Website posting requirements for registered funds
By Timothy Burdick, Assistant Vice President and Legal Counsel, Ultimus Fund Solutions
Mutual funds must prepare and provide a plethora of documents to their shareholders throughout the year. The two fundamental elements 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 one of the first federal agencies to allow the delivery requirement to be met by email, through a fund’s website, or by other means of transmission. electronic. The SEC established its basic framework for funds’ use of electronic delivery, or electronic delivery, in a series of news releases issued between 1995 and 2000. Under these SEC guidelines, funds must receive consent. of a shareholder to be able to rely on electronic delivery. However, even if posting a shareholder document on the fund’s website meets SEC requirements access requirement under this directive, “a separate notice [is] necessary to satisfy the delivery conditions “.
Since the establishment of this basic framework, the SEC has over the years adopted a patchwork of additional rules, putting in place specific additional requirements for electronic delivery, as detailed below:
- Rule 498 (Securities Act of 1933): Requires a fund that uses a simplified prospectus to make its current prospectus, the additional information statement and the most recent annual and semi-annual reports to shareholders accessible on a website specified in the simplified prospectus.
- Rule 30e-3 (Investment Companies Act 1940): Allows a fund to send a paper notice (typically a postcard) instead of a physical copy of a shareholder report to shareholders who have not yet opted for electronic delivery. This notice should include the web address where they can access the full report, instructions for requesting a hard copy by mail, and instructions for signing up for electronic delivery. To benefit from this rule, the fund must also display its quarterly holdings for the past financial year on its website.
- Rule 14a-16 (Foreign Exchange Act 1934): Allows a fund to meet the delivery requirements of proxy materials by posting the materials on a website and notifying shareholders of the availability of proxy materials (without the need for shareholder membership).
- Rule 6c-11 (Investment Companies Act 1940): Requires ETFs relying on the standard ETF framework established by Rule 6c-11 to disclose certain information on its website, including day-to-day portfolio transparency and historical information regarding premiums and discounts and information on bid-ask spreads.
In addition, a number of technical requirements apply to any shareholder document that a fund posts on its website. First, the web address provided by a fund to its shareholders must lead directly to the documents; it cannot simply point to the fund’s home page or a similar section of its website. Second, the documents should be in a format convenient for online reading and printing – in practice, most funds use the Portable Document Format (PDF) to meet these requirements for their documents. Third, shareholders must be able to keep a free electronic copy at all times. Finally, the documents must be available on the fund’s website for at least as long as the delivery requirements apply.
Because of its many advantages including cost effectiveness and convenience, electronic delivery is popular among funds and shareholders. According to a national brokerage, more than 80% of its clients’ shareholders had opted for electronic delivery by 2020. As electronic delivery continues to gain in popularity, it is important for funds to remain vigilant and respond correctly to different demands. electronic delivery requirements, as their failure to comply can have negative consequences. As of July 2021, the SEC indicted twenty-seven financial companies for failure to deposit and deliver, with each of the indicted companies ultimately agreeing to both censorship and civil penalties.
There will likely be further changes in electronic delivery requirements in the not-so-distant future. The SEC called the 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 disclosure. funds for the benefit of individual investors “. In late 2020, the SEC proposed comprehensive changes to prospectus and shareholder reporting requirements that, if adopted, could once again change a fund’s approach to electronic delivery.
Fund managers should periodically review their approach to electronic delivery and perform a review of their website to ensure they are complying with the above rules. Ultimus’ skilled fund administration teams use their consultative and full-service approach to help fund managers stay on top of current requirements, as well as understand what to expect.
Originally posted on Ultimus Fund Solutions.
 Available at https://www.sec.gov/rules/interp/33-7233.txt
 For more information on 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 /
 Available at https://www.sec.gov/news/press-release/2018-103
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.