IM Guidance Update

November 2013 | No. 2013-11

US Securities and Exchange Commission

 Division of Investment Management

SHAREHOLDER NOTICES OF THE SOURCES OF FUND DISTRIBUTIONS – 

ELECTRONIC DELIVERY

The staff has been asked whether management investment companies (funds) 

registered under the Investment Company Act of 1940 (1940 Act) that make certain 

types of distributions to their shareholders may electronically deliver to their shareholders the required “written statement” describing the sources of those distributions. 

Electronic media may be a more efficient, effective and timely means of delivering the 

required information to fund shareholders. The staff’s view is that funds may electronically deliver to their shareholders the required “written statement” describing the 

sources of their distributions. 

Background

Section 19(a) of the 1940 Act generally prohibits a fund from making a distribution 

from any source other than the fund’s net income, unless that payment is accompanied by a written statement that adequately discloses the source or sources of 

the payment.1 Rule 19a-1 under the 1940 Act specifies the information required to be 

disclosed in the written statement (Rule 19a-1 Notice).2 Rule 19a-1(a) also states that 

every written statement “shall be made on a separate paper.”

As innovations and advances in technology have facilitated the expanding use of 

electronic media, the Commission has periodically issued interpretive guidance on 

how registrants may use electronic media to deliver information to investors.3 This 

Commission guidance, however, has not focused specifically on Rule 19a-1, and the 

rule was last amended in 1973, before document delivery through electronic media 

was possible.

Electronic Delivery of Rule 19a-1 Notices

Notwithstanding the rule’s provision referencing “a separate paper,” the staff believes 

that electronic delivery of a Rule 19a-1 Notice, consistent with the Commission’s guidance, would satisfy the purposes and policies underlying Rule 19a-1.4 Moreover, electronic delivery may be a more efficient, effective and timely means of providing fund 

shareholders with the required information.5 The staff’s view reflects the framework 
IM GUIDANCE UPDATE 2

established by the Commission for satisfactory electronic delivery: notice, access 

and evidence of delivery.6 The staff’s view is predicated on compliance with all 

applicable Commission guidance on electronic delivery, including, without limitation: 

(i) electronic delivery of a Rule 19a-1 Notice in the form of an e-mail message to the 

fund shareholder containing the Rule 19a-1 Notice or a document link to the Rule 

19a-1 Notice; (ii) the fund (or its intermediary) having obtained prior consent of the 

shareholder to receive fund shareholder communications through electronic means 

(Consent); and (iii) electronic delivery of Rule 19a-1 Notices only to fund shareholders 

that provided the Consent, and cessation of electronic delivery of Rule 19a-1 Notices 

to any fund shareholder who withdraws or revokes the Consent. 

Endnotes

1 Section 19(a) was intended to prevent funds from creating a false impression of 

gains. See Investment Trusts and Investment Companies: Hearings on S. 3580 

Before a Subcomm. of the Senate Comm. on Banking and Currency, 76th Cong., 

3rd Sess., 275, 278 (1940). See also In the Matter of Gabelli Funds, LLC, Investment 

Company Act Release No. 28580 (Jan. 12, 2009) (settlement) (“The purpose of 

Section 19(a) and Rule 19a-1 is to afford shareholders adequate disclosure of the 

sources from which the payments are made so shareholders will not believe that 

a fund portfolio is generating investment income when, in fact, distributions are 

paid from other sources, such as shareholder capital or capital gains.” (footnote 

omitted)); Investment Company Institute, SEC Staff No-Action Letter (July 22, 

1996) (1996 Letter) (addressing how the requirements of Rule 19a-1 may be satisfied when a fund offers shareholders the option of automatically reinvesting dividends, directing dividend payments, or receiving dividend payments by check).

2 Rule 19a-1(g) provides, in relevant part, that “[t]he purpose of this rule, in the light 

of which it shall be construed, is to afford security holders adequate disclosure of 

the sources from which dividend payments are made.” In adopting Rule 19a-1, the 

Commission stated that “[a]n important feature of the rule is the extent to which 

it requires explicit and affirmative disclosure whenever a dividend is being paid 

from a capital source.” Letter of the Director of the Investment Company Division 

Relating to Section 19 and Rule N-19-1, Investment Company Act Release No. 71 

(Feb. 21, 1941). 

3 Use of Electronic Media for Delivery Purposes, Investment Company Act Release 

No. 21399 (Oct. 6, 1995) (“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.”); Use of 

Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers 

for Delivery of Information, Investment Company Act Release No. 21945 (May 9, 
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1996); Use of Electronic Media, Investment Company Act Release No. 24426 

(Apr. 28, 2000) (“2000 Release”).

4 The staff’s view also extends to funds delivering Rule 19a-1 Notices pursuant to 

the 1996 Letter. 

5 For example, a fund shareholder who has requested electronic delivery by a fund 

of shareholder documents and communications may overlook a Rule 19a-1 Notice 

delivered in another medium, i.e., paper.

6 See note 3, supra. “Issuers and market intermediaries . . . must . . . assess their 

compliance with legal requirements in terms of . . . notice, access and evidence 

of delivery.” 2000 Release. 

This IM Guidance Update summarizes the views of the Division of Investment Management 

regarding various requirements of the federal securities laws. Future changes in laws or 

regulations may supersede some of the discussion or issues raised herein. This IM Guidance 

Update is not a rule, regulation or statement of the Commission, and the Commission has 

neither approved nor disapproved of this IM Guidance Update.

The Investment Management Division works to:

s protect investors

s promote informed investment decisions and 

s facilitate appropriate innovation in investment products and services 

through regulating the asset management industry.

If you have any questions about this IM Guidance Update, please contact:

Chief Counsel’s Office/Public Inquiry

Phone: 202.551.6825

Email: IMOCC@sec.gov