[Federal Register Volume 60, Number 198 (Friday, October 13, 1995)]
[Rules and Regulations]
[Pages 53458-53467]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-25391]




[[Page 53457]]

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Part II





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Parts 231, 232, and 239 et al.



Use of Electronic Media for Delivery Purposes; Final Rule and Proposed 
Rule Electronic Filings of Forms 3, 4, 5, and 144; Notice

  Federal Register / Vol. 60, No. 198 / Friday, October 13, 1995 / 
Rules and Regulations   

[[Page 53458]]


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.

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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 November 27, 1995.

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 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.

    \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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    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

    \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.
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    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 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

    \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 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.
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    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 

[[Page 53459]]
Moreover, hundreds of issuers are providing information through 
electronic means, primarily through computer networks.

    \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 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.
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    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.

    \10\ See Brown & Wood (February 17, 1995).
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    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 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

    \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 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 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.
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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.

    \13\ See Release No. 33-7234.
    \14\ See Section III, below.
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    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\

    \15\ See n. 9 and 12, above.
    \16\ See n. 27, below.
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    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.

    \17\ Release No. 33-7183 (June 27, 1995) [60 FR 35604].
    \18\ See Section II.B to Release No. 33-7183.
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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 

[[Page 53460]]
medium generally could satisfy delivery or transmission obligations 
under the federal securities laws.

    \19\ But see n. 12, above.
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    The federal securities laws, among other purposes, seek to promote 
fair and orderly markets by requiring the disclosure of 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\

    \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.
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    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.

    \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\

    \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.
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    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 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\

    \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.
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    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\

    \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. 

[[Page 53461]]

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    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 was 
revoked).\27\

    \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.
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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 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).

    \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.
    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.
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    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 prospectus is available on its Web site and the 
Internet location of the Web site.

    \30\ A separate document accompanying the confirmation also may 
be used.
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    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 

[[Page 53462]]
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\1/2\'' 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\1/2\'' 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\1/2\'' 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 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.

    \31\ 17 CFR 240.15c2-8(b).
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    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

    \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.
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    (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.
    (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.

    \34\ 17 CFR 230.153.
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    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 

[[Page 53463]]
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 such delivery.35

    \35\ See n. 12, above.
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    (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.

    \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.
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    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.

    \37\ Section 5(b) of the Securities Act.
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    (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 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.

    \38\ Section 5(b) of the Securities Act.
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    (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.

    \39\ 17 CFR 230.134.
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    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 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.)

    \40\ 17 CFR 240.14a-2(a)(6).
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    (20) Company XYZ wants to raise $5 million by selling its common 
stock in a private placement pursuant to 

[[Page 53464]]
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.

    \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.
---------------------------------------------------------------------------

    (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

    \42\ Section 17(b) of the Securities Act.
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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 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.
    (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. 

[[Page 53465]]
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

    \43\ Exchange Act Rule 14b-1. This example also is applicable to 
delivery by banks and other entities pursuant to Rule 14b-2.
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    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 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.

    \44\ See E. Savitz, ``Let A Thousand Web Site Bloom,'' Barron's, 
June 26, 1995, at 50.
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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.

    \45\ Sections 2(10)(a) and 5(b) of the Securities Act.
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    (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.
    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.

    \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.
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    (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 fund's 
prospectus. Users must download the prospectus to view or print it. 
When a user downloads 

[[Page 53466]]
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\

    \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.
---------------------------------------------------------------------------

    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 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.

    \48\ 15 U.S.C. 80a-29(d).
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    (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\

    \49\ The analysis would be the same if an investor requests and 
receives information on a diskette.
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    (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 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.

    \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).
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    (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.

    \51\ 17 CFR 274.11A.
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    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. 

[[Page 53467]]

    (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 release a number of technical amendments to 
its rules.\52\

    \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].
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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 
considered by the Commission in complying with its responsibilities 
under Section 23(a) of the Exchange Act.\53\

    \53\ 15 U.S.C. 78w(a).
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List of Subjects in 17 CFR Parts 231, 241, and 271

    Securities.

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.

    Dated: October 6, 1995.

    By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 95-25391 Filed 10-12-95; 8:45 am]
BILLING CODE 8010-01-P