Foley Regulatory Reminder: Electronic Delivery of Shareholder Reports under Rule 30e-3 of Investment Company Act

Foley & Lardner LLPBeginning January 1, 2021, registered management companies and certain registered unit investment trusts that have complied with the required transition period disclosures are now able to use electronic delivery to transmit shareholder reports.

Why We are Sending this Reminder

To remind registered management companies and unit investment trusts of the steps required to comply with the use of electronic delivery of shareholder reports.

Practice Considerations

Registered management companies and unit investment trusts should note the following:

  • Paper notice of available online shareholder reports must be sent within 70 days after the close of the period represented by the report.  This notice may not be transmitted electronically.
  • The paper notice may contain only the information specified by the rule, and may include pictures, logos, or similar design elements so long as the design is not misleading and the information is clear.
  • The paper notice has to include a website address where the annual report and other required materials, like the portfolio holdings for the 1st and 3rd quarters are available.
    • The website address may not be the address of the Commission’s electronic filing system.
    • The website address must be specific enough to lead investors directly to the documents, rather than the home page.
    • The website address may be a central site with prominent links to each document.
    • Remember that the summary prospectus must include this website address if it is different from the website address that directs shareholders to the summary prospectus.
  • In addition to the website address, the paper notice may contain any other equivalent method or means to access the shareholder report or other materials required by the rule.
  • The materials required to be accessible online must be presented on the website in a format, or formats, that are convenient for both reading online and printing on paper.
  • Paper copies of the most recent annual and semi-annual reports and portfolio holdings for the most recent first and third fiscal quarters must be sent to any person requesting them within three (3) business days of the request, at no cost to the investor.
  • This rule may not be used to transmit a copy of the currently effective statutory prospectus or statement of additional information.

Details of Key Requirements of Rule 30e-3:

Materials Required on Website

In order to be able to transmit shareholder reports electronically, the following materials must be publicly accessible, free of charge, at the website address specified in the paper notice:

  • The current report to shareholders.
  • Any report to shareholders for the prior reporting period that was transmitted to shareholders of record.
  • Complete portfolio holdings from shareholder reports containing a summary schedule of investments.
  • Portfolio holdings for the most recent 1st and 3rd fiscal quarters.  The complete portfolio holdings must be made publicly available no later than 60 days after the close of the fiscal quarter.

If the materials required to be on the website are temporarily not available on the website, this does not violate the requirement provided that: (1) the company has reasonable procedures in place to ensure that the specified materials are available in the manner required by the rule; and (2) the company takes prompt action to ensure that the specified documents become available in the manner required by the rule, as soon as practicable following the earlier of the time at which it knows or reasonably should have known that the documents are not available on the website.

Requirements for Content of Paper Notice 

A paper notice (“Notice”) meeting the conditions below must be sent to shareholders within 70 days after the close of the period for which the shareholder report is being made.  The Notice may contain only the information specified by the rule, and may include pictures, logos, or similar design elements so long as the design is not misleading and the information is clear.

  • The Notice must be written using plain English.
  • The Notice must contain a prominent legend in bold-face type that states:  “[An] Important Report[s] to [Shareholders] of [Fund] [is/are] Now Available Online and In Print by Request.”
  • The Notice may include information identifying the Fund, the Fund’s sponsor (including any investment adviser or sub-adviser to the Fund), a variable annuity or variable life insurance contract or insurance company issuer thereof, or a financial intermediary through which shares of the Fund are held.
  • The Notice must state that the shareholder report contains important information about the Fund, including its portfolio holdings and financial statements. The statement may also include a brief listing of other types of information contained in the shareholder report.
  • The Notice must state that the shareholder report is available at the website address specified in the Notice or, upon request, by mail, and encourage the shareholder to access and review the shareholder report.
  • The Notice must include a website address where the shareholder report and other materials specified above are available.
    • The website address must be specific enough to lead investors directly to the documents that are required to be accessible, rather than to the home page or section of the website other than on which the documents are posted.
    • The website may be a central site with prominent links to each document.
  • In addition to the website address, the Notice may contain any other equivalent method or means to access the shareholder report or other materials specified above.
  • The Notice must provide a toll-free (or collect) telephone number to contact the company or the shareholder’s financial intermediary, and:
    • Provide instructions describing how a shareholder may request a paper or email copy of the shareholder report and other materials specified above at no charge, and an indication that he/she will not otherwise receive a paper or email copy;
    • Explain that the shareholder can at any time elect to receive print reports in the future and provide instructions describing how a shareholder may make that election (e.g., by contacting the company or by contacting the shareholder’s financial intermediary); and
    • If applicable, provide instructions describing how a shareholder can elect to receive shareholder reports or other documents and communications by electronic delivery.

Optional Items for Paper Notice

  • The Notice may include additional methods by which a shareholder can contact the company or the shareholder’s financial intermediary (e.g., by email or through a website), which may include any information needed to identify the shareholder.
  • The Notice relating to a shareholder report for a registered management company may include content from the shareholder report if such content is set forth after the information required, as discussed above.

Prohibitions Regarding Paper Notice

  • The Notice may not be incorporated into, or combined with, another document, except that the Notice may incorporate or combine one or more other Notices.
  • The Notice must be sent separately from other types of shareholder communications and may not accompany any other document or materials; provided, however, that the Notice may accompany:
    • One or more other Notices;
    • A current summary prospectus, statutory prospectus, statement of additional Information, or notice of internet availability of proxy materials;
    • In the case of a Fund held in a separate account funding a variable annuity or variable life insurance contract, such contract or the statutory prospectus and statement of additional information for such contract; or
    • The shareholder’s account statement.

Plain English Requirements

To enhance the readability of the Notice, plain English principles must be used in the organization, language, and design of the Notice.  The Notice must be drafted so that, at a minimum, it substantially complies with each of the following plain English writing principles:

  • Short sentences;
  • Definite, concrete, everyday words;
  • Active voice;
  • Tabular presentation or bullet lists for complex material, whenever possible;
  • No legal jargon or highly technical business terms; and
  • No multiple negatives.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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