On June 5, 2018, the SEC published the final rule, “Optional Internet Availability of Investment Company Shareholder Reports.” The rule is part of the SEC’s initiative to modernize the design, delivery and content of fund disclosures for the benefit of investors.

Subject to meeting certain requirements, new rule 30e-3 under the Investment Company Act permits funds to satisfy their shareholder report delivery obligations by making reports available at a website specified in a notice to investors. This is an optional delivery method and funds will now be able to meet delivery requirements by mailing shareholder reports in paper, delivering reports pursuant to the Commission’s electronic delivery guidance, providing notice and website accessibility pursuant to rule 30e-3, or any combination of these methods. Rule 30-e-3 also includes protections so that those investors who want to continue to receive paper documents will be able to do so at no cost.

Funds who are electing to implement the new delivery method for shareholder reports under 30e-3 must provide disclosure notices of the upcoming changes for a two-year transition period. Those disclosures notices provide instructions for how an investor can elect—at any time—to receive all future reports in paper, or request to receive particular reports on an ad hoc basis at no cost. The rule requires that a paper notice be sent to an investor each time a current shareholder report is accessible online. The paper notice also can provide other information that the fund considers useful such as how investors can elect electronic delivery, logos, pictures, and other content.

The rule mandates a minimum length phase-in period that ends no earlier than December 31, 2020 and notice requirements that must be implemented and followed beginning January 1, 2019, or the date shares are first publicly offered. During this two-year transition period, funds that choose to implement the new delivery method for shareholder reports provide prominent disclosures in statutory prospectuses, summary prospectuses and certain other shareholder documents that will notify investors of the upcoming change in delivery method.

Under the new rule, funds who implement the new delivery format option would generally provide these disclosures as follows: 

• Open-end funds are required to provide the cover page disclosure on at least six documents sent to investors during this time: one per year on the fund’s summary prospectus or statutory prospectus, at least one per year on the fund’s annual report to shareholders, and one per year on the fund’s semi-annual report to shareholders.
• Closed-End Funds. Closed-end funds are required to provide the cover page disclosure on at least four documents during this time: one per year on the fund’s annual report to shareholders and one per year on the fund’s semi-annual report to shareholders, as well as on their prospectuses unless the fund relies on rule 8b-16(b) under the Investment Company Act.271
• Variable Insurance Products. Variable annuity and variable life insurance contracts registered on Forms N-4 and N-6, respectively, are required to provide the cover page disclosure on at least two contract prospectuses during this period.

Pursuant rule 30e-3(f), the need to track an investor’s preference would be triggered by the first notice the fund provides to the investor that it intends to rely upon the rule to transmit shareholder reports. For example, a fund that intends to rely on rule 30e-3 on January 1, 2021 would need to track investor preferences the first time it transmits or delivers a document that includes the required cover page disclosure. A fund that will rely on rule 30e-3 on January 1, 2022 or thereafter would need to track investor preferences beginning the first time it transmits a Notice.

Although rule 30e-3 applies only to shareholder reports, the SEC has requested comment on whether a similar approach should be permitted to satisfy delivery obligations for summary or statutory prospectuses.

For more detail please see SEC Final Rules Release No. 33-10506.

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