Website Posting Requirements for Registered Funds

Nov 30, 2020

| Compliance | Public Plans | Registered Funds | Regulatory

Mutual funds must prepare and provide a plethora of documents to their shareholders throughout the year. The two fundamental components of providing documents to shareholders are: disclosure and delivery. Disclosure means that the information is accurate and meets the requirements of the law. Delivery means that the shareholder actually receives this information. This article covers the delivery component.

The Securities and Exchange Commission (the “SEC”) was among the first Federal agencies to allow the delivery requirement to be fulfilled by email, via a fund’s website, or by other means of electronic transmission. The SEC established its basic framework for fund’s use of electronic delivery, or e-delivery, in a series of releases published between 1995 and 2000. Under this SEC guidance, funds must receive consent from a shareholder in order to rely on e-delivery. However, even though posting a shareholder document on the fund’s website satisfies the SEC’s access requirement under this guidance, “separate notice [is] necessary to satisfy the delivery requirements”.¹

Since the establishment of this basic framework, the SEC has adopted over the years a patchwork of supplementary rules, putting in place specific additional e-delivery requirements as detailed below:

  • Rule 498 (Securities Act of 1933): Requires a fund that uses a summary prospectus to make its current prospectus, statement of additional information, and most recent annual and semi-annual report to shareholders accessible at a website specified in the summary prospectus.
  • Rule 30e-3 (Investment Company Act of 1940): Allows a fund to send a paper notice (generally, a postcard) in lieu of a physical copy of a shareholder report to shareholders that have not yet opted in for e-delivery. This notice must include the web address where they can access the full report, instructions for requesting a paper copy by mail, and instructions for signing up for e-delivery. To rely on this rule, the fund must also post its quarterly holdings for the past fiscal year on its website.
  • Rule 14a-16 (Exchange Act of 1934): Allows a fund to fulfill delivery requirements for proxy materials by posting the materials on a website and providing shareholders with notice of the availability of the proxy materials (without need for an opt-in by the shareholder).
  • Rule 6c-11 (Investment Company Act of 1940): Requires ETFs relying on the standard ETF framework established by Rule 6c-11 to disclose certain information on its website, including daily portfolio transparency and historical information regarding premiums and discounts and bid-ask spread information.²

Additionally, a number of technical requirements apply to any shareholder document that a fund posts to its website. First, the web address provided by a fund to its shareholders must lead directly to the materials; it cannot simply direct to the fund’s home page or similar section of its website. Second, the materials must be in a format convenient for both reading online and printing—in practice, most funds use portable document format (PDF) to meet these requirements for their materials. Third, shareholders must be able to permanently retain an electronic copy free of charge. Finally, the materials should be available on the fund’s website for at least as long as delivery requirements apply.

Because of its many benefits, including cost-effectiveness and convenience, e-delivery is popular among funds and shareholders alike. According to one national broker, over 80% of its clients’ shareholders had opted in for e-delivery as of 2020. As e-delivery continues to grow in popularity, it is important for funds to stay vigilant that they are properly meeting the various e-delivery requirements as failure to do so can have negative consequences. As recently as July 2021, the SEC charged twenty-seven financial firms for filing and delivery failures, with each of the charged firms ultimately agreeing to both censure and civil penalties.

There are likely more changes to e-delivery requirements in the not-so-distant future. The SEC has called recently implemented Rule 30e-3, “the first major step in a long-term initiative…to improve the investor experience by updating the design, delivery, and content of fund disclosure for the benefit of individual investors.”³ In late 2020, the SEC proposed comprehensive changes to prospectus and shareholder report requirements which, if adopted, could once again shift a fund’s e-delivery approach.

Next Steps:

Fund managers should periodically review their e-delivery approach and conduct a review of their website to make sure that they are complying with the rules noted above. The skilled fund administration teams at Ultimus use their consultative, full-service approach to help fund managers stay on top of the current requirements, as well as understand what’s coming down the road.


¹ Available at https://www.sec.gov/rules/interp/33-7233.txt
²For additional information about Rule 6c-11, please refer to the previous Ultimus blog post “Chasing the ‘Active’ Trend in ETFs – Upfront Considerations” available at https://www.ultimusfundsolutions.com//chasing-the-active-trend-in-etfs-upfront-considerations/
³ Available at https://www.sec.gov/news/press-release/2018-103

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