With the transition to TSR and the rescission of Rule 30e-3 for Open-End Funds, the SEC is applying a paper-based delivery model to investors who have not previously consented to electronic delivery of their documents.
The SEC feels this approach is consistent with the Mutual Fund Summary Prospectus rule. During previous discussions with the Staff they clarified their position that 30e-3 was a paper-based delivery model and did not follow an electronic delivery (e-delivery) framework, with the 30e-3 Notice required to be mailed unless there was a previous consent for e-delivery.
Fund issuers can utilize multiple approaches for investors who have elected to receive their shareholder reports through e-delivery that are consistent with Instruction 4 of Item 27(a) of Form N-1A. Some examples are:
- Using electronic media to transmit the shareholder report in addition to sending an email that includes the body of the full Tailored Shareholder Report to deliver directly to an investor, their fund and share-class specific shareholder report.
- A fund can deliver an email, or otherwise electronically transmit a notification to investors, that includes direct links to the shareholder report(s) of the fund(s) and share class(es) the investor owns.
- A fund can deliver an email, or otherwise electronically transmit a notification to investors, that specifies the investor’s fund(s) and share-class(es) and includes a link directing the investor to a website landing page that includes direct links that are limited to the shareholder report(s) for the fund(s) and share class(es) the investor owns.
Instruction 8 of Item 27A of Form N-1A suggests Funds should use design techniques that promote effective communication. Funds are encouraged to use, as appropriate, question-and-answer formats, charts, graphs, tables, bullet lists, and other graphics or text features to respond to the required disclosures.
For an annual or semi-annual shareholder report that appears on a website or is otherwise provided electronically, funds are encouraged to use online tools (for example, tools that populate discrete sets of information based on investor selections—e.g., Class-specific information, performance information over different time horizons, or the dollar value used to illustrate the Fund’s expenses or to populate the performance line graph, as applicable). The default presentation must use the value that the applicable form requirement prescribes. Funds also may include: (i) a means of facilitating electronic access to video or audio messages, or other forms of information (e.g., hyperlink, website address, Quick Response Code (QR code), or other equivalent methods or technologies); (ii) mouse-over windows; (iii) pop-up boxes; (iv) chat functionality; (v) expense calculators; or (vi) other forms of electronic media, communications, or tools designed to enhance an investor’s understanding of material in the annual or semi-annual shareholder report. Any information that is not included in the annual or semi-annual shareholder report filed on Form N-CSR shall have the same status, under the Federal securities laws, as any other website or electronic content that the Fund produces or disseminates.
Variable Product/Contract issuers are not subject to the same “suggestion”. In their response to a recently posed question, the Staff stated, “A variable contract issuer’s obligations under rule 30e-2 under the Act do not require the transmission of a shareholder report that includes the optional content that the underlying fund elects to include under Item 27A to Form N-1A. Rules 30e-2 and 30e-1, together, require the transmission of reports containing the information required to be included in such reports by the company’s registration statement form under the Act”.
Instruction 9 to Item 27A of Form N-1A states that in an annual or semi-annual shareholder report posted on a website or otherwise provided electronically, Funds must provide a means of facilitating access to any information that is referenced in the annual or semi-annual shareholder report if the information is available online, including, for example, hyperlinks to the Fund’s prospectus and financial statements. In an annual or semi-annual shareholder report that is delivered in paper format, Funds may include website addresses, QR codes, or other means of facilitating access to such information. Funds must provide a link specific enough to lead investors directly to the particular information, rather than to the home page or a section of the fund’s website other than where the information is posted. The link may be to a central site with prominent links to the referenced information. This also applies to Variable Products. When a variable contract issuer delivers an electronic TSR of a fund that is available as an investment option to a shareholder who has opted into e-delivery, the shareholder report must comply with the hyperlinking requirements. The provisions regarding facilitating access include hyperlinking and apply to any shareholder report that is posted on a website or provided electronically.
Additional information can be found in the SEC FAQ at https://www.sec.gov/investment/tailored-shareholder-reports-faqs
