As a result of the recent, annual announcement issued by the Securities and Exchange Commission (“SEC”) regarding securities registration fees, fee rates for open-end funds (“funds”) registered under the Investment Company Act of 1940 (the “1940 Act”) will be increasing approximately 7.5%, effective October 1, 2017. Because fund registration fees are calculated based on the rate that is in effect on the date that a fund makes its annual fee filing with the SEC, funds may be able to achieve significant cost savings by filing before 5:30 p.m. ET on Friday, September 29, 2017 (i.e., the business day before the rate hikes take effect).
Securities Registration Fees for Funds. Section 6(b) of the Securities Act of 1933 (the “1933 Act”) requires the SEC to collect fees from issuers registering their securities offerings. Section 24(f)(2) of the 1940 Act permits a fund to pay its registration fees once annually based on the “net” sales price of the securities sold during the previous fiscal year (i.e., “net” of redemptions). Pursuant to Rule 24f-2 under the 1940 Act, a fund is required to file Form 24F-2 accompanied by the registration fee within 90 days after its fiscal year end. As noted above, the fee rate in effect on the date that a fund makes its annual filing applies to the fund’s net sales during its recently completed fiscal year.
Annual rate changes for fees paid under Section 6(b) of the 1933 Act must take effect on the first day of the SEC’s next fiscal year, which is October 1. Accordingly, under SEC filing rules, Form 24F-2 filings submitted to the SEC before 5:30 p.m. ET on September 29, 2017 will be subject to the current fee rate of $115.90 per million dollars. Filings submitted after that time will be subject to the new fee rate of $124.50 per million dollars (approximately a 7.5% increase).
Funds Eligible for Potential Savings. Because a fund is required to file a Form 24F-2 within 90 days after its fiscal year end, funds with fiscal years ending July 31st or August 31st have the flexibility to make a Form 24F-2 filing before the higher fee rate becomes effective on October 1, 2017. Any such fund that would, under internal, existing filing schedules, make its annual fee filing after October 1, 2017 (i.e., if a pre-set schedule provides for filing closer to the expiration of the 90-day period) may be able to achieve meaningful cost savings by “accelerating” its Form 24F-2 filing to take place before 5:30 p.m. ET on September 29, 2017 (to the extent such funds are in a net sales position).
Illustration. A fund that has a fiscal year ending July 31st might ordinarily make its Form 24F-2 filing in mid- to late-October. Assuming that the fund had $1 billion in net sales during its recently completed fiscal year ended July 31, 2017, the fund’s annual registration fees would be $124,500 if the filing is made after 5:30 p.m. ET on September 29, 2017 versus $115,900 if the filing is made before such time. Accordingly, under this illustration, the fund would save $8,600 in annual registration fees by accelerating its filing. If a number of funds in a complex have July or August fiscal year ends and net sales during their recently completed fiscal years, the savings achieved from filing before 5:30 p.m. ET on September 29, 2017 can become meaningful on an aggregate basis (or in the context of a single fund that experienced significant growth).
Additional information on the fee rate increase is available on the SEC website at https://www.sec.gov/news/press-release/2017-149.
William P. Lane contributed to the preparation of this alert.
