SEC Proposes Amendments to Mutual Fund and ETF Disclosure Framework

That which has been, it is that which shall be; and that which has been done is that which shall be done: and there is nothing new under the sun.  – Ecclesiastes 1:9

On August 5, 2020, the Securities and Exchange Commission (SEC) proposed to update the disclosure framework for mutual funds and ETFs.¹ The proposal also seeks to amend the advertising rules for registered investment companies and business development companies to promote more transparent and balanced statements about investment costs.   The proposal is the latest in a series of attempts by the SEC to reform mutual fund disclosure. However, we believe that is unfair to simply classify this proposal as more of the same.  In particular, the current proposal represents the first time in which the SEC has looked beyond the prospectus in attempting to reform mutual fund disclosure.  Moreover, it reflects the first time in which the SEC has distinguished between the prospectus content to be provided to prospective investors and the prospectus content to be provided to existing investors.  It also reflects the first time that the SEC has considered the function of the annual and semi-annual report as a vehicle for communicating with existing investors. And yet, the Proposing Release has an element of déjà vu to it.  In the chart below, we have set forth statements from the SEC in connection with past efforts to simplify mutual fund disclosures, along with the years in which the past efforts took place.  Readers are invited to match the statement with the year in which it was made.  Answers appear at the end of this post.

Quote	Year
a. The Commission is adopting the foregoing to in order to shorten and simplify the prospectus provided to investors while providing more extensive information to those who desire it.	2009
b. [I]nvestment information that is key to an investment decision should be provided in a streamlined document with other more detailed information provided elsewhere.	1998
c. The central goal of the amendments to Form N-1A is to promote fund disclosure documents that effectively communicate essential information to investors. The amendments seek to meet this goal by focusing prospectus disclosure on information that will help investors decide whether to invest in a fund.	1983

1. Annual Report, Semi-Annual Report and Form N-CSR

The SEC intends that the annual report and semi-annual report replace the prospectus as a primary source of fund information for existing shareholders.  

A. Annual Report

The Proposing Release notes that a principal objective of the SEC is to reduce the length and complexity of an annual report.  It would require that a fund prepare a separate annual report for each of its series – however, a multiple class fund would be required to include class-specific information for each disclosure item which would elicit class-specific information, such as expenses and performance data.   In addition, the SEC would limit the content that a fund could include in its annual report.  The only content over and above that which the SEC requires that could be included would be information that, under the circumstances, would be necessary to make the required disclosures not misleading.  The SEC noted that if a fund changed its investment policies or structure during a time period displayed in the annual report, the fund could be required to include additional disclosure to render those presentations not misleading. The SEC would permit a fund to refer shareholders to the availability of certain additional website information near the end of the report or provide additional information to shareholders in the same transmission as the annual report.  However, if the fund does so, it would be required to give the shareholder report “greater prominence” than the other materials or information.  In practice, this would require the shareholder report to be on top of a group of paper documents that are provided together or, in the case of an electronic transmission, the email or other message to include a direct link to the report or provide the report in full in the body of the message.

i. Cover Page or Beginning of the Report:  

The SEC is proposing that funds provide the following information on the cover page or at the beginning of the annual report:

• The name of the fund, as well as the class(es) to which the annual report relates;
• The exchange ticker symbol of the fund’s shares, or the ticker symbol of each class adjacent to the class name;
• If the fund is an ETF, the principal U.S. market(s) on which the fund’s shares are traded;
• A statement identifying the document as an “annual shareholder report;” and
• The following legend: “This annual shareholder report contains important information about [the Fund] for the period of [beginning date] to [end date] [as well as certain changes to the Fund]. You can find additional information about the Fund at [Fund website address]. You can also request this information by contacting us at [toll-free telephone number and, as applicable, email address].”

ii. Fund Expenses:  

The SEC is proposing that funds include a table that shows:  (a) an assumed $10,000 beginning account value; (b) total return during the period, before deducting expenses; (c) expenses in dollars paid during the period; (d) ending account value in dollars, based on net asset value return and the assumed $10,000 beginning account value; and (e) expenses as a percent of an investor’s investment in the fund (i.e. expense ratio).  ETFs must also include the ending value of the account based on market value return.   The table would replace the two current expense examples in the shareholder report.  It would also align the assumed investment amount in the annual report with the assumed investment amount currently included in a fund’s prospectus expense presentation.  In addition, while the current expense example requires funds to show the ending account value only net of fees and expenses, the proposed table would require funds to show the account value both before and after giving effect to fees and expenses.

iii. Management’s Discussion of Fund Performance:  

The SEC proposes to revise the current requirements with respect to Management’s Discussion of Fund Performance (MDFP) to make the disclosure more concise and to reflect the fact that existing fund shareholders may no longer receive fund prospectuses after their initial purchase.  The amended MDFP would be required to include additional performance-related information that is available in fund prospectuses, including certain class-specific performance information and comparative information showing the average annual total returns of one or more relevant benchmarks.  All funds would be required to compare their performance to the overall relevant securities market for purposes of both fund annual reports and prospectuses.   The SEC would retain the current requirement that a fund’s annual reports include a narrative discussing the factors that materially affected the fund’s performance during the most recent fiscal year, with minor modifications to encourage concise disclosure.  In particular, the disclosure would be required to “briefly summarize” the “key” factors that materially affected the fund’s performance during the last fiscal year, including the relevant market conditions and the investment strategies and techniques used by the fund’s investment adviser.  Funds would also be encouraged to use graphics, bullet lists or tables to present the key factors when appropriate.  However, additional information, such as president’s letters or interviews with portfolio managers, would not be permitted to be included in an annual report.   Funds would continue to be required to include a line graph that compares its performance to that of a broad-based market index.  However, the SEC is proposing three changes from current requirements.  First, for a multiple class fund, the SEC would require that a fund show performance for at least one class, in addition to the performance of the relevant index, and would impose limitations on the class that may be presented that mirror existing limitations in fund prospectuses.  Second, a fund would no longer be able to present periods longer than 10 fiscal years.  Finally, the SEC would add an instruction that a “broad-based index” is one that represents that overall domestic or international equity or debt markets, as appropriate.  A fund could also present a narrower index that more closely mirrors the market segments in which it invests, and a balanced fund could present two or more broad-based indices, as well as a blended index. Fund annual reports would also continue to be required to include a table showing average annual total returns for the past 1-, 5- and 10-year periods.  The SEC would also require that, unlike now, the table show: (a) the average annual total returns of an appropriate broad-based securities market index; (b) the fund’s average annual total returns without sales charges (in addition to current disclosure that shows returns reflecting applicable sales charges); and (c) average annual total returns for each class that the report covers, in each case for the past 1-, 5-, and 10-year periods.  A fund could also include return information for one or more other relevant indices, such as a narrower index that more closely mirrors the market segments in which the fund invests.  The table would be required to show average annual total return information for each class that the report covers.  In addition, a fund would be required to include a prominent statement that a fund’s past performance is not a good predictor of how the fund will perform in the future.  A fund could use graphics, larger fonts or different colors to achieve prominence.   If a material change occurred to the fund during the relevant performance period, such as a change in investment adviser, or a change to the fund’s investment strategies, the fund would be permitted (but not required) to include a brief legend or footnote to describe the material change and when it occurred.  The SEC stated that it is not requiring disclosure of material changes because material changes may not affect a fund’s performance or may have only an insignificant effect on performance.  However, a fund would be required to disclose the material change if the performance presentation would be misleading if it failed to do so.   If a fund provides updated performance information through widely accessible mechanisms, such as fund websites, it would be required to include a statement in the shareholder report directing shareholders to where they can find this information.  If a fund were to include such a statement, it also would be required to provide a means of facilitating access to the updated performance information, including, for example, a hyperlink to where the information may be found if the shareholder report is provided electronically or a URL address or QR code if the shareholder report is delivered in paper format.

iv. Fund Statistics:

The SEC would require a fund to disclose certain fund statistics in its annual report, including the fund’s: (a) net assets; (b) total number of portfolio holdings; and (c) portfolio turnover rate, all as of the end of the fund’s reporting period. The SEC would also permit a fund to disclose any additional statistics that the fund believes would help shareholders better understand the fund’s activities and operation during the reporting period (e.g., tracking error, maturity, duration, average credit quality, or yield).

v. Graphical Representation of Holdings:

The SEC would continue to require funds to display graphically its holdings using categories (for example, type of security, industry sector, geographic region, credit quality, or maturity) and with a basis of presentation (i.e., presented according to the fund’s net asset value, total investments, or investment exposures (for funds that use derivatives to obtain investment exposures)) that is reasonably designed to depict clearly the types of investments made by the fund, given the fund’s investment objective(s).  If a fund holds both long and short positions, it may present the long and short positions separately (i.e., total exposure), or show the combined effect of both positions (i.e., net exposure).  However, a fund must select a basis of presentation (i.e., presented according to the fund’s net asset value, total investments, or investment exposures) that is reasonably designed to depict clearly the types of investments made by the fund, given its investment objectives.

vi. Material Fund Changes:

The proposal would require a fund to describe briefly any material change in an enumerated list of items (as well as any other material change that the fund chooses to disclose) that has occurred since the beginning of the reporting period or that the fund plans to make in connection with its annual prospectus update.  In particular, a fund would be required to include disclosure in its annual report that briefly describes a material change with respect to any of the following items:

• a change in the fund’s name;
• a change in the fund’s investment objectives or goals;
• an increase in the fund’s ongoing annual fees, transaction fees, or maximum account fee;
• a change in the fund’s principal investment strategies;
• a change in the principal risks of investing in the fund;
• a change in the fund’s investment adviser(s), including sub-adviser(s); and
• a change in the fund’s portfolio manager(s) (collectively, Material Changes).

A fund could also include any other material fund change that it would like to disclose to its shareholders, such as a plan to liquidate or merge the fund.  A fund would be required to describe each change, with enough detail to enable shareholders to understand the change and how they may be affected.  Even if the fund has previously disclosed a material change to shareholders, it still must disclose the change in the report.   The Proposing Release notes there could be scenarios where a Material Change occurs shortly before a fund transmits its annual report and, as a result, it would be difficult for the fund to disclose the material change in the annual report while still transmitting the report to shareholders within the required period (60 days after the fund’s fiscal year-end).  The SEC stated that under these circumstances, a fund (or intermediary) should provide a timely notice of the Material Change to shareholders under proposed Rule 498B (discussed below) or through a prospectus sticker or annual prospectus update.

vii. Changes in and Disagreements with Accountants:

Funds would be required to include a concise discussion of certain disagreements with accountants in the annual report.  If a fund has had a material disagreement with an accountant that resigned or was dismissed, the annual report must include:  (a) a statement of whether the former accountant resigned, declined to stand for re-election, or was dismissed and the date thereof; and (b) a brief, plain English description of disagreement(s) with the former accountant during the fund’s two most recent fiscal years and any subsequent interim period that the fund discloses on Form N-CSR. 

viii. Statement Regarding Liquidity Risk Management Program:

A fund would be required to include a brief summary of:

• the key factors or market events that materially affected the fund’s liquidity risk during the reporting period;
• the key features of the fund’s liquidity risk management program; and
• the effectiveness of the fund’s liquidity risk management program over the past year.

The Proposing Release stated that the discussion of the key features of the program should focus on how they relate to the fund.  For example, the SEC suggests that a loan fund describe any expedited settlement agreements.  The SEC also notes that the liquidity risk management program disclosure should appear in the annual or semi-annual report following the period when the fund performed its required annual review of the program. 

ix. Availability of Additional Information:

A fund would be required to include an additional statement in its annual report that informs investors that a fund’s prospectus, financial information, portfolio holdings and proxy voting information appear on the fund’s website.  In addition, a fund would be required to include a hyperlink, QR code or other method to immediately access its shareholder report if the report appears on a fund’s website or is made available electronically.

x. Householding:

The SEC would continue to require funds to explain how to revoke consent to householding of the annual report.

xi. Format and Presentation:

The proposal would require that the information in the annual reports appear in the same order as would be required under the proposed amendments to Form N-1A.  The SEC is also requiring Plain English principles – concise and direct language, short sentences, active voice, everyday words, no legal jargon or highly technical business terms (unless they are clearly explained) or multiple negatives – in drafting the annual report.  The proposed instructions also direct funds to use white space, and implement other design features to make the annual report easy to read.  The SEC would also encourage funds to consider using, as appropriate, a question-and-answer format, charts, graphs, tables, bullet lists, and other graphics or text features as a way to help provide context for the information presented.

B. Electronic Delivery and Electronic Tools

Unless a shareholder affirmatively elects electronic delivery, shareholder reports must be delivered in paper.  In addition, any fund that relies on Rule 498 or on proposed Rule 498B would be required to make its most recent annual report available online.

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The proposal would encourage funds to use online tools such as video or audio messages, mouse-over windows, pop-up definitions or explanations of difficult concepts, chat functionality and expense calculators.  Funds could also provide instructions on how to use or interpret interactive graphics or tools.    The proposal would treat any information included in online tools that the fund uses, but not included in the fund’s annual report, for purposes of the Federal securities laws, as any other website or other electronic content that the fund produces or disseminates.  For example, if a fund includes a video providing more detail about the fund’s investments and performance, the video may, based on the facts and circumstances, be an advertisement subject to Rule 482 under the Securities Act.  Under these circumstances, the fund would be subject to the same liability standard and filing requirements that attach to any other Rule 482 advertisement.

C. Semi-Annual Shareholder Report:

The design and content specifications proposed for semi-annual reports are similar to those proposed for funds’ annual reports.  The principal differences between semi-annual reports and annual reports is that MDFP and a summary of material changes would be optional for semi-annual reports, whereas they would be mandatory for annual reports.  Semi-annual reports would also be required to be delivered in paper unless a shareholder affirmatively elected electronic delivery.  

D. Form N-CSR and Website Availability Requirements:

The SEC proposes to move much disclosure currently found in annual and semi-annual reports to Form N-CSR.  The SEC intends to enable shareholders and other market participants to continue to access more in-depth information, and to continue to collect data to assist it in its fund monitoring responsibilities.  The proposal would require funds to make available on their websites information that formerly was included in an annual or semi-annual report, but would be relegated to Form N-CSR.  These items include:

• Fund financial statements
• Fund financial highlights
• Remuneration paid to fund directors/trustees and officers
• Additional information about changes in and disagreements with fund accountants
• Matters submitted to fund shareholders for a vote
• Statement regarding the basis for the board’s approval of the advisory agreement
• Complete portfolio holdings as of the close of the fund’s most recent first and third fiscal quarters (money market funds excluded).

The proposal would require funds to comply with certain conditions intended to ensure the accessibility of information that is required to appear online.  First, the website address where the required information appears would be required to be specified on the cover page or beginning of the shareholder report and could not be the address of the SEC’s electronic filing system.  Second, the materials required to appear online would have to be presented in a format convenient for both reading online and printing on paper, and persons accessing the materials would have to be able to retain permanently (free of charge) an electronic copy of the materials in this format.  A fund could comply with the website requirement simply by posting its Form N-CSR on its website; it would not need to present the items separately.   Funds would be required to send, at no cost to the requestor and by U.S. first class mail or other reasonably prompt means, a paper copy of any materials posted to its website within three business days of receiving the request.  A fund must also send, at no cost to the requestor by email or other reasonably prompt means, an electronic copy of any of the materials posted to its website within three business days of receiving the request.

Proposed Rule 498B and Treatment of Annual Prospectus Updates under Proposed Disclosure Framework

Under proposed Rule 498B under the Securities Act, investors would continue to receive a prospectus in connection with their initial fund investment, as they do today. Afterwards, a shareholder would no longer receive annual prospectus updates, because the fund’s current prospectus would be available online, and the shareholder would be receiving (a) tailored shareholder reports (which would include a summary of material fund changes in annual reports), and (b) timely notifications regarding material fund changes as they occur. Proposed rule 498B would allow a fund to satisfy any obligations under Section 5(b)(2) of the Securities Act to have a statutory prospectus precede or accompany the carrying or delivery of a security to the fund’s existing shareholders to be satisfied under specific conditions:

• the existing shareholders have been previously sent or given a prospectus in order to satisfy any obligation under section 5(b)(2) of the Securities Act, such as in connection with their initial investment in the fund;
• certain specified disclosure materials (including, among other things, current summary and statutory prospectuses) appear online; and
• existing shareholders receive notices of certain material changes to the fund when those changes occur.

Proposed Rule 498B also includes delivery upon request and website presentation requirements (which are not conditions of reliance on the proposed rule to satisfy prospectus delivery obligations), including that a fund must: (a) deliver to each requester a copy of any of the fund documents that the rule would require to be made available online, at no charge to the requester; and (b) ensure that those fund documents required to appear online are presented in a format convenient for both reading online and printing on paper, and can be permanently retained in such a format by persons accessing those materials, free of charge. A fund that sends prospectuses to shareholders only upon request in reliance upon proposed Rule 498B would be subject to the same prospectus and registration statement liability and antifraud provisions as if the fund had sent or given those prospectuses to all existing shareholders. Rule 498B would not excuse funds from their existing requirement to send investors a fund prospectus in connection with their initial fund investment. The SEC notes that the fund prospectus:

[P]rovides certain key information, including disclosures regarding the fund’s: (1) investment objectives; (2) costs; (3) principal investment strategies, principal risks, and performance; (4) investment advisers and portfolio managers; (5) purchase and sale of fund shares; (6) tax information; and (7) financial intermediary compensation. We believe it is important for new investors making an initial investment decision to receive a prospectus that includes this information to inform their investment decisions and facilitate fund comparisons.

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Proposed rule 498B would not apply to investors that hold the fund through a separate account funding a variable annuity contract offered on Form N-4 or a variable life insurance contract offered on Form N-6.  

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Any fund that wishes to rely upon proposed Rule 498B would be required to produce a summary prospectus and post it online.  All fund documents posted online must be human-readable and capable of being printed on paper in human-readable format.  The format must permit persons accessing the statutory prospectus or SAI to move directly back and forth between each section heading in a table of contents of such document and the corresponding section of the document. Similarly, the format must permit persons accessing the summary prospectus to move directly back and forth between: (a) each section of the summary prospectus and any section of the statutory prospectus and the SAI that provides additional detail concerning that section of the summary prospectus; or (b) links located at both the beginning and end of the summary prospectus, or that remain continuously visible to persons accessing the summary prospectus, and tables of contents of the prospectuses and the SAI. If there is a Material Change, a fund relying on proposed Rule 498B would have to send or give existing shareholders notice of that Material Change.  This provision would not apply to Material Changes previously disclosed in the fund’s most recent annual report to shareholders.  The proposed rule would require notice to be sent or given within three business of days of the date that the fund filed its post-effective amendment or its sticker disclosing the Material Change.   A fund or financial intermediary would be required to deliver, within 3 business days of receiving a request, a copy of any Rule 498B online fund document to the individual requesting the document.  If paper copies are requested, the document would be required to be sent by U.S. first class mail, or equally prompt method.  If electronic copies are requested, a copy of the document or usable link must be sent. 

3. Amendments Narrowing Scope of Rule 30e-3

Rule 30e-3 allows investment companies to meet their shareholder report delivery requirements by posting these reports online and notifying shareholders that the reports have been posted online.  The Proposing Release noted that the proposed amendments to mutual fund annual and semi-annual reports represents a proposed movement away from a notice and access model for mutual fund shareholder report transmission and towards a model that contemplates direct transmission of concise reports.  The SEC stated that this means that shareholders would receive tailored information more directly than they would by means of the Rule 30e-3 notice.  Consequently, the SEC is proposing to amend the scope of Rule 30e-3 to exclude investment companies registered on Form N-1A from relying upon Rule 30e-3.

4. Proposed Amendments to Fund Prospectus Disclosure Requirements

A. Prospectus Fee Disclosures

The SEC proposes to move the current fee table from the summary prospectus to the statutory prospectus.  The summary prospectus would instead include a “simplified fee summary . . . to streamline the presentation of fees and provide an easier-to-understand presentation . . . to help provide a clearer picture of the total costs of investing in a fund.”  The SEC also is proposing to replace certain terms in the current fee table with terms that are intended to be more “Plain English.” The proposed fee summary would begin with a narrative statement that the summary shows amounts the investor could pay to buy, hold, and sell shares of the fund and that these costs reduce the value of the investment.  The SEC notes that the narrative statement also would state that the investor may pay other fees, such as brokerage commissions and other fees to financial intermediaries. This would occur, for example, in the case of ETFs or “clean shares.”³ The fee summary would recaption “Shareholder Fees” as “Transaction Fees”, which would encompass the following line items (unless a line item is inapplicable, in which case it should be omitted):

• Any “Purchase Charge” to purchase shares, and any “Exit Charge” to sell shares;
• The “Maximum Purchase Charge Imposed on Reinvested Dividends [and Other Distributions]”;
• Any “Early Exit Fee” – the redemption fee charged for exiting the fund early (and is distinguished from sales charges, which are covered under the “Exit Charge” line item);
• Any “Exchange Fee” – a charge that may be imposed on an investor who wishes to move assets from one fund in a fund group to another.

Maximum Account Fee would appear as its own heading fee; it would no longer appear with shareholder/transaction fees. The fee summary would replace advisory fee/12b-1 fee/operating expense line items with a single combined line item showing the “Ongoing Annual Fees”.  If the fund’s full fee table in the statutory prospectus were to show an expense reimbursement or fee waiver arrangement (a “discount”), the SEC would permit an additional line item in the proposed summary fee table: “Ongoing Annual Fees with Temporary Discount.”

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As noted above, the fee table would be relegated to the statutory prospectus.  The SEC proposes to replace current fee table terminology with terminology intended to be more easily understood by retail investors.  It also proposes to permit funds that invest 10% or less of their total assets in acquired funds to omit the acquired fund fees and expenses (AFFE) line item in the fee table and instead disclose the amount of the fund’s AFFE in a footnote to the fee table and fee summary.

B. Prospectus Risk Disclosures

The SEC is proposing several revisions to current risk disclosure practices:

• Funds could no longer disclose non-principal risks in the prospectus.
• Funds would be required to briefly summarize principal risks.
• Funds would need to order their principal risks in order of importance – a fund could use any reasonable means of determining importance.
• Funds would need to tailor their risk disclosures to the manner in which the fund operates, instead of relying upon generic, standard risk disclosures.

To determine if a risk is a principal risk, a fund should consider both whether the risk would place more than 10% of the fund’s assets at risk, and whether it is reasonably likely that a risk will meet this 10% standard in the future.  With respect to risks of acquired funds, a risk should be included only if it is also a principal risk of the acquiring fund.

5. Investment Company Advertising Rule Amendments

Under the proposed amendments, investment company fee and expense presentations in advertisements subject to Rule 482 under the Securities Act (and closed-end fund and BDC advertisements subject to Rule 433 under the Securities Act) and supplemental sales literature subject to Rule 34b-1 under the 1940 Act would have to include timely and prominent information about a fund’s maximum sales load (or any other nonrecurring fee) and gross total annual expenses, based on the methods of computation that the company’s 1940 Act or Securities Act registration statement form prescribes for a prospectus.  If an investment company’s advertisement did not include fee or expense figures, it would not need to include maximum sales loads or gross total annual expenses. The SEC also proposes to amend Rule 156 under the Securities Act to articulate factors an investment company should consider to determine whether representations in its advertisements about the fees and expenses associated with an investment in the fund could be misleading.

Conclusion

While the SEC has periodically attempted to streamline and simplify mutual fund prospectus disclosure, the current proposal represents the first instance in which the SEC has attempted to take a holistic approach to prospectus and periodic disclosure for mutual funds and ETFs.  However, the proposal in its current form represents a missed opportunity to integrate disclosure reform with Regulation Best Interest, as well as a missed opportunity to move away from the SEC’s electronic delivery guidance that has not been updated since the desktop/dial-up/Dirty Dancing (OK, maybe not the last one) era.  We also foresee compliance challenges for certain funds – in particular, retail funds that make their shares available through variable contracts, and funds with asset-based sales charges.  We hope that the SEC addresses these concerns during the notice and comment process.   Finally, if you made it this far – no, we didn’t forget.  The answers are: a:  1983; b:  2009; c:  1998. Thanks for playing!

“The end of a matter is better than the beginning of it.  Better a patient spirit than a haughty spirit.” – Ecclesiastes 7:8

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 Article Footnotes

1. Tailored Shareholder Reports, Treatment of Annual Prospectus Updates for Existing Investors, and Improved Fee and Risk Disclosure for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements, Securities Act Rel. No. 10814 (Aug. 5, 2020) (“Proposing Release”). 
2. Speech: PLI Investment Management Institute, Dalia Blass, Director, Division of Investment Management, SEC (July 28, 2020) (https://www.sec.gov/news/speech/blass-speech-pli-investment-management-institute) (visited Sept. 8, 2020). 
3. The SEC defines “clean shares” as share classes offered without sales loads or any asset-based distribution or sales fees.  Proposing Release at 268, n. 561.  This appears to settle a dispute within the industry regarding whether clean shares can include sub-accounting fees.  However, it remains unclear whether clean shares can include asset-based service fees. 
4. See Mutual Fund Distribution Fees; Confirmations. Investment Company Act Rel. No. 23967 (July 21, 2010), 75 Fed. Reg. 47063, 47083 and n. 218 (a broker-dealer may omit from confirmations of mutual fund transactions information about sales charges or third-party remuneration, so long as the customer receives a fund prospectus that adequately discloses that information).