following substances, by reason of

their packaging, is such that special

packaging meeting the requirements of

§ 1700.20(a) is required to protect

children from serious personal injury or

serious illness resulting from handling,

using, or ingesting such substances, and

the special packaging herein required is

technically feasible, practicable, and

appropriate for these substances:

* * * * *

(10) Prescription drugs. Any drug for

human use that is in a dosage form

intended for oral administration and

that is required by Federal law to be

dispensed only by or upon an oral or

written prescription or a practitioner

licensed by law to administer such drug

shall be packaged in accordance with

the provisions of § 1700.15 (a), (b), and

(c), except for the following:

* * * * *

(vii) Sodium fluoride drug

preparations including liquid and tablet

forms, containing not more than 110

milligrams of sodium fluoride (the

equivalent of 50 mg of elemental

fluoride) per package and not more than

a concentration of 0.5 percent elemental

fluoride on a weight-to-volume basis for

liquids or a weight-to-weight basis for

non-liquids and containing no other

substances subject to this

§ 1700.14(a)(10).

* * * * *

(27) Fluoride. Household substances

containing more than the equivalent of

50 milligrams of elemental fluoride per

package and more than the equivalent of

0.5 percent elemental fluoride on a

weight-to-volume basis for liquids or a

weight-to-weight basis for non-liquids

shall be packaged in accordance with

the provisions of § 1700.15 (a), (b) and

(c).

Dated: November 17, 1997.

Sadye E. Dunn,

Secretary, Consumer Product Safety

Commission.

List of Relevant Documents

1. Briefing memorandum from Jacqueline

Ferrante, Ph.D., EH, to the Commission,

‘‘Proposed Rule to Require Child-Resistant

Packaging for Household Products with

Fluoride,’’ September 30, 1997.

2. Memorandum from Susan C. Aitken,

Ph.D., EH, to Jacqueline Ferrante, Ph.D., EH,

‘‘Toxicity of Household Products Containing

Fluoride,’’ August 4, 1997.

3. Memorandum from Marcia P. Robins,

EC, to Jacqueline Ferrante, Ph.D., EH,

‘‘Market Data, Economic Considerations and

Environmental Effects of a Proposal to

Require Child-Resistant Packaging for

Household Products Containing Fluoride,’’

June 20, 1997.

4. Memorandum from Charles Wilbur, EH,

to Jacqueline Ferrante, Ph.D., EH, ‘‘Technical

Feasibility, Practicability, and

Appropriateness Determination for the

Proposed Rule to Require Child-Resistant

Packaging for OTC Products Containing

Fluoride,’’ June 27, 1997.

[FR Doc. 97–30555 Filed 11–19–97; 8:45 am]

BILLING CODE 6355–01–P

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Parts 230, 240 and 270

[Release Nos. 33–7475, 34–39321, IC–22884;

File No. S7–27–97]

RIN 3235–AG98

Delivery of Disclosure Documents to

Households

AGENCY: Securities and Exchange

Commission.

ACTION: Proposed rule.

SUMMARY: The Commission is proposing

for public comment a new rule under

the Securities Act of 1933 to enable

issuers and broker-dealers to satisfy the

Act’s prospectus delivery requirements,

with respect to two or more investors

sharing the same address, by sending a

single prospectus, subject to certain

conditions. The Commission is

proposing similar amendments to the

rules under the Securities Exchange Act

of 1934 and the Investment Company

Act of 1940 that govern the delivery of

annual and (in the case of investment

companies) semiannual reports to

shareholders. The proposed rule and

rule amendments seek to provide greater

convenience for investors and cost

savings for issuers by reducing the

amount of duplicative information that

investors receive.

DATES: Comments must be received on

or before February 2, 1998.

ADDRESSES: Comments should be

submitted in triplicate to Jonathan G.

Katz, Secretary, Securities and Exchange

Commission, 450 5th Street, N.W., Stop

6–9, Washington, D.C. 20549.

Comments also may be submitted

electronically at the following E-mail

address: 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
61934 Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules

1See 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).

2Mutual 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)). Posteffective 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)).

3An 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.

4See 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).

5The 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.

6The 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) ¶¶ 2451.90,

2451.95, 2465.20, 2465.25 (New York Stock

Exchange rules permitting householding).

7Proposed rule 154(a).

8The 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).

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.

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.

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.

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?
Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules 61935

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).

10By 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.

11Thus, 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 noninvestment 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.

12See proposed rule 154(a)(2).

13See, 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.

14See 1995 Interpretive Release, supra note 9, at

53460.

15The proposed rule would require the notice to

be a separate written statement delivered to each

investor in the household at least 60 days before

Continued

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.

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

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.

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?

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
61936 Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules

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.

16See proposed rule 154(b)(2).

17See 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 fivedigit 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>.

18See proposed rule 154(b)(5)(ii), (iii).

19See, e.g., Michael T. Reddy, Securities

Operations 336–41 (2d ed. 1995) (discussing new

account forms and procedures for opening new

accounts).

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.

21See proposed rule 154(d).

22See proposed rules 30d–1(f), 30d–2(b).

23See, 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).

24See 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.

25See proposed rule 14a–3(e)(1)(ii).

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

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.

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?

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?

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 noaction 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.

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

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
Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules 61937

26 15 U.S.C. 77b(b).

27 15 U.S.C. 80a–2(c).

28 15 U.S.C. 78c(f), 78w(a).

29One 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.

31See rules 30d–1 and 30d–2 under the

Investment Company Act.

32See rules 14a–3, 14c–3, and 14c–7 under the

Exchange Act.

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.

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.

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.

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.

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.
61938 Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules

33Pub. L. No. 104–121, Title II, 110 Stat. 857

(1996).

34 44 U.S.C. 3501–3520.

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.

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.

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 brokerdealer 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
Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules 61939

35See 17 CFR 230.157.

36 Id.

37See 17 CFR 230.251—230.263.

38See 17 CFR 230.157.

39See 17 CFR 240.0–10(c)(1).

40See 17 CFR 270.0–10.

41Rule 0–10 [17 CFR 240.0–10].

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 brokerdealers 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.

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.

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.

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.

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.

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
61940 Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules

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 brokerdealers 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:

§ 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 multiunit building (for example, based on the

Zip Code), the address must include the

unit number.
Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules 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:

§ 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 § 240.14c–3, paragraph (c) is

added to read as follows:

§ 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

§ 240.14a–3(e)(1) are satisfied.

6. In § 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:

§ 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
61942 Federal Register / Vol. 62, No. 224 / Thursday, November 20, 1997 / Proposed Rules

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:

§ 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 § 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

§ 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 § 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

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 52

[AZ–MA–002–CGB; FRL–5925–6]

Approval and Promulgation of State

Implementation Plans; Arizona—

Maricopa County Ozone and PM10

Nonattainment Areas

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Proposed rule.

SUMMARY: EPA is proposing to approve

a State Implementation Plan (SIP)

revision submitted by the State of

Arizona on September 15, 1997,

establishing Cleaner Burning Gasoline

(CBG) fuel requirements for gasoline

distributed in the Phoenix (Maricopa

County) ozone nonattainment area.

Arizona has developed these fuel

requirements to reduce emissions of

volatile organic compounds (VOC) and

particulates (PM10) in accordance with

the requirements of the Clean Air Act

(CAA). EPA is proposing to approve

Arizona’s fuel requirements into the

Arizona SIP because either they are not

preempted by federal fuels requirements

or to the extent that they are or may be

preempted, since EPA is proposing to

find that the requirements are necessary

for the Maricopa area to attain the

national ambient air quality standards

(NAAQS) for ozone and particulates.

DATES: Comments on this proposed rule

must be received in writing by

December 22, 1997.

ADDRESSES: Written comments should

be sent to the Region IX contact listed

below. Copies of the SIP revision are

available in the docket for this

rulemaking, which is open for public

inspection at the addresses below. A

copy of this notice is also available on

EPA Region IX’s website at http://

www.epa.gov/region09.

Air Planning Office (AIR–2), Air

Division, Region IX, U.S.

Environmental Protection Agency, 75

Hawthorne Street, San Francisco, CA

94105

Arizona Department of Environmental

Quality, Office of Outreach and

Information, First Floor, 3033 N.

Central Avenue, Phoenix, Arizona

85012.

FOR FURTHER INFORMATION CONTACT:

Karina O’Connor, Air Planning Office,

AIR–2, Air Division, U.S.

Environmental Protection Agency,

Region IX, 75 Hawthorne Street, San

Francisco, CA 94105, Telephone: (415)

744–1247.

SUPPLEMENTARY INFORMATION:

I. Background

A. Arizona CBG

The State CBG fuel program for the

Maricopa area establishes limits on

gasoline properties and gasoline

emission standards which will reduce

emissions of volatile organic

compounds (VOCs), oxides of nitrogen

(NOX), carbon monoxide (CO) and

particulates (PM). Under the program, a

variety of different fuels will be able to

meet the fuel standards during different

implementation periods (see Table 1).

Starting June of 1998 through September

30, 1998, gasoline sold in Maricopa

County must meet standards similar to

EPA’s Phase I reformulated gas (RFG)

program or California’s Phase II RFG

program. Under the EPA Phase I RFG

standards, the Arizona Department of

Environmental Quality (ADEQ)

estimates that VOC emissions will be

reduced by 8.7 tons per summer day

(tpsd), NOX emissions by 0.2 tpsd, CO

emissions by 118.6 tpsd and PM10

emissions by 0.27 tpsd. With California

RFG, ADEQ estimates that VOC

emissions will be reduced by 14.1 tpsd,

NOX emissions by 8.2 tpd, CO emission

by 198 tpsd and PM10 by 0.76 tpsd.

California Phase II RFG can be used

to comply with the Arizona fuel

program during all implementation

periods since, starting May 1, 1999,

gasoline must meet standards similar to

EPA’s Phase II RFG program or

California’s RFG program. Under the

CBG Type 1 standards, ADEQ estimates

that VOC emissions will be reduced by

12.5 tpsd, NOX emissions by 2.0 tpsd,

CO emissions by 143.3 tpsd and PM10

by 0.4 tpsd.

TABLE 1.—FUEL TYPES MEETING ARIZONA CBG FUEL STANDARDS

Fuel type Fuel designation Implementation period

CBG Type 1 ................................................................ EPA’s Phase II RFG .................................................. June 1999–Future.

CBG Type 2 ................................................................ California Phase II RFG ............................................ June 1998–Future.

CBG Type 3 ................................................................ EPA’s Phase I RFG ................................................... June–September 30, 1998.

During both implementation periods,

gasoline sold in the Maricopa area can

comply with either of the two sets of

specified standards included in the

program. Therefore the actual emission

reductions benefits during either period