Optional Internet Availability of Investment Company Shareholder Reports Rules

A Small Entity Compliance Guide[1]

Introduction

On June 5, 2018, the SEC adopted new rule 30e-3 and rule amendments that would, subject to conditions, provide certain registered investment companies ("funds") with an optional method to transmit shareholder reports by making such reports and other materials accessible at a website address specified in a notice to investors.  This optional method is intended to modernize the manner in which funds deliver periodic information to investors, which the SEC believes will improve the information's overall accessibility while reducing expenses associated with printing and mailing shareholder reports for funds, and, ultimately, for their investors.

Highlights

Conditions of Rule 30e-3

Rule 30e-3 provides that a fund may satisfy its obligation to transmit an annual or semiannual report to a shareholder of record if certain conditions set forth in the rule are satisfied. These include:

• Report accessibility. The shareholder report and the fund's most recent prior report must be publicly accessible, free of charge, at a specified website.
• Availability of quarterly holdings. Quarterly holdings for the last fiscal year must also be publicly accessible at the website.  These holdings include those in the shareholder reports, which would cover the second and fourth fiscal quarters, and also include holdings for the first and third fiscal quarters.  New quarterly holdings must be posted within 60 days of the close of the period.  In order to rely on the rule, funds must satisfy conditions designed to ensure accessibility of reports for shareholders, including format and location.
• Notice.  Investors must be sent within 70 days after the close of the period covered by the shareholder report a notice of the availability of the report that includes a website address where the report and other required information is posted and instructions for requesting a free paper copy or electing paper transmission in the future.  The notice may include certain additional information, including content from the report and instructions by which a shareholder can elect to receive shareholder reports or other documents by electronic delivery.
• Request for paper copy.  Funds must send a free paper copy of any of these materials upon request.
• Investor election to receive future reports in paper.  Funds may not rely on the rule to transmit a report to a shareholder if the shareholder has notified the fund or intermediary that the shareholder wishes to receive paper copies.  Elections to receive reports in paper with respect to one fund apply to other current and future funds held in the same account or accounts with the fund complex or financial intermediary.

Extended Transition Period

The SEC adopted the rule with an extended transition period to help ensure that investors are apprised of any forthcoming changes in the delivery manner of their shareholder reports, if their funds choose to rely on rule 30e-3.  The SEC amended its summary prospectus requirements and certain fund registration forms to require that funds intending to rely on rule 30e-3 prior to January 1, 2022 include prominent disclosures on the cover page or beginning of their summary prospectuses, on the front cover page of their statutory prospectuses, and on the front cover page or beginning of their annual and semiannual reports for generally two years during the three-year period between January 1, 2019 and December 31, 2021.  Thus, the earliest that notices may be transmitted to investors in lieu of paper reports is January 1, 2021.  During the extended transition period, an investor in a mutual fund, for example, that seeks to begin relying on the rule before January 1, 2022 would receive about six notices of the upcoming change over a two-year period. 

The Role of Certain Financial Intermediaries

Most fund investors are not direct shareholders of record, but instead engage with an investment professional and hold their fund investments as beneficial owners through accounts with intermediaries such as broker-dealers.  The SEC provided guidance in the adopting release regarding the process intermediaries could follow, consistent with rule 30e-3, to use website transmission of shareholder reports to beneficial owners of fund shares.

Other Resources

The adopting release for the optional internet availability of investment company shareholder reports rules can be found on the Commission's website at https://www.sec.gov/rules/final/2018/33-10506.pdf.  The proposing release for the rules can be found on the Commission's website at https://www.sec.gov/rules/proposed/2015/33-9776.pdf.

Contacting the Commission

The Commission's Division of Investment Management is happy to assist small entities with questions regarding the optional internet availability of investment company shareholder reports rules.

Questions may be directed to the Division of Investment Management's Office of Chief Counsel by e-mail at IMOCC@sec.gov or by telephone at (202) 551-6825.