From 24 July 2024, every annual and semi-annual report sent to shareholders of a US mutual fund or ETF must follow the SEC’s new tailored shareholder reports format, a deadline now less than six months away. For many fund groups it’s the biggest change to periodic reporting in decades, bringing a short, visual report for every share class, with the detail moving online and into Form N-CSR and everything tagged as structured data.
What is the tailored shareholder reports rule?
The SEC adopted the rule in October 2022 in Release 33-11125, and it took effect on 24 January 2023 with an 18-month transition period. It applies to open-end funds and ETFs registered on Form N-1A, and its aim is concise, visually engaging reports that highlight what retail investors need to know, with the SEC expecting the new annual report to run to around three or four pages.
What goes in a tailored shareholder report?
The content is set by a new Item 27A of Form N-1A, and each share class gets its own report covering the following:
- Fund expenses: the cost of a hypothetical $10,000 investment over the period, shown in dollars and as a percentage.
- Performance: in the annual report, a short discussion of the factors that most affected performance, a line graph and a table of 1, 5 and 10-year returns against an appropriate broad-based securities market index.
- Fund statistics: figures including net assets, the number of holdings, total advisory fees paid and portfolio turnover.
- Holdings: a graphical representation of the portfolio, for example by sector, region or credit quality.
- Material changes: a summary of material changes to the fund over the period, such as changes to its strategy, risks or fees.
- Where to find more: a website address leading directly to the fund’s other information.
Electronic versions can use layering, hyperlinks and interactive features. Because the order and content are prescribed, there’s far less room for the long letters and narrative sections that many reports carry today.
What moves out of the report?
The full financial statements, financial highlights and other detailed information leave the shareholder report altogether. Instead they must be filed on Form N-CSR, made available on the fund’s website and delivered free on request.
Open-end funds and ETFs can also no longer rely on Rule 30e-3, the notice-and-website method for delivering reports, so they must transmit the new report itself, either on paper or electronically where the shareholder has agreed to that. On top of this, the shareholder report content will be tagged in Inline XBRL, which makes every number machine-readable and comparable.
Other changes on the same date
The SEC has tightened the definition of an “appropriate broad-based securities market index”, and registration statements and post-effective amendments filed on or after the compliance date must use an index consistent with the new definition. From the same date, fee and expense information in fund advertisements and sales literature must meet the amended rules 482, 433 and 34b-1.
When do tailored shareholder reports apply?
- 26 October 2022: the SEC adopts the rule
- 25 November 2022: the rule is published in the Federal Register
- 24 January 2023: the rule takes effect
- 24 July 2024: the compliance date, from which transmitted reports must follow the new format and the N-CSR, website, Rule 30e-3, Inline XBRL and advertising changes all apply
What it means in practice
This is a share class level job, so a fund with eight share classes needs eight reports, each with its own expense figures, performance and returns, and across a whole fund range the volume adds up quickly. The first reports will also arrive soon, because any fund that transmits its report on or after 24 July 2024 is in scope, which means a fund with a 30 June 2024 period end that reports over the summer will be among the first.
Because the report is short, every number stands out, and expense, return and holdings data need to reconcile with the prospectus, factsheet and website. With Inline XBRL, any inconsistencies won’t only be visible to shareholders, as they’ll be machine-readable too.
Teams will also be running two production lines, producing both the concise report and the N-CSR content, and publishing the latter online, on a tight cycle after each period end.
What to do now
- Build a class-level data model, making sure expenses, returns and statistics are available, governed and reconciled for every share class.
- Choose your index now by checking your broad-based index against the new definition before your next registration statement update.
- Rehearse a full cycle, producing a complete set of reports and N-CSR content from real data before your first live period end.
Six months is a short window for a change that touches data, design, delivery and filing at once, so rehearsing a cycle now gives teams the chance to spend July checking numbers rather than chasing them.
At Kurtosys we help fund groups produce investor communication from governed fund data, so the same figures feed factsheets, regulatory documents, shareholder reports and fund websites. When each report gets shorter and the number of reports grows, consistency and automation matter more than ever. If you’re preparing for 24 July, get in touch.
Sources: SEC: Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements, Final rule, Release No. 33-11125, Form N-1A, as at 1 February 2024.
About this article
This article reflects the position at 1 February 2024 and was checked against the primary sources available at that time. Thomas Bjerkén, our regulatory reporting and fund data specialist, joined Kurtosys after it was published and now looks after our regulatory content. Some details may have changed since it was published.
