Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements

Federal RegisterNov 25, 2022

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 230, 232, 239, 249, 270, and 274

[Release Nos. 33-11125; 34-96158; IC-34731; File No. S7-09-20]

RIN 3235-AM52

Tailored Shareholder Reports for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule.

SUMMARY:

The Securities and Exchange Commission (“Commission”) is adopting rule and form amendments that require open-end management investment companies to transmit concise and visually engaging annual and semi-annual reports to shareholders that highlight key information that is particularly important for retail investors to assess and monitor their fund investments. Certain information that may be more relevant to financial professionals and investors who desire more in-depth information will no longer appear in funds' shareholder reports but will be available online, delivered free of charge upon request, and filed on a semi-annual basis on Form N-CSR. The amendments exclude open-end management investment companies from the scope of the current rule that generally permits registered investment companies to satisfy shareholder report transmission requirements by making these reports and other materials available online and providing a notice of that availability. The amendments also require that funds tag their reports to shareholders using the Inline eXtensible Business Reporting Language (“Inline XBRL”) structured data language to provide machine-readable data that retail investors and other market participants may use to more efficiently access and evaluate investments. Finally, the Commission is adopting amendments to the advertising rules for registered investment companies and business development companies to promote more transparent and balanced statements about investment costs.

DATES:

Effective Date:

This rule is effective January 24, 2023.

Compliance Date:

The applicable compliance dates are discussion in section II.J.

FOR FURTHER INFORMATION CONTACT:

Mykaila DeLesDernier, Pamela K. Ellis, Senior Counsels; Zeena Abdul-Rahman, Branch Chief; Amanda Hollander Wagner, Senior Special Counsel; or Brian McLaughlin Johnson, Assistant Director, at (202) 551-6792, Investment Company Regulation Office; Alex Bradford, Assistant Chief Accountant; Michael Kosoff, Senior Special Counsel, at (202) 551-6921, Disclosure Review and Accounting Office; Division of Investment Management; U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

SUPPLEMENTARY INFORMATION:

The Commission is adopting amendments to the following rules and forms:

Commission reference

CFR citation

[17 CFR]

Organization; Conduct and Ethics; And Information and Requests

§§ 200.1 through 200.800.

Section 800

§ 200.800.

Securities Act of 1933 (“Securities Act”):

Rule 156

§ 230.156.

Rule 433

§ 230.433.

Rule 482

§ 230.482.

Regulation S-T:

Rule 405

§ 232.405.

Securities Act and Investment Company Act of 1940 (“Investment Company Act,” or the “Act”):

Form N-1A

§§ 239.15A and 274.11A.

Securities Exchange Act of 1934 (“Exchange Act”)

and Investment Company Act:

Form N-CSR

§§ 249.331 and 274.128.

Investment Company Act:

Rule 30a-2

§ 270.30a-2.

Rule 30e-1

§ 270.30e-1.

Rule 30e-3

§ 270.30e-3.

Rule 31a-2

§ 270.31a-2.

Rule 34b-1

§ 270.34b-1.

15 U.S.C. 77a

et seq.

17 CFR 232.10 through 232.903.

15 U.S.C. 80a

et seq.

15 U.S.C. 78a

et seq.

Table of Contents

I. Introduction and Background

A. Regulatory Context, and Developments and Analysis Informing Final Rules

1. Fund Shareholder Reports—Regulatory Context

2. Developments Supporting Layered Disclosure Approach to Fund Shareholder Reports

3. Evidence of Investor Preferences Regarding Fund Disclosure

4. Investment Company Advertisements, and Developments Affecting Fund Marketing Practices

B. Overview of the Final Rules

1. Final Rules' Principal Elements

2. Other Aspects of Proposal

II. Discussion

A. Annual Reports

1. Scope of Annual Report Disclosure, and Registrants Subject to Amendments

2. Contents of the Annual Report

3. Format and Presentation of Annual Report

4. Electronic Annual Reports

B. Semi-Annual Report

1. Scope and Contents of the Semi-Annual Report

2. Format and Presentation of Semi-Annual Report

3. Electronic Semi-Annual Reports Instructions and Requirements

C. Form N-CSR and Website Availability Requirements

1. New Form N-CSR Filing Requirements

2. Website Availability Requirements

3. Delivery Upon Request Requirements

D. Disclosure Items Removed From Shareholder Report and Not Filed on Form N-CSR

E. Transmission of Shareholder Reports

1. Amendments Narrowing Scope of Rule 30e-3

2. Alternative Transmission Methods for Shareholder Reports and Other Regulatory Materials

3. Alternatives for Satisfying Transmission Requirements for Semi-Annual Reports

F. Prospectuses and SAIs Transmitted Under Rule 30e-1(d)

G. Investment Company Advertising Rule Amendments

1. Requirements for Standardized Fee and Expense Figures

2. Materially Misleading Statements About Fees and Expenses in Investment Company Sales Literature

3. Additional Suggested Amendments to Investment Company Advertising Rules

H. Inline XBRL Data Tagging

I. Technical and Conforming Amendments

J. Compliance Date

III. Other Matters

IV. Economic Analysis

A. Introduction

B. Economic Baseline and Affected Parties

1. Descriptive Industry Statistics

2. Fund Shareholder Reports

3. Transmission of Shareholder Reports

4. Investor Use of Fund Disclosure

5. Fund Advertisements

C. Benefits and Costs

1. Broad Economic Considerations

2. New Approach for Funds' Shareholder Reports

3. Advertising Rule Amendments

D. Effects on Efficiency, Competition, and Capital Formation

E. Reasonable Alternatives

1. More or Less Frequent Disclosure

2. More or Less Information in Shareholder Reports

3. Retaining Rule 30e-3 Flexibility or Implementing Access Equals Delivery for Open-End Funds Registered on Form N-1A

4. Limiting the Advertising Rule Amendments to ETFs and Mutual Funds

5. Amending Shareholder Report Requirements To Include Variable Insurance Contracts or Registered Closed-End Funds

6. Requiring All Form N-CSR Disclosures To Be Tagged in Inline XBRL

V. Paperwork Reduction Act Analysis

A. Introduction

B. New Shareholder Report Requirements Under Rule 30e-1

C. Form N-CSR

D. Rule 482

E. Rule 34b-1

F. Rule 433

G. Rule 30e-3

H. Investment Company Interactive Data

VI. Final Regulatory Flexibility Act Analysis

A. Need for and Objectives of the Rule and Form Amendments

B. Significant Issues Raised by Public Comments

C. Small Entities Subject to the Rule

D. Projected Reporting, Recordkeeping, and Other Compliance Requirements

1. Annual and Semi-Annual Reports

2. New Form N-CSR and Website Availability Requirements

3. Amendments To Scope of Rule 30e-3

4. Investment Company Advertising Rules

5. Inline XBRL Data Tagging

E. Agency Action To Minimize Effect on Small Entities

VII. Statutory Authority

VIII. Text of Proposed Rules and Form Amendments

I. Introduction and Background

The Commission is adopting rule and form amendments that are designed to require mutual funds and exchange-traded funds (“ETFs”) to transmit concise and visually engaging annual and semi-annual reports to shareholders.

The updated approach to funds' shareholder reports will highlight key information that is particularly important for retail investors to assess and monitor their fund investments.

Other, more detailed information that currently appears in funds' shareholder reports will be made available on a website that the shareholder report specifies, filed with the Commission on EDGAR, and delivered to investors free of charge in paper or electronically upon request. These final rules are designed to modernize funds' shareholder reports so these reports will better serve the needs of fund investors—particularly retail investors.

The final rules will require a disclosure approach that emphasizes clearly and concisely the information that is particularly useful to a retail audience, will encourage disclosure techniques that promote effective communication, and will continue to make available information that historically has appeared in shareholder reports but that may be more relevant to financial professional and other investors who desire more in-depth information.

For purposes of this release, the term “fund” generally refers to an open-end management investment company registered on Form N-1A or a series thereof, unless otherwise specified. Mutual funds and most ETFs are open-end management investment companies registered on Form N-1A. 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)].

This release refers to funds' annual and semi-annual shareholder reports as “annual reports” and “semi-annual reports” respectively, and collectively as “shareholder reports.”

“EDGAR” is the Commission's Electronic Data, Gathering, Analysis, and Retrieval system.

This approach is designed to alleviate concerns that fund retail investors currently may receive, and find difficult to use, shareholder reports that are lengthy, complex, and not well-suited to their needs.

Investors' inability to understand or use shareholder report disclosure efficiently may impede their ability to monitor their investments and lead to investors maintaining investments in funds that may not be aligned with their investment goals. The final rules' approach for shareholder reports is a continuation of the Commission's initiatives designed to promote clear and concise disclosure for fund investors.

It responds to the preferences investors have expressed, over the years and in response to the proposed rules.

This approach also builds on a similar “layered” disclosure approach that most funds use to provide prospectus information tailored to investors' informational needs.

See

Tailored Shareholder Reports, Treatment of Annual Prospectus Updates for Existing Investors, and Improved Fee and Risk Disclosure for Mutual Funds and Exchange-Traded Funds; Fee Information in Investment Company Advertisements, Investment Company Act Release No. 33963 (Aug. 5, 2020) [85 FR 70716 (Nov. 5, 2020)] (“Proposing Release”) at nn.30 and 32, and accompanying text.

See, e.g.,

Enhanced Disclosure and New Prospectus Delivery Option for Registered Open-End Management Investment Companies, Investment Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4545 (Jan. 26, 2009)] (“2009 Summary Prospectus Adopting Release”); Investment Company Reporting Modernization, Investment Company Act Release No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 2016)] (“Investment Company Reporting Modernization Final Rules”); Form CRS Relationship Summary; Amendments to Form ADV, Investment Advisers Act Release No. 5247 (June 5, 2019) [84 FR 33492 (July 12, 2019)]; Updated Disclosure Requirements and Summary Prospectus for Variable Annuity and Variable Life Insurance Contracts, Investment Company Act Release No. 33814 (Mar. 11, 2020) [85 FR 25964 (May 1, 2020)] (“Variable Contract Summary Prospectus Adopting Release”).

See, e.g.,

2009 Summary Prospectus Adopting Release,

supra

footnote 9;

see also infra

section I.A.3.

See infra

section I.A.2.

In August 2020, the Commission proposed rule and form amendments that would require a layered disclosure framework for funds' shareholder reports that is substantially similar to the framework we are adopting under the final rules.

The Commission also proposed to address the means by which shareholder reports are transmitted to fund investors. To ensure that all fund investors would experience the anticipated benefits of the proposed new tailored disclosure framework, the Commission proposed to amend the scope of rule 30e-3—the rule that currently permits investment companies to use a “notice and access” approach to transmitting shareholder reports—to exclude open-end funds. Instead, funds would have to provide the reports directly to shareholders. In addition to addressing shareholder report contents and transmission, the Commission also proposed amendments to the Commission's investment company advertising rules that were designed to promote more transparent and balanced statements about investment costs. The proposal also included a proposed new alternative approach to satisfy prospectus delivery requirements for existing fund investors (proposed new rule 498B) and proposed amendments to funds' prospectus fee and risk disclosure requirements.

See

Proposing Release,

supra

footnote 8.

The Commission received comment letters on the proposal from a variety of

commenters, including funds and investment advisers, law firms, other fund service providers, investor advocacy groups, professional and trade associations, and interested individuals.

Many commenters supported the proposed use of layered disclosure in funds' shareholder reports.

Some recommended enhancements and alternatives to certain areas of the proposed shareholder reports, with respect to their content as well as scope.

While many commenters expressed concern regarding the proposed amendments to rule 30e-3, others supported the Commission's proposed approach.

Comments on proposed rule 498B were mixed, with some commenters expressly supporting the proposal, some supporting it with modifications, and others directly opposing it.

Comments on the proposed prospectus fee and risk disclosure amendments were similarly mixed.

Finally, while a number of the commenters that addressed the proposed advertising rule amendments supported them, some stated that the proposed amendments were not necessary in light of Financial Industry Regulatory Authority (“FINRA”) rules addressing fee and expense information in retail communications or suggested that the Commission modify the scope of the proposed amendments.

The comment letters on the Proposing Release (File No. S7-09-20) are available at

https://www.sec.gov/comments/s7-09-20/s70920.htm.

See, e.g.,

Comment Letter of Mutual Fund Directors Forum (Jan. 4, 2021) (“Mutual Fund Directors Forum Comment Letter”); Comment Letter of SIFMA (Dec. 22, 2020) (“SIFMA Comment Letter”).

Comments on particular aspects of the proposed rules' scope, as well as the proposed shareholder report contents, are discussed in detail in sections II.A-B below.

See infra

section II.E.1.

See infra

footnotes 68-72 and accompanying text.

See infra

footnotes 76-79 and 83-84 and accompanying text.

See infra

sections II.G.1-2; footnote 534 (providing FINRA rule 2210's definitions of retail communications and correspondence).

After considering the comments on the proposal and as discussed in more detail below, we are adopting rule and form amendments that would effectuate the proposed layered disclosure approach for funds' shareholder reports, with modifications to the proposed reports' contents and scope in response to comments and to enhance disclosure effectiveness. We are also adopting—with targeted clarifying changes, but otherwise substantially as proposed—the proposed amendments to exclude open-end funds from the scope of rule 30e-3, as well as the proposed amendments to the investment company advertising rules. As discussed more fully below, we are not adopting proposed rule 498B or the proposed amendments to funds' prospectus fee and risk disclosure requirements.

A. Regulatory Context, and Developments and Analysis Informing Final Rules

1. Fund Shareholder Reports—Regulatory Context

Fund shareholders receive shareholder reports on a semi-annual basis.

These reports include detailed information about a fund's operations over a given half- or full-year period. The Investment Company Act, as well as Commission rules, prescribe the content requirements for funds' shareholder reports.

Shareholder report contents include, among other items: information about fund expenses and performance, portfolio holdings, funds' financial statements and financial highlights (which are audited in annual reports), information about a fund's board of directors and management, results of shareholder votes, and instructions on how to access additional information, including information regarding the fund's proxy voting record, code of ethics, and quarterly portfolio holdings.

Certain of this information, including fund performance information, is required to appear only in annual reports. Some funds also supplement this with information that is not required by Commission rules or forms, such as a president's letter and general market commentary.

See

section 30(e) of the Investment Company Act [15 U.S.C. 80a-29(e)]; current and amended rule 30e-1 under the Investment Company Act [17 CFR 270.30e-1]. A fund or an intermediary may transmit the shareholder report to an investor. Most fund investors hold their fund investments as beneficial owners through accounts with intermediaries. As a result, intermediaries commonly assume responsibility for distributing fund shareholder reports to beneficial owners.

See

Optional internet Availability of Investment Company Shareholder Reports, Investment Company Act Release No. 33115 (June 5, 2018) [83 FR 29158 (June 22, 2018)] (“Rule 30e-3 Adopting Release”), at paragraph accompanying n.274.

See

section 30(e) of the Investment Company Act;

see also

current and amended rule 30e-1; Item 27 of current Form N-1A and Item 27A of amended Form N-1A (addressing the contents of open-end fund shareholder reports).

See

Proposing Release,

supra

footnote 8, at nn.14-17 and accompanying text.

See, e.g., id.

at n.18 and accompanying text.

Many mutual funds and ETFs are organized as single registrants with several series (sometimes referred to as portfolios).

From an investor's perspective, investing in a series provides the same general experience as investing in a fund that is not organized in this way—each series has its own investment objectives, policies, and restrictions, and the Federal securities laws and Commission rules often treat each series as a separate fund.

Series of a registrant are often marketed separately, without reference to other series or to the registrant's name.

See

sections 18(f)(1) and (2) of the Investment Company Act [15 U.S.C. 80a-18(f)(1) AND (2)]; 17 CFR 270.18f-2 (rule 18f-2 under the Investment Company Act).

See, e.g.,

17 CFR 270.22c-2(c)(2); 17 CFR 270.22e-4(a)(5); General Instruction A to Form N-1A (defining “fund” to mean a registrant or a separate series of the registrant).

In addition, a single fund or series can have multiple share classes.

Share classes typically differ based on fee structure, with each class having a different sales load and distribution and/or service fee. Currently, fund registrants may prepare a single shareholder report that covers multiple series, as well as multiple share classes of each series.

See

17 CFR 270.18f-3 (rule 18f-3 under the Investment Company Act).

Fund shareholders currently receive shareholder reports in paper or electronically, depending on their preferences.

We understand that shareholders electing electronic delivery of fund disclosure materials typically receive an email that contains a link to where the materials are available online.

See

Proposing Release,

supra

footnote 8, at nn.21-22 and accompanying text;

see also

Use of Electronic Media for Delivery Purposes, Investment Company Act Release No. 21399 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)] (“Electronic Media 1995 Release”) (providing Commission views on the use of electronic media to deliver information to investors, with a focus on electronic delivery of prospectuses, annual reports, and proxy solicitation materials); Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information, Investment Company Act Release No. 21945 (May 9, 1996) [61 FR 24644 (May 15, 1996)] (“Electronic Media 1996 Release”); Use of Electronic Media, Investment Company Act Release No. 24426 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)] (“Electronic Media 2000 Release”).

For those shareholders who have not elected to receive shareholder reports electronically, funds currently may rely on rule 30e-3 to satisfy shareholder report transmission requirements. If a fund chooses to rely on this rule, a shareholder does not receive paper shareholder reports directly, but instead receives paper notices that a shareholder report is available at an identified website address.

Nonetheless, funds relying on rule 30e-3 are required to deliver a paper copy of a shareholder report to any person requesting such a copy, and a fund may no longer rely on rule 30e-3 with respect to any shareholder who has notified the fund (or relevant financial

intermediary) that the shareholder wishes to receive paper copies of shareholder reports.

See

current rule 30e-3 [17 CFR 270.30e-3]; Rule 30e-3 Adopting Release,

supra

footnote 20.

The costs of delivering prospectuses and shareholder reports, including printing and mailing costs and processing fees, are generally fund expenses borne by shareholders.

2. Developments Supporting Layered Disclosure Approach to Fund Shareholder Reports

The Commission's proposed layered disclosure approach to funds' shareholder reports builds on decades of experience with layered fund disclosure, as well as the confluence of two other disclosure-related developments that we believe support further reliance on the use of layered disclosure—the growing length and complexity of shareholder reports over time, and the internet's increasingly important role in maximizing investor access to information.

The Commission's rules permitting the use of summary prospectuses both recognize investors' preferences for concise and engaging disclosure of key information and ensure that additional information that may be of interest to some investors is available through a layered approach to disclosure.

These rules generally permit funds to provide summary prospectuses to investors that include “streamlined and user-friendly information that is key to an investment decision,” with more-detailed information that may be of interest to some investors available online.

We believe that these initiatives have benefitted investors, and we estimate that approximately 92% of funds use summary prospectuses.

The Commission has not previously taken comprehensive steps to create a layered disclosure framework for funds' shareholder reports.

See supra

footnotes 10-11 and accompanying text;

see also

Variable Contract Summary Prospectus Adopting Release,

supra

footnote 9.

See

2009 Summary Prospectus Adopting Release,

supra

footnote 9, at section I. The vast majority of funds provide: (1) a summary prospectus to investors in connection with their initial investment decision; and (2) more-detailed information that may be of interest to some investors, which is available online in the form of the “statutory prospectus” and Statement of Additional Information (“SAI”).

See

Proposing Release,

supra

footnote 8, at n.81 and accompanying text. We estimate that as of December 31, 2021, approximately 92% of mutual funds and ETFs use a summary prospectus. This estimate is based on data on the number of mutual funds and ETFs that filed a summary prospectus in 2021 in EDGAR (10,876) and the staff's estimate of the total number open-end funds, including ETFs, registered on Form N-1A (11,840).

See

Proposing Release,

supra

footnote 8, at n.83 and accompanying text (noting that the Commission has, however, adopted rules that permit streamlined disclosure of portfolio holdings in funds' shareholder reports).

Funds' shareholder reports generally have become longer and more complex over the years. This trend has several sources. The Commission's rules have required funds to include additional information over the past several decades, and funds commonly voluntarily provide additional information beyond that which is required, including information about general economic conditions, fund performance, and services provided to shareholders.

The ability to include multiple series, and multiple share classes of each series, in a single report also increases these reports' length and complexity. Based on staff analysis, the average annual report is approximately 134 pages long, and the average semi-annual report is 116 pages long.

The length can vary substantially, however. Staff has observed annual reports ranging in length from 16 pages to more than 1,000 pages. Most reports that are between 22 and 45 pages long tend to cover a single series.

See id.

at nn.84-86 and accompanying text.

These figures are based on a 2020 staff review that included a sample of reports from large, mid-sized, and small funds that were available on fund websites.

See id.

These trends have been accompanied by internet technology that has continued to evolve, investors' increased access to the internet, and the Commission continuing to recognize the role of the internet in providing disclosure materials and other information to investors.

For example, in 2021, approximately 95% of households owning mutual funds had internet access, while only 68% of these households had internet access in 2000.

Further advances in technology, including increasing use of mobile devices to access information, can make it even easier for funds and intermediaries to communicate with investors and to provide interactive or customizable information. We understand that funds continue to explore additional ways to use technology to communicate with investors.

Against this backdrop, the Commission has recognized that modernizing the manner in which funds and others make information available to investors allows them to leverage the benefits of technology and reduce fund costs while considering the needs and preferences of investors.

Continued improvements in presenting information electronically, as well as investors' continually growing comfort with the internet and electronic media as a means of accessing fund information, have been integral in making the use of layered disclosure in the summary prospectus context a success, and we believe these factors will similarly make layered disclosure an effective tool in the context of funds' shareholder reports.

See

Proposing Release,

supra

footnote 8, at nn.75-78 and accompanying text.

See

Investment Company Institute, 2022 Investment Company Fact Book: A Review of Trends and Activities in the Investment Company Industry (2022) (“2022 ICI Fact Book”),

available at https://www.ici.org/system/files/2022-05/2022_factbook.pdf,

at Figure 7.16.

See, e.g., infra

footnotes 356-358 and accompanying paragraph.

See

Proposing Release,

supra

footnote 8, at n.79 and accompanying text.

3. Evidence of Investor Preferences Regarding Fund Disclosure

The Proposing Release discussed evidence that was available to the Commission at the time of the proposal showing that investors generally prefer concise, layered disclosure. The proposal considered feedback that the Commission received in response to a June 2018 request for comment seeking feedback on retail investors' experience with fund disclosure and on ways to improve fund disclosure (the “Fund Investor Experience RFC”).

In the proposal, the Commission stated that the Fund Investor Experience RFC commenters' overall preference for summary disclosure is generally consistent with other information the Commission has received—through investor testing conducted prior to the proposal, surveys, and other information-gathering—that similarly indicates that investors strongly prefer concise, layered disclosure.

The Commission also discussed feedback from investors responding to the Fund Investor Experience RFC, as well as investors participating in certain past quantitative and qualitative investor testing initiatives on the Commission's behalf, expressing preferences for the inclusion of more tables, charts, and graphs in fund disclosure and supporting the conclusion that investors

view funds' existing shareholder reports as too lengthy and complicated.

See

Request for Comment on Fund Retail Investor Experience and Disclosure, Investment Company Act Release No. 33113 (June 5, 2018) [83 FR 26891 (June 11, 2018)] (“Investor Experience RFC”). The comment letters on the Investor Experience RFC (File No. S7-12-18) are available at

https://www.sec.gov/comments/s7-12-18/s71218.htm.

This feedback generally showed that retail investors prefer concise, layered disclosure and feel overwhelmed by the volume of information they currently receive, with some individual investors specifically addressing and supporting a more concise, summary shareholder report.

See

Proposing Release,

supra

footnote 8, at nn.28-30 and accompanying text.

See id.

at n.31 and accompanying text.

See id.

at n.32-37 and accompanying text.

Feedback on investors' preferences that the Commission received in response to the Proposing Release was consistent with the Commission's understanding of investors' preferences that the Proposing Release described, with the vast majority of individuals who commented on the proposal expressing support for the length, format, and content of the proposed streamlined annual report.

Industry commenters expressed support for the proposed layered disclosure approach.

Industry commenters similarly supported the use of streamlined shareholder documents and reducing the length and complexity of information shareholders receive, ultimately leading to an improved overall investor experience.

See infra

footnotes 47-51 and accompanying text.

See, e.g.,

Comment Letter of CFA Institute (Dec. 30, 2020) (“CFA Institute Comment Letter”); Comment Letter of Fidelity (Jan. 4, 2021) (“Fidelity Comment Letter”); Mutual Fund Directors Forum Comment Letter.

See

SIFMA Comment Letter;

see also

Comment Letter of Teachers Insurance and Annuity Association of America (Jan. 4, 2021) (“TIAA Comment Letter”); Comment Letter of FS Investments (Jan. 4, 2021) (“FS Investments Comment Letter”).

Comments from individual investors similarly suggested that the proposed shareholder report approach was in line with their preferences in terms of the length of material and content areas that investors find to be useful to monitor fund investments. To help market participants understand the proposed shareholder report, the Commission published a hypothetical annual report to illustrate what a more concise, tailored shareholder report could look like, as well as a feedback flier that investors could use to provide their views on the hypothetical report.

The Commission received feedback flier responses from individual investors as well as academics. Of the respondents who answered the feedback flier question, “Overall, would the sample shareholder report be useful in monitoring your fund investments?” the vast majority responded positively.

The vast majority of respondents who answered a question in the feedback flier about the length of the hypothetical report responded that the length was “about right.”

See

Proposing Release,

supra

footnote 8, Appendix A (“Hypothetical Streamlined Shareholder Report”)

available at https://www.sec.gov/files/final_2020_im_annual-shareholder%20report.pdf

and Appendix B (“Shareholder Report Feedback Flier”),

available at https://www.sec.gov/rules/proposed/2020/im-shareholder-report-ff.html.

Commenters also expressed views about the relative usefulness of the different proposed content areas as illustrated in the hypothetical report, and these comments are described in more detail in section II.A.2

infra.

One comment letter also included data that this commenter had compiled about individual investors' preferences as expressed in response to the hypothetical report and feedback flier that the Commission published.

This commenter engaged a market research firm to provide the feedback flier to 2,000+ mutual fund and/or ETF investors and to collate responses from these investors. The commenter reported that, based on this analysis, 91% of respondents said that the hypothetical streamlined annual and semi-annual reports would be useful in monitoring their fund investments.

This analysis found that 78% of respondents said that the length was “about right,” with 16% saying that the length was “too long” and 6% saying that the length was “too short.”

Comment Letter of Broadridge Financial Solutions, Inc. (Jan. 4, 2021) (“Broadridge Comment Letter”).

The Broadridge Comment Letter stated, “Half of the participants were randomly assigned to view the SEC's hypothetical streamlined annual shareholder report, and the other half viewed a streamlined semi-annual report.” The Commission only published a hypothetical streamlined annual report and did not also publish a hypothetical semi-annual report. The hypothetical semi-annual report prototype that Broadridge included in its comment letter appears to have been created by Broadridge, based on the hypothetical annual report that the Commission published.

In addition to feedback flier responses, the Commission also received traditional comment letters from individuals, who similarly expressed broad support for the proposed approach to fund shareholder reports. One remarked that the hypothetical report was “much better than what we have now.”

Several likewise stated that they supported the proposed streamlined shareholder report, with one commenting, “I think it contains the relevant information and would be more useful to investors than the current annual report.”

One individual, however, expressed that “more should be done to push transparency, plain English and brevity of disclosure.”

Comment Letter of James J. Angel (Jan. 6, 2021) (“Angel Comment Letter”).

Comment Letter of Lisa Barker (Jan. 3, 2021) (“Barker Comment Letter”);

see also

Comment Letter of Ryan O'Malley (Dec. 29, 2021) (“O'Malley Comment Letter”) (“I generally like the idea of a brief shareholder report.”); Comment Letter of Tom Riker (June 2, 2021) (“Riker Comment Letter”) (“I support the streamlined shareholder report proposal.”);

see also

Comment Letter of Mo Abdullah (Oct. 7, 2022) (“Abdullah Comment Letter”) (“The proposed shareholder report seems like the right mix of information.”).

Comment Letter of David Marlboro (Dec. 20, 2020) (“Marlboro Comment Letter”).

The Commission also received feedback on individuals' preferences and views through qualitative investor interviews and a study on performance benchmarks that the Commission's Office of the Investor Advocate (“OIAD”) designed (the “OIAD Benchmark Study”).

The qualitative interviews aimed to generate hypotheses about certain content areas in a fund shareholder report that may cause confusion and lead to impediments to investor understanding of key information. These interviews focused in particular on investors' understanding of fund performance disclosure, as displayed in connection with broad-based and narrow performance benchmark indexes. The objective of the qualitative interviews was to provide background for a more extensive quantitative experimental study. In addition, OIAD recommended additional research devoted to certain other issues that arose during the qualitative interviews, including exploring ways of explaining share classes to investors, to the extent that share classes are a necessary component of fund disclosures.

See

Alycia Chin, Jonathan Cook, Jay Dhar, Steven Nash, and Brian Scholl,

How Do Consumers Understand Investment Quality? The Role of Performance Benchmarks,

Office of the Investor Advocate Working Paper 2022-01 (“Chin, et al.”),

available at https://www.sec.gov/files/performance-benchmarks-2022-01.pdf.

See id.

at Appendix B;

see also

discussion on fund share classes as section II.A.1.b

infra.

Following the qualitative interviews, OIAD conducted a study on the impact of fund performance benchmarks on investor decision-making. This research examined market data, and the results of a large behavioral experiment sampling a general population, to understand how fund companies employ benchmarks and how individuals respond to the presentation of benchmarks. The OIAD Benchmark Study, which is discussed in more detail below, analyzes individuals' responses to benchmarks, including how individuals respond to benchmarks that outperform and underperform the fund, and examines whether there is a differential impact in performance graphs' use of broad versus narrow benchmarks on a fund's attractiveness.

Each of these avenues offering evidence of investor preferences and behaviors in response to fund disclosure has provided important context and support for the final rules' approach to fund shareholder reports. Staff will evaluate investor preferences and

behaviors as they evolve in the future, including through mechanisms such as investor testing and investor surveys where appropriate, taking into account relevant developments in connection with fund practices, investors' preferences, the fund industry, and financial markets in connection with any future regulatory initiatives.

4. Investment Company Advertisements, and Developments Affecting Fund Marketing Practices

Many registered investment companies and business development companies (“BDCs”) prepare advertising materials, which can include materials in newspapers, magazines, radio, television, direct mail advertisements, fact sheets, newsletters, and on various web-based platforms. These advertising materials are subject to certain requirements under Commission rules. The primary Commission rules addressing investment company advertising include rules 482 and 433 under the Securities Act, rule 34b-1 under the Investment Company Act, and rule 156 under the Securities Act (the term “investment company advertising rules” in this release refers to this set of rules).

Rule 482 establishes certain content, legend, and filing requirements for investment company advertisements.

Many of the rule's content requirements focus on advertisements that include performance data of certain types of funds, including mutual funds, ETFs, insurance company separate accounts registered as unit investment trusts (“UITs”), and money market funds.

Investment company advertisements typically are prospectuses for purposes of the Securities Act. Rule 482 provides a framework in which investment company advertisements are deemed to be “omitting prospectuses” that may include information the substance of which is not included in a fund's statutory or summary prospectus.

See

Proposing Release,

supra

footnote 8, at n.653-654 and accompanying text. Instead of relying on rule 482, registered closed-end funds and BDCs may use free writing prospectuses in accordance with rule 433 and certain other Commission rules for advertising purposes.

See id.

at nn.656-676 and accompanying text.

See id.

at nn.655-666.

Rule 34b-1 applies to supplemental sales literature (

i.e.,

sales literature that is preceded or accompanied by a prospectus) by any registered open-end company, UIT, or registered face-amount certificate company. Rule 34b-1 includes many of the same requirements as rule 482, including the same performance-related requirements.

See id.

at nn.659-661 and accompanying text. The Commission adopted rule 34b-1 to help prevent performance claims in supplemental sales literature from being misleading and to promote comparability and uniformity among supplemental sales literature and rule 482 advertisements.

Rule 156 states that whether or not a particular description, representation, illustration, or other statement involving a material fact is misleading depends on evaluation of the context in which it is made. The rule discusses several pertinent factors that should be weighed in considering whether a particular statement involving a material fact is or might be misleading in investment company sales literature, including rule 482 advertisements and supplemental sales literature.

Rule 156 applies to sales literature used by any person to offer to sell or induce the sale of securities of any investment company, including registered investment companies and BDCs.

See id.

at n.662-663 and accompanying text.

Separately, rules issued by FINRA regulating members' communications with the public provide an important source of advertising requirements and guidance for investment companies, as underwriters and/or distributors of investment company shares are commonly FINRA members.

FINRA rule 2210, “Communications with the Public,” includes both general and specific standards for communications with the public.

FINRA is a self-regulatory organization composed of brokers and dealers registered under the Exchange Act.

Non-money market fund open-end funds' retail communications and correspondence (as defined in FINRA rule 2210,

see infra

footnote 515) that include performance information also must include fee and expense information that includes: (1) the fund's maximum sales charge; and (2) the total annual fund operating expense ratio, gross of any fee waivers or expense reimbursements (

i.e.,

ongoing annual fees). These funds' standardized performance information, sales charge, and total annual fund operating expense ratio also must be set forth prominently. FINRA rule 2210(d)(5). In addition, FINRA rule 2210 applies to the retail communications of BDCs.

See

FINRA Rule 2210 Interpretative Guidance at C.1,

available at https://www.finra.org/rules-guidance/guidance/faqs/advertising-regulation#b2

(responding, in part, that firms must file with FINRA retail communications concerning BDCs that are registered under the Securities Act).

In recent years, investment companies increasingly have been marketing themselves on the basis of cost in an effort to attract investors. For instance, we have observed some funds calling themselves “no-expense” or “zero-expense” funds, or emphasizing their low expense ratios, despite the fact that investors may incur other investment costs.

Comments that the Commission received on the Proposing Release similarly recognized “the trend for some funds to market their investment products based on claims of low or no fees.”

Investors may incur certain costs and fees that, despite providing revenue to the fund's adviser and its affiliates (or other parties), are not direct costs of investing in a fund and so are not reflected in a fund's expense ratio, and therefore may be less transparent or clear to certain investors.

Additionally, a fund may appear to be a “zero expense” fund because its adviser is waiving fees or reimbursing expenses for a period of time, but the fund will incur fees and expenses once that arrangement expires. In these and other cases, we are concerned that, absent appropriate explanations or limitations, investors may believe incorrectly that there are no expenses associated with investing in the fund.

A fund's expense ratio is the figure in its prospectus fee table that represents the fund's total annual operating expenses, expressed as a percent of the fund's average net assets.

see also

Comment Letter of the Consumer Federation of America (Jan. 4, 2021) (“Consumer Federation of America II Comment Letter”) (discussing concerns that accompany funds being “increasingly marketed on the basis of costs”).

For example, an investor may incur intermediary costs, such as wrap fees that an investor pays to the sponsor of a wrap fee program (which may be the fund's adviser or its affiliates) for investment advice, brokerage services, administrative expenses, or other fees and expenses.

See

SEC Division of Examinations, Observations from Examinations of Investment Advisers Managing Client Accounts That Participate in Wrap Fee Programs (July 21, 2021),

available at https://www.sec.gov/files/wrap-fee-programs-risk-alert_0.pdf.

All staff statements represent the views of the staff. They are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved their content. These staff statements, like all staff statements, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person. As another example, investment company advertisements that advertise low investment costs, based solely on a fund's prospectus fee table, might not reflect or recognize other categories of costs that may be supplementing a traditional management fee and/or may affect the returns an investor experiences (

e.g.,

intermediary costs).

See

Proposing Release,

supra

footnote 8, at paragraph accompanying n.685.

While investment company advertising rules currently place limits on how a fund may present its performance to promote comparability and prevent potentially misleading advertisements, these rules generally do not prescribe the presentations of fees and expenses in advertisements to address similar concerns about comparability or potentially misleading information.

Addressing fee comparability in fund advertisements is critical both in light of current trends in

fund marketing and because of the significant long-term effects that fund fees and expenses can have on investment returns.

Commission rules require a fund to disclose maximum sales loads in some advertisements, and FINRA rules also limit how a fund advertisement may describe investment costs in some respects, but these limitations currently apply only to a subset of fund advertisements.

See

Proposing Release,

supra

footnote 8, at section II.H.2.

B. Overview of the Final Rules

1. Final Rules' Principal Elements

The final rules consist of the following principal elements:

•

Shareholder Reports Tailored to the Needs of Retail Shareholders:

Under the new framework, shareholders will receive concise and visually engaging annual and semi-annual reports designed to highlight information that we believe is particularly important for retail shareholders to assess and monitor their fund investments on an ongoing basis. This information will include—among other things—fund expenses, performance, and portfolio holdings. Funds will have the flexibility to make electronic versions of their shareholder reports more user-friendly and interactive. In addition, funds will be required to tag the information in their shareholder reports using Inline XBRL structured data language.

•

Availability of Additional Information on Form N-CSR and Online:

Information that may be more relevant to financial professionals and other investors who desire more in-depth information will be made available online and delivered free of charge in paper or electronically upon request. This information also will be filed on a semi-annual basis with the Commission on Form N-CSR. This information includes, for example, the schedule of investments and other financial statement elements. Shareholder reports will contain cover page legends directing investors to websites containing this information. Accessibility-related requirements that we are adopting will help ensure that investors can easily reach and navigate the information that appears online.

•

Amendments to Scope of Rule 30e-3 to Exclude Funds Registered on Form N-1A:

To ensure that all fund investors will experience the anticipated benefits of the new tailored shareholder reports, we are amending the scope of rule 30e-3 to exclude open-end funds. This amendment ensures shareholders in open-end funds will directly receive the new tailored annual and semi-annual reports, either in paper or (if the shareholder has so elected) electronically.

This change reflects the Commission's continuing efforts to improve the ways investors receive fund disclosure. We believe that this approach represents a more effective means of improving investors' ability to access and use fund information, and of reducing expenses associated with printing and mailing, than continuing to permit open-end funds to rely on rule 30e-3.

See infra

footnote 618 and accompanying text (discussing increase in e-delivery requests since the beginning of the COVID-19 pandemic).

•

Fee and Expense Information in Investment Company Advertisements:

Finally, we are adopting amendments that are designed to respond to developments that we have observed in investment company advertising. These amendments require that presentations of investment company fees and expenses in advertisements and sales literature be consistent with relevant prospectus fee table presentations and be reasonably current. These advertising rule amendments affect all registered investment company and BDC advertisements that include fee and expense figures, and where the investment company presents total annual expense figures in their prospectuses. The amendments therefore are not limited to open-end fund advertisements. The amendments also address representations of fees and expenses that could be materially misleading.

2. Other Aspects of Proposal

After considering comments, we are not taking final action on several aspects of the proposal at this time: (1) proposed new rule 498B, which would have provided a new alternative approach to satisfy prospectus delivery requirements for existing fund investors; and (2) proposed amendments to funds' prospectus fee and risk disclosure.

Proposed Rule 498B

In lieu of providing annual prospectus updates to existing fund investors, proposed rule 498B would have provided an alternative approach to keep these investors informed about their fund investments and updates to their funds that occur year over year.

Under this proposed rule, new investors would have received a fund prospectus in connection with their initial investment in a fund, as they currently do, but funds could have opted into an alternative approach under which they would not deliver annual prospectus updates to investors thereafter.

The proposed layered disclosure framework would instead have relied on the shareholder report and timely notifications to shareholders to keep investors informed about their fund investments.

See

Proposing Release,

supra

footnote 8, at section II.F.

See

section 5(b)(2) of the Securities Act [15 U.S.C. 77e(b)(2)] (generally requiring that a fund or financial intermediary deliver a prospectus to an investor in connection with a purchase of the fund's securities). Because section 5(b)(2) requires funds to deliver a prospectus to an investor purchasing shares, including existing shareholders who purchase additional shares, funds generally provide annual updates of prospectuses to all shareholders.

While some commenters generally supported proposed rule 498B, most commenters, even those who supported the proposed rule, suggested fairly significant modifications.

A number of commenters directly opposed the proposed rule.

Some of these commenters expressed concern that existing investors would not continue to receive an updated prospectus annually.

Many other opposing commenters also expressed concern about the proposed requirement to deliver notices of material fund changes.

Other commenters suggested that the proposed new approach to satisfying prospectus delivery obligations could increase the possibility of shareholder litigation (for example, if failing to send a material change notice or not correctly tracking existing investors could result in prospectus delivery obligations not being satisfied).

See, e.g.,

Comment Letter of T. Rowe Price Associates, Inc. (Jan. 5, 2021) (“T. Rowe Price Comment Letter”); Comment Letter of Better Markets, Inc. (Jan. 4, 2021) (“Better Markets Comment Letter”) (each commenter expressing support for adopting the rule as proposed);

see also

Comment Letter of Donnelley Financial Solutions (Dec. 30, 2020) (“DFIN Comment Letter”) (supporting this requirement and stating that, if the Commission were to allow certain series to be bundled into a single shareholder report, the Commission should at a minimum require all information for each series appear together to eliminate the need for a shareholder to navigate the entire report to review all the information on a single series).

See, e.g.,

ICI Comment Letter; SIFMA Comment Letter; Fidelity Comment Letter; T. Rowe Price Comment Letter; Vanguard Comment Letter; Comment Letter of Capital Research and Management Company (Jan. 4, 2021) (“Capital Group Comment Letter”); John Hancock Comment Letter.

See, e.g.,

T. Rowe Price Comment Letter; SIFMA Comment Letter; John Hancock Comment Letter.

See, e.g.,

Vanguard Comment Letter; Capital Group Comment Letter; John Hancock Comment Letter.

See, e.g.,

ICI Comment Letter; SIFMA Comment Letter; Fidelity Comment Letter; John Hancock Comment Letter.

100

See

ICI Comment Letter (stating that, while rule 498 prohibits the bundling of summary prospectuses for different funds together, it provides an exception from this prohibition for funds that are all available as investment options for a particular variable contract);

see

also John Hancock Comment Letter (also stating that insurance companies that offer funds as investment options sometimes request that certain reports be combined rather than separated into multiple reports).

After considering these comments, we continue to believe a multi-series report is inconsistent with our goal of creating concise shareholder report disclosure that shareholders can more easily use to assess and monitor their ongoing fund investments. For example, if the report were to include information about multiple series, a shareholder that is invested in one series of the registrant would need to spend more time searching through the report to find disclosure related to that shareholder's investment. Additionally, even if there may be some efficiencies gained for fund complexes in bundling the reports of funds with similar investment strategies, we believe those benefits are not justified by the resulting inconsistency in which some funds' shareholder report content would be bundled together in a single report while others would have individual shareholder reports.

101

See, e.g.

Morningstar Comment Letter (also stating that the costs associated with creating separate shareholder reports for each fund would not be significant because fund complexes would simply be required to divide what is currently reported in one document into several smaller documents);

see also infra

section IV.C.2.

Furthermore, we believe that bundling funds with similar strategies could present an increased risk of shareholder confusion. For instance, if two series included in the same shareholder report were to have similar names, such as two tax-exempt funds or two target date funds where only the target date in the name differs (

e.g.,

“XYZ Target Retirement 2040 Fund” versus “XYZ Target Retirement 2045 Fund”), there could be a greater risk that a shareholder would mistakenly review information that does not relate to that person's investment.

102

Because the shareholder report is designed to assist existing shareholders in monitoring their investments on an ongoing basis, rather than serving as a mechanism for funds to provide shareholders information about other products, we disagree with commenters who suggested that bundling funds with similar strategies together in a single report, such as target date funds, would be useful to investors.

103

102

See

Morningstar Comment Letter.

103

See

DFIN Comment Letter (noting that the cost of requiring only one series to be included in a shareholder report is mitigated by the cost savings derived from the proposal's exclusion of financial statements from the shareholder report);

see also infra

section IV.C.2.

Furthermore, we have similar concerns about commenters' suggestions to permit bundling shareholder reports of those funds that are available as investment options underlying variable contracts, although this is permitted for summary prospectuses. In the context of reports to existing shareholders who use these reports to monitor their investments on an ongoing basis (as opposed to prospective investors making an initial investment decision and who are a key audience for summary prospectuses), we see little benefit to such contract holders from allowing insurance companies to bundle together all the underlying series, many of which the shareholders are not invested in.

104

Contract holders seeking to shift their investments to other available investment options may consult the contract's annual prospectus update, or for variable contract registrants that use a summary prospectus, the appendix of investment options/portfolio companies that an updating summary prospectus is required to include.

105

104

See

Variable Contract Summary Prospectus Adopting Release,

supra

footnote 9 at n. 16 (noting that investment options offered by variable annuity contracts can be numerous, with some contracts offering more than 250 investment options).

105

See

Item 18 of Form N-3 [17 CFR 239.17a and 274.11b]; Item 17 of Form N-4 [17 CFR 239.17b and 274.11c]; Item 18 of Form N-6 [17 CFR 239.17c and 274.11d].

b. Class Scope

To reduce the complexity of disclosure as well as to provide more tailored information that is specific to a shareholder's investment in the fund, the final rules, in a change from the from the proposal, will require that a fund prepare and transmit to the shareholder a shareholder report that covers the single class of a multiple-class fund in which the shareholder invested.

106

We requested comment on whether a shareholder report should be limited to a single class. After considering the comments received in response to this request, among other factors, we believe that this requirement will make it easier for shareholders to navigate the shareholder report disclosure and understand how it applies to their own interests in the fund, as shareholders only will receive reports applicable to their share class.

107

Although different share classes of a fund represent interests in the same investment portfolio, and certain shareholder report disclosure will be the same for all classes, the final rules recognize that there is significant disclosure that varies among share classes, such as expenses and performance data.

106

See

Instruction 4 to Item 27A(a) of amended Form N-1A. To effectuate the requirement to prepare separate shareholder reports for each share class, we are also adopting changes to: proposed Item 27A(b)(1) and (b)(2) (to identify on the cover page the class and exchange ticker symbol of the class to which the shareholder report relates); proposed Item 27A(c), Instruction 1.(e) (to delete the requirement that a fund provide a separate line in the expense table for each class); proposed Item 27A(d), Instruction 13 (to clarify the requirements for management's discussion of fund performance in the context of multiple class funds); and proposed Item 27A(e) (to add an instruction providing that if a fund includes a statistic that is calculated based on the fund's performance or fees, the fund must show the statistic for the class of the fund to which the report relates, and to clarify that a fund may include performance-based statistics only if the relevant class has at least one year of performance).

See infra

section II.A.2.

107

See

Proposing Release,

supra

footnote 7, at section II.B.1.

Commenters' support for the proposal to include

all

of a fund's share classes in a single shareholder report was mixed. Certain commenters generally supported the proposed approach and stated that shareholders monitoring their investments may benefit from seeing other cheaper classes that may be available.

108

One of those commenters, nevertheless, suggested that it would be beneficial if a fund were to provide a brief description of share class availability and investor eligibility requirements for each share class.

109

Other commenters, however, suggested that including all share classes in the tailored shareholder report could result in lengthy and complex disclosure, particularly with the class-specific information regarding fees and performance data that would be required under the proposal.

110

One commenter suggested that the Commission require that a fund show class-specific information, such as information regarding expenses and performance data, for only the “primary” share class.

111

Another commenter observed that some funds have many classes, many of which that are not available to most investors, and suggested that the Commission limit the number of classes a fund may show in the annual report.

112

108

See, e.g.,

CFA Institute Comment Letter; ICI Comment Letter; Morningstar Comment Letter.

109

See

Morningstar Comment Letter.

110

See

Capital Group Comment Letter;

see also

Tom and Mary Comment Letter.

111

See

Capital Group Comment Letter.

112

See

Tom and Mary Comment Letter.

After considering the statements of support as well as the concerns raised by commenters, we have determined to require that a shareholder report cover a single class of a multiple-class fund. We agree with commenters that including all share classes of a multiple class fund could result in lengthy and complex disclosure, particularly when a fund has a large number of share classes.

113

The length and complexity that would result by including all classes of multiple class fund would make it more difficult for a shareholder to identify information, such as fees and performance, that may differ based on the share class in which the shareholder invested. Further, such lengthy and complex shareholder reports would be inconsistent with our goal of creating concise shareholder report disclosure so shareholders can more easily use the reports to assess and monitor their ongoing fund investments.

113

According to staff review of filings received by the Commission on Form N-CEN [17 CFR 274.101] through March 14, 2022, the largest number of share classes reported by multiple class fund was 23 share classes.

Instead of this approach, we considered adopting the approach a commenter suggested, in which all share classes could be included in a shareholder report if the fund were to provide additional disclosure about share class availability and eligibility to assist with a shareholder's understanding of share classes.

114

However, this approach would not address the concern that the inclusion of information about multiple share classes could result in lengthy and complex shareholder report disclosure that would run counter to our goal of creating concise shareholder report disclosure.

115

Further, we believe that investors may benefit from having class-specific shareholder reports, as it may be difficult for some investors to identify or recall the share class in which they had invested. Including additional information about share class eligibility would not necessarily help to address these concerns. In addition, providing concise, plain-English disclosure about share class eligibility could be particularly challenging. Based on staff experience, including multiple share classes in a shareholder report may make it more difficult for some retail shareholders to efficiently review information relevant to their share classes, even those with specialized knowledge about investing in funds.

116

114

See

Morningstar Comment Letter.

115

See

Proposing Release,

supra

footnote 8, at 19;

see also

Comment Letter of Frank Dalton (Jan. 3, 2021) (“Frank Dalton Comment Letter”) (suggesting that there be one report per fund).

116

See, e.g., Updated Investor Bulletin: Mutual Fund Classes,

SEC Office of Investor Education and Advocacy (updated Feb. 24, 2021)

available at https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-61

(addressing common questions about fund share classes).

see also infra

section II.C.2 regarding the posting of information that funds will file as Items 7-11 of amended Form N-CSR, such as fund financial statements and information about changes in and disagreements with accountants.

118

See infra

section II.H.

c. Scope of Content

As proposed, the final rules will generally allow a fund to include in its annual report only the information that Item 27A of Form N-1A specifically permits or requires.

119

We also are adopting, as proposed, three additional provisions related to the content of a fund's annual report. First, if a fund's particular circumstances may cause the required disclosures to be misleading, the final rules will allow a fund to add information to the report that is necessary to make the required disclosure items not misleading.

120

Disclosure in response to this provision generally should be brief. Second, as proposed, if a required disclosure is inapplicable, the final rules will permit the fund to omit the disclosure, and a fund similarly may modify a required legend or narrative information if the modified language contains comparable information to what is otherwise required.

121

Finally, as proposed, the final rules will not permit a fund to incorporate by reference any information into its annual report.

122

That is, a fund could not refer to information that is located in other disclosure documents in order to satisfy the content requirements for an annual report.

119

See

Instruction 3 to Item 27A(a) of amended Form N-1A;

see also

Proposing Release,

supra

footnote 8, at n.115 (noting that funds would have flexibility with respect to the use of online tools to assist shareholders in understanding the contents of an annual report that appears online or otherwise is provided electronically).

120

See

Instruction 2 to Item 27A of amended Form N-1A (permitting a fund to include disclosure that is required under 17 CFR 270.8b-20 (rule 8b-20 under the Investment Company Act)); rule 8b-20 under the Investment Company Act (providing, “[i]n addition to the information expressly required to be included in a registration statement or report, there shall be added such further information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading”);

see also

Proposing Release,

supra

footnote 8, at paragraph accompanying n.117 (discussing, for example, that if a fund changed its investment policies or structure during or since the period shown, the expense, performance, or holdings information that a fund must include in its annual report may require additional disclosure to render those presentations not misleading).

121

See

Instruction 7 to Item 27A(a) of amended Form N-1A;

see also

Proposing Release,

supra

footnote 8, at n.119 (discussing that a goal of this instruction was to promote better-tailored disclosure).

122

See

Instruction 5 to Item 27A(a) of amended Form N-1A;

see also

Proposing Release,

supra

footnote 8, at n.120.

Commenters generally supported the proposed requirement to limit the information included in the shareholder report, and they agreed that this limitation would help focus shareholder reports on the most salient issues to shareholders.

123

One commenter expressly supported the proposal to allow funds to omit information from the required items that is inapplicable to the fund, and to modify required legends or narratives so long as the modification contains comparable information to what is required.

124

To provide funds with additional flexibility, one commenter suggested allowing funds to include supplemental information reasonably related to the required content or including an “unrestricted” section of the report

where funds can provide discretionary content.

125

123

See, e.g.,

ICI Comment Letter; Consumer Federation of America II Comment Letter; Morningstar Comment Letter; NASAA Comment Letter.

124

See

ICI Comment Letter.

But see

Morningstar Comment Letter and Consumer Federation of America II Comment Letter (expressing concern that allowing funds to modify legends may lead to obscuring important information and stressing the importance of maintaining consistency where possible in section headers so that investors can more readily consume reports since they may receive multiple reports).

125

See

Sidley Austin Comment Letter.

Comments on the proposed prohibition on incorporation by reference in the shareholder report were mixed. Some commenters supported the proposed prohibition, for example noting it would make it easier for shareholders to understand the report without consulting additional sources.

126

By contrast, others opposed this prohibition based on concerns that it may lead in increased litigation risk.

127

Commenters sought reassurance that information that will now be submitted online on Form N-CSR will still be considered part of the “total mix of information” assessed by courts in instances of shareholder litigation.

128

The final rules are not intended to change courts' assessment of the total mix of information.

126

See, e.g.,

ICI Comment Letter; Morningstar Comment Letter; Consumer Federation of America II Comment Letter; NASAA Comment Letter.

127

See, e.g.,

Capital Group Comment Letter; Stradley Ronon Comment Letter; Vanguard Comment Letter; Dechert Comment Letter.

128

See, e.g.,

ICI Comment Letter; Dechert Comment Letter,

We continue to believe that allowing only the required or permitted information to appear in a fund's annual report will promote consistency of information presented to shareholders and allow retail shareholders to focus on information particularly helpful in monitoring their investment in a fund.

129

As discussed above, the final rules provide funds with some flexibility to tailor the required information to their unique characteristics.

130

Additionally, in the limited circumstances in which it may be appropriate for a fund to provide less or more information than what Item 27A requires or permits, the final rules allow the fund to omit information that is inapplicable to the fund and/or add additional information to make the required disclosure items not misleading. We believe that expanding the shareholder report to include supplemental information, for example in an “unrestricted” section of the report, could lead to significant increases in the length of the document and would be inconsistent with our goal of focusing the report on the most salient information for shareholders.

129

See

Proposing Release,

supra

footnote 8, at text following n.116 (noting that this approach would also encourage more impartial information by preventing funds from adding information commonly used in marketing materials).

130

See id.

at n.116 (noting that many of the instructions to each requirement in the shareholder report provide some flexibility so that a fund can tailor its presentation of information to match how the fund invests. For instance, a fund has the ability to select the categories that are reasonably designed to depict clearly the types of a fund's investments when preparing its graphical representation of holdings).

Although the final rules will only permit the inclusion of certain information in the annual report and prohibit incorporation by reference, funds will be required to refer shareholders to the availability of certain additional website information near the end of the report.

131

The final rules, however, will—as proposed— permit funds to provide additional information to shareholders in the same transmission as the shareholder report, so long as the shareholder report is given greater prominence than any other materials included in the same transmission, except for certain specified disclosure materials.

132

The disclosure materials that are exceptions to this “greater prominence” requirement include summary prospectuses, statutory prospectuses, notices of the online availability of proxy materials, and other shareholder reports. Therefore, we believe that the final rules appropriately balance providing funds with the flexibility to provide shareholders with information relevant to the fund's unique characteristics, while maintaining a concise shareholder report that highlights the most relevant information for shareholders and promotes comparability across funds.

131

See

Item 27A(i) of amended Form N-1A.

132

See

Instruction 12 to Item 27A(a) of amended Form N-1A; s

ee also

Proposing Release,

supra

footnote 8, at text accompanying n.125 (explaining that the Commission would consider a fund to satisfy the “greater prominence” requirement if, for example, the shareholder report is on top of a group of paper documents that are provided together or, in the case of an electronic transmission, the email or other message includes a direct link to the report or provides the report in full in the body of the message).

Some commenters suggested adding content areas to the shareholder report, which they suggested would be useful for investors in monitoring their investments.

133

First, two commenters requested that funds be allowed to continue to include information related to the tax character of distributions in the shareholder report to comply with certain IRS requirements.

134

These commenters asserted that, absent relief from the IRS, funds would have to make a separate mailing to shareholders disclosing this tax-related information.

135

Several commenters also suggested that funds should be required to provide additional risk-related information.

136

Finally, one commenter suggested that funds should be required to disclose how much the fund manager invests in the fund.

137

133

See, e.g.,

ICI Comment Letter; Federated Hermes Comment Letter; Comment Letter of the Independent Trustees of the Morningstar Funds Trust (Oct. 20, 2020) (“Morningstar Trustees Comment Letter”); CFA Institute Comment Letter; Morningstar Comment Letter.

134

ICI Comment Letter; Federated Hermes Comment Letter.

135

ICI Comment Letter (explaining that the Internal Revenue Code requires regulated investment companies, including funds, to report the tax character of certain distributions paid in written statements delivered to shareholders. Although this requirement is satisfied through delivery of the Form 1099-DIV, certain shareholders do not receive this form. Therefore, funds frequently choose to include this disclosure in the shareholder report as a means of ensuring compliance with the reporting requirement).

136

Morningstar Comment Letter; Morningstar Trustees Comment Letter (urging the Commission to shorten liquidity risk discussion and require additional discussion of other risks if relevant, such as derivatives risks and concentration risk); Angel Comment Letter (suggesting that a fund be required to disclose its historical standard deviation of returns compared to its benchmark's standard deviation of returns as a uniform quantitative risk measure).

137

Morningstar Comment Letter.

After considering commenter suggestions, we do not believe it is necessary to permit or require any additional content areas in the shareholder report under the final rules. First, we believe that this disclosure, unlike the other required content areas of the streamlined shareholder report, would not as directly contribute to retail investors' understanding of the fund's operations and performance over the relevant performance period, and would add length and complexity to the shareholder report. Additionally, we do not believe it is necessary to permit funds to describe the tax character of distributions in the shareholder report, because a fund could distill such tax-related disclosure in a manner that would meet the final rules' requirements for a fund statistic, or if a fund determines that such information is relevant to the MDFP, the fund could consider including the relevant disclosure in the fund statistics or MDFP sections of the shareholder report under the final rules.

138

Also, as the final rules do not alter the requirements for delivering annual prospectus updates, which include information about the fund's principal risks, we do not believe it is also necessary to require funds to include additional risk-related information in their shareholder reports.

139

Similarly, we do not believe it is necessary to require funds to include information regarding how much the fund manager invests in the

fund in the shareholder report because such information is already disclosed in the fund's SAI and may be available on fund websites, and we believe that this disclosure would not be particularly salient to retail investors monitoring their investments.

140

138

See infra

section II.A.2.c.i (discussing the narrative MDFP disclosure requirements) and text accompanying

infra

footnote 263 (discussing the requirements for the disclosing additional fund statistics).

139

See supra

footnote 67.

140

See

Item 20(c) of current and amended Form N-1A;

see also

rule 498(e) (requirements to make certain materials—including a fund's SAI—available on a website, for funds that use summary prospectuses in reliance on rule 498).

d. Scope With Respect to Other Registrants

As proposed, the final annual report disclosure rules will apply only to shareholder reports for investment companies registered on Form N-1A.

141

The amendments do not extend to other investment companies such as closed-end funds, UITs, or open-end managed investment companies not registered on Form N-1A (

i.e.,

issuers of variable annuity contracts registered on Form N-3).

141

These funds represent the vast majority of investment company assets under management.

See infra

section IV.B.1.

Several commenters suggested that the Commission should reevaluate consistency of disclosure across all different fund types (

e.g.,

closed-end funds and UITs, as well as open-end funds) because the shareholders across fund types have similar informational needs and would likely all benefit from a similar layered approach to disclosure.

142

Tom and Mary Comment Letter; Dechert Comment Letter; CFA Institute Comment Letter; Comment Letter from Donald (Attorney) (Oct. 12, 2020) (“Donald Comment Letter”).

We agree that disclosure consistency, and continuing to consider consistency in informational needs among shareholders in different types of investment companies, are important policy matters, and topics that the Commission and staff will continue to evaluate. In the past several years, the Commission adopted changes to the disclosure framework for closed-end funds and variable contracts tailored to these investment companies' characteristics.

143

Before considering any additional or different disclosure amendments for closed-end funds and variable contracts, we believe it is necessary to understand funds' and investors' experience with these new disclosure frameworks for closed-end funds and variable contracts and assess their impact.

143

See

Variable Contract Summary Prospectus Adopting Release,

supra

footnote 9; Securities Offering Reform for Closed-End Investment Companies, Investment Company Act Release No. 33836 (Apr. 8, 2020) [85 FR 33290 (June 1, 2020)] (“Closed-End Fund Offering Reform Adopting Release”).

Some commenters also suggested that funds offered exclusively to other funds or offered only to institutional investors be exempt from the obligation to prepare shareholder reports.

144

These commenters argued that, because the shareholder report is oriented towards retail shareholders, there is little benefit in requiring funds that are sold exclusively to these investors to prepare, transmit, and file these reports. These commenters suggested that such funds instead could rely on the financial statements and other Form N-CSR requirements filed with the Commission to keep institutional investors informed about their fund investments.

144

ICI Comment Letter; Fidelity Comment Letter; T. Rowe Price Comment Letter.

We do not believe that such an exemption is necessary or appropriate. Currently registered funds offered exclusively to other funds, or only to institutional investors, transmit complete annual and semi-annual reports to their shareholders. Under the final rules, these funds will now be required to provide shareholders with a significantly shorter document. While shareholder reports under the final rules include content that is designed to be particularly salient to retail investors, these reports include core fund information that all investors can use to monitor fund investments, and that supplements information that investors could glean from a fund's financial statements. Additionally, to the extent a fund limits its investor base to institutional investors and is able to qualify for the exclusions from the investment company definition in sections 3(c)(1) or 3(c)(7) of the Investment Company Act, the fund can operate as a private fund under those exclusions and will not be subject to the shareholder report requirements of section 30 of the Act.

2. Contents of the Annual Report

The following table outlines the information the final rule will generally require funds to include in their annual reports.

Table 2—Outline of Annual Report

Description

Item of amended form N-1A

Item of current form

N-1A containing

similar requirements

Cover Page or Beginning of Report

Fund/Class Name

Item 27A(b)

Ticker Symbol

Item 27A(b)

Principal U.S. Market(s) for ETFs

Item 27A(b)

Statement Identifying as “Annual Shareholder Report”

Item 27A(b)

Legend

Item 27A(b)

Statement on Material Fund Changes in the Report

Item 27A(b)

Content

Expense Example

Item 27A(c)

Item 27(d)(1).

Management's Discussion of Fund Performance

Item 27A(d)

Item 27(b)(7).

Fund Statistics

Item 27A(e)

Graphical Representation of Holdings

Item 27A(f)

Item 27(d)(2)

Material Fund Changes

Item 27A(g)

Changes in and Disagreements with Accountants

Item 27A(h)

Item 27(b)(4).

Availability of Additional Information

Item 27A(i)

Item 27(d)(3) through (5).

Householding Disclosure (optional)

Item 27A(j)

(*)

* Rule 30e-1(f)(3) currently requires a fund to explain, at least once a year, how shareholders may revoke their consent to householding. This explanation is not currently required in funds' shareholder reports. As proposed, we are not requiring it in the annual report.

As proposed, the annual report will not be subject to page or word limits under the final rules. Commenters agreed with this approach and one commenter stated that adopting a page limit may have the unintended effect of producing dense, visually unappealing disclosures when funds try to squeeze necessary information into a limited space.

145

Another commenter said that the Commission's proposed approach would provide funds with the flexibility to provide explanatory or qualifying information to the extent they believe it is necessary or appropriate.

146

We believe that the proposed restrictions on the contents of these reports would naturally limit their length, which would support our goal of concise, readable disclosure without the need for further restrictions on page length or word count.

147

145

Consumer Federation of America II Comment Letter.

146

NASAA Comment Letter.

147

See, e.g., infra

at text following footnote 271 (stating that, in the fund statistics section of the shareholder report, funds have the flexibility to include additional statistics that the fund believes would help shareholders better understand the fund's activities and operation during the reporting period, but cautioning that funds should carefully consider the inclusion of any statistic that requires extensive narrative explanation).

a. Cover Page or Beginning of the Report

The final amendments to Form N-1A will require a fund to provide the following information on the cover page or at the beginning of the annual report:

148

See

Item 27A(b) of amended Form N-1A.

• As proposed, the name of the fund and the class to which the annual report relates;

149

In a change from the proposal, the final rules will require that a shareholder report cover a single class of a multiple-class fund.

See

Instruction 4 to Item 27A(a) of amended Form N-1A;

see also

General Instruction C.3.(d) of current Form N-1A.

As discussed above, the final rules will require that a shareholder report cover a single class of a multiple-class fund.

157

Therefore, we do not believe it is necessary to include additional information regarding share class eligibility. Similarly, because shareholders will continue to receive annual prospectus updates under the final rules, we do not believe it is necessary to require or permit funds to include a fund's investment objective (which also appears in the prospectus) in the shareholder report. We believe that adding the fund's investment objective would be duplicative and, in light of this, unnecessarily increase the length of the shareholder report.

157

See

Instruction 4 of Item 27A(b) of amended Form N-1A.

The final rules also will not require a fund to describe material changes on the cover page of the shareholder report. Because the shareholder report will be a relatively short document, we anticipate investors would see this information within a few pages following the cover page or beginning of the report. However, we agree with commenters that it may be useful for shareholders to be alerted to material changes that occurred during the reporting period. Therefore, in a change from the proposal, if a shareholder report includes a discussion of material fund changes, the final rules will require the cover page of the report to include a prominent statement, in bold-face type, explaining that the report describes certain changes to the fund that occurred during the reporting period.

158

Item 27A(b) of amended Form N-1A.

Finally, we do not believe it is necessary to adopt an instruction to the required legend specifically allowing funds that serve as the underlying investment options for variable contracts to modify the legend in a manner that is consistent their structure. As discussed above, Instruction 7 to Item 27A already allows funds to modify a required legend or narrative information so long as the modified language contains comparable information.

159

A more specific instruction for funds that serve as the underlying investment options for variable contracts is unnecessary.

159

See supra

text accompanying footnote 121.

b. Fund Expenses

The final rules will require a simplified expense presentation in the annual report, modified from the proposed presentation to take into account concerns raised by commenters. Under the final rules, a fund will be required to provide a table showing the expenses associated with a hypothetical $10,000 investment in the fund during the preceding reporting period in two formats: (1) as a percent of a shareholder's investment in the fund

(

i.e.,

expense ratio), and (2) as a dollar amount. In a change from the proposal, the expense presentation under the final rules will not require the table also to include information about the fund's total return during the period.

160

Additionally, the final rules do not include the proposed requirement for a fund to include an explanation, in a footnote to the expense example, that expense information does not reflect shareholder transaction costs associated with purchasing or selling fund shares.

160

See

Proposing Release,

supra

footnote 8, at n.142. The proposed expense presentation would have required a fund to show a beginning account value of $10,000, costs paid during the period, the fund's total return during the period before costs were paid, and the ending account value based on the fund's net asset value return.

See id.

at nn.154-155 and accompanying text. Under the proposal, ETFs were required to include the ending value of the account based on market value return.

See id.

at n.159 and accompanying text.

Simplified Expense Table

The final rules include a simplified expense table that will replace the current expense example in the shareholder report, which consists of two different tables, along with the currently-required narrative preamble.

161

Commenters generally supported simplifying the expense presentation in the shareholder report and eliminating the narrative preamble to the table.

162

In addition, the expense table under the final rules is more simplified than the proposed presentation and is designed to provide shareholders with a basis for comparing the level of current period expenses of different funds (as percentages are comparable), as well as to permit shareholders to estimate the costs, in dollars, that they incurred over the reporting period. The expense presentation will appear as follows, and the individual aspects of the example are described in more detail below.

161

See

Proposing Release,

supra

footnote 8, at text accompanying nn.145-146 (explaining that the current expense presentation requires funds present two tables: the first showing the actual cost in dollars for a $1,000 investment in the fund over the prior six-month period based on the actual return of the fund, and the second showing the cost in dollars for a $1,000 investment in the fund over the prior six-month period based on a hypothetical 5% annual return);

see id.

at n.162 and accompanying text (discussing the currently-required narrative preamble).

162

See, e.g.,

ICI Comment Letter; AFREF Comment Letter; NASAA Comment Letter; CFA Institute Comment Letter; Abdullah Comment Letter.

But see

Consumer Federation of America II Comment Letter (suggesting that the Commission conduct investor testing to determine if investors would prefer the current presentation).

What Were the Fund Costs for the Last [Year/Six Months]?

[Based on a hypothetical $10,000 investment]

[Fund or class name]

Costs of a

$10,000

investment

Costs paid as a percentage of a $10,000

investment

As proposed, the final rules require a fund to provide the expenses associated with a hypothetical $10,000 investment in the fund during the preceding reporting period. Currently, funds are required to show expenses associated with a $1,000 investment. The Commission proposed an increased dollar value in order to present a more realistic investment amount for an individual shareholder today.

163

Commenters supported the higher $10,000 assumed investment amount.

164

One commenter, however, stated that funds with a higher minimum investment should be required to show that higher investment amount in the expense presentation.

165

As this would undermine comparing different funds, we are not requiring funds with higher minimum investment amounts to show that higher amount.

163

See

Proposing Release,

supra

footnote 8, at n.151 and accompanying text.

164

See, e.g.,

Consumer Federation of America II Comment Letter; Morningstar Comment Letter.

165

ICI Comment Letter.

In addition to the cost in dollars of a $10,000 investment and the expense ratio, the proposed expense table also would have required a fund to show returns information, which was designed to facilitate shareholders' understanding of how costs and performance affect their ending account values. Some commenters, including retail investors, requested that the expense example exclude returns information, and provide only costs.

166

These commenters stated that presenting returns information in the expense table might be confusing for shareholders and repetitive of the performance information that appears later in the document. Additionally, one commenter supported an approach that includes returns information in the expense table, but stressed the importance of highlighting the costs paid in dollars and expense ratio tables through text features, such as bold-face type, to emphasize the importance of those two data points.

167

After considering commenters' concerns, the presentation of fund expenses under the final rules will not include fund returns information because we agree that presenting returns information in the expense example is duplicative of the returns information that is presented in the MDFP section of the report and could add unnecessary complexity and confusion to the expense presentation. For example, because a fund's reported return would relate to the fund's fiscal year, including return information could result in different funds presenting substantially different returns based primarily on whether a given fund's fiscal year included a time period with aberrant market performance. We also believe that the simplified presentation—presenting just the costs in dollars and the expense ratio—would help to focus investors on this key information.

168

166

See, e.g.,

Comment Letter of Sandra Degan (Aug. 25, 2020) (“Sandra Degan Comment Letter”); Comment Letter of Ubiquity (Sept. 14, 2020) (“Ubiquity Comment Letter”); Williams Comment Letter; Tom and Mary Comment Letter; Barker Comment Letter. Additionally, two commenters objected to the ETF-specific requirement to show the ending account value based on both NAV and market value return, and stated that ETFs should only be required to show NAV.

See

Ubiquity Comment Letter, Tom and Mary Comment Letter.

167

CFA Institute Comment Letter.

168

Because the final rules will not include fund return information in the expense example, the expense table will not include the proposed “ending value of the account” column and related instructions, including the proposed instructions requiring the presentation of expense information as a mathematical expression and the requirement to give more prominence to the “cost paid” and “cost paid as a percentage of your investment' columns than the other columns in the table. Similarly, commenter concerns regarding the disclosure related to ETF-specific requirement to show the ending account value based on both NAV and market value return are moot.

Additional Aspects of the Shareholder Report's Presentation of Expenses

Some commenters suggested additional modifications to the proposed expense presentation. First, we proposed an expense table title: “What were your Fund costs for the period? (based on a hypothetical $10,000 investment).” Additionally, under the proposal, the column in the table that would include the fund's expense ratio was entitled “costs paid as a percentage of your investment.” One commenter requested we modify these two headers to remove the references to “your” because an investor might reasonably interpret these uses of the possessive pronoun as actually reflecting that investor's own personal experience.

169

We agree, that the use of the term “your” in the header to the table and the title of the expense ratio column could confuse investors, and we have changed these two headers to clarify that the expenses presented in

the table are a reflection of a hypothetical $10,000 investment.

169

NASAA Comment Letter.

Additionally, the final rules will replace the proposed header reference to “the period” with a more specific reference to either “the past year” or “the past six months,” depending on whether the report is an annual or semi-annual report. We believe this more specific heading reference to the relevant period will help shareholders better appreciate that the figures in the semi-annual report expense table reflect a shorter period than the annual report (and thus these figures will likely be smaller than the parallel figures in the annual report).

The proposal also would have included a new footnote to the expense presentation that would have required a fund to include a footnote briefly explaining, in plain English, that the expense information does not reflect shareholder transaction costs associated with purchasing or selling fund shares.

170

This was designed to inform investors that there may be additional costs not reflected in the expense example, if applicable. Some retail investors stated that the proposed footnote is of limited value and recommended streamlining it.

171

After considering commenter concerns, we agree this footnote would provide limited information to investors, particularly since it would not have included quantitative information regarding these costs, and these costs may vary based on distribution channel, making it difficult to present this information concisely in the footnote or otherwise. By merely alerting investors to the possibility of additional costs, the proposed footnote could make the table less readable without providing investors information they could use effectively in evaluating the expense presentation. We therefore are not adopting that proposed footnote.

170

The proposal would have also required a fund to include a footnote to the proposed returns information that would be included in the expense presentation, describing other costs that are included in the fund's total return if material to the fund. Because the final rules' expense presentation does not include returns-related information, we are not adopting this footnote requirement.

See

Proposing Release,

supra

footnote 7, at n.164.

171

Williams Comment Letter; Tom and Mary Comment Letter.

We are adopting, as proposed, an instruction that will direct funds to calculate “Costs of a $10,000 investment” by multiplying the figure in the “Cost paid as a percentage of a $10,000 investment” column by the average account value over the period based on an investment of $10,000 at the beginning of the period.

172

The figure in the “Cost paid as a percentage of your investment” column, in turn, will be the fund's expense ratio as it appears in the fund's most recent audited financial statements or financial highlights.

173

172

See

Instruction 2(a) to Item 27A(c) of amended Form N-1A. As proposed, the computation instructions will also require funds to assume reinvestment of all dividends and distributions.

See

Instruction 2(b) to Item 27A(c) of amended Form N-1A.

173

See

Instruction 2(c) to Item 27A(c) of amended Form N-1A. In the semi-annual report, the fund's expense ratio will be calculated in the manner required by Instruction 4(b) to Item 13(a) of current and amended Form N-1A, using the expenses for the fund's most recent fiscal half-year.

Id.

Additionally, as proposed, we are retaining three current instructions that we believe continue to provide important information to shareholders.

174

First, if a fund incurred any “extraordinary expenses” during the reporting period, the fund may briefly describe, in a footnote to the expense table, what the actual expenses would have been if these extraordinary expenses were not incurred.

175

The Commission received no comments on this instruction. Second, if a fund is a feeder fund, the fund must reflect the aggregate expenses of the feeder fund and the master fund in the expense table and include a footnote stating that the expense table reflects the expenses of both the feeder and master funds.

176

One commenter supported continuing to permit funds to report aggregated fees with the related footnote, and noted that allowing reporting in this manner allows investors to more easily understand the total expenses they are paying.

177

No commenters opposed the instruction. Finally, if a fund's shareholder report covers a period of time that is less than a full reporting period, the fund must include a footnote to the table noting this and explaining that expenses for a full reporting period would be higher than the figures shown.

178

We received no comments on this instruction.

179

174

See

Proposing Release,

supra

footnote 7, at paragraph following n.171.

175

See

Instruction 1(d) to Item 27A(c) of amended Form N-1A (defining “extraordinary expenses” as “expenses that are distinguished by their unusual nature and by the infrequency of their occurrence. Unusual nature means the expense has a high degree of abnormality and is clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the Fund, taking into account the environment in which the Fund operates. Infrequency of occurrence means the expense is not reasonably expected to recur in the foreseeable future, taking into consideration the environment in which the Fund operates. The environment of a Fund includes such factors as the characteristics of the industry or industries in which it operates, the geographical location of its operations, and the nature and extent of government regulation”).

176

See

Instruction 1(b) to Item 27A(c) of amended Form N-1A.

177

Morningstar Comment Letter.

178

See

Instruction 1(c) to Item 27A(c) of amended Form N-1A. This would generally apply to newly-formed funds that are required to file an annual or semi-annual report for a period shorter than the reporting period.

179

While the proposal included an instruction that would have required a separate expense table, or a separate line item in the expense table, for each class of as multiple-class fund, this instruction is moot in light of the final rules' requirement that a shareholder report cover only a single class of a multiple-class fund.

See

Instruction 4 to Item 27A(a) of amended Form N-1A;

see also

footnote 106 and accompanying text;

see also

Proposing Release,

supra

footnote 7, at n.174 and accompanying text.

Feedback on Including Additional or Different Information About Fund Costs

Some commenters also responded to the Commission's request for comment on differences in the expense presentations in the annual report and prospectus.

180

These presentations currently differ in that the shareholder report expense example is derived from a fund's audited financial statements and therefore reflects actual historical expenses that a shareholder incurred over the past year (

i.e.,

backwards-looking expenses). The prospectus fee table and expense example, on the other hand, reflect hypothetical future expenses (

i.e.,

forward-looking expenses).

181

Some commenters argued that the expense presentations of the prospectus and annual report should be aligned.

182

Similarly, one commenter suggested that the shareholder report expense example should disclose the prospectus expense ratio and explain any differences in a footnote.

183

Furthermore, some commenters suggested that the expense presentation in the shareholder report should include additional transaction costs, beyond commissions, including costs paid from fund assets for investment research and payments made to affiliated securities lending agents.

184

Conversely, one commenter urged the Commission to exclude interest expenses and dividends paid on short sales from the current expense ratio, on the basis that these

adjustments would make expense information more comparable across funds.

185

Finally, other commenters also argued that the Commission should require funds to disclose—on fund websites or in the prospectus, as a complement to shareholder report disclosure—best execution policies reflecting “efforts to ensure that fund transaction costs, including commission dollars generated by the fund,” directly benefit shareholders.

186

180

See

Proposing Release,

supra

footnote 8, at text following n.600;

see also

CFA Institute Comment Letter.

Because the prospectus and shareholder report differ in the time periods that they reflect (

i.e.,

the prospectus is “forward looking” while the shareholder report is “backward looking”), aligning the expense presentations in these documents presents significant challenges. Additionally, we believe that it would be confusing to investors to be given two expense ratios in the shareholder report (one backwards-looking, derived from the audited financial statements, and the other from the forward-looking prospectus). Furthermore, because the shareholder report is designed to provide shareholders with a summary of the key information provided in the fund's audited financial statements, we continue to believe that the types of costs reflected in the shareholder report expense example should be derived from those that are included in the fund's audited financial statements. As discussed above, however, helping investors more readily understand fund fees and expenses is an important priority of the Commission and we believe that the general topic of fund fee disclosure effectiveness, in light of comments received, merits further consideration.

187

See supra

text following footnote 84.

c. Management's Discussion of Fund Performance

Substantially as proposed, the final rules will largely maintain the current requirements for the MDFP section of the annual report, with several targeted changes.

188

In particular, we are adopting amendments to the current MDFP requirements to make the disclosure more concise. Additionally, the final rules include additional performance-related information that is available in fund prospectuses, including certain performance information and comparative information showing the average annual total returns of one or more relevant benchmarks, modified from the proposal to take into account the final rule's requirement for the shareholder report to cover a single class of a multiple-class fund. We also are amending, as proposed, the definition of an appropriate broad-based securities market index to require that all funds compare their performance to the overall applicable securities market, for purposes of both fund annual reports and prospectuses.

188

See

Proposing Release,

supra

footnote 7, at text following n.176 (explaining that the current MDFP disclosure generally includes: a narrative discussion of the factors that materially affected the fund's performance; a performance line graph; a table showing the fund's average annual total returns; a discussion of the effect of any policy or practice of maintaining a specified level of distributions to shareholders on the fund's investment strategies and per share net asset value, as well as the extent to which the fund's distribution policy resulted in distributions of capital; and for ETFs that do not provide certain premium or discount information on their websites, a table showing the number of days the fund shares traded at a premium or discount to net asset value).

i. Narrative MDFP Disclosure

As proposed, the final rules retain the current requirement for funds' annual reports to include a narrative discussion of factors that materially affected a fund's performance during the most recent fiscal year, with minor modifications from the current requirements to encourage concise disclosure.

189

In particular, the final rules amend the current requirement to specify the disclosure must “briefly summarize” the “key” factors that materially affected the fund's performance during the last fiscal year, including the relevant market conditions and the investment strategies and techniques used by the fund's investment adviser. As proposed, the final rules instruct funds not to include lengthy, generic, or overly broad discussions of these factors.

190

The instruction, as proposed, also directs funds to use graphics or text features—such as bullet lists or tables—to present the key factors, as appropriate. Finally, as proposed, the final rules will not allow funds to include any additional information—such as a fund president's letter to shareholders, interviews with portfolio managers, general market commentary, and other similar information—in the shareholder report.

191

189

See

Item 27A(d)(1) of amended Form N-1A.

190

See

Instruction 1 to Item 27A(d)(1) of amended Form N-1A.

191

See supra

text accompanying footnote 131. Additional information could, however, accompany the shareholder report provided that it meets the prominence requirements for materials that accompany the report.

See

Instruction 12 to Item 27A(a) of amended Form N-1A.

Commenters supported the proposed amendments to the narrative MDFP section and stated that the proposed approach appropriately maintains a fund's flexibility in presenting information that is most salient to investors, while requiring such information to be presented in a visually engaging and accessible format.

192

In addition, survey data submitted by a commenter indicated that retail investors, and older investors in particular, expressed that the new presentation would help them better understand fund performance.

193

192

See, e.g.,

Consumer Federation of America II Comment Letter; ICI Comment Letter; Fidelity Comment Letter.

193

Broadridge Comment Letter.

We are adopting the narrative MDFP section as proposed because we continue to believe providing shareholders with a more streamlined and visually engaging presentation of the key factors affecting fund performance will allow shareholders to focus on the most salient fund information.

194

Our approach balances the need for funds to have flexibility in determining what information is salient given a fund's unique strategy and risk profile, while encouraging funds to present that information in a manner that is most effective for shareholders. Therefore, we do not believe it is necessary to further limit the narrative MDFP disclosure.

194

See

Proposing Release,

supra

footnote 7, at text following n.180.

ii. Performance Line Graph and Guidance on Use of Market Indexes in Performance Disclosure

Substantially as proposed, the final rules will retain the requirements for the performance line graph currently included in annual reports, with certain amendments designed to improve the current presentation and to reflect that a shareholder report will cover a single class of a multiple-class fund.

195

The shareholder report must include a performance line graph that shows the performance of a $10,000 investment in the fund and in an appropriate broad-based securities market index over a 10-year period.

196

In addition, a fund has

the option to compare its performance to other indexes, including more narrowly based indexes that reflect the market sectors in which the fund invests. We continue to believe the line graph presentation helps shareholders understand how the fund has performed over a 10-year time horizon compared to an appropriate broad-based securities market index and other relevant indexes, as applicable.

197

195

See

Item 27A(d)(2) of amended Form N-1A and related instructions.

196

An “appropriate broad-based securities market index” is administered by an organization that is not an affiliated person of the fund, its investment

adviser, or principal underwriter, unless the index is widely recognized and used.

See

Instruction 6 to Item 27A(d)(2) of amended Form N-1A.

197

See

Proposing Release,

supra

footnote 7, at nn.191-193 and accompanying text.

We are adopting the instructions related to the line graph largely as proposed, with some conforming changes to reflect other aspects of the final rules. First, in a change from the proposal, the final rules include an instruction that requires a fund to present performance information for the class covered in the shareholder report. Second, as proposed, the final rules remove the current instruction that allows the line graph to cover periods longer than the past 10 fiscal years. Third, as proposed, the final rules include an instruction that defines a “broad-based” index as one that represents the overall applicable domestic or international equity or debt markets, as appropriate.

198

And as proposed, the instructions under the final rules will continue to permit a fund to include narrower indexes that reflect the market segments in which the fund invests in its performance presentation, along with the required appropriate broad-based securities market index.

199

198

The amendments to the definition of an appropriate broad-based securities market index would affect performance presentations in fund prospectuses, as well as fund annual reports.

199

See

Instruction 7 to Item 27A(d)(2) of amended Form N-1A. This release sometimes refers to the appropriate broad-based securities market index as the “primary index”, and any narrower index(es) as “secondary index(es).”

Commenters generally supported the retention of the performance line graph as well as the prohibition on showing more than 10 years of performance.

200

Some commenters requested enhancements to the line graph. For example, one commenter suggested the line graph should include percentage values along with dollar amounts to facilitate comparisons.

201

Additionally, one commenter suggested allowing funds to add labels at each significant point in the line graph to enhance comprehension of risk and improve the user experience.

202

Two commenters suggested funds should be required to include a bar chart of returns, similar to what is currently included in the prospectus, along with the line graph.

203

200

See, e.g.,

Consumer Federation of America II Comment Letter; Cornell Law School Comment Letter; Morningstar Comment Letter; Morningstar Trustees Comment Letter; CFA Institute Comment Letter.

But see

ICI Comment Letter (objecting to the prohibition showing performance beyond 10 years).

201

Cornell Law School Comment Letter.

202

Morningstar Comment Letter.

203

Morningstar Trustees Comment Letter; CFA Institute Comment Letter.

We continue to believe, as discussed more fully in the Proposing Release, that limiting the performance line graph to 10 years is important to avoid unrealistic investor performance-related expectations and allow investors to easily identify volatility.

204

We also believe adding labels at significant points on the line graph may clutter the presentation and hinder an investor's ability to understand the information provided.

204

See

Proposing Release,

supra

footnote 7, at text following n.196 (discussing, for example, that for funds that have been in existence for a long period of time (

e.g.,

40 years), a line graph that shows the performance of a $10,000 investment at the outset of the fund may not be particularly relevant for the average shareholder, who likely has not been invested in the fund for such an extended period of time).

Further, we continue to believe the line graph is more useful for investors in the shareholder report than a bar chart. Like a bar chart, a line graph helps illustrate the variability of a fund's returns (

e.g.,

whether the fund's returns have been volatile or relatively consistent from year to year). But given the other benefits of the line graph—particularly that it presents performance in dollar terms that may be easier for some shareholders to assess—the final rules we are adopting maintain the line graph presentation.

205

Moreover, the line graph presentation may help investors understand the general benefits of long-term investments (

e.g.,

compound interest).

205

This complements the percentage-based presentation in the average annual total returns table.

See

Proposing Release,

supra

footnote 8, at n.193.

Comments on Broad-Based Securities Market Index

Commenter reactions to the proposed definition of an appropriate broad-based securities market index were mixed. Some commenters supported the retention of the requirement to present performance relative to a broad-based index, as well as the proposed definition.

206

One commenter stated that the requirement to compare performance to the overall applicable securities markets would be useful to investors, as it makes the information more comparable across funds, and should “also help prevent funds from selecting for comparison a narrow index designed to make their own performance look artificially strong.”

207

Another, supporting the proposed requirement, stated that the requirement would “ensure that investors have a simple, readily-accessible window into the performance of a specific investment fund against the broader performance of the securities markets.”

208

Some commenters asked for additional guidance. For example, one commenter suggested that the definition incorporate more specific criteria regarding index methodology.

209

Another commenter requested the Commission to provide additional clarity on indexes that would satisfy the proposed definition, such as country-specific indexes, ESG indexes, and indexes of particular capitalizations.

210

Further, another commenter suggested that the Commission publish a list of permissible indexes.

211

206

See, e.g.,

Comment Letter of Index Industry Association (Jan. 4, 2021) (“Index Industry Association Comment Letter”); Consumer Federation of America II Comment Letter; NASAA Comment Letter; Tom and Mary Comment Letter; Ubiquity Comment Letter.

207

See

Consumer Federation of America II Comment Letter;

see also

Index Industry Association Comment Letter (comparing fund performance against a broad-based market index in fund reporting materials “promotes transparency and helps shareholders evaluate their goals”);

see also

Abdullah Comment Letter (stating that it is problematic that funds include narrow indexes as their broad-based index).

208

See

NASAA Comment Letter.

209

Id.

210

Tom and Mary Comment Letter.

211

Ubiquity Comment Letter.

In contrast, many industry commenters objected to the proposed definition.

212

These commenters argued that, for some fund strategies like multi-asset funds and alternative strategy funds, a comparison to an index representing the entire market would be less useful and could be misleading to investors because these fund strategies are not designed to invest in, nor provide the performance associated with, any particular overall market. Commenters also questioned the default requirement to include a broad-based index in a fund's performance line graph. Although the proposal allows funds to show a secondary index that is more tailored to the fund's strategy, commenters argued including any broad-based market index would be confusing to investors in certain

circumstances.

213

For example, one commenter argued that investor confusion could result if the Commission were to require an index fund that seeks to track a narrow index as a principal investment strategy to compare itself to a different, broad-based index.

214

Furthermore, some commenters argued the proposed broad-based index requirement would impose additional licensing fees on funds.

215

Similarly, one commenter argued retaining the current “widely recognized and used” standard for using an affiliated index as a fund's primary index disadvantages smaller funds, whose affiliated indexes would be less likely to meet this standard and for which the expense of licensing a “widely recognized and used” index may be more significant.

216

212

See, e.g.,

ICI Comment Letter (suggests changing index definition to “appropriate index”); SIFMA Comment Letter; Morningstar Comment Letter; Fidelity Comment Letter; Capital Group Comment Letter; John Hancock Comment Letter; TIAA Comment Letter; Comment Letter of IHS Markit (Jan. 4, 2021) (“IHS Markit Comment Letter”).

213

Id.

214

Supplemental Comment Letter of the Investment Company Institute (Oct. 10, 2022) (“ICI Comment Letter on the OIAD Benchmark Study”).

But see

Abdullah Comment Letter (“Since 40% of fund assets are index funds, it would be interesting to see whether the performance [of] an index that lines up quite closely with an index fund is useful to investors. I hypothesize that such a presentation provides no benefit to an investor and so should not be permitted as the sole benchmark.”).

215

ICI Comment Letter; SIFMA Comment Letter; Vanguard Comment Letter; Dimensional Comment Letter; Fidelity Comment Letter; T. Rowe Price Comment Letter;

see also infra

paragraph accompanying footnotes 751-752 (discussing potential effects of the final rules' changes to the term “appropriate broad-based securities market index” on the costs that funds bear, including additional costs to funds in the form of index-licensing fees, and stating that the amount of these costs will depend, among other things, on market competition among index providers).

But see

Index Industry Association Comment Letter (stating fees charged by broad-based index providers are small and costs to funds would be minimal).

216

ICI Comment Letter.

Some commenters suggested alternatives designed to alleviate investor confusion concerns and to enhance benchmark indexes' informational value. For example, some commenters urged the Commission to consider requiring labeling the primary index as a “general market index” (or similar) to clarify how an investor should use the information it presents.

217

Other commenters suggested the primary index should be one that is specifically tailored to the fund's strategy and the secondary index should be one that represents the overall market.

218

Some of these commenters also suggested that funds be permitted to provide additional information about more narrowly tailored indexes, such as the index's underlying components and their weights,

219

and an explanation of why the fund believes that the chosen index is an appropriate indicator of the fund's performance.

220

217

Fidelity Comment Letter; CFA Institute Comment Letter.

218

Morningstar Comment Letter; Federated Hermes Comment Letter; John Hancock Comment Letter; IHS Markit Comment Letter; T. Rowe Price Comment Letter.

219

T. Rowe Price Comment Letter.

220

IHS Markit Comment Letter.

After considering comments and the findings of the OIAD Benchmark Study, we are adopting the proposed definition of “appropriate broad-based securities market index” and retaining the current requirement that a fund must include such an index in its performance line graph. We continue to believe all funds should compare their performance to the overall market and that including a broad-based index in performance disclosure gives investors readily-accessible contextual information about market performance.

221

While performance disclosure that includes an index based on a narrow segment of the market may be useful for comparison purposes, this does not substitute for the inclusion of an index that provides information about the performance of the fund against the broader market. For example, if the Commission were to permit an index fund that seeks to track a narrow index as a principal investment strategy to show only the performance of the narrow index it seeks to track, and the performance of the fund and the index were very similar (as they would be to the extent that the fund tracks the index closely), such a performance presentation would show the extent to which the fund tracks the index but would be less helpful to investors to provide broader performance context.

222

As another example, the inclusion of a broad-based index helps an investor in a sector-specific fund determine not only how the fund's performance relates to that of its peers, but how the fund's performance relates to the performance relative to the market as a whole. Therefore, investors in such funds would benefit from additional contextual information regarding the performance of the overall market.

223

221

See supra

footnotes 206-208 and accompanying text.

222

See supra

footnote 214.

223

See, e.g.,

CFA Institute Comment Letter (“Even if a fund outperforms its benchmark, that may be slight consolation if the strategy itself performs poorly against the market. Therefore, the investor should also compare a fund's returns against the market as a whole.”).

The final rules' approach is supported in part by the findings of the OIAD Benchmark Study, which observed that benchmarks can help contextualize a fund's performance information for investors, and that some investors use this information to make investment decisions.

224

The study also found that investors of varying levels of sophistication report preferring performance disclosure that includes both broad and narrow benchmarks.

225

Furthermore, while commenters suggested that narrower benchmarks could provide more useful comparative information, the OIAD Benchmark Study concluded that investors' decision-making was generally driven by the positioning of the fund's performance relative to the benchmark presented (

i.e.,

whether the fund underperformed or outperformed the benchmark), irrespective of whether the benchmark presented is narrow or broad.

226

Therefore, as we continue to believe a comparison to the overall market is important contextual information for investors, the evidence that the study provided does not, in our view, support changing the proposed approach or adopting an alternative requirement (for example, requiring the

inclusion of an “appropriate” benchmark as opposed to an “appropriate broad-based” benchmark). In addition, the study showed that investors find a fund significantly less attractive when a performance graph shows the fund's performance accompanied by a single benchmark that outperforms the fund. Therefore, to the extent that it could be easier for a fund to find a narrow benchmark that underperforms the fund than a broad benchmark, we do not see a reason to discontinue the current requirement to include a broad benchmark, as the requirement to include only a narrower benchmark could lead to gaming behavior. Two commenters specifically addressed the OIAD Benchmark Study and raised concerns regarding the methodology used by the study and the impact such methodology had on the study's conclusions.

227

However, the elements of the OIAD Benchmark Study that support the approach under the final rules are not impacted by the methodology concerns that commenters raised.

228

224

See

OIAD Benchmark Study,

supra

footnote 53;

see also

ICI Comment Letter on the OIAD Benchmark Study (noting the importance of performance benchmarks to investors).

225

OIAD Benchmark Study,

supra

footnote 53 at “Figure 9. Preferences for benchmarks.” In the sections of the OIAD Benchmark Study that analyze benchmarks that currently exist in the mutual fund industry, the study identified funds' broad-based benchmarks first by identifying data from the Morningstar Direct open-end fund database that capture “primary” and “secondary” indexes, and then by reclassifying these indexes as broad and narrow benchmarks based on the correlation of each index with the S&P 500 Index. Commenters objected to the use of the S&P 500 Index in the study's methodology, arguing that the Commission should not “define or insinuate that a broad-based index must or should have certain correlation to the S&P 500 Index.”

See

Abdullah Comment Letter;

see also

ICI Comment Letter on the OIAD Benchmark Study (stating that “

de facto

SEC endorsement of certain indexes would create market distortions and likely increase fund licensing costs”). The OIAD Benchmark Study, including its methodology and findings, does not reflect findings or conclusions by the Commission as to what constitutes a broad-based index under the final rules.

See infra

text accompanying footnotes 230-233 (providing general guidance and examples of the indexes that would qualify as broad-based indexes under the rule).

226

See

OIAD Benchmark Study,

supra

footnote 53;

see also

ICI Comment Letter on the OIAD Benchmark Study (stating that “the underlying results do not find evidence that survey participants believed that the broad benchmark is a better reference point than the narrow benchmark”). A different academic study also examines fund performance benchmarks, but with a focus on funds' behavior with respect to the performance benchmarks that they select, how benchmark changes affect the appearance of funds' benchmark-adjusted performance, as well as fund flows that result from changes in performance benchmarks.

See

Kevin Mullally and Andrea Rossi,

Moving the Goalposts? Mutual Fund Benchmark Changes and Performance Manipulation

(June 24, 2022),

available at

Mullally, Kevin and Rossi, Andrea, Moving the Goalposts?

Mutual Fund Benchmark Changes and Performance Manipulation

(June 24, 2022)

available at https://ssrn.com/abstract=4145883.

227

See

Abdullah Comment Letter;

see also

ICI Comment Letter on the OIAD Benchmark Study.

228

Those concerns chiefly focused on the sections of the OIAD Benchmark Study that analyze benchmarks that currently exist in the mutual fund industry (Section 2, “Institutional Background on Benchmark Requirements,” Section 7, “Analysis of Benchmark Performance Data,” and Section 8, “General Discussion”). These concerns focused on the methodology for determining which benchmark in a fund's disclosure is the broad-based benchmark that is requir

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