SEC Adopts Final Rule on Streamlined Shareholder Reports

On October 26, the SEC unanimously adopted a final rule on shareholder reports for open-end mutual funds and ETFs registered on Form N-1A, as well as amendments requiring fee comparability in fund advertising for all registered investment companies, including closed-end funds and BDCs. The shareholder report portion of the new rule does not apply to other investment companies such as closed-end funds, unit investment trusts, or open-end managed investment companies not registered on Form N-1A (e.g. issuers of variable annuity contracts). The amendments introduce a layered approach to shareholder report disclosure and require funds to transmit concise and engaging annual and semi-annual shareholder reports. On shareholder reports specifically, the Release finalizes the following amendments:

  • Requires that open-end fund shareholders receive annual prospectus updates;
  • Allows for shareholder reports and additional materials (ex. online tools designed to enhance an investor’s understanding of material in a shareholder report) to be available online but requires open-end funds to mail shareholder reports to investors, unless the investor has consented to electronic delivery; and,
  • Requires open-end funds to prepare and transmit shareholder reports that include only a single share class of a fund in which the shareholder is invested.

In addition, the new rule requires that a presentation of fees and expenses in advertising and sales literature be “consistent with the relevant prospectus fee-table presentations and be reasonably current.” The compliance date is 18 months following the effective date (60 days after publishing in the Federal Register) which will roughly be in May 2024. These amendments were first proposed in by the SEC in August 2020.

In a statement supporting the final rule, Chair Gensler noted the amendments would, “help investors better understand fund disclosures and help ensure that the information investors receive in investment company advertisements is transparent and balanced.”

Click here to read a client alert on the final rule from Ropes & Gray.
Click here to read a fact sheet from the SEC on the final rule.