There is no prenotification requirement in the final rule. However, funds may want to communicate the changes to their investors as part of a campaign to encourage electronic delivery prior to the transition from 30e-3 to Tailored Shareholder Reports.

The annual and semi-annual reports, as we know them, will go away. However, almost all the content that existed in these reports will now be found in either the Tailored Shareholder Report or Form N-CSR. Both documents combined will replace the single long-form report.

The rule was posted to the Federal Register on November 25, 2022. After 60 days (January 24, 2023), there is an 18-month transition period. This means that implementation is required by July 24, 2024 (generally first impacting funds with an annual or semi-annual report that ends after May 24, 2024.

Per the final rule, early implementation is permitted. By the nature of differing fiscal periods, individual funds will naturally convert to Tailored Shareholder Reports over a 6-month period. The first report delivered after the implementation date (July 24, 2024) will need to be a Tailored Shareholder Report.

There are no changes to prospectus delivery. The SEC did not adopt proposed rule 498B. In adopting the release, the SEC said that it could be re-evaluated in the future. Asset managers are still allowed to include their summary or statutory prospectus with the delivery of the Tailored Shareholder Report, the same way that is allowed today.

No, the rule does not apply to closed-end funds, which may continue to use 30e-3. This rule only applies to funds registered on Form N1A.

The single share class requirement is only one aspect of the rule. ETFs registered on Form N-1A also must transition from annual and semi-annual reports (and rule 30e-3) to retail-friendly Tailored Shareholder Reports for each ETF. By taking advantage of the user-friendly “factsheet-like” nature of Tailored Shareholder Reports, this presents a new opportunity for ETFs to brand these documents, provide additional commentary and generally make an improved shareholder experience.

The rule applies to insurance products registered under N-4 and N-6. The 30e-3 notices will be replaced by Tailored Shareholder Reports for underlying open-end mutual funds and ETFs.

Yes, these are defined in the final ruling (see Item 27A(e) of Form N-1A) Final rule: Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements (sec.gov). However, funds may include additional statistics if they believe it will help shareholders better understand the fund’s activities and operations during the reporting period.

See new Item 27A(g) of Form N-1A for the requirements. The Adopting Release provides additional information, which is available at https://www.sec.gov/rules/final/2022/33-11125.pdf. Please note that the rule requires that funds "provide enough detail to allow shareholders to understand each change and how each change may affect shareholders.”

The final rules include an instruction that defines a “broad-based” index as one that represents the overall applicable domestic or international equity or debt markets, as appropriate.

Yes. See footnote 198 in the Adopting Release “The amendments to the definition of an appropriate broad-based securities market index would affect performance presentations in fund prospectuses, as well as fund annual reports.” 

These reports must be delivered to all shareholders; there are no changes to the recipients. As with 30e-3, Tailored Shareholder Reports impact both direct and beneficial shareholders.

Each Tailored Shareholder Report needs to be a separate document, but they may be combined for either physical (inserts in a single mailing) or e-delivery (multiple links in a single email).

No, investors previously taking advantage of e-delivery will maintain this preference. An investor that has not opted for e-delivery will receive a physical, mailed copy of the Tailored Shareholder Report in place of the 30e-3 notice or, if applicable, the full annual (or semi-annual) report.

The link can be to a landing page, but it cannot be “unduly burdensome” for the shareholder to access the document. The website must also be easy to navigate and compliant. See Instruction 9 of new Item 27A(a) of Form N-1A.

In the final rule, the SEC recommends and encourages funds to enhance digital versions of reports with interactive features such as adjusting time periods for performance. We believe that most firms will initially focus on meeting the required elements of the rule, then move to enhance the digital experience to increase digital adoption. In the Adopting Release, the SEC says that it will continue to consider updating its e-delivery guidance.

Unlike the 30e-3 ruling, with Tailored Shareholder Reports, shareholders will not be able to elect to ALWAYS receive Form N-CSR. Funds are required to make Form N-CSR, and additional documents (Q1 and Q3 holdings) available online and upon request by mail and email. If a shareholder would like to access all of the detailed information currently in the annual and semi-annual report, they must request it each time. Note: if a fund is using a summary prospectus, the annual and semiannual Tailored Shareholder Report must also be available online.

Yes, other content may be included with the Tailored Shareholder Report, both mail delivery and e-delivery. However, Tailored Shareholder Reports must be the most prominent (first insertion or first mention in email), with the exception of other Tailored Reports, summary and statutory prospectuses, and proxy notices. Other content must also meet appropriate requirements, for example, filing as sales material if necessary. See Instruction 12 of Item 27A(a) of Form N-1A.

Form N-CSR must be available online in a readable and printable format and sent within three business days (by mail or email) after a shareholder request.

No. A shareholder will receive the Tailored Shareholder Report for the fund and class they are in. There is no requirement to link between Tailored Reports unless they refer to each other.

In the Release, the SEC stated, “We agree that accessibility is an important issue for investors. Funds are required to comply with all applicable accessibility-related requirements under the ADA or otherwise.” In addition, the SEC included a number of requirements about the presentation and readability of the Tailored Reports.

Each Tailored Shareholder Report must be tagged in iXBRL. The other content filed on Form N-CSR does not have tagging requirements. Similar to the summary prospectus, all the Tailored Reports would have to be iXBRL tagged and filed with SEC by day 70.

On May 4, the SEC published a draft version and the Open End Fund (OEF) taxonomy, taxonomy guide and sample filings. Links to these materials are provided below:

Draft Taxonomy Files

These will be filed together with the TSR serving as Item 1 on Form N-CSR. The SEC is yet to release a new version of the EDGAR Filing Manual (EFM). The details of the filing would be released in the updated EFM by the SEC.

Currently, filing is handled both by vendors and fund firms. It is likely that the additional tagging and subsequent filing for a growing number of documents will require additional resources. Broadridge can provide these services.

The annual Financial Statement and Financial Highlights must be audited. Although the Tailored Shareholder Report does not need to be audited, certain information in the annual Tailored Report must use audited information (e.g., Instruction 2(c) of Item 27A(c) of Form N-1A says, “In the annual shareholder report, disclose the expense ratio in the “Costs paid as a percentage of your investment” column as it appears in the Fund’s most recent audited financial statements or financial highlights”). Our understanding is that the PCAOB standards require that the auditing firm read the “other” information in a filing (in this case Form N-CSR) that includes the audited financial statements and consider if the information is materially inconsistent with the information contained in the audited financial statements.

The SEC sees this differently. They think this new shorter and simpler disclosure will lighten the load on retail investors. They say that the average length of an annual report is 134 pages. They designed the new Tailored Shareholder Report to be just a few pages, with the ability to obtain additional details online or by request.

We anticipate firms will explore internal, current vendor and new vendor solutions to streamline the implementation of the various elements of the Tailored Shareholder Report requirements. If you consider Form N-CSR as the document containing the expanded financial content normally found in a full report, little has changed as these documents can still be combined for different funds and share classes, making it likely that funds will keep this process in place. Greater change will need to happen at the Tailored Report level and in areas of delivery, filing and web hosting.