The Tailored Shareholder Report (TSR) rule is a significant regulatory development adopted by the U.S. Securities and Exchange Commission (SEC) on October 26, 2022. It mandates that open-end mutual funds and most exchange-traded funds (ETFs) registered under Form N-1A must deliver annual and semi-annual tailored summary shareholder reports to all shareholders. This new requirement replaces the previous 30e-3 notices and full shareholder reports, with a compliance date set for July 24, 2024, as noted by SEC.gov on January 17, 2024.

Purpose of the TSR Rule

The TSR rule aims to enhance shareholder communication and engagement by delivering more relevant, concise, and visually engaging information. Retail investors can more easily monitor their fund investments thanks to simplified fee and expense information, performance data, portfolio holdings, key statistics, and material changes presented in plain English. The reports are typically within a 2-4 page format, as highlighted in the Toppan Merrill article dated August 21, 2024.

Increased Complexity for Mutual Fund and ETF Providers

The implementation of the TSR rule introduces several complexities for mutual fund and ETF providers:

  • Share-Class Specific Reports: Each share class of each fund must have its own separate TSR, significantly increasing the number of reports generated. This requirement precludes consolidation of multiple share classes into a single document.
  • Content and Format Requirements: Reports must be concise and visually engaging, with specific content requirements that include expenses, performance, holdings, and material changes. The content must be presented in a prescribed order and format.
  • iXBRL Tagging: TSRs need to be tagged using Inline eXtensible Business Reporting Language (iXBRL) and the Open-End Fund (OEF) taxonomy, adding technical complexity to the reporting process.
  • Distribution and Filing: Reports must be sent to shareholders within 60 days of the fund’s fiscal year-end either by mail or electronically if the shareholder opts for electronic delivery. Additionally, the reports must be filed on Form N-CSR with the SEC by Day 70.
  • Layered Disclosure: The TSR provides a summary with more detailed information available online in Form N-CSR or upon request.
  • Web-Hosting Requirements: There are increased web-hosting requirements to ensure additional detailed fund disclosures are available online.

These complexities are underscored in a Workiva article dated August 9, 2023, which emphasizes the need for enhanced accessibility and transparency.

Key Complexities

The rule's complexities manifest in several ways:

  • Data Management and Content Mapping: Fund companies must gather data from multiple sources, map it to the tailored shareholder report output, and ensure compliance with the prescribed format.
  • Automation and Business Rules: To manage increased volume and complexity, fund companies must automate reporting processes governed by clear business rules. Testing templates with real data ensures functionality across various reporting periods and market conditions.
  • Compliance with Multiple Requirements: This includes iXBRL tagging, ADA compliance, and complex web-hosting requirements.

The Ultimus Fund Solutions article dated April 23, 2024, elaborates on these requirements by highlighting the necessity for summary information on expenses, performance, holdings, and material changes.

How DAIZY Scribe Can Help Issuers Through This Process

DAIZY Scribe can significantly aid issuers in navigating these complexities:

  • Content Mapping and Data Management: DAIZY Scribe aids in mapping compliant data to the prescribed format, reducing complexity associated with data assembly.
  • Automated Reporting: The platform automates TSR generation, handling high volumes of share-class specific reports efficiently.
  • Template Design and Testing: The DAIZY team assists in designing and testing hyper-custom artificial intelligent agents for seamless operation.

This capability is essential for meeting the demands of the TSR rule efficiently and effectively. By leveraging DAIZY Scribe's capabilities, mutual fund and ETF providers can streamline report generation and distribution processes.

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