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SECURITIES AND EXCHANGE COMMISSION
17 CFR PARTS 231, 241 and 271
RELEASE NO. 33-7233; 34-36345; IC-21399
FILE NO. S7-31-95
RIN 3235-AG67
USE OF ELECTRONIC MEDIA FOR DELIVERY PURPOSES
AGENCY: Securities and Exchange Commission.
ACTION: Interpretation; Solicitation of comment.
SUMMARY: The Securities and Exchange Commission (the
"Commission") is publishing its views with respect to the use of
electronic media for information delivery under the Securities
Act of 1933, the Securities Exchange Act of 1934, and the
Investment Company Act of 1940. This interpretive guidance is
intended to assist market participants in using electronic media
to provide information under the federal securities laws and to
encourage continued research and development and use of such
media. The Commission is seeking comment on issues discussed in
this release. In a companion release, the Commission is
proposing technical amendments to Commission rules that are
currently premised on the distribution of paper documents.
DATES: This Interpretation is effective on October 6, 1995.
Comments should be received on or before [insert date 45 days
after Federal Register publication].
ADDRESSES: Comments should be submitted in triplicate to
Jonathan G. Katz, Secretary, Securities and Exchange Commission,
450 Fifth Street, NW, Stop 6-9, Washington, D.C. 20549. Comment
letters should refer to File No. S7-31-95. All comments received
will be available for public inspection and copying at the
Commission's Public Reference Room, 450 Fifth Street, NW,
Washington, D.C. 20549.
FOR FURTHER INFORMATION CONTACT: Joseph Babits or James Budge
(202) 942-2910, Division of Corporation Finance; and, with regard
to questions concerning investment companies or investment
advisers, Robert G. Bagnall or Emanuel D. Strauss (202) 942-0660,
Division of Investment Management, U.S. Securities and Exchange
Commission, 450 Fifth Street, NW, Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION:
I. INTRODUCTION
The Commission today is publishing its views with respect to
using electronic media as a means of delivering information
required under the Securities Act of 1933 ("Securities Act"),
-[1]- the Securities Exchange Act of 1934 ("Exchange Act"), -
[2]-
and the Investment Company Act of 1940 ("Investment Company
Act"). -[3]- Advances in computers and electronic media
technology are enabling companies to disseminate information to
more people at a faster and more cost-effective rate than
traditional distribution methods, which have been largely
--------- FOOTNOTES ---------
-[1]- 15 U.S.C. 77a et seq.
-[2]- 15 U.S.C. 78a et seq.
-[3]- 15 U.S.C. 80a-1 et seq.
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paper-based. The Commission appreciates the promise of
electronic distribution of information in enhancing investors'
ability to access, research, and analyze information, and in
facilitating the provision of information by issuers and others.
The Commission believes that, given the numerous benefits of
electronic distribution of information and the fact that in many
respects it may be more useful to investors than paper, its use
should not be disfavored.
Until recently, on-line use of corporate information was
generally limited to large corporations and institutional
investors. The dramatic growth in personal computer ownership,
-[4]- however, is enabling many small investors to access on-line
corporate information just as readily as institutions. Access to
information through electronic means permits small investors to
communicate quickly and efficiently with companies as well as
with each other. -[5]-
Use of electronic media also enhances the efficiency of the
securities markets by allowing for the rapid dissemination of
information to investors and financial markets in a more
cost-efficient, widespread, and equitable manner than traditional
paper-based methods. Recognizing the multiple benefits of
electronic technology, the Commission initiated its Electronic
Data Gathering, Analysis, and Retrieval ("EDGAR") system in 1984
to automate the receipt, processing and dissemination of
disclosure documents filed with the Commission under the
Securities Act, Exchange Act and Investment Company Act. -[6]-
--------- FOOTNOTES ---------
-[4]- While estimates of computer ownership vary from survey
to survey, it is anticipated that computer ownership
will grow dramatically in the next few years. One
recent survey suggests that nearly half of all American
households own at least one computer and about 16% of
those households that own a computer subscribe to on-
line services. See B. L. McLaughlan, "Wired Nations:
Half of U.S. Homes Now Have a Computer," The Detroit
News, July 21, 1995, Meet News section. Another
survey, however, found that only 31% of American
households own a personal computer. See J. Morrison,
"Hot Modems, Cold Lives: Refugees From Cyberspace,"
The New York Times, April 30, 1995, Section 1, col. 2,
p. 45.
-[5]- See, G. Weiss, "Online Investing -- At Your Fingertips
Is A Powerful New Financial Tool," Business Week, June
5, 1995, at 64.
-[6]- Access to EDGAR filings is generally available through
information resellers that have purchased the data from
the EDGAR dissemination subsystem and created a variety
of on-line and CD-ROM versions. At the present time,
20 firms purchase data and create value-added products
for analysts and the investor community. In addition,
there is strong interest in ensuring that EDGAR
documents are available, especially to individual
investors, at the lowest possible cost. In January
1993, the New York University School of Business and
the Internet Multicasting Service, a non-profit
organization, received a grant from the National
Science Foundation to make most EDGAR material
available on the Internet. This grant expired on
October 1, 1995. The Commission recently announced
that it would package EDGAR filings with its own
(continued...)
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As a result of this automation, filings made with the Commission
through EDGAR are available promptly to the public and financial
markets. Today, more than 70% of all domestic public companies
file electronically through EDGAR, and by May 1996, all domestic
registrants will be required to file electronically through
EDGAR. -[7]-
The EDGAR rules apply only to filings made with the
Commission; the rules do not affect the obligation of filers to
deliver to security holders or potential investors documents such
as prospectuses, tender offer materials and proxy or information
statements. -[8]- As the ability to send and receive information
in electronic form has become more prevalent, issuers and other
market participants have begun requesting interpretive guidance
regarding the electronic delivery of these documents. -[9]-
--------- FOOTNOTES ---------
-[6]-(...continued)
separate Internet service. This service, which began
September 28, 1995, makes EDGAR filings as well as
certain Commission releases and announcements available
on the Internet. The Internet World Wide Web site
address is http://www.sec.gov.
-[7]- In order to encourage the rapid dissemination of
additional information considered valuable by many
members of the investment community, the Commission
today is announcing its intention to expand the
capacity of the EDGAR system to accommodate the
electronic filing of ownership and transaction reports
filed pursuant to Section 16 of the Exchange Act [15
U.S.C. 78p] and Rule 144 [17 CFR 230.144] under the
Securities Act. See Release No. 33-7231. The
necessary programming already has been initiated and
filers should be able to file these documents
electronically on a voluntary basis by late 1995 or
early 1996. A further announcement will be made when
the effective date is determined.
-[8]- See Release No. 33-6977 at Section V.F (February 23,
1993) [58 FR 14628].
-[9]- For purposes of this release, the term "electronic"
refers to media such as audiotapes, videotapes,
facsimiles, CD-ROM, electronic mail, bulletin boards,
Internet Web sites and computer networks (e.g., local
area networks and commercial on-line services) to
provide documents required by the federal securities
laws to investors, security holders, and offerees.
Such documents include: prospectuses required to be
delivered in connection with offerings under the
Securities Act; annual reports to security holders and
proxy or information statements required to be
furnished pursuant to Section 14 of the Exchange Act
[15 U.S.C. 78n]; annual and semi-annual reports
required by Section 30(d) of the Investment Company Act
[15 U.S.C. 80a-29(d)]; documents furnished to investors
in connection with tender offers or going private
transactions; offering circulars delivered in
connection with Regulation A [17 CFR 230.251-263]
offerings; and disclosure required to be furnished in
connection with Regulation D [17 CFR 230.505, 506]
offerings (issuers should be mindful of the current
prohibition in Rules 505 and 506 regarding general
(continued...)
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Moreover, hundreds of issuers are providing information through
electronic means, primarily through computer networks.
In February 1995, the Commission's Division of Corporation
Finance issued an interpretive letter intending to address
certain legal issues relating to electronic delivery of
prospectuses ("Brown & Wood letter"). -[10]- The Brown & Wood
letter established a number of conditions in order for a
prospectus to be considered "delivered" electronically. The
intention at the time of the release of the Brown & Wood letter
was that the Commission would review this area in greater detail
after the issuance of the letter with a view toward, through an
appropriate release, providing further interpretive advice or
proposed rulemaking. Because of these developments, along with
the fact that none of the federal securities statutes exclusively
require paper delivery of information, the Commission believes
that interpretive guidance on the use of electronic media is
appropriate. While the Commission anticipates that issuers and
others will rely upon the guidance of this release, continued
reliance on the generally more stringent requirements of the
Brown & Wood letter is no longer required, but would be
permissible.
This interpretive release addresses only the procedural
aspects under the federal securities laws of electronic delivery,
and does not affect the rights and responsibilities of any party
under the federal securities laws. -[11]- This release addresses
--------- FOOTNOTES ---------
-[9]-(...continued)
solicitation, see Examples 20 and 21). Other documents
may include annual reports on Form 10-K [17 CFR
249.310] and other reports required to be furnished
upon request to a security holder or the recipient of a
prospectus using incorporation by reference.
Additionally, this release addresses the electronic
delivery of elective information, such as quarterly
reports to security holders and sales literature. But
see n. 12, below.
-[10]- See Brown & Wood (February 17, 1995).
-[11]- The liability provisions of the federal securities laws
apply equally to electronic and paper-based media. For
instance, the antifraud provisions of the federal
securities laws as set forth in Section 10(b) of the
Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5 [17 CFR
240.10b-5] thereunder would apply to any information
delivered electronically, as it does to information
delivered in paper. As another example, Section 17(b)
of the Securities Act [15 U.S.C. 77q(b)] would apply to
any report circulated on the Internet just as if the
report were provided in paper.
In addition, this release does not affect any applicable
state laws or self-regulatory organization rules.
Consequently, issuers and others need to consider the
potential application of state law (e.g., state securities
laws and business corporation laws) and other rules. At
least one state has addressed issues relating to the use of
electronic media in securities offerings. Recently, the
Pennsylvania Securities Commission issued an order,
effective for a period of one year beginning September 1,
1995, exempting from state qualification requirements
securities offers made on the Internet where: 1) the offer
(continued...)
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the delivery of information by or on behalf of issuers, as well
as by or on behalf of third parties (such as persons making
tender offers or soliciting proxies) with respect to issuers.
-[12]-
--------- FOOTNOTES ---------
-[11]-(...continued)
indicates directly or indirectly that the securities are not
being offered to persons in Pennsylvania; 2) an offer is not
being made to any person in Pennsylvania by other means; and
3) no sales of the issuer's securities are made in
Pennsylvania as a result of the Internet offer. See Order
of the Pennsylvania Securities Commission In Re Offers
Effected Through Internet That Do Not Result In Sales In
Pennsylvania, dated August 31, 1995. In addition, the North
American Securities Administrators Association, Inc., an
association of securities commissioners from each of the 50
states, the District of Columbia, Puerto Rico, Mexico, and
several Canadian provinces, has a committee that is
addressing various issues, including jurisdictional
authority, surrounding the use of electronic media in the
offering of securities across state lines.
The National Association of Securities Dealers, Inc.
recently reminded its members of the applicability of its
Rules for Fair Practice to electronic communications. See
Special Notice to Members, 95-80, September 26, 1995.
-[12]- Although Section 2(10) of the Securities Act [15 U.S.C.
77b(10)] defines "prospectus" to include a writing that
"confirms the sale of any security," this release does
not authorize transmission of confirmations, as
required by Rule 10b-10 under the Exchange Act [17 CFR
240.10b-10] through electronic means. Consequently,
while this release anticipates the electronic delivery
of Section 10(a) prospectuses [15 U.S.C. 77j(a)],
confirmations that are used to satisfy the delivery of
a Section 10(a) prospectus, as permitted by Securities
Act Rule 434 [17 CFR 230.434], cannot be delivered
electronically at this time, unless specifically
permitted as discussed below.
Under current interpretations of Rule 10b-10, confirmations
may not be delivered electronically unless the Commission
has specifically permitted such delivery. The Commission
has recognized the use of a facsimile machine to send
customer confirmations. Thus, if a customer has a facsimile
machine, a broker-dealer would fulfill its confirmation
delivery obligation if it sent the confirmation via
facsimile transmission. Release No. 34-34962 (November 9,
1994), 60 FR 59612, 59614 n.28. The Commission, acting by
delegated authority, also has allowed, under specified
conditions, confirmations to be sent by electronic means.
See, e.g., Thomson Financial Services (October 8, 1993).
Applications for exemption from the requirements under Rule
10b-10 for delivery by paper or facsimile, pursuant to
paragraph (e) of the Rule, may be sent to Catherine McGuire,
Chief Counsel, Division of Market Regulation, U.S.
Securities and Exchange Commission, 450 Fifth Street, N.W.,
Mail Stop 5-10, Washington, D.C. 20549.
The Commission has directed the Division of Market
Regulation to review this and other rules to determine if
(continued...)
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Additionally, to facilitate further electronic delivery, the
Commission proposes in a companion release to codify certain
interpretations regarding Commission rules that are premised on
the distribution of paper documents. -[13]- The rules would be
revised to make it clear that paper-based requirements relating
to font size, bold-face type, red ink, graphics, and mailing may
be modified as appropriate for documents delivered in electronic
format. -[14]- The proposals are not intended to affect any
substantive requirement.
Given the numerous benefits of electronic media, the
Commission encourages further technological research, development
and application. The Commission believes that the use of
electronic media should be at least an equal alternative to the
use of paper-based media. Accordingly, issuer or third party
information that can be delivered in paper under the federal
securities laws may be delivered in electronic format. -[15]-
The Commission also expects that paper delivery of information
will continue to be made available by issuers and others until
such time as electronic media become more universally accessible
and accepted, although the Commission recognizes that, for
example, various offerings may now be made exclusively through
electronic means. -[16]-
In connection with the June 1995 proposals on permitting the
use of abbreviated financial statements in documents delivered to
investors, -[17]- comment was solicited on whether the increasing
availability of disclosure through electronic media warrants
reassessment of the current overall regulatory framework. -[18]-
Any comments received on the June 1995 proposals will be
evaluated and appropriate action will be considered. By issuing
this release in the interim, however, the Commission intends to
assist issuers and other market participants in using electronic
media to comply with the current regulatory scheme.
II. USE OF ELECTRONIC MEDIA
A. General
The federal securities statutes do not prescribe the medium
to be used for providing information by or on behalf of issuers,
or by or on behalf of third parties with respect to issuers.
-[19]- The Commission believes that delivery of information
through an electronic medium generally could satisfy delivery or
transmission obligations under the federal securities laws.
The federal securities laws, among other purposes, seek to
promote fair and orderly markets by requiring the disclosure of
--------- FOOTNOTES ---------
-[12]-(...continued)
and under what conditions electronic delivery of information
required by those rules is feasible. The Commission expects
that this review will result in the issuance of additional
releases relating to these rules.
-[13]- See Release No. 33-7234.
-[14]- See Section III, below.
-[15]- See n. 9 and 12, above.
-[16]- See n. 27, below.
-[17]- Release No. 33-7183 (June 27, 1995) [60 FR 35604].
-[18]- See Section II.B to Release No. 33-7183.
-[19]- But see n. 12, above.
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material information that enables investors to make informed
investment and voting decisions. The extent to which required
disclosure is made, as opposed to the medium for providing it,
should be most important to the analysis of whether sufficient
disclosure has occurred under the securities laws. An electronic
medium would not provide an adequate means for the delivery of
required disclosure, and thus not serve the statutory purposes,
if the medium does not permit effective communication to
investors or is practically unavailable. -[20]-
The Commission believes that the question of whether
delivery through electronic media has been achieved is most
easily examined by analogy to paper delivery procedures. The
Commission would view information distributed through electronic
means as satisfying the delivery or transmission requirements of
the federal securities laws if such distribution results in the
delivery -[21]- to the intended recipients of substantially
equivalent information as these recipients would have had if the
information were delivered to them in paper form. -[22]- As is
the case with paper delivery, there should be an opportunity to
retain a permanent record of the information.
--------- FOOTNOTES ---------
-[20]- Electronically delivered documents must be prepared,
updated, and delivered consistent with the provisions
of the federal securities laws in the same manner as
paper documents. Regardless of whether information is
delivered through paper or electronic means, it should,
of course, convey all material and required
information. If a paper document is required to
present information in a certain order, then the
electronic document should convey the information in
substantially the same order. For example, in an audio
or video prospectus, the information required to be on
the cover page of a paper prospectus pursuant to Item
501(c) of Regulation S-K [17 CFR 229.501(c)] (e.g., red
herring language) must be among the first information
presented through the audio or video media.
Information need not be provided solely through one medium.
For example, the Commission anticipates that, for practical
reasons, many proxy solicitations would continue to be
delivered only in paper by an issuer, while that issuer may
choose to deliver other documents, such as an annual report
to shareholders ("annual reports") through electronic means.
-[21]- Under the various federal securities statutes and
rules, there are differing delivery obligations
depending upon the context of the requirements. This
release does not alter these requirements.
-[22]- Issuers and other persons required to satisfy delivery
requirements should consider establishing
record-keeping or other procedures to evidence
satisfaction of applicable requirements through
electronic means. Presumably, such procedures would be
analogous to comparable procedures followed when a
paper document is delivered.
Those providing information also should take reasonable
precautions to ensure the integrity and security of that
information, regardless of whether it is to be delivered
through electronic means or paper, so as to ensure that it
is the information intended to be delivered.
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B. Guidance Regarding Electronic Delivery
The Commission believes that the analysis of whether an
electronic communication is delivered or transmitted for purposes
of the federal securities laws should be determined in accordance
with the preceding discussion. In making such determination with
respect to information communicated, in particular, over the
Internet, through on-line services, or through analogous computer
networks, the Commission believes that the following concepts
discussed in this section reflect issues that should be
considered in determining whether applicable statutory
requirements have been satisfied.
This release is intended to provide guidance and a degree of
certainty regarding the manner in which electronic delivery can
be achieved. An issuer or other party that structures its
delivery in accordance with the principles and examples set forth
below can be assured that it is satisfying its delivery
obligations under the federal securities laws. The Commission
wishes to emphasize, however, that the factors discussed below
are not the only factors relevant to determining whether the
legal requirements pertaining to delivery or transmission of
documents have been satisfied. If an issuer or third party
develops a method of electronic delivery that differs from those
discussed below, but provides assurance comparable to paper
delivery that the required information will be delivered, that
method may satisfy delivery or transmission obligations. The
ultimate responsibility for satisfying the applicable statutory
requirements remains with the issuer or other party to whom the
law assigns the responsibility.
Notice. When an issuer delivers a paper document through
the postal mail, the investor will most likely be made aware that
new information exists and that the investor might have to take
some action within a certain period of time. The Commission
believes that those providing electronic information should
consider the extent to which the electronic communication
provides timely and adequate notice to investors that information
for them is available and, if necessary, consider supplementing
the electronic communication with another communication that
would provide notice similar to that provided by delivery in
paper. If an electronic document itself is provided -- for
example, on computer disk, CD-ROM, audio tape, videotape, or e-
mail -- that communication itself should generally be sufficient
notice. If the document is provided on an Internet Web site,
however, separate notice would be necessary to satisfy the
delivery requirements unless the issuer can otherwise evidence
that delivery to the investor has been satisfied or the document
is not required to be delivered under the federal securities
laws. -[23]-
Access. When a document is delivered through the postal
mail, a recipient generally is provided with access to the
required disclosure. The Commission believes that recipients who
are provided information through electronic delivery should have
comparable access; consequently, the use of a particular medium
should not be so burdensome that intended recipients cannot
--------- FOOTNOTES ---------
-[23]- For example, in an offering, notice of an updated or
final prospectus and/or the updated or final prospectus
itself need not be sent at all, through any means, to
persons who have received an electronic preliminary
prospectus, but to whom securities are not expected to
be sold. Of course, the final prospectus would have to
be delivered, through electronic means or otherwise, to
those investors to whom securities are sold.
-------------------- BEGINNING OF PAGE #9 -------------------
effectively access the information provided. -[24]- Moreover, as
is the case with a paper document, a recipient should have the
opportunity to retain the information or have ongoing access
equivalent to personal retention. -[25]-
If disclosure is made available by posting it on the
Internet, making it available through on-line services, or making
it available by similar means, the document should be accessible
for as long as the delivery requirement applies. -[26]-
Finally, because of possible system failures, computer
incompatibilities, and those cases, for example, where consents
are used in connection with the delivery of information
electronically and the person providing the consent revokes it, a
necessary precaution given the current state and use of
communications technology is that issuers must be able to make
available paper versions of documents delivered in an electronic
medium. Specifically, the Commission believes that, as a matter
of policy, where a person has a right to receive a document under
the federal securities laws and chooses to receive it
electronically, that person should be provided with a paper
version of the document if any consent to receive documents
electronically were revoked or the person specifically requests a
paper copy (regardless of whether any previously provided consent
--------- FOOTNOTES ---------
-[24]- For example, if an investor must proceed through a
confusing series of ever-changing menus to access a
required document so that it is not reasonable to
expect that access would generally occur, this
procedure would likely be viewed as unduly burdensome.
In that case, delivery would be deemed not to have
occurred unless delivery otherwise could be shown.
There are some circumstances where burdensome procedures may
be appropriate. See Example 48.
-[25]- In many cases, the investor will be able to download
the document from the electronic medium, which is
sufficient to satisfy this need.
-[26]- For example, after a paper preliminary prospectus has
been provided, issuers make the most recent version of
the prospectus available to all persons to whom they
expect to sell. If an issuer posts electronically a
preliminary prospectus on its Web site, the prospectus
should be updated to the same degree as paper and be
available to all persons to whom the issuer expects to
sell securities in reliance on the electronic delivery
of the prospectus. It likely would not be sufficient
to show effective delivery if the information was
merely posted for a brief period of time and then taken
off the Web site, absent some other showing that
delivery of the updated prospectus actually had
occurred. In the case of a continuous offering, the
prospectus should remain available for as long as the
issuer will rely on its delivery through the electronic
system. Annual reports should be available
electronically for a sufficient length of time for
delivery to be satisfied. In the case of proxy
soliciting materials regarding the election of
directors, investors might reasonably expect the proxy
soliciting materials and annual report to be available
on the Web site until their votes have been cast and
the meeting adjourned.
-------------------- BEGINNING OF PAGE #10 -------------------
was revoked). -[27]-
C. Evidence to Show Delivery
Providing information through postal mail provides
reasonable assurance that the delivery requirement is satisfied.
The Commission believes that issuers and others -[28]- providing
electronic delivery of information should similarly have reason
to believe that any electronic means so selected will result in
the satisfaction of the delivery requirements. Examples of
procedures evidencing satisfaction of the delivery requirements
include: (1) obtaining an informed consent from an investor to
receive the information through a particular electronic medium
-[29]- coupled with assuring appropriate notice and access, as
--------- FOOTNOTES ---------
-[27]- This policy would not preclude an issuer from
structuring its offering as one that will be made only
through electronic documents. However, companies
conducting initial public offerings must consider
prospectus delivery requirements for secondary market
trading under Securities Act Rule 174 [17 CFR 230.174].
Further, if a potential investor makes it known that the
receipt of information through electronic means by that
person is no longer to be relied upon by the issuer (for
example, due to the revocation of a consent previously
given), then the issuer would not be able to rely on the
electronic delivery of information subsequently to provide
information to such person. If such subsequent information
is required to be provided under the federal securities laws
to such person because, for example, the person is now a
shareholder and is entitled to receive a proxy statement
then, absent some alternative, the issuer would be required
to deliver the information through paper.
-[28]- For example, broker-dealers, banks, associations and
other fiduciary entities may have delivery obligations
to forward proxy soliciting materials and annual
reports to shareholders under Exchange Act Rules 14b-1
and 14b-2 [17 CFR 240.14b-1 and 240.14b-2]. See
Example 29.
-[29]- If a consent is used, the consent should be an informed
consent. Recipients generally should be apprised:
that information provided would be available through a
specific electronic medium or source (e.g., via a
limited proprietary system, or at a World Wide Web
site); of the potential that investors may incur costs
(e.g., on-line time); and of the period during, and the
documents for, which the consent will be effective.
For instance, investors should be made aware of whether
the consent extends to more than one type of document.
If an investor revokes a consent that extends to more
than one document, and consent is being relied upon by
the provider of the information to ensure effective
delivery or transmission, future documents should be
delivered in paper unless the provider of the
information has an alternative mechanism for ensuring
effective electronic delivery. If not, it would appear
likely that continued electronic delivery, after
revocation of the consent, would not be considered to
result in the investor's having access to the
information and, therefore, the delivery requirement
would not be satisfied.
(continued...)
-------------------- BEGINNING OF PAGE #11 -------------------
discussed above; (2) obtaining evidence that an investor actually
received the information, for example, by electronic mail return-
receipt or confirmation of accessing, downloading, or printing
(see example 36); (3) disseminating information through certain
facsimile methods (see example 32); (4) an investor's accessing a
document with hyperlinking to a required document (see examples
15 and 35); and (5) using forms or other material available only
by accessing the information (see examples 31 and 33).
The Commission requests comment on these concepts and on
whether additional or alternative concepts would be more useful.
D. Examples
A series of examples is provided below to illustrate various
applications of the above concepts and to provide guidance in
applying them to specific facts and circumstances. The analysis
required to determine compliance with the delivery requirements
is fact-specific, and any different or additional facts might
require a different conclusion. Although this interpretation is
effective immediately, the Commission requests comment on whether
other examples might be appropriate for publication in a
subsequent release.
Securities Act
(1) Company XYZ places its final prospectus on its Internet
Web site. Company XYZ then confirms by mail the sale of
securities to investors with a note stating that the final
prospectus is available on its Web site and giving the Internet
location of the Web site.
Unlike paper delivery of a final prospectus where access to
the document can be presumed with delivery, not all investors
purchasing securities could be presumed to have the ability to
access the final prospectus via an Internet Web site. Therefore,
absent other factors such as express consent from the investor or
an investor's actually accessing the document on the Web site,
the procedures described above by themselves would not satisfy
the delivery requirements under the Securities Act.
(2) Company XYZ places its final prospectus on its Internet
Web site. Company XYZ then confirms by mail the sale of
securities to those investors who have consented to electronic
delivery via the Company's Internet Web site. A note on the
bottom of the confirmation -[30]- states that the final
--------- FOOTNOTES ---------
-[29]-(...continued)
Moreover, an issuer could rely on consents provided to an
underwriter, a brokerage firm or other service provider.
Similarly, an underwriter or brokerage firm could rely on a
consent that its customer provided to the issuer, and
deliver that issuer's documents through the same electronic
medium.
Information may be provided through more than one medium;
for example, proxy statements and proxy cards might continue
to be delivered in paper while prospectuses might be
delivered electronically. If the recipient of information
provides a general consent to receive all documents
electronically, it would be permissible for a provider of
information to attempt to accommodate that request if the
provider so desired.
-[30]- A separate document accompanying the confirmation also
may be used.
-------------------- BEGINNING OF PAGE #12 -------------------
prospectus is available on its Web site and the Internet location
of the Web site.
This would satisfy delivery obligations, as it is reasonable
to presume that investors who have consented to delivery of the
final prospectus via an Internet Web site have the ability to
access the final prospectus once such investors are supplied with
notice of the Internet location of the Web site.
(3) While reviewing Company XYZ's preliminary prospectus on
its Internet Web site, Investor John Doe consented to delivery of
all future documents only through electronic mail, not by Web
site access. Company XYZ subsequently places its final
prospectus on its Internet Web site. Company XYZ then confirms
by mail the sale of securities to John Doe. A note on the bottom
of the confirmation states that the final prospectus is available
on its Internet Web site and the location of that Web site.
Again, absent other factors such as John Doe's actually
accessing the final prospectus on the Web site, the above-stated
procedure of Company XYZ would not by itself satisfy the
obligations to deliver the final prospectus to John Doe, as John
Doe consented to delivery only by electronic mail, not via an
Internet Web site. If consent is to be relied upon, the consent
should indicate the specific electronic medium or media that may
be used for delivery.
(4) While reviewing Company XYZ's preliminary prospectus on
its Internet Web site, Investor John Doe consented to delivery of
all future Company documents by 3 " floppy disk. Company XYZ
places its final prospectus on its Internet Web site. Company
XYZ then confirms by mail the sale of securities to John Doe. A
3 " floppy disk containing the final prospectus is included with
the confirmation.
This would satisfy the obligation to deliver the final
prospectus to John Doe, since the Company included with the
confirmation the final prospectus on a 3 " floppy disk.
(5) Investor John Doe consents to delivery of all documents
electronically via Company XYZ's Web site. Two days after
consenting, John Doe realizes that the online service he
subscribes to does not allow Internet access. John Doe notifies
Company XYZ that he is revoking his consent for any electronic
delivery as he is not able to access the Company's Internet Web
site. Three weeks later, John Doe receives in the mail a
confirmation of his purchase of Company XYZ's securities stating
the Internet location of the Company's Web site where the final
prospectus can be obtained.
Since John Doe revoked his consent for electronic delivery,
the Company's notice to John Doe is insufficient because the
Company knows that its attempted delivery through the Internet
will not satisfy the statutory requirements for John Doe. A
final paper prospectus would have to be delivered to John Doe
instead. Although a consent is revocable at any time, revocation
would have to be given to the company or its agent a reasonable
time before electronic delivery has commenced for the company to
be on notice that electronic delivery will not satisfy the
statutory requirements.
(6) Company LMN, a non-reporting issuer, commences an
initial public offering. Company LMN agrees with its
underwriter, Brokerage Firm DFG, to place its preliminary
-------------------- BEGINNING OF PAGE #13 -------------------
prospectus on the Company's Internet Web site at least 48 hours
prior to confirmations being sent. Investors John and Jane Doe
are both expected to purchase securities in the Company's initial
public offering. Both John and Jane Doe previously provided
Company LMN with consents for electronic delivery through the
Company's Internet Web site. Brokerage Firm DFG, pursuant to its
prospectus delivery obligation under Exchange Act Rule 15c2-8(b),
-[31]-
provides notice to John and Jane Doe at least 48 hours prior to
sending them confirmations.
The underwriter may satisfy its obligation under Rule 15c2-
8(b) to John and Jane Doe by this means since both have consented
to electronic delivery through the Company's Internet Web site.
Although consent was not provided directly to the underwriter,
the underwriter can rely on the consent supplied to the Company.
Similarly, had the consent been provided to the underwriter, the
Company could rely on it as well.
(7) Company ABC contracts with Company QRS, a computer
technology company, to place its preliminary and final
prospectuses on Company QRS's Internet Web site. Investor John
Doe requests a copy of Company ABC's preliminary prospectus via
electronic mail from Company ABC's underwriter, Brokerage Firm
DFG. The underwriter sends a return electronic mail to John Doe
asking if he would like the electronic or paper version of the
preliminary prospectus. John Doe replies that the electronic
version via the Internet Web site would be preferable. The
underwriter then informs John Doe of the Internet location of
Company QRS's Web site where the preliminary prospectus for
Company ABC is available.
This would satisfy Brokerage Firm DFG's obligation to take
reasonable steps to furnish to any person making a written
request for a prospectus a copy of such prospectus. -[32]- John
Doe's request for the electronic version via the Internet
indicates that such electronic delivery would be effective.
-[33]-
(8) Company XYZ sends the final prospectus via electronic
mail to those investors that previously had requested delivery by
electronic mail.
The Company would meet its delivery obligation with this
procedure.
--------- FOOTNOTES ---------
-[31]- 17 CFR 240.15c2-8(b).
-[32]- Exchange Act Rule 15c2-8(c), (d) [17 CFR 240.15c2-
8(c), (d)].
-[33]- In Release No. 34-35705 (May 11, 1995) [60 FR 26604],
the Commission stated that a managing underwriter may
discharge its obligations pursuant to Rule 15c2-8(g) or
(h) by delivering a prospectus (or any portion thereof)
electronically to a participating broker-dealer, if the
recipient broker-dealer expressly consents to delivery
in such form, consistent with the Brown & Wood letter.
As reflected in that release and as further discussed
in this release and Examples 6 and 7 above, it is the
Commission's view that broker-dealers may use a variety
of means to satisfy the prospectus delivery obligations
of Rule 15c2-8, including electronic delivery.
-------------------- BEGINNING OF PAGE #14 -------------------
(9) Company XYZ places a preliminary prospectus on its
Internet Web site. After a material amendment to the
registration statement, it is determined that recirculation of an
updated prospectus will be required prior to effectiveness.
Company XYZ updates the preliminary prospectus on its Web site.
The Company need only send notice of the update to those
investors who are expected to purchase securities in the offering
(or takes other measures to deliver the information to those
investors). There is no need to send notice to individuals who
are not expected to purchase securities in the offering.
(10) Company XYZ places its final prospectus on its Internet
Web site. Its underwriters mail confirmations of sales to all
purchasers. At the same time the confirmations are mailed, the
underwriters send via electronic mail notice of the location of
the Internet Web site where the final prospectus is available.
Notice is sent to all investors who had consented to electronic
delivery via an Internet Web site and who provided their
electronic mail addresses for purposes of being notified. To
those investors that did not provide an electronic mail address
but did consent to electronic delivery of the final prospectus,
the underwriters mailed the notice of the location of the
Internet Web site with the confirmation.
As the notice made investors aware of the availability and
location of the electronic document, the delivery requirement
would be satisfied.
(11) Company XYZ posts its final prospectus for sale of its
common stock on its Internet Web site. Company XYZ's stock is
traded on the New York Stock Exchange (NYSE). The NYSE requests
300 paper copies of Company XYZ's final prospectus pursuant to
Securities Act Rule 153. -[34]- Rather than sending 300 copies
of its final prospectus to the NYSE, Company XYZ provides the
NYSE with notice of its Internet Web site, where the final
prospectus can be accessed and downloaded.
This would be insufficient delivery under Securities Act
Rule 153. Company XYZ must supply the 300 paper copies to the
NYSE. The NYSE must be in the position to provide paper copies
of Company XYZ's final prospectus because there is no reasonable
expectation that delivery would otherwise be satisfied with
regard to investors who do not use any electronic means to
receive information. The NYSE would, however, satisfy its
delivery obligations with respect to any investor who received
delivery of the information through electronic means.
(12) Company XYZ places its preliminary prospectus on its
Internet Web site. Upon effectiveness of its registration
statement, the Company decides to deliver a term sheet pursuant
to Securities Act Rule 434. The term sheet, however, will not be
placed on the Company's Web site, but will be delivered in paper
format with confirmation of the sale to all investors.
Delivery of a mixed medium final prospectus would satisfy
delivery obligations. Generally, if investors received the
preliminary prospectus electronically, issuers are encouraged to
deliver all documents that constitute the final prospectus in
electronic format. However, confirmations cannot be furnished
electronically unless the Commission has specifically approved
--------- FOOTNOTES ---------
-[34]- 17 CFR 230.153.
-------------------- BEGINNING OF PAGE #15 -------------------
such delivery. -[35]-
(13) Company XYZ wants to deliver to investors a CD-ROM
version of its prospectus. The CD-ROM version includes within
the prospectus a movie illustrating the Company's operations.
Investors viewing the CD-ROM prospectus would not have to exit
the prospectus in order to view the movie, as the movie is
actually a part of the prospectus.
While Company XYZ may include the movie as part of the
prospectus, it would need to file with the Commission as an
appendix to the prospectus the script of the movie and a fair and
accurate narrative description of the graphic or image material
just as it would have to supplementally provide to the Commission
scripts and descriptions of such material in sales material.
(14) Company XYZ places a copy of its final prospectus on
its Internet Web site. The electronic final prospectus will
remain there throughout the period for which delivery is
required. Company XYZ also places supplemental sales literature
on its Internet Web site. Both the sales literature and the
prospectus can be accessed from the same menu, are clearly
identified on, and appear in close proximity to each
other; -[36]- the supplemental sales literature may be accessed
before viewing or downloading the prospectus.
Sales literature, whether in paper or electronic form, is
required to be preceded or accompanied by a final prospectus.
-[37]- In this example, the prospectus would accompany the sales
literature since investors can access both the prospectus and
sales literature from the same menu. The sales literature and
final prospectus should appear in close proximity to each other
on the menu. For example, the sales literature should not be
presented on the first page of a menu while the final prospectus
is buried within the menu.
(15) Company XYZ places its sales literature in a discussion
forum located on the Internet World Wide Web. The sales
literature contains a hyperlink to the Company's final
prospectus. While viewing the literature the individual can
click on a box marked "final prospectus," and almost instantly
the person will be linked directly to the Company's Web site and
the final prospectus will appear on the person's computer screen.
Sales literature, whether in paper or electronic form, is
required to be preceded or accompanied by a final prospectus.
The hyperlink function enables the final prospectus to be viewed
directly as if it were packaged in the same envelope as the sales
literature. Therefore, the final prospectus would be considered
to have accompanied the sales literature. Consequently, the
placing of sales literature in a discussion forum on a Web site
would satisfy delivery obligations provided that a hyperlink that
--------- FOOTNOTES ---------
-[35]- See n. 12, above.
-[36]- In this example, the prospectus is accessible on the
same menu as the supplemental sales literature;
consequently, the existence of the prospectus and its
location are readily ascertainable by the investor
viewing the sales literature.
-[37]- Section 5(b) of the Securities Act.
-------------------- BEGINNING OF PAGE #16 -------------------
provides direct access to the final prospectus is included.
(16) Company XYZ places a preliminary prospectus on its
Internet Web site and provides direct access via a hyperlink to a
research report on the Company written by ABC Corporation, a
registered brokerage firm. The investor reviewing the
preliminary prospectus can click on a box marked "ABC's research
report" and the investor will be linked to the brokerage firm's
Web site where the research report is available.
The hyperlink function provides the ability to access
information located on another Web site almost instantaneously.
This direct and quick access to ABC's research report would be
similar to the Company including the paper version of the
research report in the same envelope that it is using to mail the
paper version of the preliminary prospectus to potential
investors. During the waiting period, the Company may make
offers only through the use of a preliminary prospectus, -[38]-
whether in paper or electronic format; therefore, its use of the
research report under these circumstances would not be
permissible.
(17) Company XYZ places its final prospectus on its
Internet Web site. The Company then mails sales literature to
individuals for whom delivery through the Internet Web site was
effective (regardless of whether the individuals consented to
delivery). Similarly, Brokerage Firm ABC mails Company XYZ sales
literature to its customers for whom delivery through the
Internet Web site was effective (regardless of whether the
individuals consented to delivery). In the forepart of Company
XYZ's sales literature is notice of the availability and Internet
Web site location of its final prospectus.
The mailing of sales literature to these individuals is
permissible, provided that notice of the availability of the
final prospectus and its Internet Web site location accompanies
or precedes the sales literature. When notice is included within
sales literature, it should be in the forepart of the literature
and clearly highlighted to make investors aware of the
availability and location of the final prospectus.
(18) Company XYZ places a tombstone advertisement complying
with Securities Act Rule 134 -[39]- on its Internet Web site.
This would be permissible, provided that the advertisement
otherwise complies with Rule 134.
(19) Company XYZ files a registration statement with the
Commission. The Company then places a "tombstone" advertisement
in accordance with Securities Act Rule 134 in the Wall Street
Journal. In the advertisement the Company includes the name and
address of the underwriter from whom a paper prospectus can be
obtained as well as the location of its Internet Web site where
an electronic prospectus can be obtained.
This inclusion of an electronic address for obtaining the
materials in this "tombstone" advertisement would be permissible
under Rule 134. (Similarly, an advertisement made pursuant to
--------- FOOTNOTES ---------
-[38]- Section 5(b) of the Securities Act.
-[39]- 17 CFR 230.134.
-------------------- BEGINNING OF PAGE #17 -------------------
Rule 14a-2(a)(6) -[40]- indicating the availability of proxy
soliciting materials and the location of an Internet Web site
where electronic proxy soliciting materials could be obtained
would be permissible.)
(20) Company XYZ wants to raise $5 million by selling its
common stock in a private placement pursuant to Securities Act
Rule 506 of Regulation D. The Company places its offering
materials on its Internet Web site, which requires various
information from a person attempting to access the materials to
be provided to the Company prior to displaying the offering
materials.
The placing of the offering materials on the Internet would
not be consistent with the prohibition against general
solicitation or advertising in Rule 502(c) of Regulation D.
-[41]- Where prospective purchasers have been otherwise located
without a general solicitation, a proprietary computer service
could be used to deliver required disclosure documents.
(21) Company XYZ wants to raise $5 million by selling its
common stock in a private placement pursuant to Rule 506 of
Regulation D to certain individuals who have been located without
a general solicitation. The Company transmits the offering
materials via electronic mail addresses provided by these
persons.
This would not be inconsistent with the offering
restrictions in the rule.
(22) Company XYZ pays John Doe $10,000 to write a report
about the Company and post the report on the Internet. John Doe
writes the report and places it on the Growth Companies
Investment Bulletin Board located on the Internet. The report
does not disclose the $10,000 that the Company paid John Doe.
The Securities Act requires that the $10,000 compensation
paid by Company XYZ to John Doe be disclosed in the report,
regardless of whether it is in electronic or paper form. -[42]-
Exchange Act
(23) Company XYZ places its annual report and proxy
soliciting materials on its Internet Web site. The Company then
sends notice to all its record holders that its annual report and
proxy soliciting materials are available on its Internet Web site
along with the Internet location of the Web site and a telephone
number that shareholders may call to request a paper copy.
Similar to Example (1), a company should not presume that
all record holders have the ability to access the annual report
and proxy soliciting materials via an Internet Web site.
Therefore, absent other factors such as a consent from, or actual
access by, a Company shareholder, posting of the annual report
--------- FOOTNOTES ---------
-[40]- 17 CFR 240.14a-2(a)(6).
-[41]- 17 CFR 230.502(c). In Release 33-7185 (June 27, 1995),
the Commission solicited comment on the question of
whether the prohibition against general solicitation in
Regulation D offerings should be reconsidered.
-[42]- Section 17(b) of the Securities Act.
-------------------- BEGINNING OF PAGE #18 -------------------
and proxy soliciting materials via the Company's Internet Web
site would be insufficient to constitute delivery to all record
holders. The Company, however, may place the materials on its
Web site, but in this instance, it also would need to furnish
paper copies of the materials to its record holders.
(24) In January 1995, Company XYZ places a copy of its final
prospectus on its Internet Web site. The prospectus will remain
there throughout the period for which delivery is required.
Prior to viewing the final prospectus, Investor John Doe provides
an express consent to the delivery of the prospectus and all
future documents related to the offering via Company XYZ's Web
site. Investor John Doe subsequently purchases the securities.
In connection with its May 1995 annual meeting, Company XYZ
places proxy soliciting materials on its Web site and places an
advertisement in the Wall Street Journal indicating that its
proxy materials are now available on its Web site.
This advertisement by itself, even coupled with the express
consent that related to the offering documents, is insufficient
for the company to assume that it has delivered its proxy
statement to Investor John Doe. Although John Doe had provided
consent to receiving documents electronically, there is no reason
to believe that notice provided in the Wall Street Journal would
make John aware of the availability of the proxy materials.
Company XYZ must provide more direct delivery or notice to John
Doe of the proxy materials. Notice by publication in a newspaper
or on a Web site or bulletin board is insufficient.
(25) In September 1994, John Doe, a shareholder in Company
XYZ, requests all future corporate communications including proxy
statements and annual reports to shareholders ("annual report")
to be delivered electronically through the Company's Internet Web
site. The consent form states that Company XYZ expects that its
annual report and proxy materials for its annual meeting will be
available on its Web site on April 1, 1995. On April 1, 1995,
the Company places its annual report and proxy soliciting
materials on its Web site.
Unlike the delivery of paper annual reports and proxy
soliciting materials, where the mere appearance in the mail of
such materials places the shareholder on notice within close
proximity to the time when shareholder action is requested, the
advance request in this example, without more, may not be close
enough in time to the requested action to be effective. However,
if the Company reasonably expects for other specific reasons,
such as a history of communications with that shareholder, that
the shareholder would have effective delivery of the information
through the Web site, then the procedure could be acceptable.
(26) Record holder Jane Doe consents to delivery of all
documents via Company XYZ's Web site. On April 1, 1995, Company
XYZ provides notice to Jane Doe that its annual report and proxy
materials are available on its Web site for its annual meeting
scheduled to be held on May 5, 1995. On April 5, 1995, Jane Doe
notifies the Company that her computer is broken and requests a
paper copy of the annual report and proxy materials.
Because Jane Doe's notice to the Company indicates that
electronic delivery will be ineffective, the Company should
provide Jane Doe with paper copies of the annual report and proxy
materials within a reasonable time of her request. She does not
need to withdraw her consent in order to receive the paper
copies.
-------------------- BEGINNING OF PAGE #19 -------------------
(27) Company XYZ places its quarterly report to shareholders
and Forms 8-K on its Internet Web site and advertises the
location of its Web site in the Wall Street Journal. The Company
takes no other action to deliver these materials to shareholders.
This would be permissible, since there generally is no
requirement to deliver such materials to shareholders at all.
(28) Company XYZ places its annual report and proxy
soliciting materials for the election of directors on its
Internet Web site and provides notice to all record holders that
previously had consented to electronic delivery via the Company's
Web site. The record holders are instructed to print the proxy
card, execute the proxy and then mail it back to the Company.
This would be consistent with the proxy rules.
(29) Brokerage Firm ABC solicits its customers who are
beneficial owners of Company XYZ to determine whether they would
like to receive Company XYZ's annual report and proxy soliciting
materials electronically via the Internet rather than in paper.
The Brokerage Firm then informs the Company that 100 beneficial
holders would like to receive the materials electronically and
200 beneficial holders would prefer paper materials.
The Company provides the Brokerage Firm with the location of
its Internet Web site where the materials are posted and copies
of its paper documents for the 200 beneficial owners who do not
wish to receive the electronic delivery. The Brokerage Firm then
forwards the notice of the location of the electronic materials
to those beneficial holders who consented to receive electronic
delivery and forwards the paper materials to those who did not.
-[43]-
This would be consistent with the proxy rules.
(30) Company XYZ wishes to produce its annual report on
videotape and CD-ROM. The videotape and CD-ROM will contain all
the material information disclosed in the glossy annual report.
Before distributing the Company's annual report, the Company
sends a letter asking its shareholders whether they would be
interested in receiving the Company's annual report on videotape
or CD-ROM instead of paper. The Company then sends the videotape
version of its annual report to its shareholders who wish to
receive the videotape and the CD-ROM version to those
shareholders who wish to receive the CD-ROM. The paper glossy
annual report is sent to those shareholders who do not wish to
receive either electronic format.
The federal securities laws do not preclude the delivery of
a document through different media.
Mutual Funds
The Commission is aware that investment companies,
particularly open-end investment companies ("mutual funds" or
"funds") have been active in using electronic means to
--------- FOOTNOTES ---------
-[43]- Exchange Act Rule 14b-1. This example also is
applicable to delivery by banks and other entities
pursuant to Rule 14b-2.
-------------------- BEGINNING OF PAGE #20 -------------------
communicate with their shareholders and prospective investors.
-[44]- Given the extent to which funds have embraced the new
technologies, the Commission believes that it is appropriate to
include the following additional examples, which are tailored to
the fund industry. Unless otherwise noted, however, investment
companies other than mutual funds and other corporate issuers or
third parties may use these examples for guidance as well.
Examples
(31) A fund sends an e-mail to a recipient with a prospectus
attached. The prospectus file includes an application form. The
recipient fills out the form and mails it with a check to the
fund.
Delivery of the prospectus may be inferred from the
recipient's use of the form (provided the fund can identify it as
coming from the electronically transmitted prospectus).
(32) A current prospectus is faxed to a potential investor
who has requested the prospectus and provided the phone number of
the fax machine.
This transmission satisfies the prospectus delivery
requirements.
(33) A current prospectus and an application are faxed to a
potential investor. The investor did not request the fax, but
the sender knows the investor's fax machine phone number.
If the investor completes and mails in the application form
included in the faxed prospectus, delivery of the electronic
prospectus may be inferred.
(34) A fund sends an unsolicited e-mail with a prospectus
attached in one file, and supplemental sales literature in a
separate file. The investor can access the sales literature and
the prospectus with equal ease.
The fund may send the supplemental sales literature in this
fashion. -[45]- Electronic delivery of the prospectus may be
inferred even if the prospectus is not accessed. This would be
analogous to an investor receiving by mail a prospectus and
supplemental sales literature in the same envelope and electing
to review the sales literature, but not the prospectus.
(35) A fund posts its supplemental sales literature and
prospectus on a file server for open access over the Internet.
The supplemental sales literature contains hyperlinks to the
fund's electronic prospectus and includes a caption referring the
investor to the prospectus. The investor would not need any
additional software or need to take burdensome steps to access
the prospectus and thus has reasonably comparable access to both
documents. This system also provides for the downloading or
printing of prospectuses and sales literature. An investor would
not be required to retrieve, download, or print a prospectus
before viewing the sales literature. The system does not require
any consent by its users.
--------- FOOTNOTES ---------
-[44]- See E. Savitz, "Let A Thousand Web Site Bloom,"
Barron's, June 26, 1995, at 50.
-[45]- Sections 2(10)(a) and 5(b) of the Securities Act.
-------------------- BEGINNING OF PAGE #21 -------------------
When a user accesses the supplemental sales literature,
electronic delivery of the prospectus can be inferred. This
scenario is analogous to an investor's selecting an envelope
containing a paper prospectus and supplemental sales literature
from a display at an office of a broker-dealer. This electronic
delivery of the prospectus would be sufficient for other purposes
if the fund could reasonably establish that the investor has
actually accessed the sales literature or the prospectus.
(36) A prospectus is made available through an on-line
system that allows users to access, download or print the entire
prospectus and has the capacity to track which users accessed,
printed or downloaded which documents.
A fund may rely upon a user's having accessed, printed or
downloaded a prospectus for the fund in order to deliver
supplemental sales literature or an order form for the fund or to
establish delivery of the prospectus in connection with a sale of
fund shares.
(37) A fund's prospectus is available through an on-line
service that does not have the capacity for downloading or
printing or to track retrieval by a user. Investors do not
provide any consent. The fund mails or e-mails supplemental
sales literature, or an application to all of the service's
subscribers, without including a prospectus.
Absent other factors that would indicate delivery of the
prospectus, the fund may not send the supplemental sales
literature or an application in this fashion, because it is not
preceded or accompanied by the prospectus for purposes of Section
2(10)(a) of the Securities Act. -[46]- This would be true even
if the general subscription agreement for the service contained a
provision consenting to receipt of documents, because such
consent would not be sufficient to give the fund reason to
believe that delivery requirements relating to the prospectus
will actually be satisfied.
(38) A server available through the Internet contains a
fund's prospectus and application form in separate files. Users
can download or print the application form without first
accessing, downloading or printing the prospectus; the form
includes a statement that by signing the form, the investor
certifies that he or she has received the prospectus.
Logistically it is significantly more burdensome to access the
prospectus than the application form (e.g., the investor needs to
download special software before accessing the prospectus).
The statement in the form about receipt of the prospectus
would not by itself constitute electronic delivery of the
prospectus, and the application form is not evidence of delivery
of the prospectus, given the need to download special software
before the prospectus can be viewed.
(39) A server available through the Internet contains a
--------- FOOTNOTES ---------
-[46]- This is analogous to printing a fund prospectus in a
magazine of general circulation and subsequently
mailing supplemental sales literature to the magazine's
subscribers, which would not comply with Sections 2(10)
and 5(b) of the Securities Act. See William C. Lloyd
(State of Wisconsin), June 7, 1990.
-------------------- BEGINNING OF PAGE #22 -------------------
fund's prospectus. Users must download the prospectus to view or
print it. When a user downloads the prospectus, the user
receives the prospectus and an application form in separate
files. It is not significantly more burdensome to access the
prospectus than the application form (e.g., no additional
software is necessary to read either document, although the
documents may be in different formats).
If the fund can identify the application form as coming from
the electronic system, electronic delivery of the prospectus can
be inferred. The application form is evidence of delivery of the
prospectus.
(40) A fund's prospectus and application form are available
through an electronic system like that described in the preceding
example, except that the investor needs to download special
software before the prospectus and application form can be
downloaded.
If the fund can identify the application form as coming from
the electronic system, electronic delivery of the prospectus can
be inferred. The application form is evidence of access to the
prospectus.
(41) A fund sends an e-mail with an attached file containing
an advertisement satisfying the requirements of Securities Act
Rule 482. -[47]-
There is no prospectus delivery requirement in this context;
a Rule 482 advertisement need not be preceded or accompanied by a
prospectus.
(42) A fund transmits prospectuses over an electronic
bulletin board. Investors provide specific consent to receipt of
the prospectus through that system. The consent states that the
current version of the prospectus will be made continuously
available and notice of material amendments will be given by
mail, e-mail, or some other manner specifically directed to
investors.
The prospectus delivery requirements will be satisfied with
respect to subsequent additional purchases by those investors.
(43) A fund places its prospectus on its Internet Web site
and revises the electronic version whenever the prospectus is
modified. The fund materially amends the prospectus and decides
to send a postcard or e-mail to persons to whom the prospectus
has been delivered through electronic means or who have consented
to electronic delivery notifying them of the availability of the
amended prospectus.
This procedure provides for delivery of the prospectus to
those who have consented and to those to whom the prospectus has
been previously delivered (if the fund expects those persons to
be able to receive the amended prospectus). Alternatively, the
fund could choose to satisfy its prospectus delivery requirements
by sending a paper copy of the amended prospectus to investors in
--------- FOOTNOTES ---------
-[47]- Rule 482 [17 CFR 230.482] permits a registered
investment company or business development company to
use an "omitting prospectus" advertisement that
contains only information the substance of which is
included in the company's Section 10(a) prospectus.
-------------------- BEGINNING OF PAGE #23 -------------------
the fund, including investors who consented to receive documents
electronically.
(44) A fund places its prospectus on its Internet Web site.
Potential investor John Doe obtains access to the prospectus.
John Doe does not purchase shares in the fund. Subsequently, the
prospectus is amended.
The fund does not need to provide John Doe with notice of
the amendment.
(45) A fund puts proxy solicitation materials on the fund's
server on the World Wide Web. At the same time, the fund sends
out postcards or e-mail messages (with investors having consented
to receive notification by e-mail) giving notification that the
proxy materials are available. Investors have signed up to
receive documents through the server.
This would be consistent with the proxy rules.
(46) A fund transmits annual and semi-annual reports over an
electronic bulletin board system. The fund makes the current
versions of these materials available and informs investors who
have consented to electronic delivery of this fact. The fund
provides separate notification each time a shareholder report is
posted by including the notification in the preceding quarterly
account statement or shareholder newsletter. The notice informs
investors of a date by which the report will be available.
Notification to shareholders in a statement or newsletter
delivered within the preceding quarter would be considered
sufficient notice under Section 30(d) of the Investment Company
Act -[48]-and the rules thereunder to constitute delivery.
(47) A fund sends investors upon request a CD-ROM containing
its current prospectus and registration statement materials for
the fund's offering.
This would provide delivery to investors. -[49]-
(48) Prospectuses and other materials are available through
a computer server that requires users to obtain a user ID and
password before they can access documents on the system. The
process for obtaining the ID and password requires significant
information from the user and involves a delay of one day or even
several days before the user can access the system. After a user
accesses a prospectus, a fund sends him or her supplemental sales
literature.
The process provides for delivery of the prospectus.
Although the system imposes burdens in the process for obtaining
access to the prospectus, these burdens are part of the process
of providing access to all the information, including the
supplemental sales literature, and not burdens upon access to the
prospectus that is delivered.
(49) A prospectus is made available through an on-line
system that allows users to download the entire prospectus. The
--------- FOOTNOTES ---------
-[48]- 15 U.S.C. 80a-29(d).
-[49]- The analysis would be the same if an investor requests
and receives information on a diskette.
-------------------- BEGINNING OF PAGE #24 -------------------
system does not permit on-line viewing. An investor downloads
the prospectus.
Assuming downloading, this method would satisfy the delivery
requirements because on-line viewing is not a prerequisite to
electronic delivery.
(50) A fund provides its prospectus, annual and semi-annual
reports through an Internet Web site. After one year, the fund
decides to terminate the Web site.
The fund may cease making its prospectus available through
the Web site as soon as the fund no longer plans to rely on
electronic delivery for satisfying its prospectus delivery
requirements. -[50]- Generally, an annual or semi-annual report
should be available until superseded by a later report. The fund
in this example could terminate the posting of the most recent
report when it is superseded by a new one, or earlier if it
provides a replacement paper copy to shareholders who received
the report electronically.
(51) The text of a fund's prospectus transmitted
electronically on a CD-ROM or an Internet Web site follows the
sequence requirements of Form N-1A. -[51]- The prospectus
includes a summary, which contains hyperlinks that allow the
investor to move to later sections of the prospectus or to other
documents (e.g., the fund's statement of additional information
or annual report). The summary is part of the prospectus text
that is subject to the form's sequence requirements.
Even though the hyperlinks allow an investor to choose to
view information out of sequence, the prospectus satisfies the
requirements of Form N-1A, because the main text does comply with
the sequence requirement.
(52) A fund places its prospectus (information required by
Part A of Form N-1A) on its Internet Web site. The fund does not
put its Statement of Additional Information ("SAI") (information
required by Part B of Form N-1A) on its Web site; instead, it
provides a paper copy of its SAI free of charge to any person
that requests it.
Delivery of a paper copy of an SAI does not prevent a fund
from satisfying its prospectus delivery requirements
electronically.
III. PROPOSED AMENDMENTS
This release is intended to address practices involving
electronic delivery that are acceptable under current rules; no
substantive changes to filing or delivery requirements are
contemplated here. However, in order to make it clear that
current rules should be read to encompass electronic as well as
paper dissemination, the Commission is proposing in a companion
--------- FOOTNOTES ---------
-[50]- Continued sales of fund shares or delivery of sales
literature or application forms to investors who had
received the prospectus electronically would require
delivery of paper prospectus to those investors. Funds
should consider whether paper prospectuses should also
be sent to other investors (e.g., recent purchasers).
-[51]- 17 CFR 274.11A.
-------------------- BEGINNING OF PAGE #25 -------------------
release a number of technical amendments to its rules. -[52]-
IV. ELECTRONIC FILING ISSUES
As emphasized previously, this release addresses only issues
relating to electronic delivery of required disclosure documents
and does not affect the Commission's electronic filing
requirements. However, the Commission recognizes that the same
rapid development of electronic communications in recent years
that has led to the issuance of this release also has
implications for how the Commission should receive, process and
make publicly available the documents filed with it pursuant to
the federal securities laws. Currently, filings are accepted by
the Commission only in the electronic formats prescribed by the
EDGAR system, or in paper, where the filer has not yet become
subject to mandated electronic filing requirements or where there
is an exemption pursuant to the electronic filing rules. While
EDGAR may be modified in the future to accept and process a
broader array of electronic formats, there may be ways to allow
the filing of documents prepared and delivered in other
electronic media on a more expedited timetable. As the
Commission continues with its review of this area, it intends to
issue additional releases. Comment on the costs and benefits to
filers and the federal government with respect to these issues
should be provided by persons submitting comment on these issues.
V. SOLICITATION OF COMMENT
Any interested persons wishing to submit written comments
relating to the views expressed in this release, or with respect
to the rule proposals in the companion release, are invited to do
so by submitting them in triplicate to Jonathan G. Katz,
Secretary, U.S. Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C., 20549. Commenters should refer
to File Number S7-31-95. Comment is requested not only on the
specific issues discussed on the release, but on any other
approaches or issues that should be considered in connection with
facilitating the use of electronic media to further the
disclosure purposes of the federal securities laws. Comment is
sought from the point of view of both parties providing the
disclosure, such as issuers and those acting on behalf of
issuers, and parties receiving and using the disclosure, such as
investors and shareholders. The Commission further requests
comment on any competitive burdens that might result from the
adoption of the proposals. Comments on this inquiry will be
--------- FOOTNOTES ---------
-[52]- See Release No. 33-7234 for the text of those
amendments. Rule changes are proposed to be made to
the following rules and forms: Rule 253 of Regulation
A [17 CFR 230.253]; Rule 420 of Regulation C [17 CFR
230.420]; Rules 481 and 482 of Regulation C [17 CFR
230.481, 230.482]; Rule 605 of Regulation E [17 CFR
230.605]; Rule 304 of Regulation S-T [17 CFR 232.304];
Forms F-7 [17 CFR 239.37], F-8 [17 CFR 239.38], F-9 [17
CFR 239.39]; F-10 [17 CFR 239.40] and F-80 [17 CFR
239.41]; Rule 12b-12 [17 CFR 240.12b-12]; Rule 13e-3
[17 CFR 240.13e-3]; Rule 13e-4 [17 CFR 240.13e-4];
Schedule 13E-4F [17 CFR 240.13e-102]; Rule 14a-3 [17
CFR 240.14a-3]; Rule 14a-5 [17 CFR 240.14a-5]; Rule
14a-7 [17 CFR 240.14a-7]; Rule 14c-4 [17 CFR
240.14c-4]; Rule 14c-7 [17 CFR 240.14c-7]; Rule 14d-5
[17 CFR 240.14d-5]; Schedule 14D-1F [17 CFR
240.14d-102]; Schedule 14D-9F [17 CFR 240.14d-103]; and
Rule 8b-12 [17 CFR 270.8b-12]; Rule 30d-1 [17 CFR
270.30d-1] and Rule 30d-2 [17 CFR 270.30d-2].
-------------------- BEGINNING OF PAGE #26 -------------------
considered by the Commission in complying with its
responsibilities under Section 23(a) of the Exchange Act. -[53]-
AMENDMENT OF THE CODE OF FEDERAL REGULATIONS
For the reasons set out in the preamble, Title 17 Chapter II
of the Code of Federal Regulations is amended as set forth below:
PART 231 - INTERPRETIVE RELEASES RELATING TO THE SECURITIES
ACT OF 1933 AND GENERAL RULES AND REGULATIONS THEREUNDER
1. Part 231 is amended by adding Release No. 33-7233 and
the release date of October 6, 1995, to the list of interpretive
releases.
PART 241 - INTERPRETIVE RELEASES RELATING TO THE SECURITIES
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS
THEREUNDER
2. Part 241 is amended by adding Release No. 34-36345 and
the release date of October 6, 1995, to the list of interpretive
releases.
PART 271 - INTERPRETIVE RELEASES RELATING TO THE INVESTMENT
COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS
THEREUNDER
3. Part 271 is amended by adding Release No. IC-21399 and
the release date of October 6, 1995, to the list of interpretive
releases.
By the Commission.
Jonathan G. Katz
Secretary
Dated: October 6, 1995
--------- FOOTNOTES ---------
-[53]- 15 U.S.C. 78w(a).