Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information; Additional Examples Under the Securities Act of 1933, Securities Exchange Act of 1934, and Investment Company Act of 1940

SUMMARY: The Securities and Exchange Commission (``Commission'') is

publishing its views with respect to the use of electronic media by

broker-dealers, transfer agents, and investment advisers to deliver

information as required under the Securities Exchange Act of 1934 and

the Investment Advisers Act of 1940. This interpretation is intended to

provide guidance in using electronic media to fulfill broker-dealers'

obligations to deliver information to customers, transfer agents'

obligations to deliver information upon written request, and investment

advisers' disclosure delivery obligations. The Commission also is

supplementing its interpretive release published on October 6, 1995,

with seven additional examples illustrating the application of that

earlier release to information delivery under the Securities Act of

1933, the Securities Exchange Act of 1934, and the Investment Company

Act of 1940. Finally, the Commission is seeking comment on the issues

discussed in this release.

DATES: This interpretation is effective on May 15, 1996.

Comments must be received on or before July 1, 1996.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G.

Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street

NW., Mail Stop 6-9, Washington, DC 20549. Comments also may be

submitted electronically at the following electronic mail address:

[email protected]. All comment letters should refer to File Number

S7-13-96. This file number should be included on the subject line if

comments are submitted using electronic mail. Comment letters will be

available for public inspection and copying at the Commission's Public

Reference Room, 450 Fifth Street NW., Washington, DC 20549.

Electronically submitted comment letters will be posted on the

Commission's Internet web site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Catherine McGuire, Chief Counsel, or

Elizabeth King, Special Counsel, or Jack Drogin, Special Counsel

(concerning Rules 10b-10, 10b-16, 15c1-5, 15c1-6, 15c2-12, and 15g-2

through 15g-9 under the Securities Exchange Act of 1934, and the

release generally), 202/942-0073, Office of Chief Counsel, Mail Stop 5-

10; Sheila Slevin, Assistant Director (concerning information about

technology generally), 202/942-0796, Mail Stop 5-1; Michael Walinskas,

Special Counsel (concerning Rule 9b-1 under the Securities Exchange Act

of 1934), 202/942-0188, Mail Stop 5-1; Elizabeth MacGregor, Special

Counsel (concerning Rule 11Ac1-3 under the Securities Exchange Act of

1934), 202/942-0158, Mail Stop 5-1; Alan Reed, Attorney (concerning

Rules 15c2-8 and 15c2-11 under the Securities Exchange Act of 1934),

202/942-0772, Mail Stop 5-1; Michael A. Macchiaroli, Associate Director

(concerning Exchange Act Rules 8c-1, 15c2-5, 15c3-2, 15c3-3, and 17a-

5), 202/942-0132, Mail Stop 5-1; Jerry Carpenter, Assistant Director

(concerning Exchange Act Rule 17Ad-5), 202/942-4187, Mail Stop 5-1,

Division of Market Regulation; Jack W. Murphy, Chief Counsel or Amy

Doberman, Assistant Chief Counsel (concerning the Investment Advisers

Act of 1940 and the examples illustrating application of electronic

delivery to mutual funds), 202/942-0660, Mail Stop 10-6, Division of

Investment Management; Joseph Babits, Special Counsel (concerning the

examples regarding application of electronic delivery to issuers other

than mutual funds), 202/942-2910, Mail Stop 3-7, Division of

Corporation Finance, Securities and Exchange Commission, 450 Fifth

Street NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

On October 6, 1995, the Commission published an interpretive

release expressing its views on the electronic delivery of documents,

such as prospectuses, annual reports to shareholders, and proxy

solicitation materials under the Securities Act of 1933 (``Securities

Act''), the Securities Exchange Act of 1934 (``Exchange Act''), and the

Investment Company Act of 1940 (``October Interpretive

Release'').1 In the October Interpretive Release, the Commission

directed the Division of Market Regulation (``Division'') to review

Rule 10b-10 and other rules it administers under the Exchange Act to

determine if and under what conditions electronic delivery of

information required by those rules is feasible.2 Accordingly, the

Division conducted a review of the rules it administers under the

Exchange Act. Based on that review, the Commission is issuing this

release, which expresses its views with respect to the delivery of

information through electronic media in satisfaction of broker-dealer

and transfer agent requirements to deliver information under the

Exchange Act and the rules thereunder. In conjunction with the results

of that review, the Commission is publishing its views on the use of

electronic media with respect to the disclosure delivery obligations of

investment advisers and persons acting on their behalf 3 under the

Investment Advisers Act of 1940 (``Advisers Act'').

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\1\ Securities Act Release No. 7233 (Oct. 6, 1995), 60 FR 53458

(Oct. 13, 1995) (hereinafter ``October Interpretive Release''). In a

companion release, the Commission proposed technical amendments to

certain of its rules that currently are premised on the distribution

of paper documents. Securities Act Release No. 7234 (Oct. 6, 1995),

60 FR 53467 (Oct. 13, 1995). Today the Commission is adopting these

technical amendments substantially as proposed. Securities Act

Release No. 7289 (May 9, 1996).

\2\ October Interpretive Release, supra note 1, at 53459, n.12.

\3\ The term investment adviser is used in the rest of this

release to refer to both investment advisers and persons acting on

their behalf (including any solicitor receiving cash compensation

from an adviser in accordance with Advisers Act Rule 206(4)-3, 17

CFR 275.206(4)-3).

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This release addresses only the procedural aspects under the

federal securities laws of the delivery of information by broker-

dealers, transfer agents, and investment advisers. It does not affect

the rights and responsibilities of any party under the federal

securities laws.4 This release also does not address

[[Page 24645]]

or affect the applicability of any self-regulatory organization

(``SRO'') rules,5 or of any state laws. Broker-dealers, transfer

agents, and investment advisers, therefore, are reminded to consider

the applicability of SRO rules and state laws in connection with

delivering information electronically.6 The release further does

not affect any rules promulgated under the Exchange Act by agencies

other than the Commission.\7\

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\4\ The substantive requirements and liability provisions of the

federal securities laws apply equally to electronic and paper-based

media. For example, the antifraud provisions of the Exchange Act and

Rule 10b-5 thereunder, as well as section 206 of the Advisers Act

and the rules thereunder, apply to information delivered and

communications transmitted electronically, to the same extent as

they apply to information delivered in paper form. See October

Interpretive Release, supra note 1, at 53459, n.11. In addition,

broker-dealers, transfer agents, and investment advisers continue to

be subject to their respective recordkeeping requirements under

Exchange Act Rules 17a-3 and 17a-4, 17 CFR 240.17a-3 and 240.17a-4,

Exchange Act Rules 17Ad-6 and 16Ad-7, 17 CFR 240.17Ad-6 and

240.17Ad-7, and Advisers Act Rule 204-2, 17 CFR 275.204-2.

The Commission proposed for comment amendments to the broker-

dealer record preservation rule, which would permit broker-dealers

to employ, under certain conditions, optical storage technology to

maintain required records. See Exchange Act Release No. 32609 (July

9, 1993), 58 FR 38092 (July 15, 1993) (``Proposing Release''). At

the time these amendments were proposed, concerns were expressed

that optical disk images would make it difficult, from an

examination and discovery perspective, to detect alterations made to

handwritten records and to records containing handwritten text. To

address these concerns, the Proposing Release solicited comments on

the adequacy of optical disk technology to preserve handwritten

records or records that contain handwritten text.

Simultaneous with the issuance of the Proposing Release, the

Division of Market Regulation, with the Commission's concurrence,

issued a no-action letter permitting broker-dealers to use optical

disk technology immediately. See Letter from Michael A. Macchiaroli,

Associate Director, Division of Market Regulation, SEC to Mr.

Michael D. Udoff, Chairman, Ad Hoc Record Retention Committee,

Securities Industry Association, Inc., (June 18, 1993). The no-

action letter permits the optical storage of all paper records,

including handwritten records, except those records required to be

made under paragraphs (a)(6) and (a)(7) of Rule 17a-3 (proprietary

and customer order tickets).

The Commission's request for comment in the Proposing Release

regarding handwritten records was in no way intended to limit

reliance on the no-action letter. In addition, the Commission notes

that paperless order tickets (i.e., those generated by computers)

may, under the no-action letter, be stored on optical disks. The

Commission understands that most of the large firms generate

paperless order tickets rather than handwritten order tickets.

Finally, the Commission is aware that questions have been raised

regarding the application of the optical storage no-action letter.

The staff of the Division of Market Regulation is prepared to

discuss with interested persons any issues in connection with this

letter, as well as with the Proposing Release.

\5\ See, e.g., National Association of Securities Dealers, Inc.

(``NASD'') Notice to Members 95-80 (Sept. 26, 1995), NASD Rules of

Fair Practice Sec. 35, and New York Stock Exchange, Inc. (``NYSE'')

Rule 472, which govern member firm responsibilities relating to

communications with the public, including electronic communications.

In order to determine whether new guidelines are needed for the

use of electronic communications, on January 12, 1996, the NYSE sent

a survey to its members and member organizations regarding the use

of electronic systems to communicate with customers. The NYSE asked

its members to return the survey by February 15, 1996. NYSE

Information Memorandum (Jan. 12, 1996). The Commission understands

that the NASD intends to send a similar survey to its members.

The Commission strongly encourages the SROs to continue to work

with broker-dealers to adapt SRO supervisory review requirements

governing communications with customers to accommodate the use of

electronic communications by broker-dealers. Because electronic

delivery systems allow broker-dealers and their associated persons

to freely contact the general public, as well as their clients,

firms should maintain effective supervision and records of

associated persons' communications to avoid potential sales practice

problems. The Commission believes, however, that the SROs' rules

concerning the supervisory requirements for electronic

communications should be based on the content and audience of the

message, and not merely the electronic form of the communication.

For example, the SROs should consider whether electronic mail

communications, that, as a practical matter, replace or substitute

for telephone conversations, in many cases would not require advance

authorization or prior supervisory review.

The Commission also recognizes that broker-dealers are concerned

about the costs of maintaining electronic communications as records

on a long term basis, and it intends to discuss these concerns

further with the securities industry.

\6\ Article 8 of the UCC was revised substantially in 1994, and

the revisions were endorsed by both the American Law Institute and

the National Conference of Commissioners on Uniform State Laws. This

revised version has been adopted by 13 states. Under Revised Article

8 Section 8-102(6), parties to a transaction may ``transmit

information by any mechanism agreed upon by the persons transmitting

and receiving the information.'' Revised Article 8 eliminates the

current Section 8-319 requirement for a signed writing evidencing

the terms of a securities transaction.

In states that have not yet codified the 1994 amendments, a

confirmation bearing the broker-dealer's letterhead or some other

identifying marking, generally, fulfills that requirement. See e.g.,

Kohlmeyer and Co. v. Bowen, 192 S.E.2d 400, 126 Ga. App. 700 (Ga.

Ct. App. 1972); See also Bains v. Piper, Jaffray & Hopwood, 497

N.W.2d 263 (Minn. Ct. App. 1993) (computer generated confirmation

held to satisfy the UCC requirement for a writing).

\7\ See, e.g., Treas. Reg. Secs. 404.4(e) and 403.5(d) (rules

regarding hold in custody repurchase agreements applicable to

government securities brokers and dealers that are financial

institutions).

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Finally, this interpretation does not address the existing paper

filing requirements with the Commission,\8\ other regulatory

authorities,\9\ and other third parties.\10\

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\8\ For example, this interpretation does not apply to any

requirements to file information with the Commission in connection

with registering under sections 15, 15A, 15B, or 15C of the Exchange

Act as a broker-dealer, national securities association, municipal

securities dealer, or government securities broker-dealer. Broker-

dealers currently register with the Commission, the SROs, and the

states through the Central Registration Depository (``CRD'') system

operated by the NASD. A redesign of the CRD system will allow

broker-dealers to file uniform registration forms electronically. In

connection with the CRD redesign the Commission intends to adopt

amendments to Form BD, the uniform application for broker-dealer

registration under the Exchange Act. See Exchange Act Release No.

35224 (Jan. 12, 1995), 60 FR 4040 (Jan. 19, 1995) (proposing

amendments to Form BD).

Because, at the present time, the Commission does not have the

technological capacity to receive electronic transmissions of

information from broker-dealers, transfer agents, or investment

advisers, this interpretation also does not apply to other

requirements to file information with the Commission under the

Exchange and Advisers Acts. See, e.g., Exchange Act Rule 9b-1, 17

CFR 240.9b-1 (options markets' obligation to file with the

Commission any revisions to an options disclosure document);

Advisers Act Form ADV, 17 CFR 279.1 (application for registration of

investment advisers). The Commission, nevertheless, recognizes the

desirability of electronic filing and is examining the feasibility

of establishing systems capable of receiving information

electronically.

\9\ For example, the notice requirements to the National

Association of Securities Dealers, Inc. under Exchange Act Rule 10b-

17, also are not within the scope of this interpretation. 17 CFR

240.10b-17.

\10\ For example, Rule 15a-6 requires U.S. registered broker-

dealers, under certain circumstances, to obtain certain foreign

persons' consent to service of process. 17 CFR 240.15a-

6(a)(3)(iii)(D). The Commission has never taken a position as to the

specific means by which the U.S. broker-dealer may meet this

obligation, but believes that a consent to service of process may be

obtained through the use of a facsimile.

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II. Use of Electronic Media

In the October Interpretive Release, the Commission noted that the

electronic distribution of information provides numerous benefits and

that the use of this type of medium is growing among all participants

in the securities industry. The Commission concluded that issuers,

third parties (such as persons making tender offers or soliciting

proxies), and persons acting on behalf of such third parties may use

electronic media, in accordance with the guidance provided in the

October Interpretive Release, to deliver information. In addition, the

Commission believes that broker-dealers, transfer agents, and

investment advisers may satisfy their delivery obligations under the

Exchange Act and the Advisers Act by using electronic media as an

alternative to paper-based media.11

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\11\ The exact nature of the broker-dealer's, transfer agent's,

and investment adviser's delivery obligations is defined broadly and

includes such terms as ``give,'' ``furnish,'' ``send,'' and

``deliver.'' The Commission believes that, in general, these terms

are sufficiently broad to accommodate the contemplated electronic

transmission of documents by or on behalf of the broker-dealer,

transfer agent, or investment adviser and, when called for, from a

customer to a broker-dealer, transfer agent, or investment adviser.

But see infra notes 12 and 50.

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This interpretation is intended to provide broker-dealers, transfer

agents, and investment advisers with guidance in using electronic media

to satisfy delivery requirements under the federal securities laws.

This release generally covers those requirements that obligate broker-

dealers to deliver information to customers, obligate transfer agents

to deliver information upon written request, and obligate investment

advisers to deliver information to their clients or prospective

clients. Broker-dealers and investment advisers also may rely on this

interpretation in obtaining customers' and clients' consents as

required under certain provisions of the Exchange and Advisers Acts and

the rules

[[Page 24646]]

thereunder.12 A discussion of the information delivery

requirements covered by this interpretation is provided in section III

of this release (``Covered Delivery Requirements''). Unless the

Commission indicates otherwise, this interpretive release also is

intended to apply to all rules promulgated under the Exchange and

Advisers Acts, including rules promulgated subsequent to the issuance

of this release, requiring broker-dealers or investment advisers to

deliver information to customers or clients, and to rules requiring

transfer agents to deliver information in response to written requests.

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\12\ In connection with transactions in penny stocks, however,

the Commission believes that in order to fulfill the purposes of the

Securities Enforcement Remedies and Penny Stock Reform Act of 1990,

broker-dealers should continue to have customers manually sign and

return in paper form any documents that require a customer's

signature or written agreement. See infra note 50.

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A. General

This discussion is intended to complement the discussion in the

October Interpretive Release and to provide general guidance concerning

issues under the Exchange and Advisers Acts. The Commission believes

that broker-dealers, transfer agents, and investment advisers should be

able to satisfy their obligations under the federal securities laws to

deliver information required under the Covered Delivery Requirements by

electronic distribution. The framework set forth in the October

Interpretive Release is applicable to such electronic distribution.

In the October Interpretive Release, the Commission stated that it

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 to the

intended recipients of substantially equivalent information as such

recipients would have if the required information were delivered to

them in paper form.13 The Commission is not specifying the

electronic medium or source that broker-dealers, transfer agents, and

investment advisers may use.

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\13\ October Interpretive Release, supra note 1, at 53460. See

also supra example 7.

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Like paper documents, electronically delivered documents must be

prepared and delivered in a manner consistent with the federal

securities laws. Regardless of whether information is delivered in

paper form or by electronic means, it should convey all material and

required information. If a paper document is required to present

information in a certain order, for instance, then the information

delivered electronically should be in substantially the same

order.14

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\14\ For a discussion of how requirements to present information

in a certain order may be applied to documents containing

hyperlinks, see example 51 in the October Interpretive Release. Id.

53466.

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Moreover, regardless of whether information is delivered in paper

or electronic form, broker-dealers and investment advisers must

reasonably supervise firm personnel with a view to preventing

violations.15 Thus, broker-dealers and investment advisers should

consider the need for systems and procedures to deter or detect

misconduct by firm personnel in connection with the delivery of

information, whether by electronic or paper means.16

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\15\ See Exchange Act Sec. 15(b)(4)(E); Advisers Act

Sec. 203(e)(5). See also NASD Rules of Fair Practice Sec. 27; NYSE

Rule 342.

\16\ See, e.g., In re: Bryant, Securities Exchange Act Release

No. 32357 (May 24, 1993), (Commission upheld a finding of the

National Association of Securities Dealers, Inc. that, among other

things, the failure to develop procedures to supervise a registered

representative, who sent a false confirmation statement on behalf of

the broker-dealer, and to enforce existing procedures constituted a

failure to supervise on the part of the president of the firm).

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The Commission believes that, as a matter of policy, a person who

has a right to receive a document under the federal securities laws and

chooses to receive it electronically, should be provided with the

information in paper form whenever specifically requesting

paper.17

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\17\ For example if a person revokes consent to receiving

information electronically, even following delivery of the

information, a paper copy should be delivered upon request.

Revocation, however, is not a prerequisite to requesting a paper

copy.

The Commission understands that it can be very costly for

broker-dealers to maintain records for long periods of time. This is

particularly true with respect to information that is specific to a

customer's account or to a transaction, such as the type of

information defined below as Personal Financial Information. See

infra section II.B. For this reason, the Commission has limited the

time period that broker-dealers must preserve records required to be

made under Exchange Act Rules 17a-3. 17 CFR 240.17a-3. Specifically,

Exchange Act Rule 17a-4 requires broker-dealers to preserve records

for a period of six years (3 years in the case of certain types of

information), the first two years in an easily accessible place. 17

CFR 240.17a-4. For these same reasons, the Commission believes it is

reasonable to expect that broker-dealers would provide customers

with information in paper form upon request for a period of two

years. Transfer agents and investment advisers are subject to

similar recordkeeping requirements. 17 CFR 250.17Ad-6 and 240.17Ad-

7; 17 CFR 275.204-2.

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In the October Interpretive Release, the Commission discussed

issues of notice and access that should be considered in determining

whether the legal requirements pertaining to delivery or transmission

of documents have been satisfied,18 and stated that persons using

electronic delivery of information should have reason to believe that

any electronic means so selected will result in the satisfaction of the

delivery requirements.19 The Commission believes that broker-

dealers, transfer agents, and investment advisers should apply the same

considerations in using electronic media to satisfy their delivery

obligations under the Covered Delivery Requirements.

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\18\ October Interpretive Release, supra note 1, at 53460-61.

\19\ Id. at 53461.

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1. Notice

Broker-dealers, transfer agents, and investment advisers providing

information electronically should consider the extent to which

electronic communication provides timely and adequate notice that such

information is available electronically.20 When information is

delivered on paper through the postal mail, recipients most likely will

be made aware that they have received information that they may wish to

review and, therefore, separate notice is not necessary. Information

transmitted through electronic media, however, may not always provide a

similar likelihood of notice that information has been sent that the

recipient may wish to review.21 Broker-dealers, transfer agents,

and investment advisers, therefore, should consider whether it is

necessary to supplement the electronic communication with another

communication that would provide notice similar to that provided by

delivery in paper through the postal mail.

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\20\ See id. at 53460. See also infra section II.B.2. regarding

additional requirements when broker-dealers, transfer agents, and

investment advisers send certain types of information (defined as

Personal Financial Information) to customers.

\21\ For example, if information is provided by physically

delivered material (such as a computer diskette or CD-ROM) or by

electronic mail, that communication itself generally should be

sufficient notice. If information is made available electronically

through a passive delivery system, such as an Internet Web Site,

however, separate notice would be necessary to satisfy the delivery

requirements unless the broker-dealer, transfer agent, or investment

adviser can otherwise evidence that delivery to the customer or

client has been satisfied.

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2. Access

The Commission believes that customers, securities holders, and

clients who are provided information through electronic delivery from

broker-dealers, transfer agents, and investment advisers should have

access to that information comparable to that which would be provided

if the information

[[Page 24647]]

were delivered in paper form. Thus, the use of a particular medium

should not be so burdensome that intended recipients cannot effectively

access the information provided. Also, persons to whom information is

sent electronically should have an opportunity to retain the

information through the selected medium or have ongoing access

equivalent to personal retention.22

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\22\ For example, the intended recipient's ability to download

or print information delivered electronically would enable a

recipient to retain a permanent record. See October Interpretive

Release, supra note 1, at 53460.

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3. Evidence to Show Delivery

Providing information through postal mail provides reasonable

assurance that the delivery requirements of the federal securities laws

have been satisfied. The Commission believes that broker-dealers,

transfer agents, and investment advisers similarly should have reason

to believe that electronically delivered information will result in the

satisfaction of the delivery requirements under the federal securities

laws. Thus, whether using paper or electronic media, broker-dealers,

transfer agents, and investment advisers should consider the need to

establish procedures to ensure that applicable delivery obligations are

met.

Broker-dealers, transfer agents, and investment advisers may be

able to evidence satisfaction of delivery obligations, for example, by:

(1) obtaining the intended recipient's informed consent 23 to

delivery through a specified electronic medium, and ensuring that the

recipient has appropriate notice and access, as discussed above; (2)

obtaining evidence that the intended recipient actually received the

information, such as by an electronic mail return-receipt or by

confirmation that the information was accessed, downloaded, or printed;

24 or (3) disseminating information through certain facsimile

methods. In order to ensure that information is delivered as intended,

broker-dealers, transfer agents, and investment advisers delivering

information using either electronic or paper-media should take

reasonable precautions to ensure the integrity and security of that

information.25

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\23\ See id. at 53460. If a consent is used, the consent should

be an informed consent. An informed consent should specify the

electronic medium or source through which the information will be

delivered and the period during which the consent will be effective,

and should describe the information that will be delivered using

such means. The broker-dealer, transfer agent, or investment adviser

also should inform the customer that there may be potential costs

associated with electronic delivery, such as on-line charges. Except

where a manual signature is required under the penny stock rules,

see infra note 50, broker-dealers may obtain consents either

manually or electronically. In most cases in which a request for

information is made through an electronic medium, consent to receive

the requested information by means of electronic delivery may be

presumed.

In addition, if the broker-dealer, transfer agent, or investment

adviser is relying on the consent to ensure effective delivery and

the intended recipient revokes the consent, future documents should

be delivered in paper.

\24\ For example, depending on the circumstances and the

procedures used, customers' and clients' written consent or

acknowledgement, as required under certain Exchange and Advisers

Acts rules and discussed infra notes 28-29 and accompanying text,

may serve as sufficient evidence to show delivery.

\25\ October Interpretive Release, supra note 1, at 53460, n.22.

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B. Personal Financial Information

Certain information that broker-dealers, transfer agents, and

investment advisers deliver is specific to a particular person's

personal financial matters (``Personal Financial Information''). For

example, the information reported to customers under Exchange Act Rule

10b-10 relates to specific securities transactions and includes the

identity and number of shares bought or sold and the net dollar price

for the shares. Under Exchange Act Rule 10b-16, a broker-dealer that

imposes finance charges on a customer's account during a quarterly

period must deliver a quarterly statement disclosing, among other

things, the account's beginning and closing balances, debits and

credits entered during the period, the interest charged, and the rate

or rates of interest. Similarly, under Advisers Act Rule 206(3)-2,

investment advisers engaging in agency cross transactions involving

clients are required to send the clients disclosure about those

transactions.26

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\26\ 17 CFR 275.206(3)-2(a)(2) (written confirmation of each

transaction ``at or before the completion of each such

transaction''); 17 CFR 275.206(3)-2(a)(3) (annual written disclosure

statement identifying transactions). In addition, investment

advisers having custody of client assets are required to send an

itemized statement to each client at least quarterly showing assets

in custody of the adviser. 17 CFR 275.206(4)-2(a)(4).

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1. Confidentiality and Security

Broker-dealers, transfer agents, and investment advisers sending

Personal Financial Information should take reasonable precautions to

ensure the integrity, confidentiality, and security of that

information, regardless of whether it is delivered through electronic

means or in paper form. The Commission believes that broker-dealers,

transfer agents, and investment advisers transmitting Personal

Financial Information electronically must tailor those precautions to

the medium used in order to ensure that the information is reasonably

secure from tampering or alteration.

2. Consent

Because of the need to maintain the confidentiality and security of

Personal Financial Information, it is important that the intended

recipient is willing to accept the delivery of such information through

electronic media and has actual notice that the Personal Financial

Information will be delivered electronically. Therefore, in order to

ensure that Personal Financial Information can be delivered in a manner

that maintains the information's confidentiality, unless a broker-

dealer, transfer agent, or investment adviser is responding to a

request for information that is made through electronic media or the

person making the request specifies delivery through a particular

electronic medium, the broker-dealer, transfer agent, or investment

adviser should obtain the intended recipient's informed consent prior

to delivering Personal Financial Information electronically.27

This consent will ensure that the intended recipient is willing to

accept the delivery of Personal Financial Information through

electronic media and has actual notice that the Personal Financial

Information will be delivered electronically. The Commission believes

that such consent by the customer or client to the delivery of Personal

Financial Information may be made either by a manual signature or by

electronic means.

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\27\ See discussion supra note 23 regarding informed consent.

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C. Communications From Broker-Dealers' Customers and Investment

Advisers' Clients

In addition to requirements to deliver information, the Exchange

Act and the Advisers Act provide for broker-dealers and investment

advisers to ``receive'' or ``obtain'' responses from their customers or

clients. For example, Exchange Act Rules 8c-1 and 15c2-1 require, under

certain circumstances, broker-dealers to obtain a customer's written

consent in order to hypothecate securities. Similarly, under the

Advisers Act, certain provisions call for clients to consent to a

transaction or acknowledge receipt of certain disclosures.28 The

Commission generally views an electronic communication from a customer

to a broker-dealer or from a client to an investment adviser as

[[Page 24648]]

satisfying the requirements for such written consent or

acknowledgement.29

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\28\ See, e.g. Advisers Act Secs. 205(a)(2) and 206(3); 17 CFR

275.206(3)-2(a)(1); 17 CFR 275.206(4)-3(a)(2)(iii).

\29\ Of course, broker-dealers and investment advisers should be

cognizant of their responsibilities to prevent, and the potential

liability associated with, unauthorized transactions. See, e.g.,

supra note 16. In this regard, the Commission believes that broker-

dealers and investment advisers should have reasonable assurance

that the response received from a customer or client is authentic.

In addition, for policy reason discussed infra note 50, the

Commission will continue to require broker-dealers to obtain the

manual signature of customers on certain disclosure documents

required under Exchange Act Rules 15g-2 and 15g-9.

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D. Electronic Transmission of Non-Required Disclosure

The guidance provided above is intended to permit broker-dealers,

transfer agents, and investment advisers to comply with their delivery

obligations under the federal securities laws when using electronic

media. This interpretation does not apply to the electronic delivery of

non-required information that in some cases is being provided

voluntarily to customers, securities holders, and clients 30 in

that it is not necessary (although it is, of course, permitted) to

conform the electronic delivery of such information to the guidance in

this release. Nevertheless, the Commission urges broker-dealers,

transfer agents, and investment advisers to take into consideration the

need to implement security measures when using electronic media to

provide personal financial information.

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\30\ See, e.g., Kimberly Weisul, Calvert Becomes First Fund to

Offer Info On-Line; Mutual Fund Company Dodges the Security Issue,

Investment Dealers' Digest, Jan. 22, 1996, at 9; Jon Birger,

Prudential Web Site to Let Clients Track Their Accounts Daily, Bond

Buyer, Oct. 18, 1995, at 10.

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The staff also has received inquiries about the permissibility of

using various electronic media to disseminate advertisements for an

investment adviser's services or other information that is not subject

to a delivery requirement. Such communications are permissible, subject

to the same requirements and restrictions that apply to such

communications in paper. For example, electronically disseminated

advertisements are subject to the same prohibitions against misleading

disclosure as advertisements in paper.31 Materials concerning an

adviser that are potentially available to ten or more persons through

an electronic system would be considered subject to the recordkeeping

requirements applicable to such communications.32 Similarly, if an

adviser uses a publicly available electronic medium such as a World

Wide Web site to provide information about its services, the adviser

would not qualify for the exemption from registration in section

203(b)(3) of the Advisers Act. That exemption is available only if,

among other things, an adviser does not hold itself out generally to

the public as an investment adviser.

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\31\ See 17 CFR 275.206(4)-1. Broker-dealers' advertisements and

sales literature are subject to NASD rules, which have recently been

amended specifically to include electronic communications. NASD,

Notice to Members 95-74 (Sept. 1995); NASD, Notice to Members 95-80

(Sept. 26, 1995).

\32\ 17 CFR 275.204-2(a)(11). Broker-dealers also are subject to

recordkeeping requirements that would be applicable to all

electronic communications received and sent by the firm relating to

its business. 17 CFR 17a-4(a)(4).

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III. Covered Delivery Requirements

For clarity, below is a list of current rules under the Exchange

Act and requirements under the Advisers Act to which broker-dealers,

transfer agents, and investment advisers may apply the guidance

provided in this interpretation. The Commission believes that the list

sets forth all of the rules that require or permit communications

between broker-dealers, transfer agents, investment advisers and

customers, securities holders, and clients under the Exchange and

Advisers Acts.33 The interpretation in this release is intended to

cover all optional and required communications under the Exchange and

Advisers Acts between broker-dealers, transfer agents, and investment

advisers, and customers, securities holders, and clients.34

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\33\ The summary provided of the delivery obligations under the

Covered Delivery Requirements is intended for ease of reference

only. It is not intended to be a statement of all the requirements

under the rules and provisions listed, and has no legal force or

effect. Reference should be made to the full text of the rules,

which is published in the Code of Federal Regulations, as well as to

relevant releases, interpretations, and no-action letters, and to

the full text of the Exchange and Advisers Acts, 15 U.S.C. Secs. 77

and 78, et seq.

\34\ But see supra notes 4-10 and accompanying text. See also

infra notes 35 and 50.

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A. Exchange Act

Subject to the guidelines in this release, broker-dealers and

transfer agents may fulfill their requirements to deliver information

to customers and securities holders under the following Exchange Act

rules: 35

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\35\ This release does not address the prospectus delivery

requirements under Exchange Act Rule 15c2-8. 17 CFR 240.15c2-8.

Broker-dealer requirements to deliver a preliminary prospectus in

connection with the issuance of securities by an issuer that has not

previously been required to file reports pursuant to Exchange Act

Section 13(a), 15 U.S.C. 78m(a), or 15(d), 15 U.S.C. 78o(d), were

addressed in the October Interpretive Release. See October

Interpretive Release, supra note 1, at 53462, n. 31.

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Rule 8c-1, which requires broker-dealers to obtain

customers' written consent in order to hypothecate securities under

circumstances that would permit the commingling of customers'

securities and to give written notice to a pledgee that, among other

things, a security pledged is carried for the account of a

customer.36

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\36\ 17 CFR 240.8c-1(a)(1) and (f).

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Rule 9b-1, which, among other things, requires a broker-

dealer to furnish to each customer, and keep current, an options

disclosure document, prior to accepting an order to purchase or sell an

option on behalf of that customer.37

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\37\ 17 CFR 240.9b-1(d).

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Rule 10b-10, which requires a broker-dealer to give or

send confirmation information to customers.38 In addition, broker-

dealers must furnish to customers upon written request information such

as the factors that affect the yield calculation related to asset-based

securities.39

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\38\ 17 CFR 240.10b-10. This release, therefore, resolves the

issues in the October Interpretive Release with respect to Exchange

Act Rule 10b-10, which requires broker-dealers to send confirmations

at or before completion of the transaction by permitting electronic

delivery of the confirmation. 17 CFR 240.10b-10. See October

Interpretive Release, supra note 1, at 53459, n.12.

In a release adopting certain amendments to Rule 10b-10, the

Commission recognized the use of a facsimile machine to send

customer confirmation statements. At that time, however, the

Commission believed that the use of other electronic means to send

confirmations should be viewed on a case-by-case basis. See Exchange

Act Release No. 34962 (Nov. 10, 1994); 59 FR 59612 (Nov. 17, 1994).

This interpretation supersedes the view expressed in the 1994

release.

Broker-dealers are reminded that, when a prospectus is required

to be delivered, it should be delivered prior to, or concurrent

with, delivery of the confirmation. Thus, if a confirmation is sent

by facsimile, the prospectus also should be sent by facsimile or

equally prompt means.

\39\ 17 CFR 240.10b-10(a)(7).

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Rule 10b-16, which requires both initial and periodic

written disclosure of the credit terms of margin loans.40

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\40\ 17 CFR 240.10b-16.

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Rule 11Ac1-3, which requires a broker-dealer to deliver to

each customer, upon opening a new account and on an annual basis

thereafter, an account statement disclosing the broker-dealer's

policies relating to payment for order flow and its order routing

policies.41

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\41\ 17 CFR 240.11Ac1-3.

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Rule 15c1-5, which requires, under specified

circumstances, written disclosure of control if a broker-dealer or

municipal securities dealer is controlled by, controlling, or under

common control with the issuer of a security.42

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\42\ 17 CFR 240.15c1-5.

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Rule 15c1-6, which requires a broker-dealer or municipal

securities dealer receiving advisory fees to

[[Page 24649]]

disclose any participation or financial interest in the distribution of

a security at or before the completion of a transaction in such

security for the account of a customer.43

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\43\ 17 CFR 240.15c1-6.

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Rule 15c2-1, which requires broker-dealers to obtain

customers' written consent in order to hypothecate securities under

circumstances that would permit the commingling of customers'

securities.44

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\44\ 17 CFR 240.15c2-1(a)(1).

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Rule 15c2-5, which requires a written statement making

disclosures prior to effecting transactions in special insurance

premium funding accounts that would involve an extension or arrangement

of credit, as well as retaining for its files, a written statement

setting forth the basis for making a determination that the arrangement

is suitable for the customer.45

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\45\ 17 CFR 240.15c2-5.

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Rule 15c2-11, with regard to the requirement that broker-

dealers make certain information enumerated in the rule reasonably

available upon request.46

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\46\ 17 CFR 240.15c2-11(a)(4) and (a)(5).

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Rule 15c2-12, with regard to the requirements that

municipal securities underwriters provide, upon request, a preliminary

official statement (if one exists) and a final official

statement.47

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\47\ 17 CFR 240.15c2-12.

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Rule 15c3-2, which requires a broker-dealer to give or

send to its customers a written notification of a free credit balance,

that the broker-dealer may use that free credit balance in its business

operations, and that the funds are payable upon demand of the

customer.48

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\48\ 17 CFR 240.15c3-2.

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Rule 15c3-3, which requires that broker-dealers obtain

repurchase agreements in writing and confirm in writing the specific

securities that are the subject of hold in custody repurchase

agreements.49

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\49\ 17 CFR 240.15c3-3(b)(4).

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Rules 15g-3 through 15g-8, which require a broker-dealer,

among other things, to disclose to its customers, both prior to

effecting a transaction in a penny stock and on the written

confirmation, bid and ask quotations and broker-dealer and associated

person compensation.50

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\50\ 17 CFR 240.15g-3 through 15g-8.

The Commission believes that the requirements under Exchange Act

Rules 15g-2 and 15g-9, which require broker-dealers to obtain from a

customer prior to effecting transactions in penny stocks (1) a

manually signed acknowledgement of the receipt of a risk disclosure

document, (2) a written agreement to transactions involving penny

stocks, and (3) a manually signed and dated copy of a written

suitability statement, should not be met by means of electronic

media. In adopting these provisions pursuant to the Securities

Enforcement Remedies and Penny Stock Reform Act of 1990, the

Commission intended to provide customers with an opportunity to make

an informed, deliberate decision without the high pressure sales

practices that sometimes are characteristic of transactions in these

securities. For similar reasons, a facsimile copy of a customer's

signature has not been sufficient to satisfy the requirements under

Rules 15g-2 and 15g-9 that certain documents be manually signed and

dated. See Exchange Act Release No. 32576 (July 2, 1993); NASD

Notice to Members 90-65 (Oct. 1990); NASD Notice to Members 90-18

(Mar. 1990).

While broker-dealers may not meet the signature requirement

under Rule 15g-9 by electronic means, the Commission believes that,

consistent with the guidance set forth in this interpretation, they

may meet their delivery obligations to their customers under this

rule by electronic means. The ``risk disclosure document'' that

broker-dealers are required to furnish to their customers under Rule

15g-2 is subject to strict formatting and typefacing restrictions.

In order to comply with the requirements set forth in the

instructions to Schedule 15G, a risk disclosure document delivered

electronically, when printed, would have to result in a document

that meets the requirements and contains the exact text of Schedule

15G.

When the Commission next reviews the penny stock rules, it may

be willing to consider a ``cooling-off'' period as an alternative to

the requirement of a manual signature under Rules 15g-2 and 15g-9.

The Commission requests comment on this approach.

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Rule 17a-5, which requires a broker-dealer to send to its

customers audited and unaudited financial statements.\51\

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\51\ 17 CFR 240.17a-5(c).

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Rule 17Ad-5, which requires a transfer agent to respond

within certain time frames to written requests for the status of items

presented for transfer, for acknowledgement of transfer instructions,

for confirmation of a transfer agent's possession of a certificate, for

a transcript of a person's account, or for dividend and interest

payments.\52\

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\52\ 17 CFR 17Ad-5. Under certain circumstances, transfer agents

currently are permitted to respond to requests by telephone.

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B. Advisers Act

Section 205(a)(2) of the Advisers Act, which requires an

investment adviser to obtain its client's consent to the assignment of

an advisory contract.\53\

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\53\ 15 U.S.C. 80b-5(a)(2).

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Section 205(a)(3) of the Advisers Act, which requires an

investment adviser to notify its clients, if the adviser is organized

as a partnership and there is a change in members of partnership.\54\

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\54\ 15 U.S.C. 80b-5(a)(3).

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Section 206(3) of the Advisers Act, which prohibits

certain principal and agency transactions with a client without prior

written disclosure about the transaction and consent of the client.\55\

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\55\ 15 U.S.C. 80b-6(3).

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Rule 204-3, which requires investment advisers to deliver

a written disclosure statement, or ``brochure,'' to clients at least 48

hours before entering into an advisory contract, unless the client has

the right to terminate the contract without penalty within five

business days.\56\ In addition, investment advisers are required,

except in certain cases, to make available ``without charge'' updates

to its brochure.\57\

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\56\ 17 CFR 275.204-3(b). To the extent an adviser relies on 48-

hour advance delivery rather than the five-day cancellation period,

the 48-hour period would be measured from the time at which notice

is given to the client that the statement is available through a

specified electronic medium or source. Investment advisers should

have reason to believe that the nature of the system or any

limitations on the client's access to that system will not result in

any material delay in the client's access to the information

following receipt of the notice.

\57\ 17 CFR 275.204-3(c). If a client has elected to receive the

disclosure statement electronically, and neither the adviser nor any

system used by the adviser to disseminate updates electronically

imposes a charge upon the client specifically for the receipt of

this information, the Commission would consider this requirement

satisfied, even though a system selected by a client to gain access

to the adviser's system may impose charges for access, printing or

downloading. Alternatively, the Commission would consider the

requirement satisfied so long as a paper version of the update is

available without charge, notwithstanding any charges that may be

imposed upon a client for access, printing or downloading by the

system used by an adviser to disseminate updates electronically.

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Rule 205-3(d), which requires disclosure regarding

advisory arrangements involving performance fees.\58\

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\58\ 17 CFR 275.205-3(d).

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Rule 206(3)-2, which permits agency cross transactions,

provided that the investment adviser provides general written

disclosure about its role in the transactions, receives from clients

consent to agency cross transactions, and sends both written

confirmation of each transaction and an annual written disclosure

statement.\59\

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\59\ 17 CFR 275.206(3)-2.

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Rule 206(4)-2, which requires certain disclosure relating

to adviser custody of client assets.\60\

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\60\ 17 CFR 275.206(4)-2.

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Rule 206(4)-3, which requires certain disclosures to be

made by solicitors who receive cash solicitation fees from advisers and

a signed and dated acknowledgement from clients of the receipt of the

investment advisers and solicitors written disclosure statements.\61\

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\61\ 17 CFR 275.206(4)-3. Cf. Investment Company Act Release No.

21260 at n. 38 (July 27, 1995), 60 FR 39574 (contemplating that

notification required under proposed Investment Company Act Rule 3a-

4 could be provided electronically by investment advisers and other

sponsors of investment advisory programs).

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[[Page 24650]]

IV. Additional Securities Act, Exchange Act, and Investment Company Act

Examples

The October Interpretive Release included a series of examples

illustrating the general concepts set forth earlier in that release in

order to provide guidance in applying those concepts to specific facts

and circumstances. The Commission is publishing here the following,

additional examples to provide further guidance and illustration. These

examples are based on questions that have been raised with the staff by

industry representatives since the publication of the October

Interpretive Release. Any party (whether or not a registered investment

company) may look to these examples for guidance.

(1) Company XYZ places a prospectus for any securities offering on

its electronic mail system. Company XYZ also uses its electronic mail

system to disseminate documents required under the Exchange Act.

Employees use the company's electronic mail in the ordinary course of

performing their duties as employees and ordinarily are expected to

log-on to electronic mail routinely to receive mail and communications.

Those employees who do not log-on have alternative means of receiving

electronic mail messages, such as having them sent to secretaries or

co-workers who then deliver them to the employee. The electronic mail

either includes the actual document or announces the availability of

the document and provides information as to how to access the document

through the local area network. The electronic mail also prominently

states that a paper version of the document is available upon request.

This would satisfy delivery obligations with respect to employees

who use the company's electronic mail system in the course of

performing their duties or who are expected to have alternative means

made available to receive electronic mail messages.

(2) Company XYZ places a notice announcing its unregistered

Dividend Reinvestment Plan \62\ on its Internet Web site under a menu

heading ``Dividend Reinvestment Plan.'' The announcement also contains

the phone number of the Company's agent (which is independent from the

Company) from whom additional information regarding the operation of

the Dividend Reinvestment Plan can be obtained. Additionally, the

Company's Internet Web site contains a hypertext link to the

independent agent's Internet Web site where a brochure describing the

operation of the Dividend Reinvestment Plan and an enrollment card can

be obtained.

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\62\ A company need not register its dividend reinvestment plan

under the Securities Act where its involvement in the plan is

limited to administrative or ministerial functions. For additional

information, including a listing of permitted functions, see

Securities Act Release No. 4790 (July 13, 1965), 30 FR 9059 (July

20, 1965); Securities Act Release No. 5515 (July 22, 1974), 39 FR

28520 (August 8, 1974); Securities Act Release No. 6188 (February 1,

1980), 45 FR 8960 (February 11, 1980).

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This would be permissible, so long as the information on the

Company's Internet Web site is limited to the announcement of the

unregistered Dividend Reinvestment Plan and the name and address of the

independent agent from whom additional information can be obtained.

(This would be analogous to the communications that an issuer of an

unregistered plan could make in paper format.) As with communications

in paper format, the Company may not use its Internet Web site to

advertise the Dividend Reinvestment Plan or its benefits. Further, the

use of a hypertext link to the home page of the independent agent would

be permitted; however, the Company could not provide a hypertext link

directly to the Dividend Reinvestment Plan materials.

(3) Brokerage firm ABC, a recordholder of Company XYZ's common

stock, received consents from beneficial holders of Company XYZ's

common stock for electronic delivery of Company XYZ's annual report and

proxy materials and for electronic processing of voting instructions.

These customers are provided with the Internet Web site address where

Company XYZ's annual report and proxy materials are located and the

Internet Web site address where they can provide their voting

instructions electronically to the brokerage firm.

The electronic processing of voting instructions from beneficial

holders and the electronic voting of proxies would be consistent with

the proxy rules. Issuers and others are reminded to consider any

applicable state laws or self-regulatory organization rules.

(4) A fund makes supplemental sales literature and its prospectus

available through a commercial on-line service. Under section 5(b) of

the Securities Act, sales literature, whether in paper or electronic

form is required to be preceded or accompanied by a final prospectus

meeting the requirements of section 10(a) of the Securities Act. By

contrast, an advertisement satisfying the requirements of Securities

Act Rule 134 or 482 need not be preceded or accompanied by a

prospectus. Users could click on a box in the supplemental sales

literature to have the prospectus downloaded or to request that a

prospectus be mailed. While the system permits the sales literature to

be viewed on-line, it does not allow users to view the prospectus.

Unlike the system in example 36 in the October Interpretive Release,

this system would not require that a user have downloaded or printed

the prospectus before viewing the supplemental sales literature. Users

accessing the supplemental sales literature would give specific consent

to electronic delivery of the prospectus.

This would not satisfy the prospectus delivery requirement because

there would not be sufficient access to the prospectus. Because the

system does not give users the opportunity to view the prospectus, it

would lack the sort of reasonably comparable access to the prospectus

and the sales literature present in examples 14, 15, and 35 in the

October Interpretive Release. The opportunity to request that a

prospectus be mailed or downloaded would not, under current technology,

be considered to give investors sufficient access to the prospectus.

Instead, it would be analogous to giving investors sales literature in

paper with a toll-free telephone number for requesting the prospectus:

under those circumstances the prospectus would be received later and

would not be considered to have preceded or accompanied the sales

literature.\63\

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\63\ As technology develops, some users may have the capacity to

download and view a prospectus in no more time than it takes to jump

via hyperlink from the sales literature to the prospectus. Under

those circumstances, the capacity to download would be considered to

give those users reasonably comparable access to the prospectus that

would provide sufficient access.

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(5) A fund places its prospectus on its site on the World Wide Web

or some other electronic system. Shareholders provide a written,

revocable consent to receive prospectuses electronically through the

system. The consent informs shareholders that the current version of

each prospectus will be available continuously on the system and that

the fund will use the quarterly account statement or quarterly

newsletter as the means of notification of prospectus amendments. It

also states that another means of notification may be used, but only

after shareholders have been notified of the change by the then current

means of notification.\64\ The fund replaces its prospectus with an

annual amendment updating the

[[Page 24651]]

fund's financial information and making other changes.\65\ The fund has

provided notification that the prospectus will be updated by including

notification in the preceding account statement or shareholder

newsletter; the notification provides the approximate date on which the

amendment will be available. A subsequent amendment to the fund's

prospectus reflects the addition of a redemption fee. Notification of

the prospectus amendment has been included in the preceding statement

or newsletter.\66\

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\64\ A change in means of notification under such circumstances

would also be effective in the case of notification of the

availability of shareholder reports discussed in example 46 in the

October Interpretive Release. October Interpretive Release, supra

note 1.

\65\ Under section 10(a)(3) of the Securities Act, a fund that

continuously offers its shares would have to amend its prospectus no

less frequently than every 16 months in order to include updated

financial statements.

\66\ With unscheduled material prospectus amendments for which

such advance notice would not be feasible, the fund would need to

use other forms of notification such as a postcard or e-mail

message. See October Interpretive Release, supra note 1, example 43.

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Just as the use of a newsletter or statement in example 46 in the

October Interpretive Release constituted sufficient notice for

effective delivery of the semi-annual reports required under the

Investment Company Act of 1940, the use of a newsletter or statement

here would constitute sufficient notice for effective delivery with

respect to the scheduled prospectus update.

(6) A fund's on-line prospectus has the same text as the paper

version, but the text appears in a different format. For example, text

that appears as a block in the margin of a page in the paper prospectus

appears in a box in the flow of the text in the electronic version. The

fund does not make a separate filing under Securities Act Rule 497 with

respect to the electronic version.

The mere difference in format without any difference in text would

not qualify the electronic version as a different ``form of

prospectus'' for which filing is required.

(7) An investment company produces both an electronic version (such

as a CD-ROM) and a paper version of its prospectus. Each version

contains all information required by, and otherwise complies with, the

applicable form and all other applicable provisions of the federal

securities laws. The electronic version contains a movie that does not

appear in the paper version. Each version of the prospectus indicates

that there may be other versions of the prospectus and, if the issuer

determines to make such other versions available, provides information

on how to obtain such other versions.\67\ The paper version does not

include a summary or transcript of the movie in the electronic version.

Both versions of the prospectus are filed with the Commission as part

of the company's registration statement, or separately pursuant to Rule

497.\68\

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\67\ The facts of this example should not be read as imposing

any obligation on the issuer to make such other versions of its

prospectus available to any person.

\68\ Alternatively, the company may 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. See

October Interpretive Release, supra note 1, example 13.

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The use of either version of the prospectus to satisfy delivery

requirements would be permissible.\69\ The issuer (or other party to

whom the law assigns the responsibility) remains responsible for

ensuring that each version satisfies applicable statutory

requirements.\70\

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\69\ Of course, the general principles concerning electronic

delivery, as described in the October Interpretive Release, supra

note 1, would apply.

\70\ See id. at 53460.

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V. Solicitation of Comments

Any interested person wishing to submit written comments relating

to the views expressed in this release are invited to do so by

submitting them in triplicate to Jonathan G. Katz, Secretary,

Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop

6-9, Washington, D.C. 20549. Comments also may be submitted

electronically at the following electronic mail address: rule-

[email protected]. All comment letters should refer to File Number S7-

13-96. This file number should be included on the subject line if

comments are submitted using electronic mail. Comment is requested not

only on the specific issues discussed in detail in the release, but on

any other issues that should be considered in connection with

facilitating the use of electronic media by broker-dealers, transfer

agents, and investment advisers. Comment is sought from both the point

of view of the sender and the intended recipient. The Commission

further requests comment on any competitive burdens that may result

from this interpretation. Comments must be received on or before July

1, 1996. Comments received will be available for public inspection and

copying in the Commission's public reading room, 450 Fifth Street,

N.W., Washington, D.C. 20549. Electronically submitted comment letters

will be posted on the Commission's Internet web site (http://

www.sec.gov).

List of Subjects

17 CFR Parts 231 and 241

Securities.

17 CFR Parts 271 and 276

Investment companies, Securities.

Amendment to the Code of Federal Regulations

The Commission is amending Title 17, Chapter II of the Code of

Federal Regulations in the manner set forth below:

PART 231--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES ACT OF

1933 AND GENERAL RULES AND REGULATIONS THEREUNDER

Part 231 is amended by adding Release No. 33-7288 and the release

date of May 9, 1996 to the list of interpretive releases.

PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES

EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

Part 241 is amended by adding Release No. 34-37182 and the release

date of May 9, 1996 to the list of interpretive releases.

PART 271--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT

COMPANY ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

Part 271 is amended by adding Release No. IC-21945 and the release

date of May 9, 1996 to the list of interpretive releases.

PART 276--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT

ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

Part 276 is amended by adding Release No. IA-1562 and the release

date of May 9, 1996 to the list of interpretive releases.

By the Commission.

Dated: May 9, 1996.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-12176 Filed 5-14-96; 8:45 am]

BILLING CODE 8010-01-P