SEC Staff Issues FAQs On Tailored Shareholder Reports

Who may be interested: Registered Investment Companies

Quick Take: The staff of the SEC’s Division of Investment Management (Staff) recently issued responses to frequently asked questions (FAQs) covering the SEC’s adoption of rule and form amendments relating to shareholder reports. The FAQs are organized under the following topics: (1) appropriate broad-based securities market index; (2) Form N-CSR and website availability requirements; (3) binding individual shareholder reports of multiple funds; (4) electronically provided shareholder reports; and (5) compliance date and Inline XBRL issues. A summary of certain Staff responses to the FAQs is included below.


Appropriate Broad-Based Securities Market Index: The SEC’s final rules require a fund to show its performance against an “appropriate broad-based securities market index,” which is defined as representing “the overall applicable domestic or international equity or debt markets, as appropriate.”

  • The Staff stated that an index that represents the equity or fixed income market of a group of countries, a group of countries excluding a specific country or countries, or a group of countries with shared characteristics such as emerging markets or developed markets, could qualify as an appropriate broad-based securities market index, provided that the index represents the overall applicable international equity or debt market relative to the fund’s investments.

  • The Staff noted that funds which primarily invest in tax-exempt municipal securities, including a fund which invests primarily in the municipal income securities of a single state, may use an index that reflects the national municipal securities market as its appropriate broad-based securities market index, rather than an index that reflects the national aggregate fixed income securities market.

Form N-CSR and Website Availability Requirements: Under the final rules, Rule 30e-1 under the 1940 Act requires a fund to make disclosures required by Items 7 through 11 of Form N-CSR publicly available, free of charge, at the website address specified at the beginning of its shareholder report. Alternatively, the fund may post the complete Form N-CSR.

  • The Staff stated that, in its view, a variable annuity or variable life insurance company issuer (collectively, “variable contract issuer”), may satisfy their requirements to make fund materials available under Rule 30e-1, by making the materials available either on the variable contract issuer’s website or the underlying fund’s website. The Staff noted that, if multiple variable contract issuers permit contract value to be allocated to the same underlying fund, it may be more efficient for the required fund materials to appear on the underlying fund’s website as opposed to the variable contract issuers' websites in order to avoid listing the websites of each of the variable contract issuers in the Fund’s shareholder report.

Binding Individual Shareholder Reports of Multiple Funds: Instruction 4 of new Item 27A(a) of Form N-1A requires that a fund prepare a separate shareholder report for each series of the fund, and if a series has multiple classes, to prepare a separate shareholder report for each class within the series.

  • The Staff clarified that where an investor has invested in multiple funds, or multiple share classes of funds, the individual shareholder reports of such funds or share classes may be bound, stapled, or stitched together for transmission to the investor because such practice does not raise the same concerns about multi-series shareholder reports that the SEC discussed in the adopting release. The Staff also noted that a fund should consider including a table of contents to any bound, stapled, or stitched shareholder report for investors' ease of use.

Electronically Provided Shareholder Reports: As discussed above, instruction 4 of new Item 27A(a) of Form N-1A requires funds to deliver shareholder reports specific to a fund and share class.

  • The Staff clarified that in delivering shareholder reports to investors who have elected to receive their reports electronically, in addition to sending an email which includes the body of the full shareholder report, a fund could comply with instruction 4 by delivering an email, or otherwise electronically transmitting a notification, to investors that:

1. includes direct links to the shareholder report(s) of the fund(s) and share class(es) that the investor owns; or

2. 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) that the investor owns.

The Staff’s responses to the FAQs are available here.

For further discussion of key considerations in meeting the Tailored Shareholder Reports requirements, see Seward & Kissel’s recent publication on the topic here.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.