Amendments to fund shareholder reports and expense-related information

Dec 05, 2022
Audit Financial reporting PCAOB matters

In October 2022, the SEC adopted rule and form amendments for mutual funds and exchange-traded funds (ETFs) registered on Form N-1A (funds) that substantially impact the content and scope of disclosures for shareholder reports and affects the investment company advertising rules. The new rules are designed to modernize funds’ shareholder reports so that the reports will better serve the needs of the fund’s investors. The changes will require a disclosure approach for funds that effectively communicates information to its retail audience in a clear and concise way and promotes a transparent and balanced presentation of fees and expenses.

The amendments in the final rule, Tailored Shareholder Reports for Mutual Funds and Exchange Traded Funds; Fee Information in Investment Company Advertisements, include:

  • Requirements for funds to make certain information (such as a fund’s schedule of investments and other financial statement elements) available online where that information is more accessible to investors and finance professionals who desire more in-depth information. The final rules also include requirements to help ensure that this information can be easily found and is navigable. The online information must be provided free of charge and filed on a semi-annual basis on Form N-CSR.
  • Changes to the contents of the annual and semiannual reports (the changes are detailed in the SEC’s final rule – Tables 2 (pages 51-52) and 3 page 119)
  • Requirements for funds to tag their reports to shareholders using the Inline eXtensible Business Reporting Language (Inline XBRL).
  • Exclusion of open-end management investment companies from the final rule that generally permits certain registered investment companies to satisfy shareholder report transmission requirements by making these reports and other materials available online and providing a notice of the reports’ online availability, instead of directly providing the reports to shareholders (i.e., Rule 30e-3). Open-end fund shareholders will be required to directly receive the new tailored annual and semiannual reports, either in paper or, if the shareholder has so elected, electronically. The final rule amendments will not affect the availability of Rule 30e-3 for other registered management investment companies, including closed-end funds (registered on Form N-2) and management companies that offer variable annuity contracts (registered on Form N-3).
  • Requirements for presentations of investment company fees and expenses in advertisements and sales literature to be consistent with relevant prospectus fee table presentations and be reasonably current. These rule amendments affect all registered investment company and business development company advertisements that include fee and expense figures, and where the investment company presents total annual expense figures in their prospectuses.

The amendments will become effective 60 days after publication in the federal register. The Commission is providing an 18-month transition period after the effective date of the amendments to allow funds adequate time to adjust their shareholder report and transmission practices. The Commission is also providing an 18-month transition period after the effective date to comply with the final amendments to the advertising rules. The rule amendments that address representations of funds’ fees and expenses that could be materially misleading will apply on the effective date.

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