Tailored Shareholder Reports and Revised Advertisement Fee Disclosure for Registered Investment Companies

The U.S. Securities and Exchange Commission (SEC) voted unanimously on Wednesday 26 October 2022 at an open meeting to adopt a new approach to shareholder and investor communications by registered open-end funds and exchange-traded funds. The SEC did not adopt proposed amendments to registration statement disclosures.

Key Aspects of Final Rules

Investment Company Act Rule 30e-3 (Rule 30e-3)

Open-end funds are excluded from the scope of Rule 30e-3 with respect to shareholder reports—they are required to mail shareholder reports to all shareholders unless a shareholder affirmatively opts-in to electronic deliver

Shareholder Reports

Concise and Visually Engaging Shareholder Reports

Mutual funds and ETFs registered on Form N-1A are required to transmit concise and visually engaging annual and semiannual reports (three–four pages in length) that highlight information that is particularly important for retail shareholders to assess and monitor fund investments, including:

• Simplified expense presentation;
• Streamlined discussion of fund performance;
• "Fund Statistics”;
• Graphical representation of fund holdings; and
• Disclosure regarding “material changes.”
• Layered Disclosure: Registered funds are required to make available online certain information (e.g., schedule of investments, other financial statement elements) that may be more relevant to investors and financial professionals who desire more in-depth information.
• Definition of “Broad-Based Securities Market Index”: All funds are required to compare their performance to the overall applicable securities market for purposes of both fund annual reports and prospectuses.
• Separate Shareholder Reports for Individual Funds and Separate Share Classes: Required. This represents a significant change from current requirements.
• In-Line XBRL Tagging: Required

Advertising Amendments

Presentations of investment company fees and expenses in advertisements and sales literature are required to be consistent with relevant prospectus fee table presentations and be reasonably current.

Key Aspects of Proposed Rules Not Adopted

• Division of disclosures for current vs. prospective shareholders.
• Registration statement risk disclosures (10% threshold for inclusion of risk disclosure/ordering of risks).
• Proposed Rule 498B: Prospectuses will continue to be transmitted to existing shareholders in the usual manner.
• Proposed Rule Amendments Regarding AFFE.

Effective and Compliance Dates

Effective Date

Final rule amendments become effective 60 days after publication in the Federal Register.

Shareholder Report and Rule 30e-3 Transition Period

An 18-month transition period after the effective date of the final rule amendments will occur to allow open-end funds adequate time to adjust their shareholder reports and comply with the Rule 30e-3 changes.

Advertising Rule Transition Period

An 18-month transition period after the effective date will occur to comply with the final rule amendments to the advertising rules.

Note: Final rule amendments that address representations of fees and expenses that could be materially misleading apply on the effective date.