SEC Releases Rules and Clarifications on Fund Electronic Communications

Washington, DC, July 28, 2000 - The Securities and Exchange Commission has issued a  release adopting an interim final rule that exempts—from the consumer consent provisions of the Electronic Signatures in Global and National Commerce Act ("E-SIGN")—prospectuses of registered investment companies used for the sole purpose of providing supplemental sales literature to prospective investors. The SEC’s release also clarifies its interpretation on mutual funds’ responsibilities for hyperlinks to third-party websites from their advertisements or sales literature.

The release notes that the SEC is interested in receiving comments on the interim final rule and will consider making any changes to it if deemed necessary. Comments are due within thirty days after publication in the Federal Register.

Interim Final Rule 160
As directed by the  E-SIGN legislation, the SEC adopted Rule 160 under the Securities Act of 1933, which, consistent with SEC interpretations of existing law, permits a mutual fund to provide its prospectus and supplemental sales literature on its website or by other electronic means without first obtaining investor consent to the electronic format of the prospectus. Rule 160 clarifies that after the effective date of the E-SIGN legislation, a fund may continue the practice of providing supplemental sales literature on its website or by other electronic means without first obtaining an investor’s consent to receive, in electronic form, the statutory prospectus required to precede or accompany the supplemental sales literature.

Clarification of Guidance on Responsibility for Hyperlinked Information
The SEC’s release clarifies its interpretation on mutual funds’ responsibility for hyperlinks to third-party websites from their advertisements or sales literature. The release refers to an   April rel  ease on the use of electronic media in which the staff expressed the view that when an issuer embeds a hyperlink to a website within a document required to be filed or delivered under the federal securities laws, the issuer should always be deemed to be adopting the hyperlinked information for purposes of the antifraud provisions of the federal securities laws. The Institute subsequently submitted a  comment letter on the SEC's April release.

In the current release, the staff announces that, effective immediately, this view does not extend to a mutual fund’s responsibility for hyperlinks to third-party websites from fund advertisements or sales literature. The release explains that despite funds’ filing obligations with respect to advertisements and sales literature, it does not follow that a fund should always be responsible for third-party information to which it establishes a hyperlink from an advertisement or sales literature, without regard to specific facts and circumstances.