# SECURITIES AND EXCHANGE COMMISSION > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Asec%3A7db5dcb988614e3d ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 230, 232, 239, and 274 [Release Nos. 33-9006, 34-59391, 39-2462, IC-28617; File Number S7-12-08] RIN 3235-AK13 INTERACTIVE DATA FOR MUTUAL FUND RISK/RETURN SUMMARY AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: We are adopting rule amendments requiring mutual funds to provide risk/return summary information in a form that is intended to improve its usefulness to investors. Under the rules, risk/return summary information could be downloaded directly into spreadsheets, analyzed in a variety of ways using commercial off-the-shelf software, and used within investment models in other software formats. Mutual funds will provide the risk/return summary section of their prospectuses to the Commission and on their Web sites in interactive data format using the eXtensible Business Reporting Language (“XBRL”). The interactive data will be provided as exhibits to registration statements and as exhibits to prospectuses with risk/return summary information that varies from the registration statement. The rules are intended not only to make risk/return summary information easier for investors to analyze but also to assist in automating regulatory filings and business information processing. Interactive data has the potential to increase the speed, accuracy, and usability of mutual fund disclosure, and eventually reduce costs. We also are adopting rules to permit investment companies to submit portfolio holdings information in our interactive data voluntary program without being required to submit other financial information. DATES: Effective Date: July 15, 2009. Compliance Date: January 1, 2011. Section II.H. of this release contains information on the effective date and the compliance date. FOR FURTHER INFORMATION CONTACT: Brent J. Fields, Assistant Director, Office of Disclosure and Review, Mark H. Berman, Senior Special Counsel, Office of Special Projects, Tara R. Buckley, Senior Counsel, Office of Chief Counsel, Deborah D. Skeens, Senior Counsel, and Alberto H. Zapata, Senior Counsel, Office of Disclosure Regulation, Division of Investment Management, at (202) 551-6784, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-5720. SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission (“Commission”) is adopting amendments to rules 4851 and 4972 under the Securities Act of 1933 (“Securities Act”), rules 11,3 202,4 401,5 and 4056 of Regulation S-T,7 and Form N-1A8 under the Securities Act and the Investment Company Act of 1940 (“Investment Company Act”).9 1 17 CFR 230.485. 2 17 CFR 230.497. 3 17 CFR 232.11. 4 17 CFR 232.202. 5 17 CFR 232.401. 6 The Commission recently added new rule 405 to Regulation S-T [17 CFR 232.405] in a separate release. See Securities Act Release No. 9002 (Jan. 30, 2009) [74 FR 6776 (Feb. 10, 2009)] (“Interactive Data Adopting Release”). 7 17 CFR 232.10 et seq. 8 17 CFR 239.15A and 274.11A. 9 The Commission proposed these rule and form amendments in June 2008. See Securities Act Release No. 8929 (June 10, 2008) [73 FR 35442 (June 23, 2008)] (“Proposing Release”). 2 Table of Contents Executive Summary ............................................................................................................ 4 I. INTRODUCTION AND BACKGROUND .............................................................. 8 A. Commission Initiatives to Update the Public Disclosure Process .......................... 8 B. Current Filing Technology and Interactive Data .................................................. 12 II. DISCUSSION .......................................................................................................... 17 A. Submission of Risk/Return Summary Information Using Interactive Data ......... 18 B. Content and Submission Requirements for Interactive Risk/Return Summary Information ........................................................................................................... 26 C. Web Site Posting of Interactive Data.................................................................... 31 D. Consequences of Non-Compliance and Hardship Exemption.............................. 34 E. Interactive Data List of Tags and Commission Viewer........................................ 39 F. Application of Federal Securities Laws................................................................ 45 G. Changes to the Voluntary Program....................................................................... 53 H. Compliance Date................................................................................................... 56 III. PAPERWORK REDUCTION ACT........................................................................ 60 IV. COST/BENEFIT ANALYSIS ................................................................................. 73 V. CONSIDERATION OF BURDEN ON COMPETITION AND PROMOTION OF EFFICIENCY, COMPETITION, AND CAPITAL FORMATION ........................ 91 VI. FINAL REGULATORY FLEXIBILITY ANALYSIS ........................................... 96 VII. STATUTORY AUTHORITY ............................................................................... 102 TEXT OF RULE AND FORM AMENDMENTS.......................................................... 103 3 Executive Summary The principal elements of the rule amendments we are adopting today are as follows: • Open-end management investment companies (“mutual funds”)10 must submit to the Commission a new exhibit with their risk/return summary information in interactive data format, beginning with initial registration statements, and posteffective amendments that are annual updates to effective registration statements that become effective after January 1, 2011.11 • An interactive data file submitted with a registration statement must be filed as a post-effective amendment under rule 485(b) under the Securities Act12 and must be filed after effectiveness of the related filing, but no later than 15 business days after the effective date of the related filing. An interactive data file required to be submitted with a form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act may be submitted with the filing or subsequent thereto, but no 10 An open-end management investment company is an investment company, other than a unit investment trust or face-amount certificate company, that offers for sale or has outstanding any redeemable security of which it is the issuer. See Sections 4 and 5(a)(1) of the Investment Company Act [15 U.S.C. 80a-4 and 80a-5(a)(1)]. 11 We have adjusted the compliance date to provide mutual funds sufficient time to become familiar with interactive data. See infra Section II.H. Interactive data will be required as an exhibit to a registration statement or post-effective amendment thereto that contains risk/return summary information and to any form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act [17 CFR 230.497(c) or (e)] that contains risk/return summary information that varies from the registration statement. Interactive data will not be required as an exhibit to a post-effective amendment that does not contain risk/return summary information or to a form of prospectus filed pursuant to rule 497(c) or (e) that does not contain risk/return summary information that varies from the registration statement. 12 A post-effective amendment filed under rule 485(b) under the Securities Act [17 CFR 230.485(b)] may become effective immediately upon filing. A post-effective amendment may only be filed under rule 485(b) if it is filed for one or more specified purposes, including to make non-material changes to the registration statement. 4 later than 15 business days after the filing made pursuant to rule 497. • Risk/return summary information in interactive data format must be provided as an exhibit identified in General Instruction C.3.(g).(iv) of Form N-1A.13 • The rules do not alter the requirements to provide risk/return summary information with the traditional format filings.14 • A mutual fund required to provide risk/return summary information in interactive data format to the Commission also is required to post that information in interactive data format on its Web site not later than the end of the calendar day it submitted or was required to submit the interactive data exhibit to the Commission, whichever is earlier.15 • If a mutual fund does not submit or post interactive data as required, the fund’s ability to file post-effective amendments to its registration statement under rule 485(b) under the Securities Act will be automatically suspended until the fund submits and posts the interactive data as required. • Mutual funds providing risk/return summary information in interactive data format are required to use the most recent list of tags released by XBRL U.S.16 as 13 Form N-1A is the form used by mutual funds to register under the Investment Company Act and to offer securities under the Securities Act. 14 When we extended the voluntary program to the mutual fund risk/return summary, we stated in the adopting release that the interactive data submission would be supplemental to filings and not replace the required traditional electronic format of the information it contains. We also said that volunteers would be required to continue to file their traditional electronic filings. See Part II.A. of Securities Act Release No. 8823 (July 11, 2007) [72 FR 39290, 39292 (July 17, 2007)]. 15 The Web site posting requirement applies only to the extent a mutual fund already maintains a Web site. 16 The appropriate list of tags for document and entity identifier elements will be a list released by XBRL U.S., see infra note 46, and will be required to be used by all issuers required to submit interactive data. 5 required by Regulation S-T and the EDGAR Filer Manual.17 Mutual funds also are required to tag a limited number of document and entity identifier elements, such as the form type and the fund’s name. As with interactive data for the risk/return summary, these document and entity identifier elements must be formatted using the appropriate list of tags as required by Regulation S-T and the EDGAR Filer Manual. • New rule 406T of Regulation S-T18 addresses the liability for an interactive data file and provides that an interactive data file is: o Subject to the anti-fraud provisions of Section 17(a)(1) of the Securities Act, Section 10(b) of and rule 10b-5 under the Securities Exchange Act of 1934 (“Exchange Act”), and Section 206(1) of the Investment Advisers Act of 1940 (“Investment Advisers Act”), except as provided below; o Deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act or Section 34(b) of the Investment Company Act, and otherwise is not subject to liability under these sections; 17 Rule 405 of Regulation S-T directly sets forth the basic tagging requirements and indirectly sets forth the rest of the tagging requirements through the requirement to comply with the EDGAR Filer Manual, which is available on the Commission’s Web site at: http://www.sec.gov/info/edgar/edmanuals.htm. Consistent with rule 405, the EDGAR Filer Manual contains the technical tagging requirements. See Interactive Data Adopting Release, supra note 6 (adopting rule 405 of Regulation S-T). Currently, we are in the process of updating the EDGAR Filer Manual to reflect changes in the tagging requirements applicable to financial statements. See Interactive Data Adopting Release, supra note 6. We anticipate that similar updates to address revisions in the tagging requirements applicable to fund risk/return summary information and portfolio holdings will be finalized during 2009. 18 See Interactive Data Adopting Release, supra note 6 (adopting rule 406T of Regulation S-T). 6 o Deemed filed for purposes of (and, as a result, benefit from) rule 103 of Regulation S-T;19 and o Subject to liability for a failure to comply with rule 405 of Regulation S-T,20 but shall be deemed to have complied with rule 405 and would not be subject to liability under the anti-fraud provisions set forth above or under any other liability provision if the electronic filer: ƒ makes a good faith attempt to comply with rule 405; and ƒ after the electronic filer becomes aware that the interactive data file fails to comply with rule 405, promptly amends the interactive data file to comply with rule 405. • These liability provisions will apply only until October 31, 2014, and, thereafter, an interactive data file will be subject to the same liability provisions as the related official filing. • The voluntary program is being modified to allow for participation by mutual funds with respect to risk/return summary information up until January 1, 2011, but continue to permit investment companies to participate with respect to financial statement information thereafter. As a result, the voluntary program 19 The interactive data file is deemed filed for purposes of rule 103 of Regulation S-T [17 CFR 232.103] and, as a result, in general, the mutual fund would not be subject to liability for electronic transmission errors beyond its control if the mutual fund corrects the problem through an amendment as soon as reasonably practicable after the fund becomes aware of the problem. Interactive data files are deemed filed for purposes of rule 103 regardless of whether they are eligible for the modified treatment provided by rule 406T at the time submitted. Rule 406T expressly provides that interactive data files are deemed filed for purposes of rule 103 to remove any negative inference that otherwise might be drawn due to the fact that rule 406T deems interactive data files to be not filed for other specified purposes. 20 See supra note 17. 7 will continue after the compliance date of these rule amendments for the financial statements of investment companies that are registered under the Investment Company Act, business development companies,21 and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X. • Registered investment companies, business development companies, and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X are permitted to submit exhibits under the voluntary program containing a tagged schedule of portfolio holdings without having to submit other financial information in interactive data format. We intend to monitor implementation and, if necessary, make appropriate adjustments to the adopted amendments. I. INTRODUCTION AND BACKGROUND A. Commission Initiatives to Update the Public Disclosure Process Over the last several decades, developments in technology and electronic data communication have facilitated greater transparency in the form of easier access to, and analysis of, financial reporting and disclosures. Technological developments also have significantly decreased the time and cost of filing disclosure documents with us. Most notably, in 1993 we began to require electronic filing on our Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”).22 Since then, widespread use of the Internet 21 Business development companies are a category of closed-end investment companies that are not required to register under the Investment Company Act. See Section 2(a)(48) of the Investment Company Act [15 U.S.C. 80a-2(a)(48)]. 22 In 1993, we began to require domestic issuers to file most documents electronically. Securities Act Release No. 6977 (Feb. 23, 1993) [58 FR 14628 (Mar. 18, 1993)]. 8 has vastly decreased the time and expense of accessing disclosure filed with us. We continue to update our filing standards and systems as technologies improve, consistent with our goal to promote efficient and transparent capital markets. Most recently, we unveiled the Interactive Data Electronic Applications database (“IDEA”), which will initially supplement and eventually replace EDGAR, and which is designed to take full advantage of interactive technology in order to provide investors with better and more useful financial disclosures.23 Also, since 2003 we have required electronic filing of certain ownership reports filed on Forms 3,24 4,25 and 526 in a format that provides interactive data, and recently we adopted similar rules governing the filing of Form D.27 In addition, recently we have encouraged, and in some cases required, mutual funds and public reporting companies to provide disclosures and communicate with investors using the Internet.28 In addition, we also implemented a voluntary filer program, started in 2005,29 that Electronic filing began with a pilot program in 1984. Securities Act Release No. 6539 (June 27, 1984) [49 FR 28044 (July 10, 1984)]. 23 See SEC Announces Successor to EDGAR Database, Securities and Exchange Commission Press Release, Aug. 19, 2008, available at: http://www.sec.gov/news/press/2008/2008-179.htm. 24 17 CFR 249.103 and 274.202. 25 17 CFR 249.104 and 274.203. 26 17 CFR 249.105. 27 17 CFR 239.500. 28 See, e.g., Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 2009)] (“Summary Prospectus Adopting Release”); Exchange Act Release No. 57172 (Jan. 18, 2008) [73 FR 4450 (Jan. 25, 2008)]; Exchange Act Release No. 56135 (July 26, 2007) [72 FR 42222 (Aug. 1, 2007)]; Exchange Act Release No. 55146 (Jan. 22, 2007) [72 FR 4148 (Jan. 29, 2007)]; Securities Act Release No. 8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)]. 29 Securities Act Release No. 8529 (Feb. 3, 2005) [70 FR 6556 (Feb. 8, 2005)] (“Voluntary Program Adopting Release”). 9 has allowed us to evaluate certain uses of interactive data. The voluntary program allows companies to submit financial statements on a supplemental basis in interactive format as exhibits to specified filings under the Exchange Act and the Investment Company Act. Over 100 operating companies participated in the voluntary program. These companies span a wide range of industries and company characteristics, and have a total market capitalization of over $2 trillion. Companies that participated in the program were still required to file their financial statements in American Standard Code for Information Interchange (“ASCII”) or HyperText Markup Language (“HTML”).30 Four mutual fund complexes participated in the voluntary program and have submitted financial statement information in interactive data format.31 In 2007, we extended the program to enable mutual funds voluntarily to submit in interactive data format supplemental information contained in the risk/return summary section of their prospectuses.32 The risk/return summary contains information about a fund’s investment objectives and strategies, costs, risks, and past performance.33 Twenty-five mutual funds from a variety of fund families have submitted risk/return summary information in interactive data format. These funds represent 15 fund complexes, and consist of a range of fund types, including 14 equity funds, two balanced 30 HTML is a standardized language commonly used to present text and other information on Web sites. 31 These four fund complexes made 23 submissions representing 12 mutual funds. 32 Securities Act Release No. 8823 (July 11, 2007) [72 FR 39290 (July 17, 2007)] (“Risk/Return Voluntary Program Adopting Release”). 33 Items 2, 3, and 4 of Form N-1A. 10 funds, five bond funds, and four money market funds. The funds participating in the voluntary program also include larger and smaller funds.34 Since the establishment of the voluntary program for mutual fund risk/return summary information, the Commission has continued its evaluation of interactive data, including interactive data submitted by mutual funds. The Commission’s evaluation of interactive data has included the hosting of three roundtables on the topic of interactive data reporting,35 as well as the creation, in April 2008 of a viewer that allowed investors to read, analyze, and compare the interactive risk/return summary data submitted by mutual funds.36 Additionally, prior to launching the risk/return viewer, Commission staff reviewed all of the interactive data files submitted to the Commission to help ensure the accuracy of the interactive risk/return summary data displayed on the Commission’s Web site, and the staff communicated with the filers in order to identify and correct any technical issues with the submissions.37 Further, as noted below, Commission staff also surveyed voluntary program participants for specific data regarding the costs of preparing and submitting risk/return summary information in interactive data, including software 34 Based on industry assets as of September 2008, four of the five largest fund complexes have submitted tagged risk/return summary information as part of the voluntary filing program. Lipper-Directors’ Analytical Data, Reuters Sept. 2008. As of September 2008, the two smallest mutual funds participating in the voluntary program had net assets of approximately $41 million and $17 million. Id. 35 See materials available at http://www.sec.gov/spotlight/xbrl/xbrl-meetings.shtml. 36 As discussed in Section I.B. infra, information in interactive data format is intended to be processed by software applications and is not readable by humans without a viewer. 37 See infra Section II.E.3. (discussing the Commission’s risk/return summary interactive data viewer). 11 costs and internal and external labor costs.38 Six of the participating mutual funds responded, providing data in response to this voluntary program questionnaire. These six respondents represent mutual fund complexes whose assets comprise a range of approximately .01% to 12% of all the assets of the mutual funds that will be required to submit interactive data.39 In a companion release, we recently adopted rules requiring companies, other than investment companies that are registered under the Investment Company Act, business development companies, and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X, to submit financial information to the Commission in interactive data format.40 In this release, as part of our continuing efforts to assist investors who use Commission disclosures, as well as filers of that disclosure, we are adopting rule amendments to require that mutual fund risk/return summary information be provided in a format that makes the information interactive. B. Current Filing Technology and Interactive Data Companies filing electronically are required to file their registration statements and periodic reports in ASCII or HTML format.41 Also, to a limited degree, our 38 See Section III. below. Of the 22 mutual funds that participated in the voluntary program at the time the Commission proposed these amendments, nine were provided questionnaires on the details of their cost experience, and six responses were collected representing the cost data for ten funds. 39 Based on total mutual fund assets of $10.6 trillion. Lipper-Directors’ Analytical Data, Reuters Sept. 2008. 40 Interactive Data Adopting Release, supra, note 6. 41 Rule 301 of Regulation S-T [17 CFR 232.301] requires electronic filings to comply with the EDGAR Filer Manual, and Section 5.2 of the EDGAR Filer Manual requires that electronic filings be in ASCII or HTML format. Rule 104 of Regulation S-T [17 CFR 232.104] permits filers to submit voluntarily as an adjunct to their official filings in 12 electronic filing system uses other formats for internal processing and document-type identification. For example, our system uses eXtensible Markup Language (“XML”) to process reports of beneficial ownership of equity securities on Forms 3, 4, and 5 under Section 16(a) of the Exchange Act.42 Electronic formats such as HTML, XML, and XBRL are open standards43 that define or “tag” data using standard definitions. The tags establish a consistent structure of identity and context. This consistent structure can be recognized and processed by a variety of different software applications. In the case of HTML, the standardized tags enable Web browsers to present Web sites’ embedded text and information in a predictable format. In the case of XBRL, software applications, such as databases, financial reporting systems, and spreadsheets, recognize and process tagged information. XBRL was derived from the XML standard. It was developed and continues to be supported by XBRL International, a consortium of approximately 550 organizations representing many elements of the financial reporting community worldwide in more than 20 jurisdictions, national and regional. XBRL U.S., the international organization’s U.S. jurisdiction representative, is a non- profit organization44 that includes companies, public accounting firms, software developers, filing agents, data aggregators, stock ASCII or HTML unofficial PDF copies of filed documents. Unless otherwise stated, we refer to filings in ASCII or HTML as traditional format filings. 42 15 U.S.C. 78p(a). 43 The term “open standard” is generally applied to technological specifications that are widely available to the public, royalty-free, at minimal or no cost. 44 XBRL U.S. is a 501(c)(6) organization. Internal Revenue Code Section 501(c)(6) applies to “Business leagues, chambers of commerce, real-estate boards, boards of trade, or professional football leagues (whether or not administering a pension fund for football players), not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.” See 26 U.S.C 501(c)(6). 13 exchanges, regulators, financial services companies, and industry associations.45 Risk/return summary information in interactive format requires a standard list of tags. These tags are similar to definitions in an ordinary dictionary, and they cover a variety of concepts that can be read and understood by software applications. For the risk/return summary, a mutual fund will use the most recent list of tags for risk/return summary information released by XBRL U.S.46 This list of tags contains descriptive labels, authoritative references to Commission regulations where applicable, and other elements, all of which provide the contextual information necessary for interactive data47 to be recognized and processed by software.48 The initial risk/return summary list of tags received acknowledgement from 45 XBRL U.S. supports efforts to promote interactive financial and business data specific to the U.S. 46 Unless stated otherwise, when we refer to the “list of tags for risk/return summary information” we mean the interactive data list of tags released and maintained by XBRL U.S., including any modifications. This list was initially developed by the Investment Company Institute (“ICI”), which is a national association of the U.S. investment company industry. 47 The rules define the interactive data in machine-readable format required to be submitted as the “interactive data file,” which will be required with every interactive data submission. See Interactive Data Adopting Release, supra note 6 (adopting new definitions under 17 CFR 232.11). 48 For example, contextual information identifies the entity to which it relates, usually by using the filer’s Central Index Key (“CIK”) number. A hypothetical filer converting its traditional electronic disclosure of total annual fund operating expenses of 0.73% must create interactive data that identifies what the 0.73% represents, total annual fund operating expenses, and that the number is a percentage. The contextual information includes other information as necessary; for example, the date of the prospectus to which it relates and the series and class to which it applies. A mutual fund may issue multiple “series” of shares, each of which is preferred over all other series in respect of assets specifically allocated to that series. Rule 18f-2 under the Investment Company Act [17 CFR 270.18f-2]. Each series is, in effect, a separate investment portfolio. A mutual fund may issue more than one class of shares that represent interests in the same portfolio of securities with each class, among other things, having a different arrangement for shareholder services or the distribution of securities, or both. Rule 18f-3 under the Investment Company Act [17 CFR 270.18f-3]. 14 XBRL International in June 2007,49 and was used by mutual funds participating in the Commission’s voluntary program. More recently, XBRL U.S. has updated the architecture of the list of tags for risk/return summary information and conformed the list of tags to changes we recently adopted to the risk/return summary disclosure requirements.50 The list was recently issued for public comment,51 and it is expected to be finalized and submitted to XBRL International for acknowledgement by the end of January 2009. Related documents, such as the architecture and technical guides, also are due to be released publicly by the end of January 2009. Data tags are applied to risk/return summary information by using commercially available software that guides a preparer to tag information in the risk/return summary, such as line item costs in a mutual fund’s fee table, with the appropriate tags in the standard list. This involves locating an element in the list of tags that represents the particular disclosure that is to be tagged. Occasionally, because mutual funds have some 49 The list of tags is available on XBRL International’s Web site at: http://xbrl.org/Taxonomy/rr-summarydocument-20070516-acknowledged.htm. There are two levels of XBRL tag recognition: (1) “acknowledgement” is formal recognition that a list of tags complies with XBRL specifications, including testing by a defined set of validation tools; and (2) “approval” is a formal recognition requiring more detailed quality assurance and testing, including compliance with official XBRL guidelines for the type of tag list under review, creation of a number of instance documents, and an open review period after acknowledgement. For more information regarding the XBRL tag list recognition process, see “Taxonomy Recognition Process” on the XBRL International Web site available at: http://www.xbrl.org/TaxonomyRecognition/. 50 See infra Section II.E.1. (discussing the list of tags for risk/return summary information); Summary Prospectus Adopting Release, supra note 28. 51 XBRL U.S. released the updated list of tags for risk/return summary information for public comment on October 21, 2008. The list is available on the XBRL U.S. Web site at: http://xbrl.us/imtaxonomies/Pages/default.aspx. See XBRL U.S. Announces Public Review of Data Tags for Mutual Fund Risk/Return Summary and Schedule of Investments, available on the XBRL U.S. Web site at: http://xbrl.us/press/Pages/20081021.aspx. The comment period closed on November 24, 2008. 15 flexibility in preparing the risk/return summary, particularly the narrative portions, it is possible that a mutual fund may wish to use a non-standard disclosure that is not included in the standard list of tags. In this situation, a fund will create a company-specific element, called an extension. Alternatively, a mutual fund may choose to outsource the tagging process. Because mutual fund risk/return summary information in interactive data format is intended to be processed by software applications, the unprocessed interactive data is not readable by humans. Thus, viewers are necessary to convert, or “render,” the interactive data file to human readable format. Some viewers, for example, may be compared to Web browsers that are used to read HTML files. The Commission’s Web site currently provides links to viewers that allow the public to read mutual fund and other company disclosures submitted using interactive data. One of these viewers allows users to view and compare mutual fund risk/return summary information, including investment objectives and strategies, costs, risks, and past performance, that is submitted in interactive data format.52 These viewers are intended to demonstrate the capability of software to present interactive data in humanreadable form and to provide open source software to give developers a free resource they can use as is or build upon. As noted above, software also is able to process interactive data so as to automate and, as a result, facilitate access to and analysis of tagged data. In addition, we are aware of other applications under development that may 52 A mutual fund information viewer for the voluntary program is available at: http://a.viewerprototype1.com/viewer. 16 provide additional and advanced functionality.53 II. DISCUSSION The Commission received 16 comment letters on the proposed rule amendments, including comments from trade associations, fund complexes, a data aggregator, technology service providers, and individual investors and professionals.54 The commenters generally supported both the use of technology to better inform mutual fund investors and the Commission’s goal of providing risk/return summary information in interactive data format.55 Most commenters, however, stated that requiring mutual funds to provide tagged risk/return summary information is premature.56 As discussed below, commenters also raised other concerns regarding the proposal, including concerns regarding the adequacy of the existing technology necessary to create and submit 53 A list of interactive data products and service providers is available at: http://xbrl.us/Vendors/Pages/default-expand.aspx. 54 See comment letters of the American Bar Association (“ABA”) (Aug. 18, 2008); James J. Angel, Ph.D, C.F.A. (“Angel”) (Aug. 4, 2008); Gary J. Coles (“Coles”) (July 25, 2008); Committee of Annuity Insurers (“Annuity Insurers”) (July 23, 2008); Confluence (Aug. 1, 2008); Data Communiqué, Inc. (“Data Communiqué”) (July 31, 2008); Federated Investors, Inc. (“Federated”) (Aug. 12, 2008); Robert Gilmore, C.P.A. (“Gilmore”) (July 31, 2008); Walter C. Hamscher (“Hamscher”) (July 31, 2008); ICI (Aug. 1, 2008); Lipper (July 29, 2008); OppenheimerFunds, Inc. (“Oppenheimer”) (Aug. 4, 2008); Lorna A. Schnase (“Schnase”) (July 25, 2008); Jay Starkman, C.P.A. (“Starkman”) (July 30, 2008); T. Rowe Price Associates, Inc. (“T. Rowe Price”) (Aug. 1, 2008); and The Vanguard Group, Inc. (“Vanguard”) (Aug. 1, 2008). Comment letters received in response to the Proposing Release are available at: http://www.sec.gov/comments/s7-12­ 08/s71208.shtml or from our Public Reference Room at 100 F Street, NE, Washington, DC 20549. 55 Twelve commenters generally supported tagging risk/return summary information in interactive data format. See letters of ABA, Angel, Annuity Insurers, Confluence, Data Communiqué, Gilmore, Hamscher, ICI, Lipper, Oppenheimer, T. Rowe Price, and Vanguard. Three commenters did not support requiring interactive disclosure of risk/return summary data. See letters of Federated, Schnase, and Starkman. One commenter expressed no explicit opinion on the matter. See letter of Coles. 56 See letters of ABA, Confluence, Data Communiqué, Federated, Gilmore, ICI, Oppenheimer, Schnase, T. Rowe Price, and Vanguard. 17 interactive data files,57 what information should be required to be tagged,58 the proposed compliance date,59 and the potential liability of mutual funds under the federal securities laws related to tagged risk/return summary information.60 For the reasons discussed below, we continue to believe that the enormous potential of interactive data for enhancing investors’ access to mutual fund information justifies implementation of this initiative. Therefore, we are adopting the proposed amendments with some modifications to address commenters’ concerns. The rule amendments are intended to make risk/return summary information easier for investors to analyze and to assist in automating regulatory filings and business information processing. A. Submission of Risk/Return Summary Information Using Interactive Data We are adopting, as proposed, rule amendments that require mutual funds to submit a complete set of their risk/return summary information, set forth in Items 2, 3, and 4 of Form N-1A,61 in interactive data format.62 In addition, mutual funds are required to provide document and entity identifier tags, such as the form type and the fund’s name. As was the case in the voluntary program, the new requirement for 57 See letters of Confluence, Federated, Gilmore, ICI, Oppenheimer, Schnase, Starkman, and T. Rowe Price. 58 See letters of ABA, Confluence, Data Communiqué, Federated, and Schnase. 59 See letters of Confluence, Data Communiqué, Federated, Gilmore, ICI, Oppenheimer, Schnase, T. Rowe Price, and Vanguard. 60 See letters of ABA, Federated, ICI, Oppenheimer, and Schnase. 61 Recently, the Commission adopted amendments to Form N-1A, see Summary Prospectus Adopting Release, supra note 28, under which the risk/return summary information, formerly contained in Items 2 and 3 of Form N-1A, was reconfigured in Items 2, 3, and 4 of Form N-1A. We apply the tagging rules to the information required by amended Form N-1A. 62 See Item 405(b)(2) of Regulation S-T. 18 interactive data reporting is intended to be disclosure neutral in that we do not intend the rules to result in mutual funds providing more, less, or different disclosure for any given disclosure item, regardless of whether the format is ASCII, HTML, or XBRL. We are adopting these rule amendments because the submission of interactive risk/return summary information at this time is an important next step in increasing the accessibility of this information to mutual fund investors and others. Requiring mutual funds to submit the risk/return summary section of their prospectuses using interactive data format will enable investors, analysts, and the Commission staff to capture and analyze that information more quickly and at less cost than is possible using the same information provided in a static format. Any investor with a computer and an Internet connection will have the ability to acquire and download interactive data that have generally been available only to intermediaries and third-party analysts. The interactive data rule amendments do not change disclosure requirements under the federal securities laws and regulations, but will add a requirement to include risk/return summary information in an interactive data format as an exhibit. Thus, requiring that filers provide risk/return summary information using interactive data will not otherwise alter at all the disclosure or formatting standards of mutual fund prospectuses. These filings will continue to be available as they are today for those who prefer to view the traditional text-based document. Interactive data can create new ways for investors, analysts, and others to retrieve and use the information. For example, users of risk/return summary information will be able to download cost and performance information directly into spreadsheets, analyze it using commercial off-the-shelf software, or use it within investment models in other 19 software formats. Through interactive data, what is currently static, text-based information can be dynamically searched and analyzed, facilitating the comparison of mutual fund cost, performance, and other information across multiple classes of the same fund and across the more than 8,000 mutual funds currently available.63 Interactive data also provides an opportunity to automate regulatory filings and business information processing, with the potential to increase the speed, accuracy, and usability of mutual fund disclosure. Such automation may eventually reduce costs. A mutual fund that uses a standardized interactive data format at earlier stages of its reporting cycle may reduce the need for repetitive data entry and, therefore, the likelihood of human error. In this way, interactive data may improve the quality of information while reducing its cost. Also, to the extent investors currently are required to pay for access to mutual fund risk/return summary information that has been extracted and reformatted into an interactive data format by third-party sources, the availability of interactive data in Commission filings may allow investors to avoid additional costs associated with third-party sources. As noted above, although most commenters generally supported the concept of interactive disclosure of risk/return summary information,64 they also asserted that this initiative is premature.65 In particular, several commenters urged the Commission to defer requiring mutual funds to submit interactive risk/return summary information because pending Commission proposals related to a mutual fund summary prospectus 63 Investment Company Institute, 2008 Investment Company Fact Book, at 15 (2008), available at: http://www.icifactbook.org/pdf/2008_factbook.pdf (as of year-end 2007, there were 8,752 mutual funds). 64 See supra note 55. 65 See supra note 56. 20 and exchange-traded funds (“ETFs”) would change the information in the risk/return summary.66 Related to those comments, commenters also asserted that: (1) the list of tags for risk/return summary information would require updating if the proposed changes to the risk/return summary are adopted; (2) the list of tags’ architecture needed to be updated; and (3) related tools are not sufficiently developed.67 Commenters also stated that implementation is premature because more information needs to be collected from the current voluntary program.68 While we are sensitive to these commenters’ concerns, they do not warrant delay in this important initiative, particularly given recent progress related to these comments. First, the Commission recently adopted amendments to Form N-1A related to the Summary Prospectus Initiative and the ETF Initiative.69 These amendments do not 66 See letters of Data Communiqué, Federated, ICI, Oppenheimer, Schnase, T. Rowe Price, and Vanguard. The Commission proposed revisions to Form N-1A’s risk/return summary disclosure requirements as part of two separate rulemaking initiatives. See Investment Company Act Release No. 28064 (Nov. 21, 2007) [72 FR 67790 (Nov. 30, 2007)] (proposing amendments intended to enhance mutual fund disclosure of certain key information, including risk/return summary information, by, among other things, permitting mutual funds to provide such information in the form of a summary prospectus if certain conditions are satisfied) (“Summary Prospectus Initiative”); and Investment Company Act Release No. 28193 (Mar. 11, 2008) [73 FR 14618 (Mar. 18, 2008)] (proposing amendments to the mutual fund risk/return summary to provide certain information relating specifically to ETFs) (“ETF Initiative”). 67 See letters of Confluence, Federated, ICI, Oppenheimer, Schnase, and T. Rowe Price. 68 See letters of Federated, ICI, and Schnase. 69 These amendments were presented to the Commission at an open meeting on November 19, 2008. See Summary Prospectus Adopting Release, supra note 28. Form N-1A changes related to both the Summary Prospectus Initiative and the ETF Initiative were adopted together in the Summary Prospectus Adopting Release. In the Summary Prospectus Initiative, we requested comment on whether the proposed linking requirements for documents posted on an Internet Web site should be modified. See Summary Prospectus Initiative, supra note 66. We received one comment on this issue opposing the modification of the proposed linking requirements. See letter of Data Communiqué. The linking requirements were adopted as proposed. See Summary Prospectus Adopting Release, supra note 28. 21 significantly alter the content requirements of the risk/return summary section, consisting of limited modifications to the disclosure in the Fee Table.70 Mutual funds will not be required to comply with these new Form N-1A disclosure requirements until January 1, 2010,71 providing almost one year for them to revise their disclosure. Second, as discussed further below,72 revisions to the list of tags for risk/return summary information to account for these limited disclosure changes and revisions to the architecture have been issued for public comment and are expected to be finalized by the end of January 2009. Again, this will provide mutual funds with substantial time to prepare to tag their risk/return summary information. Third, while the Commission’s current viewer permits the rendering of tagged risk/return summary information, progress has been made to develop a more advanced tool that will allow issuers to test their tagged exhibits prior to submitting them to the Commission.73 This upgrade to the viewer will be phased in, but should be completed during mid-2009. 70 These amendments include: (1) requiring mutual funds that offer discounts on front-end sales charges for volume purchases (so-called “breakpoint discounts”) to include a brief narrative disclosure alerting investors to the availability of those discounts, see Item 3 of Form N-1A; Instruction 1(b) to Item 3 of Form N-1A; (2) revising the parenthetical heading for “Annual Fund Operating Expenses” in the Fee Table to read “expenses that you pay each year as a percentage of the value of your investment,” see Item 3 of Form N-1A; (3) requiring mutual funds, other than money market funds, to include brief disclosure regarding portfolio turnover immediately following the fee table example, see Instruction 5 to Item 3 of Form N-1A; and (4) permitting mutual funds to place two additional captions in the Fee Table directly below the “Total Annual Fund Operating Expenses” caption in cases where there are expense reimbursement or fee waiver arrangements that will reduce any fund operating expenses, see Instruction 3(e) to Item 3 of Form N-1A. The amendments also require modification for ETFs to the narrative explanation preceding the Fee Table to clarify that investors may pay brokerage commissions not reflected in the Fee Table. Instruction 1(e)(i) and (ii) to Item 3 of Form N-1A. 71 See Summary Prospectus Adopting Release, supra note 28. 72 See infra Section II.E.1. (discussing the list of tags for risk/return summary information). 73 See infra Section II.E.3. (discussing the Commission’s risk/return summary interactive data viewer). 22 Finally, the Commission has been exploring, via the voluntary program, the use of interactive data for several years, including the submission of tagged financial information and risk/return summary information. Twenty-five mutual funds have submitted over 40 exhibits tagged with interactive data, giving the Commission experience in adapting to the technology. In addition, over 100 operating companies have submitted financial statements tagged in interactive data format. Each submission has enabled issuers to gain experience with submitting tagged documents and enabled the Commission to refine its technology infrastructure to accept and efficiently render these interactive exhibits. Moreover, given the extended compliance date discussed below, mutual funds will have almost two years to resolve technical issues and may continue participating in the voluntary program in the interim to gain more experience submitting interactive data. In addition to the recommendations to delay this initiative, some commenters expressed concern that limiting the interactive data filing requirement to only risk/return summary information could lead investors to place undue emphasis on this information,74 and several commenters suggested that the Commission consider expanding this tagging requirement to include non-risk/return disclosures in the new mutual fund summary prospectus.75 Two of these commenters recommended that all items in the summary prospectus should be tagged.76 We believe that implementation of our interactive data 74 See letters of ABA, Data Communiqué, and Federated. See also related discussion concerning commenters’ suggestion that cautionary legends be permitted, infra Section II.B. 75 See letters of Confluence, Data Communiqué, and Schnase; see also discussion of Summary Prospectus Initiative, supra note 66, and Summary Prospectus Adopting Release, supra note 28. 76 See letters of Confluence and Schnase. 23 initiative should begin with the mutual fund risk/return summary, but we will continue to evaluate the benefits of tagging all items in the summary prospectus, as well as other information. Several commenters questioned whether XBRL is the appropriate standard format for interactive data disclosure, asserting that it is not sufficiently developed at this time.77 Specifically, commenters asserted that there are a limited number of commercial software products that are compatible with XBRL,78 and that rendering and validating are still expensive and problematic issues.79 One commenter also expressed concern that endorsing XBRL could have the effect of stifling competition for other languages, although this commenter acknowledged that she was unaware of other languages that are likely to become competitive with XBRL.80 While we acknowledge that XBRL is an evolving technology, we believe it is the appropriate interactive data format with which to supplement ASCII and HTML. Our experience with the voluntary program, including feedback from company, accounting, and software communities, points to XBRL as the appropriate open standard for the purposes of this rule.81 XBRL data will be compatible with a wide range of open source and proprietary XBRL software applications. As discussed above, many XBRL-related products exist for analysts, investors, filers, and others to create and compare disclosures more easily, the development process will likely be hastened by mutual fund disclosure using interactive data. 77 See letters of Gilmore, Schnase, and Starkman. 78 See letter of Starkman. 79 See letter of Gilmore. 80 See letter of Schnase. 81 See note 58 of the Proposing Release, supra note 9. 24 Several other factors support our views regarding XBRL’s broad and growing acceptance, internationally as well as in the U.S. For example, the Advisory Committee on Improvements to Financial Reporting (“CIFiR”)82 presented its final recommendations to the Commission in its final report issued in August 2008,83 which includes a recommendation that the Commission, over the long term, require the filing of financial and non-financial information using XBRL once specified conditions are satisfied.84 We believe that sufficient progress has been made regarding each of these conditions.85 Also, XBRL has been used by other U.S. agencies,86 and several foreign securities regulators 82 The Commission established CIFiR to examine the U.S. financial reporting system, with the goals of reducing unnecessary complexity and making information more useful and understandable for investors. See SEC Establishes Advisory Committee to Make U.S. Financial Reporting System More User-Friendly for Investors, Securities and Exchange Commission Press Release, June 27, 2007, available at: http://www.sec.gov/news/press/2007/2007-123.htm. CIFiR conducted open meetings on March 13-14, 2008 and May 2, 2008, in which it heard reactions from an invited panel of participants to CIFiR’s proposal regarding required filing of financial information using interactive data. Archived Webcasts of the meetings are available at http://sec.gov/about/offices/oca/acifr.shtml. The panelists presented their views and engaged with CIFiR members regarding issues relating to requiring interactive data tagged financial statements, including tag list and technological developments, implications for large and small public companies, needs of investors, necessity of assurance and verification of such tagged financial statements, and legal implications arising from such tagging. 83 See Final Report of the Advisory Committee on Improvements to Financial Reporting to the United States Securities and Exchange Commission (August 1, 2008), (“CIFiR Report”), available at: http://www.sec.gov/about/offices/oca/acifr/acifr-finalreport.pdf. 84 Id. at 98. The recommendation appears in chapter 4 of the CIFiR Report. 85 See discussion at note 135, and accompanying text, of Interactive Data Adopting Release, supra note 6. 86 Since 2005, the Federal Deposit Insurance Corporation (“FDIC”), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency have required the insured institutions that they oversee to file their quarterly Consolidated Reports of Condition and Income (called “Call Reports”) in interactive data format using XBRL. Call Reports, which include data about an institution’s balance sheet and income statement, are used by these federal agencies to assess the financial health and risk profile of the financial institution. 25 have adopted voluntary or required XBRL reporting.87 B. Content and Submission Requirements for Interactive Risk/Return Summary Information We are adopting, as proposed, the requirement that an interactive data file must be submitted to the Commission for any registration statement or post-effective amendment thereto on Form N-1A that includes or amends information provided in response to Items 2, 3, or 4.88 In response to commenters’ concerns,89 however, we are modifying our rules to encompass changes to risk/return summary information that mutual funds may make pursuant to rule 497 under the Securities Act.90 Specifically, in the Proposing Release, we asked for comment on whether mutual funds should be required to submit tagged risk/return summary information for prospectuses submitted pursuant to rule 497 under the Securities Act. Rule 497 sets out general filing requirements for fund prospectuses and provides, among other things, that funds must file any prospectus that contains information that varies from that in the registration statement.91 Commenters addressing 87 For example, such countries include Canada, China, Israel, Japan, Korea, and Thailand. 88 See rule 405(b)(2) of Regulation S-T; General Instruction C.3.(g).(i) of Form N-1A. We are also adopting technical amendments to rule 405 that reflect this requirement. As previously noted, rule 405 of Regulation S-T directly sets forth the basic tagging requirements and indirectly sets forth the rest of the tagging requirements through the requirement to comply with the EDGAR Filer Manual. Consistent with rule 405, the EDGAR Filer Manual will contain the detailed tagging requirements. 89 See infra note 96 and accompanying discussion. 90 17 CFR 230.497. 91 Specifically, (1) rule 497(c) under the Securities Act requires mutual funds to file, within five days after the effective date of a registration statement or the commencement of a public offering after the effective date of a registration statement, whichever occurs later, ten copies of each form of prospectus and form of statement of additional information (“SAI”) used after the effective date; and (2) rule 497(e) under the Securities Act provides that, after the effective date of a registration statement, no prospectus that purports to comply with Section 10 of the Securities Act [15 U.S.C. 77j] or SAI that varies from any form of prospectus or form of SAI filed pursuant to rule 497(c) shall be used until filed with the Commission. 26 the matter uniformly recommended that updates to interactive risk/return summary information should be required when such information is revised in a filing made pursuant to rule 497 under the Securities Act,92 asserting that failure to do so could: (1) compromise the integrity of the entire interactive data program;93 (2) result in a rendered file containing different information from the current prospectus, potentially leading to liability;94 and (3) result in investors accessing stale tagged data.95 We agree with commenters’ concerns that failure to include changes to risk/return summary information in filings made pursuant to rule 497 could result in investors and others accessing outdated interactive data. For that reason we are modifying the proposed rules, in response to the commenters’ recommendations, to require that an interactive data file must be submitted to the Commission for any form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act that includes information provided in response to Items 2, 3, or 4 that varies from the registration statement.96 We also are adopting, as proposed, the requirement that an interactive data file to a Form N-1A filing, whether the filing is an initial registration statement or a posteffective amendment thereto, must be submitted as an amendment to the registration statement to which the interactive data file relates and must be submitted after the registration statement or post-effective amendment that contains the related information becomes effective but not later than 15 business days after the effective date of that 92 See letters of Data Communiqué, ICI, and Schnase. 93 See letter of Data Communique. 94 See letter of ICI. 95 See letter of Schnase. 96 See General Instruction C.3.(g).(ii) of Form N-1A. We also revised paragraphs (c) and (e) of rule 497 to clarify that mutual funds must, if applicable pursuant to General Instruction C.3.(g) of Form N-1A, include an interactive data file. 27 registration statement or post-effective amendment.97 Our requirement that the interactive data file be submitted within 15 business days is intended both to provide funds with adequate time to prepare the exhibit and to make the interactive data available promptly. An exhibit containing interactive data format risk/return summary information can be submitted under rule 485(b) of the Securities Act, which provides for immediate effectiveness of amendments that make non-material changes, and will only need to contain the new exhibit, a facing page, a signature page, a cover letter explaining the nature of the amendment, and a revised exhibit index. To address the inclusion of tagged risk/return summary information submitted with rule 497 filings discussed above, our amendments provide that tagged risk/return summary exhibits must be submitted with or after the filing of a form of prospectus pursuant to rule 497(c) or (e) under the Securities Act. The tagged exhibits may be submitted concurrently with the rule 497 filing or up to 15 business days subsequent to the filing made pursuant to rule 497.98 Similar to the submissions under rule 485(b), the 15 business days is intended to provide funds adequate time to prepare their interactive data exhibits. We also are adopting, as proposed, the requirement that an interactive data file be submitted as an exhibit to Form N-1A, but also include a modification to address submissions made with rule 497 filings, providing that an interactive data file must be 97 See General Instruction C.3.(g).(i) to Form N-1A. 98 See General Instruction C.3.(g).(ii) to Form N-1A. Pursuant to the EDGAR Filer Manual, mutual funds should include an interactive data file as an exhibit (EX-101) contained in an EDGAR 497 submission. Funds submitting their exhibit subsequent to their initial rule 497 filing should make a second EDGAR 497 submission that includes (1) a 497 document (this 497 document may, in accordance with rule 411 under the Securities Act, incorporate by reference the first rule 497 filing and should include the accession number of that first rule 497 filing), and (2) any related interactive data exhibit. 28 submitted as an exhibit to the filing made pursuant to rule 497.99 Similar to the voluntary program, the rules require that the information contained in the risk/return summary section in the traditional format filing be the same as in the interactive data format.100 We have not changed this equivalency standard for risk/return summary information provided in interactive data format as required by the rules. As proposed, we also are adopting the requirement that an interactive data file be submitted in such a manner that will permit the information for each series and, for any information that does not relate to all of the classes in a filing, each class of the fund to be separately identified.101 However, information that is not class-specific, such as investment objectives, is not required to be separately identified by class. The rules do not eliminate or alter existing substantive disclosure requirements for risk/return summary information. The rules also do not eliminate or alter existing ASCII or HTML filing requirements. We believe investors and other users may wish to obtain an electronic or printed copy of the entire registration statement in ASCII or HTML, either in addition to or instead of disclosure formatted using interactive data. To clarify the intent of the rules, we have included an instruction to rule 405 of Regulation S-T stating that the rules require a disclosure format, but do not change substantive disclosure requirements.102 The rules also state clearly that the information in interactive data format should not be more or less than the information in the ASCII or HTML part of the 99 See General Instruction C.3.(g).(iv) of Form N-1A. 100 See rule 405(b)(2) of Regulation S-T. 101 See General Instruction C.3.(g).(iv) of Form N-1A. 102 See Interactive Data Adopting Release, supra note 6 (adopting Preliminary Note 2 to rule 405). 29 Form N-1A filing.103 As noted previously, several commenters expressed concern that tagging only a fund’s risk/return summary information may give such information too much emphasis, and may encourage some investors to act on incomplete information.104 These commenters suggested that registrants be permitted to include a legend similar to that required as part of the voluntary program, cautioning investors, before making an investment decision, to read and consider the full prospectus or other filing from which the information was taken.105 Because we believe it is inappropriate for the interactive data files to alter or differ from the information included in the related official filing, we have not included any provision permitting the inclusion of additional cautionary language in the interactive data file. Pursuant to commenters’ recommendations, however, we intend to modify the Commission’s interactive data viewer to include a legend recommending that users review a fund’s full prospectus.106 This legend on the viewer serves a similar goal as the tagged cautionary language within an interactive data file.107 While one commenter asserted that interactive data should be embedded in HTML filings,108 two other commenters stated that such a requirement should be deferred 103 See rule 405(b)(2) of Regulation S-T. 104 See letters of ABA, Federated, ICI, Oppenheimer, and Schnase. 105 Id. 106 See infra Section II.E.3. (discussing the Commission’s risk/return summary interactive data viewer). 107 The Commission encourages third-party viewers also to include this legend, however, we note that the liability provisions we have adopted attach only to interactive data as viewed on the Commission’s viewer. See infra Section II.F. (discussing liability). 108 See letter of Hamscher. 30 until embedding technology is sufficiently developed.109 We agree that it is necessary to monitor the usefulness of interactive data reporting to investors and the cost and ease of providing interactive data before attempting further integration of the interactive data format. However, the rules will treat interactive data as part of the official filing, instead of as only a supplement as is the case in the voluntary program.110 C. Web Site Posting of Interactive Data In the Proposing Release, we proposed to require that each mutual fund provide the same interactive data that would be required to be provided to the Commission on its Web site, if it has one. Several commenters opposed this requirement,111 with some asserting that posting interactive data files on the Web without a tool to convert them to viewable format may confuse and frustrate investors.112 We continue to believe that interactive data, consistent with our rules, should be easily accessible for all investors and other market participants. As such disclosure becomes more widely available, advances in interactive data software, online viewers, search engines, and other Web tools may in turn facilitate improved access to and usability of the data, promoting its awareness and use. Encouraging widespread accessibility to mutual funds’ risk/return summary information furthers our mission to promote fair, orderly, and efficient markets, and facilitates capital formation. Web site availability of the interactive data will encourage its widespread dissemination, contributing to lower access costs for users. We therefore are adopting the requirement 109 See letters of Data Communiqué and Schnase. 110 As further discussed below in Section II.F., however, for a specified period, interactive data generally will be deemed not filed for purposes of specified liability provisions. 111 See letters of ABA, ICI, Schnase, Starkman, T. Rowe Price, and Vanguard. 112 See letters of ICI and T. Rowe Price. 31 that each mutual fund provide its interactive data files on the fund’s Web site, if it has one.113 The interactive data is required to be posted on a fund’s Web site no later than the end of the calendar day it is submitted to the Commission or is required to be submitted to the Commission, whichever is earlier.114 As proposed, funds would have been required to post the interactive data on their Web sites by the end of the business day on the earlier of the date the interactive data is submitted or is required to be submitted to the Commission. In order to make it easier for mutual funds to satisfy the posting requirement by providing several more hours in which to comply but still have the posted information available in a timely manner, the rule amendments, as adopted, will require posting by the end of the calendar rather than business day specified. We also are revising the proposed rule to require that the interactive data be posted on a fund’s Web site as long as the registration statement to which it relates remains current.115 We believe that such a period strikes an appropriate balance between the fund effort needed to post and the investor benefit from having access to the posted 113 See General Instruction C.3.(g).(i) and (ii) of Form N-1A. 114 See Interactive Data Adopting Release, supra note 6 (adopting rule 405(g)); rule 405(a). Rule 405(a) requires posting to a “corporate” Web site. For mutual funds, this would require posting to the fund’s Web site. The day the interactive data is submitted electronically to the Commission may not be the business day on which it was deemed officially filed. For example, a filing submitted after 5:30 p.m. generally is not deemed officially filed until the following business day. Under the rules, the Web posting would be required at any time on the same calendar day that the interactive data exhibit to a mutual fund filing is deemed officially filed or required to be filed, whichever is earlier. 115 See rule 405(a)(4) of Regulation S-T; see also General Instruction C.3.(g).(iii) of Form N-1A. Section 10(a)(3) of the Securities Act [15 U.S.C. 77j(a)(3)] generally requires that when a prospectus is used more than nine months after the effective date of the registration statement, the information in the prospectus must be as of a date not more than sixteen months prior to such use. The effect of this provision is to require mutual funds to update their prospectuses annually to reflect current cost, performance, and other financial information. A mutual fund updates its registration statement by filing a posteffective amendment to the registration statement. 32 material through the additional source of the mutual fund’s Web site. In this regard, we note that the interactive data will be available on the Commission’s Web site. One commenter, who opposed the proposal to require Web site posting, recommended that funds instead be required to post a link to the Commission’s Web site to access the XBRL files.116 However, we believe that access to the interactive data on mutual fund Web sites will enable search engines and other data aggregators to more quickly and cheaply aggregate the data and make them available to investors because the data will be available directly from the filer, instead of through third-party sources that may charge a fee. It could also transfer reliability costs of data availability to the public sector by reducing the likelihood that investors cannot access the data through the Commission’s Web site due to down-time for maintenance or to increased network traffic. We also believe that the availability of interactive data on mutual fund Web sites will make it easier and faster for investors to collect information on a particular fund, rather than if investors were required to visit separately (for example, by hyperlink) and search the Commission’s Web site for information, particularly if the investor is already searching the mutual fund’s Web site. Therefore, to help further our goals of decreasing user cost and increasing information availability over the long term, our rules do not allow mutual funds to comply with the Web posting requirement by including a hyperlink to the Commission’s Web site. This requirement is consistent with the increasing role that mutual fund Web sites perform in supplementing the information filed electronically with the Commission by delivering risk/return summary information and other disclosure directly to investors. 116 See letter of Data Communiqué. 33 We also believe that this requirement can provide an incentive for mutual funds to add content to or otherwise enhance their Web sites thereby improving investor experience. For example, we recently adopted amendments that would permit a person to satisfy the mutual fund prospectus delivery obligations under the Securities Act by sending or giving key information directly to investors in the form of a summary prospectus and providing the statutory prospectus on an Internet Web site.117 Mutual funds may also satisfy certain disclosure obligations by posting required disclosures on their Web sites.118 In addition, many mutual funds provide on their Web sites access to their prospectuses, statements of additional information, and other Commission filings.119 This rule will expand such Web site posting by requiring mutual funds with Web sites to post their interactive data as well. D. Consequences of Non-Compliance and Hardship Exemption We are adopting, as proposed, a rule amendment providing that, if a filer does not provide the required interactive data submission, or post the interactive data on its Web site, by the required due date, the filer’s ability to file post-effective amendments under 117 See Summary Prospectus Adopting Release, supra note 28. Upon an investor’s request, a mutual fund also would be required to send the statutory prospectus to the investor in paper or by e-mail. 118 See, e.g., Securities Act Release No. 8458 (Aug. 23, 2004) [69 FR 52788 (Aug. 27, 2004)] (disclosure regarding portfolio managers); Securities Act Release No. 8408 (April 19, 2004) [69 FR 22300 (April 23, 2004)] (disclosure regarding market timing and selective disclosure of portfolio holdings); Securities Act Release No. 8393 (Feb. 27, 2004) [69 FR 11244 (Mar. 9, 2004)] (shareholder reports and quarterly portfolio disclosure); Securities Act Release No. 8188 (Jan. 31, 2003) [68 FR 6564 (Feb. 7, 2003)] (disclosure of proxy voting policies and records); Exchange Act Release No. 47262 (Jan. 27, 2003) [68 FR 5348 (Feb. 3, 2003)] (disclosure of code of ethics). 119 Mutual funds filing registration statements are required to disclose whether or not they make available free of charge on or through their Web site, if they have one, their SAI and shareholder reports. Funds that do not make their reports available in that manner also must disclose the reasons that they do not. See Item 1(b)(1) of Form N-1A. 34 rule 485(b), which provides for immediate effectiveness of amendments that make non­ material and other changes, will be automatically suspended.120 Any suspension becomes effective at the time that the filer fails to meet the requirement to submit or post interactive data and terminates as soon as the filer has submitted and posted that data. The suspension applies to a failure to submit and post interactive data as an exhibit to a registration statement or as an exhibit to a filing under rule 497 under the Securities Act. The suspension applies to post-effective amendments filed after the suspension becomes effective, but does not apply to post-effective amendments that were filed before the suspension became effective. The suspension does not apply to post-effective amendments filed solely for purposes of submitting interactive data, which will enable a filer to cure its failure to submit interactive data by filing an amendment under rule 485(b) and posting the information on its Web site. Similarly, a filer may cure a failure to submit an interactive data file that is required to be submitted with a rule 497 filing by making a subsequent rule 497 filing with the interactive data exhibit and also posting the information on its Web site. Several commenters opposed this automatic suspension as unnecessary, particularly given Commission authority to punish those who violate its rules.121 Some commenters asserted that it could lead to potential penalties for minor violations of the interactive filing requirements.122 We continue to believe that precluding the use of immediate effectiveness of post-effective amendments during any period of failure to comply is an appropriate means to direct attention to the interactive data requirement 120 See rule 485(c)(3) under the Securities Act. 121 See letters of ABA, Federated, ICI, and Oppenheimer. 122 See letters of Federated and ICI. 35 without permanently suspending a mutual fund’s ability to file post-effective amendments under rule 485(b) once the fund has remedied the failure. The provision strikes an appropriate balance between limiting non-compliant mutual funds from using the immediate effectiveness provision, yet also providing an easy remedy to diminish any risk of any undue penalty to funds. We previously proposed conditioning a fund using rule 485(b) upon the fund having on file with the Commission a current report on Form N-SAR.123 We ultimately did not adopt that proposal in response to commenters’ criticisms that the proposal was unnecessary and potentially unfair to funds, and their recommendation that the Commission rely upon its enforcement remedies to punish late filers.124 One commenter urged us to take a similar approach related to our proposed suspension for failure to comply with the interactive data requirements.125 Unlike that prior proposal, which linked a fund’s ability to rely upon rule 485(b) to Form N-SAR, a form separate from the registration statement, the suspension that we are adopting today relates to a specific requirement in Form N-1A. We believe that it is appropriate to link a fund’s ability to receive immediate effectiveness with a requirement that the fund be current in its filing obligations with respect to that form. Several commenters also raised concerns over the language of the suspension in proposed rule 485(c), which would apply to any “registrant.”126 The commenters asserted that a fund that is part of a series fund may be prevented from filing a post­ 123 17 CFR 274.101. See Securities Act Release No. 7015 (Sept. 21, 1993) [58 FR 50291 (Sept. 27, 1993)]. 124 See Securities Act Release No. 7083 (Aug. 17, 2004) [59 FR 43460 (August 24, 1994)]. 125 See letter of Federated. 126 See letters of ICI, Oppenheimer, and Schnase. 36 effective amendment to its registration statement under rule 485(b) if another fund in that series had an issue with an interactive data file. One of those commenters recommended that, if the proposal is adopted, the Commission clarify that “registrant” means the specific series at issue.127 We do not believe that the commenter’s recommendation is workable. Specifically, multi-series funds are generally contained within the same prospectus in a registration statement, and post-effective amendments are typically filed concurrently for multiple series. In such a case, it is generally unworkable to permit automatic effectiveness for certain series while prohibiting reliance upon rule 485(b) for other series in the same filing. Further, the requirement that a fund’s registration statement is compliant with its interactive data obligations should apply to all of the risk/return summary information in that registration statement, and, thus, if a registrant is not current in its obligations, the ability to rely upon rule 485(b) should be suspended until remedied. As noted in the Proposing Release, the failure to provide the required interactive data submission will not affect a mutual fund’s ability to incorporate by reference the mutual fund’s prospectus or statement of additional information (“SAI”) into another document, such as the summary prospectus.128 We received no comments regarding this issue. Consistent with the treatment of other applicable reporting obligations, we are adopting, as proposed, a continuing hardship exemption for the inability timely to submit 127 See letter of Schnase. 128 Rule 303(a)(3) of Regulation S-T [17 CFR 232.303(a)(3)] restricts the ability of registered investment companies to incorporate by reference into an electronic filing documents that have not been filed in electronic format. We will not interpret rule 303 to apply to the failure to file interactive data files. 37 electronically interactive data. Rule 202 of Regulation S-T provides for continuing hardship exemptions.129 Rule 202 permits a filer to apply in writing for a continuing hardship exemption if information otherwise required to be submitted in electronic format cannot be so filed without undue burden or expense. If the Commission or the staff, through authority delegated from the Commission, grants the request, the filer must file the information in paper by the applicable due date and file a confirming electronic copy if and when specified in the grant of the request. As proposed, we are revising rule 202 to provide that a grant of a continuing hardship exemption for interactive data will not require a paper submission.130 If the filer did not electronically submit the interactive data by the end of the period for which the exemption was granted, the filer’s ability to file post-effective amendments under rule 485(b) will be suspended until it does electronically submit the interactive data.131 Similarly, we are revising rule 202 to provide an essentially mirror-image exemption from the requirement for a mutual fund that has a Web site to post the interactive data on its Web site.132 We did not receive any comments addressing this issue. 129 Rule 201 of Regulation S-T [17 CFR 232.201] provides for temporary hardship exemptions. We are not adopting a temporary hardship exemption because our rules provide a mutual fund with a 15-business day period for submitting the interactive data file for a related official filing. 130 See rule 202 as adopted in Interactive Data Adopting Release, supra note 6. 131 Amendment to Note 4 to rule 202 as adopted in Interactive Data Adopting Release, supra note 6; rule 485(c)(3). 132 Id. 38 E. Interactive Data List of Tags and Commission Viewer 1. Data Tags Under the rule, mutual funds are required to submit their risk/return summary information in an interactive data file using the most recent list of tags released by XBRL U.S. for risk/return summary information, as approved for use by the Commission.133 Interactive data is required for the entirety of the risk/return summary information, including information for all series and all classes.134 The submission also must include any supporting files as prescribed by the EDGAR Filer Manual.135 Mutual funds are required to tag a limited number of document and entity identifier elements, such as the form type and the fund’s name. As with interactive data for the risk/return summary, these document and identity identifiers are formatted using the appropriate list of tags as required by Regulation S-T and the EDGAR Filer Manual.136 Several commenters asserted that the list of tags for risk/return summary information required additional development before the Commission mandates filing of risk/return summaries in interactive data format.137 Three commenters asserted that there are significant technical difficulties relating to the current list of tags,138 noting, for 133 See Interactive Data Adopting Release, supra note 6 (adopting amendments to rule 11 of Regulation S-T and adopting new rule 405(a)) and amendments to rule 405(a). 134 See General Instruction C.3.(g) of Form N-1A. 135 As discussed supra note 17, rule 405 of Regulation S-T directly sets forth the basic tagging requirements and indirectly sets forth the rest of the tagging requirements, which are contained in the EDGAR Filer Manual. See Interactive Data Adopting Release, supra note 6 (adopting rule 405 of Regulation S-T). 136 Id. 137 See letters of Federated, Gilmore, ICI, Oppenheimer, Schnase, and Vanguard. 138 See letters of Federated, ICI, and Vanguard. 39 example, that the current tagging software did not provide a way to accurately replicate footnotes to the fee table, or special symbols such as registered marks.139 Commenters further asserted that mutual funds would not have sufficient time to resolve these technical issues,140 to test the final list of tags,141 or to review the various software options for compliance with the rules.142 Several commenters also asserted that currently-available tagging software has yet to be finalized for use in rendering interactive versions of risk/return summary information.143 These commenters urged that required use of the list of tags be delayed until these deficiencies have been remedied,144 and the list has been acknowledged by XBRL International.145 One commenter expressed concern that the revisions to the list would not be finalized and acknowledged by XBRL International in a brief enough time period to allow thorough evaluation and implementation prior to the proposed compliance date.146 Given the status of the list of tags for risk/return summary information, we do not believe the issues raised by commenters warrant delay of the initiative. As previously noted, XBRL U.S. has updated the architecture of the list of tags developed by the ICI and conformed the list to the changes in the risk/return summary that we adopted as part of our Summary Prospectus Initiative.147 Among other things, the updates are intended to 139 See letters of Federated and Vanguard. 140 See letter of Federated. 141 See letter of ICI. 142 See letters of ICI and Oppenheimer. 143 See letters of Federated, Gilmore, ICI, and Oppenheimer. 144 See letters of Federated and Vanguard. 145 See letters of ICI and Schnase. 146 See letter of Oppenheimer. 147 See Summary Prospectus Adopting Release, supra note 28. 40 address technical problems, such as the difficulty of tagging footnotes that were cited by commenters. It is anticipated that these changes related to the architecture and addition of new tags will be finalized by the end of January 2009,148 almost two years before the compliance date for submission of tagged risk/return summary information. Further, the contract with XBRL U.S. requires that the list of tags receive acknowledgement prior to finalization. Furthermore, there are a growing number of software applications available to preparers and consumers that are designed to help make interactive data increasingly useful to both retail and institutional investors, as well as to other participants in the U.S. and global capital markets. On this basis, we believe interactive data, and in particular the XBRL standard, are growing and that the list of tags for risk/return summary information is now sufficiently comprehensive to require that mutual funds provide their risk/return summary information in interactive data format. Updates to the list of tags for risk/return summary reporting may be posted and available for downloading from time to time to reflect changes in the risk/return summary requirements, refinements to the list of tags, or for other reasons. To provide mutual funds sufficient time to become familiar with any such updates, we anticipate giving advance notice before requiring use of an updated list of tags. Based on experience to date with the list of tags for risk/return summary information, we believe that, with the enhancements to the list of tags that XBRL U.S. is developing, the list of tags will be sufficiently developed to support the interactive data disclosure requirements in the rules. One of the useful aspects of interactive data is its extensibility – that is, the ability 148 See supra note 51 and accompanying text. 41 to add to the standard list of tags in order to accommodate unique circumstances in a mutual fund’s particular disclosures. The use of customized tags, however, may also serve to reduce the ability of users to compare similar information across mutual funds. In order to promote comparability across funds, we are adopting, as proposed, the rule provision that limits the use of extensions to circumstances where the appropriate element does not exist in the standard list of tags.149 Wherever possible and when a standard element is appropriate, preparers are required to change the label for an element that exists in the standard list of tags, instead of creating a new customized tag.150 We received no comments concerning this issue. 2. Regulation S-T and the EDGAR Filer Manual We are adopting, as proposed, the requirement that mutual funds provide interactive data in the form of exhibits to the related registration statement on Form N-1A, and we are also adopting a requirement that mutual funds provide interactive data in the form of exhibits to any related form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act that includes risk/return summary information that varies from the registration statement.151 Interactive data will be required to comply with our Regulation S-T152 and the EDGAR Filer Manual. The EDGAR Filer Manual is available 149 Rule 405(c)(1)(iii)(B) as adopted in Interactive Data Adopting Release, supra note 6. 150 Rule 405(c)(1)(iii)(A) as adopted in Interactive Data Adopting Release, supra note 6. 151 The requirement to submit interactive data as an exhibit appears in General Instruction C.3.(g).(iv) of Form N-1A. 152 Rule 405 of Regulation S-T directly sets forth the basic tagging and posting requirements for the XBRL data and requires compliance with the EDGAR Filer Manual. Consistent with rule 405, the EDGAR Filer Manual contains the detailed tagging requirements. 42 on our Web site.153 It includes technical information for making electronic filings with the Commission. Volume II of this manual includes guidance on the preparation, submission, and validation of interactive data submitted under the voluntary program.154 In addition to both Regulation S-T, which includes the rules we are adopting, and the instructions in our EDGAR Filer Manual, filers may access other sources for guidance in tagging their financial information. These include the XBRL U.S. Preparers Guide; user guidance accompanying tagging software; and financial printers and other service providers. New software and other forms of third-party support for tagging risk/return summary information using interactive data are also becoming available. 3. Commission Viewer Some commenters asserted that the Commission’s mutual fund viewer required more development before the Commission requires filings in interactive data format.155 Specifically, commenters expressed concern that the viewer was too narrow and uncomfortable to read,156 that filers in the voluntary program were unable to view an interactive data exhibit prior to submitting the exhibit,157 and that existing viewers, including the Commission’s, do not display the tagged files consistently.158 While, as discussed above, the Commission’s current viewer permits the rendering of tagged risk/return summary information, we are in the process of 153 The EDGAR Filer Manual is available at: http://www.sec.gov/info/edgar/edmanuals.htm. 154 As previously noted, the EDGAR Filer Manual is currently being updated to incorporate changes to the tagging requirements applicable to financial data and to fund risk/return summary information. See supra note 17. 155 See letters of ICI, Oppenheimer, Schnase, Starkman, and Vanguard. 156 See letter of Starkman. 157 See letter of Vanguard. 158 See letter of ICI. 43 implementing changes to develop a more advanced tool that should address many of these concerns. The upgraded viewer will permit filers to conduct test filings and view rendered documents prior to submitting their exhibits. We expect these upgrades to be completed during mid-2009. Further evaluation will be useful with respect to the availability of inexpensive and sophisticated interactive data viewers. Currently software providers are developing interactive data viewers, and we anticipate that these will become widely available and increasingly useful to investors. As noted previously, commenters also expressed concern about the potential risks to investors of providing them with only the risk/return summary without a reference to the additional information that is contained in the registration statement.159 In order to avoid confusion, three of these commenters suggested that the viewable interactive data be accompanied by a cautionary legend encouraging investors to read and consider the full prospectus or other filing from which the information is taken.160 Specifically, one commenter suggested that the viewable interactive data be accompanied by a cautionary legend similar to that required to be included in fund advertisements by rule 482 under the Securities Act.161 We agree that it is appropriate to place context on the information presented in the viewer, and to encourage investors to review a fund’s prospectus. 159 See letters of ABA, Federated, ICI, Oppenheimer, and Schnase. See also discussion at Section II.B. supra, note 104 and accompanying text. 160 See letters of ABA, ICI, and Schnase. 161 See letter of ICI. See also rule 482(b)(1) under the Securities Act [17 CFR 230.482]. Rule 482(b)(1) requires a mutual fund advertisement to include a statement that “[a]dvises an investor to consider the investment objectives, risks, and charges and expenses of the investment company carefully before investing; explains that the prospectus contains this and other information about the investment company; identifies a source from which an investor may obtain a prospectus; and states that the prospectus should be read carefully before investing.” 44 Accordingly, we will include language within any rendered risk/return summary information on the Commission’s upgraded mutual fund viewer to: (1) inform users that the information is derived from a portion of the fund’s prospectus; (2) explain that the prospectus contains additional information about the mutual fund; and (3) state that a fund’s prospectus should be read carefully before investing. Commenters also raised concerns about potential liability under the federal securities laws relating to rendered interactive data filings.162 These concerns are addressed in Section II.F., below. F. Application of Federal Securities Laws Complete, accurate, and reliable disclosures are essential to investors and the proper functioning of the securities markets. Our requirement to submit interactive data with mutual fund registration statements is designed to provide investors with new tools to obtain, review, and analyze information from mutual funds more efficiently and effectively. To satisfy these goals, interactive data must meet investor expectations of reliability and accuracy. Many factors, including mutual fund policies and procedures buttressed by incentives provided by the Commission’s application of technology, market forces, and the liability provisions of the federal securities laws, help further those goals. New rule 406T of Regulation S-T163 addresses the liability for an interactive data file and provides that an interactive data file is: 162 See letters of ABA, ICI, Oppenheimer, and Schnase. 163 See Interactive Data Adopting Release, supra note 6 (adopting rule 406T of Regulation S-T). 45 • Subject to the anti-fraud provisions of Section 17(a)(1) of the Securities Act, Section 10(b) of and rule 10b-5 under the Exchange Act, and Section 206(1) of the Investment Advisers Act except as provided below; • Deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act or Section 34(b) of the Investment Company Act, and otherwise is not subject to liability under these sections; • Deemed filed for purposes of rule 103 of Regulation S-T; and • Subject to liability for a failure to comply with rule 405 of Regulation S-T, but shall be deemed to have complied with rule 405 and would not be subject to liability under the anti-fraud provisions set forth above or under any other liability provision if the electronic filer: o makes a good faith attempt to comply with rule 405; and o after the electronic filer becomes aware that the interactive data file fails to comply with rule 405, promptly amends the interactive data file to comply with rule 405. In regard to correcting an interactive data file, the Commission added the term “promptly” to the list of defined terms in Rule 11 under Regulation S-T.164 Rule 11 defines “promptly” as “as soon as reasonably practicable under the facts and circumstances at the time.” The definition is followed by a non-exclusive safe harbor. The safe harbor generally provides that a correction made by the later of 24 hours or 9:30 a.m. on the next business day after the filer becomes aware of the need for the correction 164 See Interactive Data Adopting Release, supra note 6 (amending Rule 11). 46 is deemed promptly made. If a fund fails to comply with the safe harbor, the fund still may have corrected promptly depending on the applicable facts and circumstances. As adopted, the liability provisions of new Rule 406T will apply only until October 31, 2014. We believe that limiting the modified application of the federal securities laws to a specified period improves the balance between avoiding unnecessary cost and expense and encouraging accuracy in regard to interactive data because it recognizes that issuers and service providers likely will grow increasingly skilled at and comfortable with the tagging requirements. Except for the period limitation, this provision is substantially the same as the proposed treatment of interactive data files under the proposed rules.165 In the Proposing Release, the Commission sought comment on this topic, and commenters generally supported limiting the liability of mutual funds for good faith errors in tagging or formatting interactive data submissions.166 As adopted, however, we include a provision that, after October 31, 2014, these liability provisions will no longer apply and an interactive data file will be subject to the same liability provisions as the related official filing.167 We adopt this provision because we believe, over time, information in interactive data should be subject to the same liability as all other information in a fund’s filing. The provision, however, provides funds with protections over a substantial period to become comfortable with ensuring the accuracy of their interactive data files. As proposed, rule 406 of Regulation S-T also provided that the usual liability provisions of the federal securities laws would apply to human-readable interactive data 165 See Proposing Release, supra note 9 (proposing rule 406). 166 See letters of ABA, Angel, ICI, and Schnase. 167 See rule 406T(d) of Regulation S-T. 47 that is identical in all material respects to the corresponding data in the traditional format filing168 as displayed by a viewer that the Commission provides. Commenters raised substantial concerns over this proposal, including: (1) seeking clarification of the liability applicable to situations not intended to be addressed explicitly by the proposed rules, such as for errors arising as a result of the Commission’s interactive data rendering software,169 or as a result of comparative applications provided by either the Commission or a third party;170 (2) requesting clarifications that funds should not be held responsible for information converted into viewable form by non-Commission viewers,171 or for interactive data posted on fund Web sites;172 and (3) requesting that a mutual fund be able to incorporate by reference the fund’s full prospectus and SAI into the viewable interactive data exhibit.173 In response to commenters’ concerns we believe that interactive data in viewable form are best addressed in relation to interactive data files and traditional concepts of liability. Interactive data in viewable form that are displayed on the Commission’s Web site will reflect the related interactive data file and, as a result, such interactive data in viewable form should be treated in the same manner as the related interactive data file in 168 As proposed, the human-readable interactive data would have been identical to the corresponding data in the traditional format filing if the mutual fund complied with the interactive data tagging requirements of proposed rule 405. 169 See letter of ABA. 170 See letter of Oppenheimer. 171 See letters of ABA, ICI, and Oppenheimer. 172 See letters of ABA and ICI. 173 See letters of Federated, ICI, and Schnase. One commenter noted that the risk/return summary information in a prospectus is subject to liability under Sections 11 or 12 of the Securities Act, but only in connection with the full prospectus in which it is contained, and the SAI that is typically incorporated therein. See letter of ICI. The commenter asserted that it would not be appropriate to isolate the risk/return summary information from the context of the entire registration statement and impose liability. 48 regard to a fund’s failure to correctly tag an interactive data file that results in a failure of the interactive data in viewable form to reflect the related official filing. Interactive data in viewable form that are displayed on other Web sites would be subject to general anti­ fraud principles applicable to republication of another person’s statements.174 Consistent with traditional concepts of liability, a fund could not be liable twice for a failure that occurs in both an interactive data file and the related interactive data in viewable form. We believe that this change is appropriate to address commenters’ concerns and provide certainty as to the parameters of their liability related to interactive data. We also believe that it is appropriate given other protections that investors will receive related to the interactive data, including that the risk/return summary information and other disclosures in the traditional format related official filing to which the interactive data relate would continue to be subject to the usual liability provisions of the federal securities laws. For example, the traditional format related official filing would continue to be subject to Section 10(b) and rule 10b-5 of the Exchange Act and, in the appropriate circumstance, to Section 11 of the Securities Act. In the Interactive Data Adopting Release, we elaborate further upon interactive data in viewable form and our decision not to impose any separate liability for such data.175 Given that the rules do not include such provisions, we do not address further commenters’ requests for clarification related to liability for rendered documents. Further, we do not believe it is needed to provide funds with the ability to incorporate by 174 These general anti-fraud principles relate to, among other areas, aiding and abetting, control persons, entanglement, and adoption. 175 See Interactive Data Adopting Release, supra note 6. 49 reference into rendered documents, given that liability is not imposed separately upon interactive data in viewable form. In the Proposing Release, we did not propose to permit or require cautionary legends for interactive risk/return summary information. Several commenters expressed concern about the potential consequences of investor reliance on incomplete information.176 Two commenters suggested that the Commission require viewable interactive risk/return disclosures to include a cautionary disclosure similar to the legend we recently required for the new mutual fund summary prospectus, which advises investors where to locate additional information about the fund in the fund’s prospectus and SAI, and permits a fund to incorporate certain information by reference into the summary prospectus.177 As noted in Section II.E. above, we agree with commenters that it is appropriate to alert investors about the availability of additional information in a fund’s prospectus. Therefore, we will include cautionary language on the Commission’s mutual fund viewer encouraging investors to review a fund’s full prospectus. We believe, however, that attempting to place in interactive data legends of the type suggested would be impracticable because interactive data will often be accessed in its machine-readable form and, even if it were accessed in viewable form, might not be accessed in a place where the legend would appear. As to a legend that states people should not rely on the interactive data in particular, such a legend would be inappropriate 176 See letters of ABA, Federated, ICI, Oppenheimer, and Schnase. 177 See letters of ICI and Schnase; see also Summary Prospectus Adopting Release, supra note 28. 50 because there is no reason the data should not be reliable and, were it not reliable, it would have little value.178 We are adopting, as proposed, the requirement that an interactive data file consist of “no more and no less” than the corresponding risk/return summary information in the related official filing.179 One commenter expressed concern that submitting interactive risk/return summary information for multiple funds may confuse some investors who seek data about only a single fund.180 However, as a result of our Summary Prospectus Initiative, multiple fund prospectuses must present the summary information for each fund sequentially and not integrate the information for more than one fund.181 Since risk/return summary information for multiple funds will no longer be permitted to be combined in the prospectus, this information will also, in accordance with rule 405, be presented separately in interactive format. In view of this requirement, interactive risk/return summary information for multiple funds should be as easy for investors to locate and understand as similar information for a single-fund prospectus. To assist mutual funds in ensuring the accuracy of their XBRL filings, we plan, in the future, to make available to mutual funds the opportunity to make a test submission with the Commission to create viewable interactive data.182 If the validation system finds an error, it will advise the filer of the nature of the error and whether the error was major 178 We reach a different conclusion regarding a tagged legend in the voluntary program and continue to require such legends to provide investors with limited additional notice because that information is not part of the official filing and was intended for experimental submissions. 179 Rule 405(b)(2) of Regulation S-T. 180 See letter of ICI. 181 See Summary Prospectus Adopting Release, supra note 28. 182 The EDGAR Filer Manual addresses test submissions primarily at Section 6.6.5 of Volume II. 51 or minor. As occurs in the voluntary program, a major error in an interactive data exhibit that is part of a live filing will cause the exhibit to be held in suspense in the electronic filing system. The rest of the filing will be accepted and disseminated if there are no major errors outside of the interactive data exhibit. If that happens, the filer will need to revise the interactive data exhibit to eliminate the major error and submit the exhibit as an amendment to the filing to which it is intended to appear as an exhibit. A minor error in an interactive data exhibit that is part of a live filing will not prevent the interactive data exhibit from being accepted and disseminated together with the rest of the filing if there are no major errors in the rest of the filing. We believe it is appropriate to accept and disseminate a filing without the interactive data exhibit submitted with it if only the exhibit has a major error, in order to disseminate at least as much information at least as timely as would have been disseminated were there no interactive data requirement. The rule does not require mutual funds to involve third parties, such as auditors or consultants, in the creation of the interactive data provided as an exhibit to a mutual fund’s Form N-1A filing, including assurance.183 We are taking this approach after considering various factors, including: • commenters’ views; • the availability of a comprehensive list of tags for risk/return summary information from which appropriate tags can be selected, thus reducing a mutual fund’s need to develop new elements; 183 With respect to registration statements, SAS 37 (AU Section 711) was issued in April 1981 to address the auditor’s responsibilities in connection with filings under the federal securities statutes. With respect to our rule, an auditor will not be required to apply AU Section 711 to the interactive data provided as an exhibit in a fund’s registration statement, or to the viewable interactive data. 52 • the availability of user-friendly software with which to create the interactive data file; • the delayed compliance date, prior to which mutual funds may become familiar with the tagging of risk/return summary information; • the availability of interactive data technology specifications, and of other XBRL U.S., XBRL International, and Commission resources for preparers of tagged data;184 • the advances in rendering/presentation software and validation tools for use by preparers of tagged data that can identify the existence of certain tagging errors; • the expectation that preparers of tagged data will take the initiative to develop practices to promote accurate and consistent tagging; and • the mutual fund’s and preparer’s liability for the accuracy of the traditional format version of the risk/return summary information. G. Changes to the Voluntary Program Mutual funds will no longer be able to submit risk/return summary information in interactive data format through the voluntary program after the compliance date for the mandatory rules. We are amending rule 401 of Regulation S-T to remove risk/return summary information as a category of information permitted to be submitted under the voluntary program effective after the compliance date for the mandatory rules.185 This amendment differs from our proposal which would have removed the option to file 184 An example of Commission resources includes the EDGAR Filer Manual. 185 See rule 401(b)(iv). 53 risk/return summary information under the voluntary program altogether. This change makes explicitly clear that mutual funds may continue to experiment with the submission of risk/return summary information in interactive data format up until the compliance date for these rule amendments. For this same reason, we are not adopting proposed changes to rule 8b-33 under the Investment Company Act and certain technical amendments to rule 401 of Regulation S-T.186 Further, in order to encourage participation in the voluntary program for tagging investment company financial information, we are adopting, substantially as proposed, amendments to enable investment companies that are registered under the Investment Company Act, business development companies, and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X to submit exhibits containing a tagged schedule of portfolio holdings without having to submit other financial information in interactive data format.187 As with the current voluntary program, volunteers will be able to participate merely by submitting a tagged Schedule I - Investments in Securities of Unaffiliated Issuers (“Schedule I”).188 To facilitate this, XBRL U.S. developed a list of tags that could be used to tag portfolio holdings. On October 21, 2008, XBRL U.S. issued its Schedule of 186 See proposed rule 8b-33; proposed rule 401(b)(1)(iv); proposed rule 401(d)(1)(i); and proposed rule 401(d)(2)(i) in the Proposing Release, supra note 9. 187 Rule 401(b)(1)(v) (designating Schedule I - Investments in securities of unaffiliated issuers as mandatory content under the voluntary program). The voluntary program will be modified to permit participation only by registered investment companies, business development companies, and other entities that report under the Exchange Act and prepare their financial statements in accordance with Article 6 of Regulation S-X. See Interactive Data Adopting Release, supra note 6 (rule 401(a)). 188 Rule 12-12 of Regulation S-X [17 CFR 210.12-12]. 54 Investments Taxonomy for public comment.189 The taxonomy is expected to be finalized by XBRL U.S. by the end of January 2009. Currently, the interactive data furnished under the voluntary program must consist of at least one item from a list of enumerated mandatory content (“Mandatory Content”), including financial statements, earnings information, and, for registered management investment companies, financial highlights or condensed financial information and risk/return summary information set forth in Form N-1A. 190 We are adding Schedule I information as a separate item of Mandatory Content that participants can submit in order to give volunteers greater flexibility in tagging fund data. Several commenters asserted that expanding the voluntary program to include fund portfolio holdings information was premature.191 These commenters stated that (1) the information would not be meaningful to individual investors;192 (2) the taxonomy does not yet exist;193 and (3) more experience with the technology is necessary before expansion of the program.194 Given that participants may already provide portfolio holdings information as part of their financial statements under the voluntary program, we disagree with these comments. The expansion of the voluntary program to permit the submission of portfolio holdings information simply provides volunteers with an alternative to submitting complete financial statement information and increases the options for participation in the program. Investors, financial intermediaries, and third­ 189 See supra note 51. 190 Rule 401(b)(1) of Regulation S-T [17 CFR 232.401(b)(1)]. 191 See letters of Data Communiqué, ICI, and Vanguard. 192 See letter of Data Communiqué. 193 See letter of ICI. 194 See letter of Vanguard. 55 party information providers, among others, use the portfolio holdings data contained in Schedule I to make decisions concerning the purchase and continued holding of funds and for other purposes. Portfolio holdings data may be even more useful to these various stakeholders if such data is interactive. Under the current voluntary program, any official filing with which tagged exhibits are submitted must disclose that the financial information is “unaudited” or “unreviewed,” as applicable and that the purpose of submitting the tagged exhibits is to test the related format and technology and, as a result, investors should not rely on the exhibits in making investment decisions.195 We believe that this cautionary disclosure should also be tagged and included within each interactive data exhibit, in order to help alert investors and other users that the exhibits should not be relied on in making investment decisions. Accordingly, we are requiring, as proposed, that this disclosure be included in the exhibits submitted pursuant to the voluntary program as a tagged data element,196 consistent with how the cautionary disclosure is presented in risk/return summary exhibits under the current voluntary program. H. Compliance Date The rules require all mutual funds to submit interactive data with any registration statement or post-effective amendment on Form N-1A that includes or amends risk/return summary information and with any form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act that contains risk/return summary information that varies from the registration statement.197 The first required submissions will be for initial registration 195 Rule 401(d)(1)(ii) of Regulation S-T [17 CFR 232.401(d)(1)(ii)]. 196 See rule 401(d)(2). 197 See General Instruction C.3.(g) to Form N-1A. 56 statements and post-effective amendments that are annual updates to effective registration statements198 and that become effective after January 1, 2011. Further, no mutual fund is required to comply with the provision to submit a tagged risk/return summary exhibit with any form of prospectus filed pursuant to rule 497(c) or (e) under the Securities Act until that fund has first submitted an exhibit with its registration statement. In the Proposing Release, we asked for comment on an anticipated compliance date that would require submissions for initial registration statements and post-effective amendments that are annual updates to effective registration statements and that become effective after December 31, 2009. Commenters generally objected to this compliance date, asserting that adoption of the requirement to tag risk/return summary information is premature, given that the Commission’s pending Summary Prospectus Initiative and ETF Initiative would change the required information in the risk/return summary.199 Commenters also asserted that the proposed schedule for implementation of interactive data tagging should be delayed because it did not allow mutual funds sufficient time to resolve outstanding technical issues or to review the various options for compliance with the rule.200 Others asserted that more information is needed to be collected from the current voluntary program, including costs and benefits.201 Two commenters supported phasing in the interactive data requirements based on the size of a mutual fund’s total net assets, with larger funds becoming subject to the rules first.202 Finally, commenters also noted that implementing tagging of the current risk/return 198 See supra note 11 and accompanying text. 199 See supra note 69 and accompanying text. 200 See letters of Federated, ICI, and Oppenheimer. 201 See letters of Federated, ICI, and Schnase. 202 See letters of Data Communiqué and Schnase. 57 summary is premature given that the risk/return summary and the taxonomy could potentially change as a result of the Summary Prospectus Initiative and the ETF Initiative.203 While we believe that these comments warrant a change in the compliance date to ensure funds have sufficient time to prepare their first risk/return summary submissions in interactive data format, they do not justify a substantial delay in implementation of this initiative. First, as we discussed above, we recently adopted final amendments to Form N-1A in the Summary Prospectus Adopting Release,204 and, therefore, do not believe those commenter concerns warrant delaying implementation of this tagged risk/return summary information.205 Second, for the reasons we discussed in Section II.A., we believe that the compliance date we are adopting will allow mutual funds sufficient time to prepare risk/return summary information in interactive data format. As we noted previously, XBRL U.S. has updated the list of tags to reflect our most recent revisions to mutual fund risk/return disclosure requirements, and has submitted this list for public comment, after which it will be submitted for acknowledgment to XBRL International. This process should be completed by the end of January 2009. Therefore, we believe that the list of tags for risk/return summary information is now sufficiently advanced, to require that mutual funds provide their risk/return summary information in interactive data format. Further, as discussed above, over the last three years the Commission has gained 203 See letter of ICI, Oppenheimer, T. Rowe Price, and Vanguard. 204 See supra notes 69 and 70 and accompanying text. 205 These amendments were adopted on November 19, 2008. See supra note 69, and Summary Prospectus Adopting Release, supra note 28. 58 experience with interactive data in the voluntary program covering both mutual fund risk/return and financial statement information. We do, however, recognize that requiring mutual funds to tag their risk/return summary information at the same time that they are revising their prospectuses for the recent amendments to Form N-1A in the Summary Prospectus Adopting Release could result in an unnecessary burden. For that reason, we are making a modification to the compliance date so that mutual funds have an additional year before they are required to submit tagged risk/return summary information. This period of almost two years should provide funds with sufficient time to prepare the amended disclosures and interactive data submissions based on those disclosures. While the requirements we recently adopted for interactive submission of financial data include a schedule of tiered implementation, we believe that mutual fund investors have an important interest in having access to interactive risk/return data from all funds concurrently. Therefore, we are adopting, as proposed, a single compliance date for all mutual funds. We expect that most mutual funds that are part of smaller fund families, which generally are disproportionately affected by regulatory costs, will be able to provide their risk/return summary information in interactive data format without undue effort or expense. While interactive data reporting involves changes in reporting procedures mostly in the initial reporting periods, we expect that these changes will provide efficiencies in future periods. As a result, there may be potential future net savings to the mutual fund, particularly if interactive data become integrated into the mutual fund’s disclosure process. While we recognize that requiring interactive data risk/return summary information will likely result in start-up expenses for all mutual fund 59 families, we expect that both softwar [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Asec%3A7db5dcb988614e3d. Public record. Not legal advice.