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Vedder Thinking | Articles SEC Proposes Modernization of Fund Disclosure Regime


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On August 5, 2020, the SEC proposed comprehensive modifications to the mutual fund and exchange-traded fund disclosure framework. The proposed changes would not apply to closed-end funds. Under the proposal, new investors would receive a fund’s prospectus in connection with their initial investment, consistent with current practice, but shareholders would not receive annual prospectus updates thereafter. Instead, proposed Rule 498B under the Securities Act of 1933 and other corresponding rule amendments, and related changes to Forms N-1A and N-CSR, would require funds to produce streamlined shareholder reports, which, together with notices of prospectus supplements, would serve as the primary fund disclosure received by existing shareholders. Highlights of the proposal include the following:

  • Streamlined Shareholder Reports. Both semiannual and annual shareholder reports would focus on three principal areas of information: (1) fund expenses; (2) fund statistics, such as net assets, total number of portfolio holdings and portfolio turnover rate; and (3) illustrations of fund holdings. Annual reports would also provide fund performance information and a summary of material fund changes during the last year.
  • Change to Delivery Requirements. Funds could no longer rely on Rule 30e-3 to send notices of the availability of shareholder reports; rather, funds would be required to deliver shareholder reports in accordance with preferences of shareholders either on paper or electronically.
  • Expanded Role for Form N-CSR. Form N-CSR would continue to incorporate funds’ shareholder reports, but would be revised to require more detailed information. This additional information would include many of the disclosure items currently required in shareholder reports.
  • Changes to Prospectus Delivery. A fund could satisfy its prospectus delivery requirements to existing shareholders through delivery of the new streamlined shareholder reports and by complying with certain conditions. Statutory and summary prospectuses would continue to be updated each year, but would be required to be provided only to new or prospective shareholders. 
  • Content of Fund Prospectuses. Amended prospectus disclosure requirements would (1) align fee and expense disclosures with the presentation of these items in the new streamlined shareholder reports and (2) focus principal risk disclosure and require that principal risks be disclosed in order of importance (non-principal risks would only be disclosed in the fund’s SAI).
  • Amendments to Advertising Rules. Presentations of fees and expenses in advertisements and sales literature would need to be consistent with relevant prospectus fee table presentations. Rule 156 under the Securities Act would also be amended to provide factors a fund should consider when determining whether representations in its advertisements about its fees and expenses could be misleading.

Vedder Price has prepared a more detailed summary of the proposed rule, which is available here.

You can read the full text of the SEC’s proposing release here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt