abstract by Roger M. Edelen et. al., Disclosure, Inattention and
Conflicted Remuneration in Financial Advice (citation omitted)).
Edelen et al. present a study of the effects a 2012 Australian law
known as the Future of Financial Advice (FOFA). They find that the
law's required disclosure of an ``advice fee'' in a stand-alone Fee
Disclosure Statement led to an ``economically and statistically
significant'' change in client (investor) behavior. In addition,
they find evidence of further changes in investor behavior from the
law's requirement that investors must ``opt into'' financial advice.
The evidence of an effect of an opt-in requirement, even in the
presence of the Fee Disclosure Statement, indicates that investors
can benefit from reforms that go beyond enhanced salience to address
investor inattention. (``Our evidence confirms the literature view
that salient fee disclosure has a material impact on investors'
decisions. But our evidence on the FOFA opt-in requirement is more
novel and arguably more important.'')

---------------------------------------------------------------------------

    In the proposal, we considered studies that applied to certain
elements of the rule amendments in addition to studies that applied
more broadly to the framing of our analysis of the economic impact.
Some of the research that we considered identified characteristics that
may increase the effectiveness of a disclosure document to consumers,
as discussed below.\639\
---------------------------------------------------------------------------

    \639\ See George Loewenstein et al., Disclosure: Psychology
Changes Everything, Harv. Pub. L. (working paper no. 13-30, Aug. 18,
2013) (``Loewenstein Paper''), available at https://ssrn.com/abstract=2312708 (retrieved from SSRN Elsevier database). The paper
provides a survey of the literature regarding disclosure regulation.
---------------------------------------------------------------------------

    Specifically, the research we considered suggests that, because
individuals can exhibit limited ability to absorb and understand the
implications of the disclosed information, for example due to limited
attention or low level of financial sophistication,\640\ more targeted
and simpler disclosures may be more effective in communicating
information to investors than more complex disclosures. Specifically,
the academic studies that we considered suggest that costs, such as
from increased investor confusion or reduced understanding of the key
elements of the disclosure, are likely to increase as disclosure
documents become longer, more complex, or more reliant on narrative
text.\641\ Consistent with such findings, other empirical evidence
suggests that disclosure simplification may benefit consumers of
disclosed information.\642\ This research supports the notion that
shorter and more focused disclosures could be more effective at
increasing investor understanding than longer, more complex
disclosures. For example, a concise shareholder report could more
effectively communicate information to investors than current
shareholder reports.
---------------------------------------------------------------------------

    \640\ See, e.g., David Hirshleifer & Siew Hong Teoh, Limited
Attention, Information Disclosure, and Financial Reporting (Sept.
2003) (``Hirshleifer & Teoh Study'') available at https://ssrn.com/abstract=334940; Lauren E. Willis, Decision Making and the Limits of
Disclosure: The Problem of Predatory Lending: Price, 65 MD. L. REV.
707 (2006).
    \641\ See, e.g., Samuel B. Bonsall & Brian P. Miller, The Impact
of Narrative Disclosure Readability on Bond Ratings and the Cost of
Debt, 22 Rev. Acct. Stud. 608 (2017) and Alistair Lawrence,
Individual Investors and Financial Disclosure, 56 J. ACCT. & ECON.
130 (2013).
    \642\ See, e.g., Sumit Agarwal, et al., Regulating Consumer
Financial Products: Evidence from Credit Cards Nat'l Bureau of Econ.
Rsch (working paper no. 19484, Sept. 28, 2013, last revised Mar. 28,
2022), available at https://ssrn.com/abstract=2332556 (finding that
a series of requirements in the Credit Card Accountability
Responsibility and Disclosure Act (CARD Act), including several
provisions designed to promote simplified disclosure, have produced
substantial decreases in both over-limit fees and late fees, thus
saving U.S. credit card users $12.6 billion annually).
---------------------------------------------------------------------------

    Another characteristic of effective disclosures documented in the
academic research that we considered is disclosure salience.\643\
Salience detection is a key feature of human cognition allowing
individuals to focus their limited time and attention on a subset of
the available information and causing them to place relatively greater
weight on this information in their decision-making processes.\644\
Within the context of disclosures, information disclosed more
saliently, such as information presented in bold text, or at the top of
a page, tends to be more effective in attracting attention than less
saliently disclosed information, such as information presented in a
footnote. Some research finds that more visible disclosure signals are
associated with stronger stakeholder responses to these signals.\645\
Moreover, some research suggests that increasing signal salience is
particularly helpful to consumers with lower education levels and lower
financial literacy.\646\ There is also empirical evidence that
visualization improves individual perception of information.\647\ For
example, one experimental study shows that tabular reports lead to
better decision making and graphical reports lead to faster decision
making (when people are subject to time constraints).\648\ Overall,
these findings suggest that problems such as limited attention may be
alleviated if key information in shareholder reports is emphasized, is
reported closer to the beginning of the document, and is visualized in
some manner (e.g., tables, graphs, bullet lists). However, it is also
important to note that, given a choice, registrants may opt to
emphasize elements of the disclosure that are most beneficial to
themselves rather than investors, while deemphasizing elements of the
disclosure that they regard as least beneficial.
---------------------------------------------------------------------------

    \643\ See, e.g., Pedro Bordalo et al., Salience, 14 Ann. Rev.
Econ. (2022) (reviewing the growing economics literature on salience
and economic behavior).
    \644\ See Daniel Kahneman, Thinking Fast And Slow, Farrar,
Straus and Giroux, 1st ed. (Apr. 2, 2013) and Shelley E. Taylor,
Social Cognition: From Brains To Culture SAGE Publ'n Ltd., 3d ed.
(Mar. 15, 2017).
    \645\ See Hirshleifer & Teoh Study, supra footnote 640.
    \646\ See, e.g., Victor Stango & Jonathan Zinman, Limited and
Varying Consumer Attention: Evidence from Shocks to the Salience of
Bank Overdraft Fees, 27 REV. FIN. STUD. 990 (2014).
    \647\ See John Hattie, Visible Learning: A Synthesis Of Over 800
Meta-Analyses Relating To Achievement, Routledge; 1st ed. (Nov. 18,
2008).
    \648\ See Izak Benbasat & Albert Dexter, An Investigation of the
Effectiveness of Color and Graphical Information Presentation Under
Varying Time Constraints, 10 Mgmt. Info. Sys. Q. no. 1 (Mar. 1986).
---------------------------------------------------------------------------

    There is also a trade-off between allowing more disclosure
flexibility and ensuring more disclosure comparability (e.g., through a
more consistent approach to disclosure across funds). Greater
disclosure flexibility potentially allows the disclosure to reflect
more relevant information, as disclosure providers can tailor the
information to firms' own specific circumstances. Although disclosure
flexibility allows for disclosure of more decision-relevant
information, it also allows registrants to emphasize information that
is most beneficial to themselves rather than investors, while
deemphasizing information that is least beneficial to the
registrants.\649\ Economic incentives to present one's operations and
performance in a better light may drive funds to deemphasize
information that may be relevant to retail investors. Moreover,
although the requirement for a consistent approach across funds can
make it harder to tailor disclosed information to a fund's specific
circumstances, it also comes with some benefits. For example, people
are generally able to make more coherent and rational decisions when
they have comparative information that allows them to assess relevant
trade-offs.\650\
---------------------------------------------------------------------------

    \649\ This flexibility, however, operates within a statutory and
regulatory framework that addresses materially misleading statements
and omissions by issuers. See, e.g., section 10(b) of the Exchange
Act; rule 10b-5 under the Exchange Act; see also supra footnote 543
and accompanying text (discussing FINRA rules that require all
member communications to be fair and balanced and not misleading).
    \650\ See, e.g., Jeffrey R. Kling, et al., Comparison Friction:
Experimental Evidence from Medicare Drug Plans, 127 Q. J. Econ. 199
(2012) (finding that in a randomized field experiment, in which some
senior citizens choosing between Medicare drug plans that were
randomly selected to receive a letter with personalized,
standardized, comparative cost information (``the intervention
group'') while another group (``the comparison group'') received a
general letter referring them to the Medicare website, plan
switching was 28% in the intervention group, but only 17% in the
comparison group, and the intervention caused an average decline in
predicted consumer cost of about $100 a year among letter
recipients); Christopher K. Hsee, et al., Preference Reversals
Between Joint and Separate Evaluations of Options: A Review and
Theoretical Analysis, 125 Psychol. Bull. 576 (1999).
---------------------------------------------------------------------------

    In addition, studies have found that changes in the structure or
format of disclosure can improve (or decrease) investor understanding
of the disclosures being made. Every disclosure document not only
presents new information to retail investors but also provides a
particular structure or format for this information that affects
investors' evaluation of the

disclosure.\651\ This ``framing effect'' could lead investors to draw
different conclusions depending on how information is presented.
Because of such framing effects, it is important that the structure of
a disclosure document supports the intended purpose of the disclosure.
---------------------------------------------------------------------------

    \651\ See Amos Tversky & Daniel Kahneman, The Framing of
Decisions and the Psychology of Choice, 211 Sci. 453 (1981).
---------------------------------------------------------------------------

b. Advertising
    The final advertising rule amendments will enhance the transparency
of the fees and expenses that are associated with investing in a
particular investment company.\652\ To obtain this improvement in
transparency, the amendments will require that presentations of fund
fees and expenses in registered investment company and BDC
advertisements and sales literature be consistent with the relevant
prospectus fee table presentations and be reasonably current.\653\
These rule amendments will require that funds use a consistent approach
to the presentation of the fee and expense information that appears in
fund advertisements and add to the pertinent factors that should be
considered to determine whether or not a particular representation is
materially misleading.\654\
---------------------------------------------------------------------------

    \652\ As detailed in section I.A.4 supra, investment company
advertisements typically are prospectuses for purposes of the
Securities Act. Rule 34b-1 under the Investment Company Act is
designed to help prevent performance claims in supplemental sales
literature from being misleading and to promote comparability and
uniformity among supplemental sales literature and covered
advertisements.
    \653\ See supra section II.G.1 (discussion of final rule
amendments regarding fund advertisements).
    \654\ See supra sections II.G.1-II.G.2.
---------------------------------------------------------------------------

    Regarding the presentation of fees and expenses, the amendments to
rules 482, 433 and 34b-1 will require that investment company
advertisements providing fee or expense figures for the investment
company include certain standardized fee and expense figures, and that
these figures must adhere to certain prominence and timeliness
requirements.\655\ The amendments will apply to advertisements of any
registered investment company or BDC. The amendments will require that
the fee and expense presentations prominently include timely
information about a fund's maximum sales load (or any other
nonrecurring fee) and gross total annual expenses, computed in a manner
that is consistent with relevant prospectus requirements. Further, if
an advertisement includes an investment company's total annual expenses
net of a fee waiver or expense reimbursement amount in addition to the
required gross annual expense figure, the advertisement will need to
disclose the expected termination date of that arrangement.
---------------------------------------------------------------------------

    \655\ See supra section II.G.1.
---------------------------------------------------------------------------

    Regarding materially misleading statements, the amendments to rule
156 will add to the pertinent factors that should be considered to
determine whether or not a particular representation is materially
misleading. The rule amendments provide that, when considering whether
a particular statement involving a material fact is or might be
misleading, weight should be given to representations about the fees or
expenses associated with an investment in the fund that could be
misleading because of statements or omissions involving a material
fact.
    By enhancing the transparency and salience of the fees and expenses
in fund advertising materials, we expect that the rule amendments will
reduce investor search costs and reduce the risk of a mismatch between
investor preferences and investor choice while also introducing certain
new costs in the production and delivery of fund advertising to
investors. Costs could include costs to funds (and their
intermediaries) of assessing compliance with the new requirements we
are adopting in relation to the requirements of FINRA's rules on
communications with the public, to the extent that a communication
could be subject to both sets of requirements.\656\ These effects may
vary across investors and funds according to the conditions of their
participation in the market for financial products.\657\
---------------------------------------------------------------------------

    \656\ See also infra text following footnote 666.
    \657\ For example, we understand that the registration statement
forms for variable insurance product separate accounts do not
require that total annual expense figures be presented, and
therefore, we understand that total annual expense figures are not
presented in these separate accounts' prospectuses. See supra
footnote 523 and accompanying text. The final amendments addressing
the required fee and expense figures are inapplicable if an
investment company does not present total annual expense figures in
its prospectus, and therefore these amendments would be inapplicable
to advertisements for such variable insurance contracts. See section
II.G.1 supra. But see supra paragraph accompanying footnote 562
(discussing variable contract advertisements that could be
materially misleading under rule 156).
---------------------------------------------------------------------------

    The economic analysis of the effects of the final advertising rule
amendments is based in part on the observation that, in recent years,
many funds have reduced the fees they charge to investors and on
comments that the Commission received on the Proposing Release.\658\
The staff has observed that some funds have highlighted low fees in
their advertising materials as a salient factor for investors to
consider when choosing among funds.\659\ For example, we understand
that some funds are advertised as ``zero expense'' or ``no expense''
funds based on the information included in their prospectus fee tables,
potentially leading investors to believe these funds impose no costs
even though the adviser or an affiliate may be collecting fees or
incurring money otherwise from the investor's fund investment. As a
result, investors may be more likely today to consider a fund's fees
when making their investment choices than they were when the Commission
last updated the investment company advertising rules.\660\ Also as a
result, funds may face increased incentives to understate or obscure
fees in their advertising materials. This is distinct from the
incentives of funds to incur marketing costs to influence the
likelihood of being observed by investors.\661\
---------------------------------------------------------------------------

    \658\ See supra section II.G for discussion of comments on the
advertising rule amendments. Some commenters stated that the
advertising rule amendments should help investors make more informed
investment decisions by more easily comparing costs among various
funds. See Better Markets Comment Letter; Consumer Federation of
America II Comment Letter; John Hancock Comment Letter. In addition,
some commenters stated that the proposed amendments were not
necessary in light of FINRA rules addressing fee and expense
information in retail communications. See Fidelity Comment Letter;
ICI Comment Letter.
    \659\ 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.'' See
CFA Institute Comment Letter; see also Consumer Federation of
America II Comment Letter (discussing concerns that accompany funds
being ``increasingly marketed on the basis of costs'').
    \660\ See, e.g., Michael Goldstein, Issues Facing the U.S. Money
Management Industry: Presentation to SEC Asset Management Advisory
Committee (Jan. 2020), at 27-28, available at https://www.sec.gov/files/Empirical-Research-Issues-Facing-US-MM.pdf; Ben Phillips,
Remarks and Discussion: U.S. Securities and Exchange Commission,
Asset Management Advisory Committee (Jan. 14, 2020), at 2, 8, and
15, available at https://www.sec.gov/files/BenPhillips-CaseyQuirk-Deloitte.pdf.
    \661\ See, e.g., Nikolai Roussanov, et al., Marketing Mutual
Funds, Nat'l Bureau Econ. Rsch.(working paper no. 25056, Jan. 3
2018, last revised Sep. 11, 2020), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3093438 (``Roussanov, et
al.'') (developing and estimating a structural model of the effects
of mutual fund marketing with costly investor search).
---------------------------------------------------------------------------

    Advertising can benefit investors by reducing information
asymmetries and thereby lowering investor search costs, leading to more
efficient matches between investor preferences and choices. The
effectiveness of advertising in lowering search costs and improving
match efficiency depends on the accuracy of the information and on the
investor's ability to understand the information.\662\ Indeed, it is
possible for

investors to be made worse off by fund marketing efforts. For example,
a positive relation between funds' marketing efforts and investor flows
(cash investment from investors) is well-documented among mutual
funds.\663\ In that context, the adviser to the fund bears marketing
expenses as part of its total operating cost, and fund shareholders are
found to bear some of that cost in the form of fund expenses--unless
shareholders react by switching to a similar fund that has lower
expenses. One study observed that funds charge higher fees to cover the
marketing cost as they engage in an ``arms race'' for similar pools of
investors.\664\ Some of this cost is passed on to investors according
to their abilities to distinguish among funds and thus ultimately their
costs of searching across funds. The authors suggest that as fees
increase, investors with a high search cost would be more likely to be
made worse off by the increase in fees and related marketing
expenditures than those with low search costs.\665\ This is because the
investors with the high search costs would be more likely to match with
asset managers of poor ability, and because the higher fees would
reduce returns.
---------------------------------------------------------------------------

    \662\ For example, Edelen et al. (2021) study a regulatory
change for financial advisers that required salient annual fee
disclosure and biennial opt-in (unresponsive clients default out of
advice), and banned conflicted remuneration. They conclude that
requiring salient disclosure has a material impact on investors'
decisions and that other factors including investor attention play a
role in determining investor choice. See supra footnote 638.
    \663\ See, e.g., Prem Jain & Joanna Wu, Truth in Mutual Fund
Advertising: Evidence on Future Performance and Fund Flows, 2 J. FIN
937 (Apr. 2000) (finding that advertising in funds increases flows
(comparing advertised funds with non-advertised funds closest in
returns and with the same investment objective)); Steven Gallaher,
Ron Kaniel & Laura T. Starks, Madison Avenue Meets Wall Street:
Mutual Fund Families, Competition and Advertising (Jan. 31, 2006),
available at https://ssrn.com/abstract=879775; Ron Kaniel & Robert
Parham, WSJ Category Kings--The Impact of Media Attention on
Consumer and Mutual Fund Investment, Simon Bus. Sch. (working paper
no. FR-15-07, Nov. 18, 2015), available at https://ssrn.com/abstract=2556627 (finding a significant and positive impact of
advertising expenditures and the resulting media prominence of the
funds on fund inflows).
    \664\ See Roussanov, et al., supra footnote 661.
    \665\ See id. (``Heterogeneity in search costs faced by
investors captures the wide variation in financial sophistication
(and perhaps even cognitive ability) required to consider and
analyze the different investment alternatives.'').
---------------------------------------------------------------------------

    The effects of the advertising rule amendments will be relatively
greater for advertising materials that are not currently covered by the
FINRA advertising rules. Specifically, as discussed in section
II.G.1.a, the objectives of some of the FINRA advertising rules are
similar to those of the rule amendments, even while the scope of the
FINRA advertising rules is narrower than that of the final advertising
rule amendments.\666\ To the extent that a fund's advertisements that
include fee and expense information already reflect the requirements of
FINRA rule 2210(d)(5), which includes specific requirements for the
presentation of fee and expense information, the beneficial effects of
the advertising rule amendments will be relatively smaller than for the
advertising materials of a fund that is not currently subject to the
FINRA rule's requirements (e.g., because it is not an open-end fund,
because it is intended for non-retail audiences, or because a broker-
dealer is not involved in disseminating the particular communication).
---------------------------------------------------------------------------

    \666\ See, e.g., Fidelity Comment Letter; ICI Comment Letter.
Commenters questioned the need for the proposed amendments in light
of FINRA's current requirements that address communications with the
public, as discussed in section II.G.1.a.
---------------------------------------------------------------------------

2. New Approach for Funds' Shareholder Reports
    The following sections discuss the potential costs and benefits of
the rule amendments' approach to funds' shareholder reports. Table 7
provides an overview comparison of the shareholder content and
transmission outcomes with the rule amendments versus without the rule
amendments.
---------------------------------------------------------------------------

    \667\ According to one comment on the Proposing Release, the
mailing of streamlined shareholder reports instead of rule 30e-3
notices would provide estimated savings to fund companies of between
$15 million and $20 million in calendar year 2023, primarily from
the elimination of the regulated incremental notice & access fee
with a slight offset in higher print costs for streamlined
shareholder reports (assuming 80% of streamlined shareholder reports
will be distributed digitally). According to this comment,
streamlined shareholder reports would not entail regulated
incremental notice & access fees for fund report notice & access
mailings. See Broadridge Comment Letter (``Delivery Cost Savings of
Streamlined Shareholder Reports: Mailing streamlined shareholder
reports instead of notices would provide modest additional savings
to fund companies. We estimate the extra savings would be between
$15 million and $20 million in calendar year 2023. Much of the added
savings is from reduced processing fees.'').
    \668\ See supra footnote 34 and accompanying text (discussing
the average page length of shareholder report based on staff
analysis).

            Table 7--Shareholder Report Content and Transmission With and Without the Rule Amendments
----------------------------------------------------------------------------------------------------------------
                                                              Fund relies on rule 30e-
    Fund relies on rule 30e-3?        Shareholder requests       3, and  Shareholder      Shareholder makes no
                                      electronic delivery      requests paper delivery      delivery election
----------------------------------------------------------------------------------------------------------------
Yes..............................  With rule: Email with      With rule: Paper mail     With rule: Paper mail
                                    link to streamlined 3-4    with streamlined 3-4      with streamlined 3-4
                                    page report.               page report..             page report.
                                   Without rule: Email with   Without rule: paper mail  Without rule: Paper mail
                                    link to 100+ page report.  with 100+ page report.    with 1 page notice
                                                              (Printing and mailing      including link to 100+
                                                               cost decrease and         page online report.
                                                               processing fee           (Printing and mailing
                                                               decrease).                cost increase and
                                                                                processing fee
                                                                                decrease).\667\
No...............................  With rule: Email with      N/A.....................  With rule: Paper mail
                                    link to streamlined 3-4                              with streamlined 3-4
                                    page report.                                         page report.
                                   Without rule: email with                             Without rule: Paper mail
                                    link to 100+ page report.                            with 100+ page report.
                                                                                (Printing and mailing
                                                                                cost decrease).
----------------------------------------------------------------------------------------------------------------
Notes: Page lengths are illustrative and likely to vary across funds.\668\ The costs and benefits of the
  required modification to shareholder report transmission under the rule amendments will vary across the
  baseline transmission scenarios--i.e., the scenario that would be in place at the time of the rule
  implementation if the current rules had remained in place--that are shown in the table. Some of the costs and
  benefits will be transitional and others will be sustained. Each will depend on factors beyond what appears in
  the table, as discussed below. In addition, under the rule amendments, shareholders may request delivery of
  paper or electronic copies of the documents that funds will be required to make available online. As discussed
  above, we estimate that the report lengths for the semi-annual and annual reports are 116 and 134 pages,
  respectively, and that the streamlined shareholder report is a trifold (3-4 pages).

a. Benefits
    The benefits of the rule amendments include benefits from the
introduction of the new streamlined shareholder reports, savings in the
cost of transmission, and benefits from the Form N-CSR amendments.
i. Streamlined Shareholder Reports
    The transmission of more concise and visually engaging shareholder
reports by funds under the approach of the rule amendments is likely to
reduce the investor effort required to monitor existing fund
investments and to make subsequent portfolio decisions.\669\ Key
information provided in a concise, user-friendly presentation could
allow investors to understand information about a fund's operations and
activities and to compare information across products more easily or
efficiently. This may lead investors to make decisions that better
align with their investment goals.\670\
---------------------------------------------------------------------------

    \669\ Many commenters have expressed support for the new
approach to funds' shareholder reports with layered disclosure, as
detailed in section I.A.3. See, e.g., Mutual Fund Directors Forum
Letter; SIFMA Comment Letter; CFA Institute Comment Letter; Fidelity
Comment Letter.
    \670\ Research suggests that individuals are generally able to
make more efficient decisions when they have comparative information
that allows them to assess relevant trade-offs. See, e.g., supra
footnote 650.
---------------------------------------------------------------------------

    The amendments to the definition of the broad-based index will
require that funds provide investors with more reliable and consistent
access to information about the performance of the fund relative to the
performance of a broad market portfolio of securities than under
current rules. Some investors in funds that do not currently benchmark
their performance against an index that would qualify as an
``appropriate broad-based securities market index'' under the
definition in the final rules will gain access to information about the
fund's performance against an index that represents that overall
applicable debt or equity markets under the rule amendments.\671\ Funds
that currently present performance relative to an index that would not
qualify as an ``appropriate broad-based securities market index'' under
the definition in the final rules may continue to provide this
information to investors alongside information about the performance of
the broad-based index.\672\ All investors will therefore have, and may
benefit from, reliable access to information about the performance of
the fund relative to the required broad-based benchmark, either as the
only benchmark or in addition to another benchmark, under the rule
amendment.\673\ To the extent that some investors already have easy
access to information about the performance of commonly recognized
indexes of broad market performance, from sources other than fund
disclosure documents, some commenters suggested that those investors
may not realize benefits from the new definition.\674\
---------------------------------------------------------------------------

    \671\ This release discusses the anticipated benefits of this
disclosure approach above. See supra paragraph accompanying
footnotes 221-226.
    \672\ As under current rules, funds will be required to present
their performance relative to the performance of an ``appropriate
broad-based securities market index'' under the final rules. The
amended instructions to the form requirements, however, include a
new definition of ``broad-based'' index, which defines this term as
``an index that represents the overall applicable domestic or
international equity or debt markets, as appropriate.'' As under
current rules, the final rules the Commission is adopting continue
to allow funds to present performance relative to narrower, tailored
indexes. See supra section II.A.2. Commenters indicated that the two
types of benchmark disclosures benefit investors in different ways.
First, by including a broad-based index, consistent with the new
definition, funds will provide investors with easier access to
information about the fund performance relative to the performance
of the entire market. See, e.g., NASAA Comment Letter (regarding the
purpose of this benchmarking as ensuring investors of a simple
readily-accessible window into the performance of a specific
investment fund against the broader performance of the securities
markets). See also Mary and Tom Comment Letter and Ubiquity Comment
Letter. Second, by including information about performance relative
to a second, narrower benchmark, funds may provide investors with
information about how the fund performance tracks that of funds with
similar strategies. See, e.g., Capital Group Comment Letter (helpful
for investors to compare with a blend of indexes representing the
typical asset allocation of the fund is more appropriate for certain
types of funds that invest in multiple asset classes); Dimensional
Comment Letter (a more precise comparison allows investors to better
evaluate how effectively the fund has pursued its stated strategy);
ICI Comment Letter (providing examples of the use of appropriate
tailored benchmarks for setting advisers' performance-based fees and
for other purposes that include evaluating the performance of a
technology fund as a technology fund); John Hancock Comment Letter
(fund performance comparisons to indexes are commonly used during
the annual review of advisory agreements performance by a fund's
board of trustees); Morningstar Comment Letter (the appropriate
benchmark needs to be matched to the investment strategy of the
fund, such as a value fund should be matched to an index of value
stocks); T. Rowe Price Comment Letter (the appropriate index for
evaluating the performance of a technology fund as a technology fund
is not a broad-based index); TIAA Comment Letter (the most relevant
comparison for investors is the index--with a similar investment
strategy or level of exposure--against which the fund (and its
board) benchmarks for performance purposes).
    \673\ The individuals who participated in the OIAD Benchmark
Study ``overwhelming expressed a preference for a graph with both
narrow and broad benchmarks.'' This study focused on benchmarks for
actively managed equity funds. See supra footnote 53.
    \674\ See, e.g., ICI Comment Letter (performance information for
commonly recognized indexes may be free to investors and easily
accessible through different widely available channels (e.g., online
news or financial websites).
---------------------------------------------------------------------------

    Some commenters on the proposal suggested that the required
benchmarking of fund performance against a broad-based index could
affect the level of confusion that investors may face when interpreting
fund performance disclosures.\675\ The potential effects may vary
across funds and investors. The views of commenters on the effect on
investor confusion were mixed. For some investors, the required use of
a broad-based index as a benchmark will reduce the level of confusion
by requiring consistency across funds in the reporting of fund
performance relative to a benchmark. Currently, confusion can arise
from the practice of some funds using a broad-based index as a
benchmark and others using another, narrower index. This creates the
potential for investors to confuse the two benchmarks when comparing
the performance reports of different funds. The rule amendment would
reduce this source of potential confusion. However, for investors who
prefer or anticipate fund disclosure relative to a narrower benchmark,
the rule amendments would introduce potential for confusing the broad-
based index for a narrow index by requiring funds to disclose
performance relative to the broad-based index. The requirement to
report performance relative to both broad and narrow indexes for those
funds that prefer to retain the narrow index will limit the potential
for such confusion, which will decline over time as investors gain
experience with the new disclosure framework.
---------------------------------------------------------------------------

    \675\ See, e.g., Capital Group Comment Letter, ICI Comment
Letter, SIFMA Comment Letter, T. Rowe Price Comment Letter.
---------------------------------------------------------------------------

    By limiting each shareholder report to information about a single
series and share class of a fund, the rule amendments will further
reduce the complexity of the shareholder report by focusing it more
narrowly on the shareholder's fund investment.\676\ Shareholders will
then be able to identify information more quickly the series and class
in which they invest, instead of having to find their fund in a long
report that covers multiple series, funds and classes.
---------------------------------------------------------------------------

    \676\ See supra sections II.A.1.a-b.
---------------------------------------------------------------------------

    The rule amendments require funds to distill certain key
information--such as expenses, performance, and holdings--and use
graphs, tables, and other more visually engaging presentations using
the approach of the rule amendments in their shareholder reports.\677\
By

providing conditions under which funds have flexibility in using
technology to provide interactive or user-friendly features in
electronic versions of their shareholder reports, the rule amendments
may provide shareholders with access to information that is more
tailored to their individual needs and circumstances (e.g., performance
or expense information based on their individual investment amounts),
which may facilitate better monitoring of fund investments or more
informed investment decisions.
---------------------------------------------------------------------------

    \677\ See supra footnotes 647 and 648 and accompanying text
(discussing studies suggesting that visualization improves an
individual's perception of information).
---------------------------------------------------------------------------

    There is evidence to suggest that consumers benefit from
disclosures that highlight key information.\678\ Some studies have
found that the benefit occurs from the ability of investors to spend
less time making their investment decisions. For example, one study
finds that the use of summary prospectuses helps investors spend less
time and effort to make investment decisions.\679\ This research is
consistent with the 2012 Financial Literacy Study, which showed that at
least certain investors favor a layered approach to disclosure with the
use, wherever possible, of tailored disclosures containing key
information about an investment product or service.\680\ We understand
that investors may prefer a layered approach to save time in reaching
similar investment decisions, although the enhanced salience of the
information that investors receive through the layered approach also
could lead to better decisions. \681\
---------------------------------------------------------------------------

    \678\ See, e.g., supra footnote 642; see also Robert Clark, et
al., Can Simple Informational Nudges Increase Employee Participation
in a 401(k) Plan?, Nat'l Bureau Econ. Rsch. (working paper no.
19591, Oct. 2013), available at https://www.nber.org/papers/w19591.
The authors find that a flyer with simplified information about an
employer's 401(k) plan, and about the value of contributions
compounding over a career, had a significant effect on participation
rates.
    \679\ See John Beshears, et al., How Does Simplified Disclosure
Affect Individuals' Mutual Fund Choices? Nat'l Bureau Econ. Rsch.
(working paper no. 14859, Apr. 2009, revised Dec. 2011), available
at https://www.nber.org/papers/w14859.
    \680\ See SEC Staff, Study Regarding Financial Literacy Among
Investors: As Required by Section 917 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Aug. 2012) (``Financial Literacy
Study''), available at https://www.sec.gov/files/917-financial-literacy-study-part1.pdf.
    \681\ The evidence from academic studies of whether and how
salient disclosure affects investor choice is mixed. For example,
Edelen et al, supra footnote 638, reports (in a study finding that
``increased salience helps nudge clients toward better decisions'')
that the effects of salience on investor attention are limited
relative to other factors (including client literacy, gender and
behavioral biases); Beshears, et al., supra footnote 679, conclude
(in a study finding that investors spend less time making investment
decisions when they are able to use summary prospectuses) that the
use of the summary prospectus does not affect investors' portfolio
investor choices (in particular, ``On the positive side, the Summary
Prospectus reduces the amount of time spent on the investment
decision without adversely affecting portfolio quality. On the
negative side, the Summary Prospectus does not change, let alone
improve, portfolio choices. Hence, simpler disclosure does not
appear to be a useful channel for making mutual fund investors more
sophisticated . . . .'').
---------------------------------------------------------------------------

    Further, investors allocate their attention selectively,\682\ and
the sheer volume of disclosure that investors receive about funds may
discourage investors from reading the materials that are currently
delivered to them. For example, in connection with the development of
the summary prospectus, the observations of a 2008 telephone survey
conducted on behalf of the Commission with respect to mutual fund
statutory prospectuses are consistent with the view that the volume of
disclosure may discourage investors from reading disclosures.\683\ That
survey observed that many mutual fund investors did not read statutory
prospectuses because they are long, complicated, and hard to
understand. Responses to investor surveys, based on the feedback fliers
addressing the Proposing Release, and on the Fund Investor Experience
RFC, similarly suggest that shareholders may be more likely to read
more concise shareholder reports.\684\ If the rule amendments increase
readership of fund shareholder reports, they could improve the
efficiency of portfolio allocations made on the basis of disclosed
information for shareholders who otherwise would not have read the fund
disclosures.
---------------------------------------------------------------------------

    \682\ See, e.g., Loewenstein Paper, supra footnote 639;
Hirshleifer and Teoh Study, supra footnote 640.
    \683\ Prior to the Commission's 2009 adoption of mutual fund
summary prospectus rules, the Commission engaged a consultant to
conduct focus group interviews and a telephone survey concerning
investors' views and opinions about various disclosure documents
filed by companies, including mutual funds. During this process,
investors participating in focus groups were asked questions about a
hypothetical summary prospectus. Investors participating in the
telephone survey were asked questions relating to several disclosure
documents, including mutual fund prospectuses. See Abt SRBI, Inc.,
Final Report: Focus Groups on a Summary Mutual Fund Prospectus (May
2008), available at https://www.sec.gov/comments/s7-28-07/s72807-142.pdf.
    \684\ See, e.g., supra section I.A.3 (describing survey findings
presented in Broadridge Comment Letter); see also, e.g., Proposing
Release, supra footnote 7, at n.44 (discussing: (1) the results of a
quantitative survey related to fund disclosure in which
approximately 39% of investors said they would be more likely to
look at or review a summary format of a fund's annual and semi-
annual reports, as well as (2) an investor survey of a summary
shareholder report prototype, in which more than 90% of participants
indicated that they would be more likely to read the summary
prototype than a full-length shareholder report).
---------------------------------------------------------------------------

    Other information that shareholders currently receive under the
baseline, including financial statements and financial highlights, will
be available online and delivered upon request to those shareholders
who are interested in more detailed information.\685\ As a result,
shareholders who use this information to monitor their fund investments
or inform portfolio decisions could continue to access and use this
information.
---------------------------------------------------------------------------

    \685\ See supra section II.C.
---------------------------------------------------------------------------

    By tailoring the information that funds provide to meet the needs
of retail shareholders, the rule amendments could facilitate better or
more efficient monitoring of fund investments and overall investment
decision-making.\686\ The magnitude of this effect will depend on the
extent to which investors review the disclosures directly as a basis
for their choices.
---------------------------------------------------------------------------

    \686\ See infra section IV.D regarding effects on competition.
---------------------------------------------------------------------------

    The requirement that funds tag their shareholder reports in Inline
XBRL, a structured (i.e., machine-readable) data language, could
provide further informational benefits to fund shareholders by making
the reports more readily available for aggregation, comparison,
filtering, and other analysis. Retail investors may derive particular
benefit from the assembly and analysis of fund disclosures by third
parties (such as financial analysts and data aggregators) that make the
disclosures more informative and understandable.\687\ For example, XBRL
requirements for public operating company financial statement
disclosures have been observed to improve investor understanding of the
disclosed information.\688\ While those observations are specific to
operating company financial statement

disclosures (including footnotes), and not to disclosures from funds
outside the financial statements, they indicate that the proposed
Inline XBRL requirements could provide fund investors with increased
insight into key fund information (e.g., expenses, performance, and
holdings) at specific funds and across funds, asset managers, and time
periods.\689\
---------------------------------------------------------------------------

    \687\ See infra footnote 689. Retail investors in operating
companies have been observed to rely heavily on analyst
interpretation of financial information. See, e.g., Alastair
Lawrence, James P. Ryans, & Estelle Y. Sun, Investor Demand for
Sell-Side Research, 92 Acct. Rev. 2 (2017).
    \688\ See, e.g., Jacqueline L. Birt, Kala Muthusamy & Poonam
Bir, XBRL and the Qualitative Characteristics of Useful Financial
Information, 30 Account. Res. J. 107 (2017) available at https://econpapers.repec.org/RePEc:eme:arjpps:arj-11-2014-0105 (finding
``financial information presented with XBRL tagging is significantly
more relevant, understandable and comparable to non-professional
investors''); Steven F. Cahan, et al., The roles of XBRL and
Processed XBRL in 10-K Readability, J. Bus. Fin. Acct. (2021),
available at https://ssrn.com/abstract=4030204 (finding 10-K file
size reduces readability before XBRL's adoption since 2012, but
increases readability after XBRL adoption, indicating ``more XBRL
data improves users' understanding of the financial statements'');
Jap Efendi, et. al., Does the XBRL Reporting Format Provide
Incremental Information Value? A Study Using XBRL Disclosures During
the Voluntary Filing Program, 52 ABACUS 259 (2016), available at
https://ssrn.com/abstract=2795334 (retrieved from SSRN Elsevier
database) (finding XBRL filings have larger relative informational
value than HTML filings).
    \689\ Investors could benefit from their direct use of the
Inline XBRL data, or through indirect use of the data (i.e., through
information intermediaries such as financial media, data
aggregators, academic researchers, et al.). See, e.g., Nina
Trentmann, Companies Adjust Earnings for Covid-19 Costs, But Are
They Still a One-Time Expense? Wall St. J. (Sept. 24, 2020) (citing
an XBRL research software provider as a source for the analysis
described in the article), available at https://www.wsj.com/articles/companies-adjust-earnings-for-covid-19-costs-but-are-they-still-a-one-time-expense-11600939813 (retrieved from Factiva
database); Bloomberg Lists BSE XBRL Data, XBRL.org (2018); Rani
Hoitash & Udi Hoitash, Measuring Accounting Reporting Complexity
With XBRL. 93 Account. Rev. 259-287 (2018).
---------------------------------------------------------------------------

    In addition, the rule amendments that exclude funds from rule 30e-3
will have the effect of enabling some fund shareholders to receive key
information to monitor their fund investments or inform their
investment decisions more directly as compared to the baseline. This
may lead to more efficient allocation of capital across funds and other
investments.\690\
---------------------------------------------------------------------------

    \690\ See supra section I.A.3 (discussing investor preferences
for concise, layered disclosure).
---------------------------------------------------------------------------

    The magnitude of these effects of the rule amendments will
generally depend on how many shareholders rely on the reports that are
the subject of the rule amendments to monitor their funds.\691\ In
addition, it will depend on whether and how the current users of the
reports change the way they monitor their investments in response to
the tailored disclosures and, for other shareholders, how many will
choose to rely on the reports under the rule amendments.
---------------------------------------------------------------------------

    \691\ See infra section IV.D regarding effects on capital
formation.
---------------------------------------------------------------------------

ii. Transmission Cost Savings
    The rule amendments will reduce some of the costs to funds of
providing information to shareholders. As the owners of the fund
assets, shareholders could benefit from this cost reduction in
proportion to their holdings of those assets. The amount of the cost
savings will vary across funds, depending on the expressed preferences
of the fund and its shareholders for paper versus electronic delivery
consistent with the Commission guidance on electronic delivery and,
with respect to shareholder reports, rule 30e-3 notices. The scenarios
where transmission costs may decline under the rule amendments,
relative to the baseline scenario, are indicated in Table 7 and
discussed below. The rule amendments will reduce the cost of
transmitting a shareholder report by a larger per-fund amount for funds
that do not rely on rule 30e-3 (transmit the full report) than for
funds that rely on rule 30e-3 (transmit a notice).\692\ Thus, we
consider separately the transmission-cost savings from the rule
amendments for funds under each of these two baseline transmission
scenarios.
---------------------------------------------------------------------------

    \692\ But see supra section II.E.1 and footnotes 477-480 and
accompanying text (noting that some commenters stated that funds
already have incurred the costs of complying with current rule 30e-
3, but because they could only rely on the rule starting in 2021,
they have not fully realized the perceived benefits of the rule.
Additionally funds stated that they will incur costs associated with
undoing the processes that they have undergone to convert their
current shareholder report transmission processes, which commenters
noted were costly. Specifically, some commenters stated that funds
would need to re-implement legacy shareholder report transmission
processes that were discontinued when they initially adjusted these
processes in preparing to rely on rule 30e-3).
---------------------------------------------------------------------------

    For funds that do not rely on rule 30e-3, the rule amendments will
reduce transmission costs by replacing the cost of transmitting current
annual and semi-annual reports with the lower cost of transmitting the
concise reports to those shareholders who do not request e-delivery.
The transmission cost includes the cost of printing, mailing and
processing fees. We estimate that funds will transmit annual and semi-
annual reports as trifold mailings (3-4 pages) under the rule
amendments instead of the annual reports that are approximately 134
pages on average and the semi-annual reports that are approximately 116
pages on average. One commenter on the Fund Investor Experience RFC
estimated that transmitting a concise shareholder report instead of the
current shareholder reports will reduce the per unit cost of
transmission from $0.50 to $0.33 annually, which is a reduction of
$0.17 per unit or 34 percent.\693\ The commenter's per unit
transmission cost estimates assume that 3 out of 10 fund shareholders
receive a shareholder report by mail.\694\ We understand that these
costs may or may not be representative of the costs for all funds. For
example, the commenter's estimates are based on costs for delivering
shareholder reports to shareholders who hold their shares in beneficial
accounts and may not reflect any differences in costs for directly held
accounts.\695\ Nevertheless, we believe that the estimate of 34 percent
is a reasonable estimate of the likely decline in the per-unit cost of
delivering the concise report for funds that do not rely on rule 30e-3
under the rule amendments.\696\ Thus, for these funds, we estimate that
the rule amendments will reduce their current shareholder report
transmission costs by 34 percent on average, resulting in an average
annual cost savings of approximately $7,040 per fund that does not rely
on rule 30e-3.\697\
---------------------------------------------------------------------------

    \693\ See Proposing Release, supra footnote 8, at n.782.
    \694\ See id. We understand that the commenter's cost estimates
are not limited to shareholder reports that are delivered by mail
and, instead, the cost per unit averages the costs of different
transmission mechanisms (including paper and electronic delivery).
See, e.g., Comment Letter of Broadridge Financial Solutions, Inc.
(Oct. 31, 2018) on File No. S7-13-18, available at https://www.sec.gov/comments/s7-13-18/s71318-4593946-176328.pdf (estimating
that the average cost of paper, printing, and postage of a mailed
shareholder report is $0.94).
    \695\ For instance, we understand that the average enrollment
rate for electronic delivery may be lower for direct-held accounts,
which would result in higher per unit costs for delivering current
shareholder reports than the commenter provided. See supra footnote
616 and accompanying text. In addition, the cost of delivering
shareholder reports currently, and the costs we estimate for
shareholder reports under the final rules, vary by individual funds
based on a number of factors. For example, we understand that
printing and mailing costs vary depending on the length of the
fund's shareholder reports and the number of reports it delivers by
mail.
    \696\ $0.17 estimated reduction in shareholder report
transmission costs associated with summary shareholder reports/$0.50
estimated costs of transmitting current shareholder reports = 34
percent.
    \697\ See Proposing Release, supra footnote 8, at n. 786 and
accompanying text (noting that the Commission estimated annual
printing and mailing costs (inclusive of processing fees) of
$20,707.33 absent rule 30e-3 per fund). $20,707.33 x 34 percent =
$7,040.49.
---------------------------------------------------------------------------

    For funds that rely on rule 30e-3, the rule amendments will reduce
costs because it will be less costly to mail and process the concise
report than the rule 30e-3 notice. Specifically, while the cost of
printing the concise report may be greater than the cost of printing
the notice (see table 7), the processing fees will be lower.\698\ The
overall cost of transmission, which includes the costs of printing,
mailing, and processing fees, will likely be lower for the concise
report.\699\ One commenter estimated that transmitting (delivering) a
concise shareholder report instead of a rule 30e-

3 notice will reduce the transmission cost from $0.36 to $0.33
annually, which is a decrease of $0.03 per unit or approximately 8
percent.\700\ This is assuming that 3 out of 10 fund shareholders
receive a shareholder report by mail and is based on the commenter's
experience processing shares held in beneficial accounts.\701\ We
understand that this estimate may or may not be representative of the
average costs for all funds. For example, the average enrollment rate
for electronic delivery may be lower for direct-held accounts, which
will result in higher per unit costs than the commenter provided.\702\
As another example, to the extent a fund currently shares a single,
consolidated rule 30e-3 notice with other funds to notify a shareholder
of the website address(es) for each fund's report, and the fund has
many shareholders who are invested in those other funds, the fund may
not experience the same extent of cost savings under the rule
amendments.\703\ This estimate also does not take into account the
final rules' requirement to transmit shareholder reports that cover
only one share class; to the extent that delivery costs would increase
if delivery processes needed to be updated to reflect this requirement,
this would increase the estimate for these funds. Nevertheless, we
believe that the estimate of approximately 8 percent is a reasonable
estimate of the likely average decline in the per-unit cost of
transmitting the concise report rather than rule 30e-3 notices.\704\
Thus, for funds that rely on rule 30e-3, we estimate that the rule
amendments will reduce their current shareholder report transmission
costs by approximately 8 percent, on average, and that the average
annual cost savings will be approximately $1,243 per fund that relies
on rule 30e-3.\705\
---------------------------------------------------------------------------

    \698\ According to one commenter on the proposal, much of the
incremental savings is from reduced processing fees. Specifically,
the streamlined reports would not entail regulated incremental
notice & access fees for fund report notice & access mailings. See
Broadridge Comment Letter.
    \699\ See Proposing Release, supra footnote 8, at n.787 (noting
that one commenter on the Fund Investor Experience RFC stated that
processing fees on average would be $0.20 for rule 30e-3 notices and
$0.15 for concise shareholder reports); see also Broadridge Comment
Letter (explaining that processing fees will be lower under the
proposed rule amendments, thereby causing the total amount to be
lower; this commenter did not provide any updated estimates of
average processing fees for notices or for concise shareholder
reports).
    \700\ See Proposing Release, supra footnote 8, at n.788 and
accompanying text. We did not receive comments on this estimate in
response to the proposal.
    \701\ See id.
    \702\ See supra footnote 616 and accompanying text.
    \703\ See Rule 30e-3 Adopting Release, supra footnote 20, at
paragraph accompanying n.211 (discussing consolidated rule 30e-3
notices).
    \704\ $0.03 average reduction in transmission costs for summary
shareholder reports/$0.36 average cost of delivering rule 30e-3
notices = 8.33 percent.
    \705\ Based on one estimate from a commenter on the Fund
Investor Experience RFC, delivering the concise report instead of
the rule 30e-3 notice would reduce the per-unit transmission cost
from $0.36 to $0.33, or $0.03 per unit. See Proposing Release, supra
footnote 8, at n.788 and accompanying text. This is $0.03/$0.17 or
approximately 17.65 percent of estimated per-unit reduction in the
shareholder report transmission costs for funds that do not rely on
rule 30e-3. We thus estimate that the savings from delivering the
concise report instead of the notice is 17.65 percent of the
estimated $7,040.49 cost savings from delivering the concise report
instead of the full report, or 17.65 percent x $7,040.49 =
$1,242.65.
---------------------------------------------------------------------------

    The total shareholder report transmission cost savings from the
rule amendments will be a weighted combination of the savings in
transmission costs for funds that rely on rule 30e-3 and the savings
for funds that do not rely on rule 30e-3. For example, if 89 percent of
funds send rule 30e-3 notices before the rule amendments are in effect,
the transmission cost savings from the rule amendments will be an
estimated $13.1 million from those funds.\706\ In addition, if 11
percent of funds do not rely on rule 30e-3 before any rule amendments
are in effect, the transmission cost savings will be $9.2 million from
those funds.\707\ Thus, the aggregate transmission costs savings for
shareholder reports from the rule amendments will be $22.3
million.\708\
---------------------------------------------------------------------------

    \706\ 11,840 funds x 89 percent x $1,242.64 estimated savings in
transmission costs per fund that delivers a rule 30e-3 notice =
$13.1 million.
    \707\ 11,840 funds x 11 percent x $7,040.49 estimated savings
per fund that delivers the full report (and does not rely on rule
30e-3) = $9.2 million.
    \708\ The weighted average savings in transmission cost per fund
is (89 percent x $1,242.64) + (11 percent x $7,040.49) = $1,105.95 +
$774.45 = $1,880.4. Multiplying this across all 11,840 funds yields
an estimated transmission cost savings from the proposal of 11,840
funds x $1,880.4 per fund = $22.3 million. That is, the aggregate
cost savings is $13.1 million + $ 9.2 million = $22.3 million.
---------------------------------------------------------------------------

    We understand that the estimated cost savings for shareholder
reports will depend on factors in addition to those discussed above.
These include the extent to which funds that send notices under rule
30e-3 actually experience a transmission cost savings under the rule
amendments. For example, if the cost of transmitting a concise
shareholder report were about the same as the cost of sending a notice
under rule 30e-3, then our estimated cost savings would decline from
$22.3 million to $9.2 million. As another example, if fewer than 89
percent of funds send notices under rule 30e-3, then our estimated
aggregate cost savings would be greater than $22.3 million because a
larger number of funds would experience the higher transmission cost
savings.
iii. Amendments to the Form N-CSR Requirements
    There also are benefits associated with the requirement of the rule
amendments that funds continue to file on Form N-CSR certain
information, such as financial statements and financial highlights,
which will no longer appear in shareholder reports, relative to the
alternative of not continuing to require such filings. The continued
availability of this information, including on a historical basis on
EDGAR, will allow investors and other market participants to continue
to analyze this information over time. This historical information also
may facilitate the Commission's efforts in administering the regulation
of funds to benefit investors. Finally, a fund's principal executive
and financial officer(s) will continue to be required to certify the
financial and other information included on Form N-CSR and will
continue to be subject to liability for material misstatements or
omissions on Form N-CSR.
b. Costs
    We expect funds and fund shareholders to incur transition costs of
adapting to the new approach to funds' shareholder reports. Some
shareholders also could incur ongoing costs due to a mismatch between
their preferences and the design of the rule amendments. Finally, we
expect costs to arise from implementing the rule amendments.
i. Transition to New Approach
    Fund shareholders could experience certain transition costs under
the rule amendments, and some shareholders may experience ongoing
costs. Transition costs will include the costs of the inconvenience to
some shareholders of adapting to the new materials and to the changes
in the presentation of information. While the more concise shareholder
reports required by the rule amendments will likely reduce investor
comprehension costs, investors will nevertheless bear a one-time cost
of the inconvenience of adjusting to the changes in the disclosures
they receive. These costs are likely to be relatively lower for less
experienced shareholders and relatively greater for the more seasoned
shareholders who are accustomed to existing fund practices.
    Shareholders in funds that rely on rule 30e-3 to send paper notices
to notify shareholders that a shareholder report is available online--
including investors in UITs that rely on rule 30e-3 to satisfy
shareholder report transmission requirements under rule 30e-2--may
experience greater transition costs than shareholders in funds that are
not relying on rule 30e-3. For example, those shareholders who
currently receive rule 30e-3 notices may experience some confusion when
a fund begins to transmit concise shareholder reports.\709\ However,
shareholders

receiving the annual and semi-annual reports as required under the rule
amendments will be receiving tailored information more directly than
through the rule 30e-3 notice, and a fund that relies on rule 30e-3
will be able to communicate to investors about these shareholder report
changes.
---------------------------------------------------------------------------

    \709\ See supra paragraph accompanying footnotes 480-482.
---------------------------------------------------------------------------

    In addition, shareholders may face initial costs in addressing any
confusion that might arise during the transition to the new ``broad-
based'' index definition.\710\ For example, for shareholders who
currently receive fund disclosures that are relative to a benchmark
that is inconsistent with the final rules' definition of a ``broad-
based'' index, the inclusion of a new index could cause confusion.\711\
The potential for this confusion will be greatest during the transition
and diminish over time as shareholders become more familiar with the
newly required disclosure practice.
---------------------------------------------------------------------------

    \710\ See ICI Comment Letter on the OIAD Benchmark Study.
    \711\ A fund that selects an index for its prospectus
performance disclosure that is different from the index used for the
immediately preceding period must explain the reason(s) for the
selection of a different index and provide information for both the
newly selected and the former index. See Instruction 2(c) to Item 4
of amended Form N-1A.
---------------------------------------------------------------------------

ii. Costs to Shareholders After the Transition
    Beyond transition costs, the rule amendments will impose costs on
shareholders who prefer to receive the baseline disclosure as opposed
to the more concise and tailored disclosure they will receive under the
rule amendments. These shareholders may experience costs associated
with locating additional information online or requesting delivery of
materials they will no longer automatically receive. Some shareholders
may rely on information that is currently included in the annual and
semi-annual report but will, under the rule amendments, be located in
other documents, such as Form N-CSR or the SAI. Those shareholders will
incur the cost of reviewing multiple disclosure documents to locate the
information that was previously located in a single document. The
significance of this cost will likely depend on several factors,
including the delivery method and relative importance of each piece of
information to the individual shareholder. For those shareholders who
prefer to receive disclosures in paper, the rule amendments provide an
option for the shareholder to request the mailing of a paper copy of
the new Form N-CSR items, such as financial statements, that will no
longer appear in shareholder reports.
    For some shareholders, the cost of making requests for additional
information will be small and therefore, the cost of losing their
preferred option as the default under the rule amendments will be
small. Those shareholders will likely react to the rule amendments by
making the effort to request continued mailing of more-detailed semi-
annual information. For those shareholders, the cost of the rule
amendments will include the cost of the inconvenience from having to
make the request. Shareholders who find it relatively burdensome to
make a request for continued mailing, however, will be migrated over to
the new approach for funds' shareholder reports and face disutility
from migrating to the new tailored disclosures. By providing a
mechanism for shareholders to continue to receive the more-detailed
information, the rule amendments will limit this disutility. Thus, the
overall cost of inconvenience or disutility to those shareholders who
prefer the approach to delivery of fund's shareholder reports under the
current rules to the approach that is being adopted through the rule
amendments will depend on how difficult it is for shareholders to
request continued mailings of more-detailed semi-annual information by
funds after the rule amendments go into effect.
    In addition, the requirement for funds to provide a separate
shareholder report for each series and share class of a fund could
limit the usefulness of the shareholder report as a means for
shareholders to compare their current fund investment with alternative
investments in other series and share classes of the fund.\712\ Because
information about multiple series and multiple share classes will no
longer be consolidated in a single shareholder report, an investor
wishing to use shareholder reports to compare information would need to
use multiple reports to do so. Any burden associated with the use of
multiple reports, however, could be mitigated through the increase in
comparability among shareholder reports, as a result of the reduced
complexity of shareholder reports, significantly shorter report length,
and the content and formatting requirements that are designed to
promote comparability across funds by causing reports to highlight the
most relevant information for shareholders.
---------------------------------------------------------------------------

    \712\ But see discussion in supra section II.A.1.a (discussing
the relative benefit of such comparisons to existing investors who
use shareholder reports to monitor their investments on an ongoing
basis, as opposed to prospective investors making initial investment
decisions and using the fund prospectuses to inform these
decisions).
---------------------------------------------------------------------------

    If investors do make fewer comparisons among series and/or share
classes using the shareholder report, shareholders could turn to other
methods for comparing their current investment with alternatives. One
such method could be to use the web tools provided under the rule
amendments.\713\ We believe these tools could be particularly useful
for investors who wish to compare series and share classes within a
report, and would permit investors who wish to do so to retain the
ability to make effective series and share class comparisons while
receiving a separate report for each series and share class. Investors
also could continue to consult prospectus disclosure for certain
information about available share classes, as investors will continue
to receive annual prospectus updates, and the prospectus includes
class-specific information (for example, about fund fees, performance,
and various classes' respective sales loads). Investors who make fewer
comparisons among series and/or share classes using the shareholder
report, and who do not turn to the tools or existing disclosure
described in this paragraph, could be made worse off by the elimination
of the single shareholder report for multiple series and share classes
of funds under the rule amendments.\714\
---------------------------------------------------------------------------

    \713\ See supra section II.A.4.
    \714\ To assist with shareholders' and other market
participants' analysis of those share classes, the rule amendments
will require website posting of fund documents that will enable a
shareholder or other market participants to easily obtain
information about those other share classes. The interactive data
requirements of the rule amendments also will enable shareholders
and other market participants to conduct efficient comparisons of
those share classes. See supra sections II.C.2 and II.H.
---------------------------------------------------------------------------

    In addition, some shareholders may incur costs of continued
inconvenience from the new definition of a ``broad-based'' index.\715\
Specifically, the new definition will cause a fund that currently
reports its performance alongside one or more indexes that are
inconsistent with the new definition (and no index that meets the new
definition) instead to report its performance alongside an index that
meets the required ``broad-based'' index definition, and any optional
more narrowly based index(es). To the extent that any shareholders
would prefer a performance presentation that solely includes one or
more indexes that do not meet the new definition, these shareholders
would be made worse off

on an ongoing basis by the new definition in the final rule amendments.
---------------------------------------------------------------------------

    \715\ See ICI Comment Letter on the OIAD Benchmark Study.
---------------------------------------------------------------------------

    Finally, fund shareholders will bear some costs of the new approach
for funds' shareholder reports through the increased expenses that
funds will incur to implement the rule amendments and passed through to
shareholders in the form of fund expenses. We discuss these costs of
implementing the rule amendments next.
iii. Expenses of Implementation
    The costs of transmitting shareholder reports, including preparing
the reports, and printing and mailing costs and processing fees, are
generally fund expenses borne by shareholders. The cost of preparing
the reports under the rule amendments will include new costs to funds,
and thus fund investors, associated with the payment of licensing fees
to index providers, as we explain in this section.
    Some of the changes in transmission from the rule amendments will
cause fund shareholders to face greater fund expenses than they
otherwise would. In addition to the transition costs associated with
preparing the new streamlined shareholder report, with new scope and
content requirements (discussed in more detail below), the likelihood
and extent of these increases will depend on the fund's baseline
transmission scenario, as follows. For funds that rely on rule 30e-3,
including UITs that rely on the rule to satisfy shareholder report
transmission requirements under rule 30e-2, the costs of printing and
mailing shareholder reports will be higher under the final rule
amendments.\716\ We generally believe these additional printing and
mailing costs will be small. For example, funds may be able to transmit
the shareholder reports under the final rule amendments as a trifold
mailing, which will only incrementally increase the printing and
mailing costs of a rule 30e-3 notice. One commenter on the Fund
Investor Experience RFC estimated that a concise shareholder report
will be approximately $0.01 more expensive to print than a rule 30e-3
notice.\717\ We estimate that this cost increase will be less than the
estimated decline in the cost of processing fees. Moreover, to the
extent a fund shareholder invests in multiple of a registrant's funds
or multiple series and/or share classes of a fund, and the funds would
otherwise have used a single shareholder report, the final rule
amendments may increase printing and mailing costs in some instances if
certain disclosures across the funds otherwise are the same (and taking
into account multiple streamlined shareholder reports under the final
rules, compared to a single, potentially significantly lengthier report
under the baseline). The ability to send multiple reports to a
shareholder in a single mailing or transmission limits the cost of the
requirement to send multiple reports rather than a single report to
shareholders who hold more than one class or series of a fund. These
costs are distinct from the processing fees that will be lower under
the rule amendment.\718\
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    \716\ As discussed below, funds that rely on rule 30e-3 or plan
to rely on rule 30e-3 will also incur transition costs under the
rule amendments; see also supra footnote 625 and accompanying text.
    \717\ See Proposing Release, supra footnote 8, at n.801 and
accompanying text.
    \718\ See, e.g., Broadridge Comment Letter (regarding
transmission costs); see also John Hancock Comment Letter
(suggesting that for funds not offered to retail investors, the
funds would incur additional costs associated with preparing
separate reports with no associated benefit).
---------------------------------------------------------------------------

    As a further transmission-related cost, funds will incur costs
under the rule amendments in rule 30e-1 to deliver certain materials to
shareholders upon request. The extent of these costs will depend on how
many shareholders prefer the current transmission approach in which
they receive additional shareholder report information, how many of
these shareholders will prefer to request these materials directly
(e.g., in paper) instead of accessing them online, and whether the
shareholders request paper or electronic copies of these materials. We
estimate that a fund will incur an average annual printing and mailing
cost of $500 to deliver the materials that will be available online and
that will be required to be delivered in paper to investors upon
request under the adopted amendments to rule 30e-1.\719\ We are unable
to quantify the number of shareholders who will request these materials
or the amount of mailings that a fund will have to make each year under
the final rules. However, based on our understanding of fund
shareholders' internet usage, and of the prevalence of fund
shareholders requesting paper documents upon request (for example, in
the context of rule 498), we anticipate that very few shareholders will
request these materials in paper and therefore that funds will have to
make few paper mailings under the final rules.\720\
---------------------------------------------------------------------------

    \719\ See infra section V.B. Because we do not have specific
data regarding the cost of printing and mailing the materials that
must be provided on request, or the number of requests for printed
materials that funds will receive annually, for purposes of our
analysis we estimate $500 per year for each fund to collectively
print and mail such materials upon request. Investors could also
request to receive these materials electronically. We estimate that
there will be negligible external costs associated with emailing
electronic copies of these documents.
    \720\ See supra footnote 37 and accompanying text.
---------------------------------------------------------------------------

    In addition to transmission-related costs, funds will experience
other costs as a result of the rule amendments, including both
transition costs and ongoing costs. These other costs will result from
the required changes to the scope and contents of shareholder reports
(including requiring separate reports for each fund series, and for
each share class of a fund), new Form N-CSR items, new website
availability requirements, and amendments to the scope of rule 30e-3.
The compliance costs associated with the amendments to rule 30e-3 will
only affect funds that rely on that rule. The other categories of
compliance costs will affect all funds. These different categories of
costs could be reflected in fund expenditures that funds could pass on
to shareholders. The expenditures could be to procure the services of
third parties for the purpose of implementing the changes to fund
disclosure and shareholder report transmission practices under the rule
amendments, as we understand some funds utilize outside providers for
these compliance responsibilities.
    Funds will experience transition costs to modify their current
shareholder report disclosures. Specifically, funds will incur costs to
modify their shareholder reports to comply with the scope and content
requirements of the rule amendments. While the Commission did not
receive comments on the proposed estimated costs associated with these
amendments, it did receive comments suggesting that certain aspects of
the new shareholder report requirements may be more burdensome than the
Commission estimated at proposal.\721\ We have adjusted our estimates
to reflect these comments, as well as to reflect modifications to the
proposal (for example, requiring multi-class funds to prepare separate
shareholder reports for each class).
---------------------------------------------------------------------------

    \721\ See, e.g., Capital Group Comment Letter (suggesting that
any additional length and complexity in reports resulting from
multi-series presentations may be outweighed by the benefits to
shareholders, such as target date fund shareholders, where it may be
more beneficial to see multiple fund options and how each fund's
asset mix will shift over time); Federated Hermes Comment Letter
(suggesting that the proposal would significantly burden fund
complexes without a corresponding proportional benefit to
shareholders; and stating that the proposal would require
significant costs to open-end funds, investment advisers, financial
intermediaries, fund administrators, printers and other fund service
providers to make all of the formatting, system programming, website
development, and other changes that would be necessary to comply
with the proposal); John Hancock Comment Letter.

---------------------------------------------------------------------------

    We estimate that the initial aggregate costs to funds of modifying
their annual report disclosure and complying with the new requirements
for annual reports will be $324.8 million, and $45.1 million annually
thereafter.\722\ We estimate that the initial aggregate costs to funds
of modifying their semi-annual report disclosure and complying with the
new requirements for semi-annual reports will be $162.4 million, and
$22.6 million annually thereafter.\723\ Initial costs will include
costs associated with designing the concise shareholder reports,
amending the scope of shareholder reports to cover a single fund series
and share class, implementing any operational changes needed to prepare
and transmit separate shareholder reports for different fund series and
share classes, revising existing disclosure practices for shareholder
report items as required by the adopted rule amendments (e.g.,
management's discussion of fund performance, including the definition
of the term ``appropriate broad-based securities market index,'' as
well as the expense presentation), and developing disclosures for the
required new shareholder report items (i.e., fund statistics and
material fund changes). The ongoing costs will largely be attributable
to the costs of preparing new shareholder report disclosure items under
the rule amendments, since funds already incur the costs of preparing
the other shareholder report disclosures today.
---------------------------------------------------------------------------

    \722\ The estimated initial cost for the final rules' annual
reports is based on the following calculations: 72 hours x $381
(blended wage rate for compliance attorney and senior programmer) =
$27,432 per fund. 11,840 funds x $27,432 = $324,794,880. The
estimated annual cost for the final rules' annual reports is based
on the following calculations: 10 hours x $381 (blended wage rate
for compliance attorney and senior programmer) = $3,810 per fund.
11,840 funds x $3,810 = $45,110,400. See infra section V.B.
    \723\ The estimated initial cost of the final rules' semi-annual
reports is based on the following calculation: 36 hours x $381
(blended wage rate for compliance attorney and senior programmer) =
$13,716 per fund. 11,840 funds x $13,716 = $162,397,440. The
estimated annual cost for the final rules' semi-annual reports is
based on the following calculations: 5 hours x $381 (blended wage
rate for compliance attorney and senior programmer) = $1,905 per
fund. 11,840 funds x $1,905 = $22,555,200. See infra section V.B.
---------------------------------------------------------------------------

    Funds also will incur costs from the requirement of the rule
amendment to transmit a separate shareholder report for each series and
share class of each fund. These costs will be borne by fund
shareholders as a fund expense. The aggregate costs--which are
incorporated in the estimates for complying with the new requirements
for annual and semi-annual reports discussed above--will depend on the
number of shareholders who currently hold shares of multiple series of
a fund, and multiple share classes of a fund.\724\ Because such
shareholders will, under the final rules, receive a separate
shareholder report for each series and share class, costs to provide
shareholder reports to these shareholders will increase under the final
rules compared to the baseline (under which they receive a single,
combined shareholder report). We do not have information about how many
fund shareholders currently hold shares of multiple series, or multiple
share classes of a fund, and so we are not able to quantify these
costs. Aggregate costs also will depend on the costs of updating
processes of delivering fund materials to reflect that a shareholder
will receive a series- and share-class-specific shareholder report.
Because funds, intermediaries, and service providers already have
processes in place to transmit series-specific regulatory materials
(for example, summary prospectuses, which cover only one series), we
believe that current processes may be modified and entirely new
processes will not need to be developed. We do not, however, have the
cost data associated with these current processes to be able to
estimate what the incremental cost increase would be.
---------------------------------------------------------------------------

    \724\ The effect of the addition of the requirement to transmit
a separate report for each class, in addition to for each series, is
to increase the burden of the rule by an amount no greater than the
increase in the overall burden that is estimated below at infra
section V.B, table 8. Specifically, we assume that funds would incur
costs of the requirement to transmit a separate report for each
share class as initial costs rather than ongoing costs, and that the
upper bound of these initial costs would be no greater than $20,574
per fund. This estimate is based on the increase in final rules' PRA
burden hours estimates compared to estimates in the proposal. This
increase recognizes that comments suggested that certain aspects of
the new shareholder report requirements may be more burdensome than
the Commission estimated at proposal, as well as to reflect changes
from the proposal such as requiring class-specific shareholder
reports. Because this estimate increase takes into account elements
in addition to the requirement for class-specific shareholder
reports, the estimate increase should be viewed as an upper bound
estimate. The estimate is based on the following calculations:
($13,716 estimate for annual reports ((72 initial hours estimate in
final rules--36 hours estimate in proposed rules) x $381 blended
rate for compliance attorney and senior programmer)) + ($6,858
estimate for semi-annual reports ((36 initial hours estimate in
final rules--18 hours estimate in proposed rules) x $381 blended
rate for compliance attorney and senior programmer)) = $20,574.
---------------------------------------------------------------------------

    In addition, funds could incur costs from the final rules' changes
to the definition of a ``broad-based'' index to one that represents the
overall applicable domestic or international equity or debt markets, as
appropriate. This aspect of the final rules would affect those funds
that change the index that they include in their performance disclosure
in response to this new definition. These costs will be borne by the
fund shareholders. The cost per fund will include the cost of a
licensing fee, paid to the index provider, and the cost of updating the
disclosures. The aggregate cost of the licensing fees to fund
shareholders will depend on the per-fund cost and on the number of
funds that change their benchmarks in response to the final rules. In
addition, funds will incur costs related to attaining any necessary
board approvals and costs of updating their disclosures to reflect the
change, in addition to costs of updating marketing and other materials
where fund indexes are used.
    We believe that the cost of the final rules' change to the
definition of ``broad-based'' index could be significant for those
funds that change their indexes in response to the final rules. This
belief is based on comments we received on the proposal.\725\ The cost
is difficult to quantify. We did not provide a cost estimate in the
proposal. The cost depends on the index licensing fees, which vary
across funds, and on the number of funds that determine that a change
in their benchmark is necessary as a result of the rule amendments.
Commenters who expressed concerns about the cost of the requirement did
not provide any estimates of the costs in their comments on the
proposal. Some comments, however, expressed the view that the cost of
the new licensing fee payments would be economically significant.\726\
In

addition, some comments stated that more than half of funds may need to
change the index that they include in their performance disclosures,
and face new licensing fees.\727\ The OIAD Benchmark Study found that
there is a relatively large number of benchmarks in use among funds
with all strategies, and that ``the definitions of broad and narrow
benchmarks appear to be the subject of some interpretation.'' These
comments indicate that the final rules' changes to the definition of
``broad-based'' index may affect the index choices and related
performance disclosures of a significant number of funds.\728\
---------------------------------------------------------------------------

    \725\ See, e.g., SIFMA Comment Letter, regarding the non-trivial
costs of the rule amendment; see also infra footnote 726.
    \726\ See, e.g., Vanguard Comment Letter (the potential
licensing cost increases, which would be borne by shareholders,
outweigh the benefit to shareholders from requiring funds to utilize
broad-based indexes in their disclosure documents), Dimensional
Comment Letter (requirement would result in duplicative licensing
fees from index providers and higher costs to fund shareholders);
Fidelity Comment Letter (if all funds are required to benchmark
against an index like the S&P Index, there would be an increase in
licensing costs to the funds that use that index, which ultimately
will be borne by the investors); ICI Comment Letter (if a new fund
wishes to use as its broad-based index one that is not included in
the fund complex's current licensing agreements, the fund typically
will incur additional costs to do so. Smaller fund complexes with
fewer (or more limited) licensing agreement in place may be more
likely to incur costs when these events occur); SIFMA Comment Letter
(the operational and index licensing costs to funds, and ultimately
shareholders, to implement the required changes in order to comply
with the changed definition would not be trivial. These costs may
include licensing fees charged by index providers, the cost related
to attaining any necessary board approvals, the cost of updating
fund disclosure for these changes, and the cost of associated
updates to marketing and other materials where fund indexes are
used).
    \727\ See Mary and Tom Comment Letter (a majority of funds may
need to change their primary index in response).
    \728\ See Chin, et al. (2022).
---------------------------------------------------------------------------

    In addition, under the rule amendments, funds will incur costs
associated with tagging the streamlined shareholder reports in Inline
XBRL. Various XBRL and Inline XBRL preparation solutions have been
developed and used by operating companies and investment companies to
fulfill their structuring requirements, and some evidence suggests
that, for smaller operating companies, XBRL compliance costs have
decreased over time.\729\ Based in part on our considerable experience
with XBRL implementation in connection with the Commission's other XBRL
requirements, we estimate that the initial aggregate costs to funds of
tagging their streamlined shareholder reports will be $81.2
million.\730\
---------------------------------------------------------------------------

    \729\ An AICPA survey of 1,032 public operating companies with
$75 million or less in market capitalization in 2018 found an
average cost of $5,850 per year, a median cost of $2,500 per year,
and a maximum cost of $51,500 per year for fully outsourced XBRL
creation and filing, representing a 45% decline in average cost and
a 69% decline in median cost since 2014. See Michael Cohn, AICPA
Sees 45% Drop in XBRL Costs for Small Companies, Acct. Today (Aug.
15, 2018), available at https://www.accountingtoday.com/news/aicpa-sees-45-drop-iSn-xbrl-costs-for-small-reporting-companies (retrieved
from Factiva database). Note that this survey was limited to small
operating companies; investment companies have substantively
different tagging requirements, and may have different tagging
processes as well. For example, compared to smaller operating
companies, smaller investment companies are more likely to outsource
their tagging infrastructure to large third-party service providers.
As a result, it may be less likely that economies of scale arise
with respect to Inline XBRL compliance costs for investment
companies than for operating companies. Additionally, a NASDAQ
survey of 151 listed issuers in 2018 found an average XBRL
compliance cost of $20,000 per quarter, a median XBRL compliance
cost of $7,500 per quarter, and a maximum XBRL compliance cost of
$350,000 per quarter in XBRL costs per quarter. See Letter from
Nasdaq, Inc. (Mar. 21, 2019), available at https://listingcenter.nasdaq.com/assets/Letter%20from%20John%20Zecca%20to%20Ms.%20Vanessa%20Countryman%20re%20File%20No.%20S7-26-18%20(March%2021,%202019).pdf; Request for
Comment on Earnings Releases and Quarterly Reports, Release No. 33-
10588 (Dec. 18, 2018) [83 FR 65601 (Dec. 21, 2018)]. Like the
aforementioned AICPA survey, this survey was limited to operating
companies.
    \730\ The estimated aggregate initial cost for the final rules'
Inline XBRL requirements is based on the following calculations: 18
hours x $381 (blended wage rate for compliance attorney and senior
programmer) = $6,858 per fund. 11,840 funds x $6,858 = $81,198,720.
See infra section V.H. Consistent with similar Inline XBRL estimates
for current XBRL filers, we estimate no ongoing burden, as this is
already incorporated into the current burden estimate for funds that
are complying with requirements to tag disclosures using Inline
XBRL. See id.; see also, e.g., Enhanced Disclosures by Certain
Investment Advisers and Investment Companies about Environmental,
Social, and Governance Investment Practices, Investment Company Act
Release No. 34594 (May 25, 2022) [87 FR 36654 (June 17, 2022)], at
section IV.E. The Commission's prior experience with XBRL
implementation includes its implementation of XBRL and Inline XBRL
requirements for operating company financial statement disclosures
and mutual fund prospectus risk/return summary disclosures. See
supra footnotes 571-572 and accompanying text.
---------------------------------------------------------------------------

    Funds also will incur costs of complying with the new Form N-CSR
disclosure items. As funds already prepare the disclosure that the
required N-CSR items will cover for purposes of current shareholder
reports and disclose that information on Form N-CSR as part of their
shareholder reports, we do not believe the costs of the new N-CSR
disclosure will be significant. Commenters on the proposal suggested
these costs could be significant if they were required to prepare
separate financial statements for each series or portfolio of a trust
when filing Form N-CSR, but the final rules do not prohibit funds from
preparing and submitting multicolumn financial statements that include
multiple series or portfolios, or that address multiple share classes
of a fund in ways that would mitigate these costs.\731\ However, we
recognize that funds may face some costs of rearranging their
disclosures within Form N-CSR. We estimate that the costs of the
required new Form N-CSR items will initially be $162.4 million and
$45.1 million annually thereafter.\732\
---------------------------------------------------------------------------

    \731\ See supra footnotes 408-409 and accompanying text.
    \732\ The initial costs of the final rules' new Form N-CSR
requirements are based on the following calculations: 18 hours per
filing x 2 filings per year per fund x $381 (blended wage rate for
compliance attorney and senior programmer) = $13,716 per fund.
11,840 funds x $13,716 = $162,397,440. The annual cost of the final
rules' new Form N-CSR requirements are based on the following
calculations: 5 hours per filing x 2 filings per fund x $381
(blended wage rate for compliance attorney and senior programmer) =
$3,810 per fund. 11,840 funds x $3,810 = $45,110,400. See infra
section V.C. These PRA burden estimates do not account for the fact
that funds are currently required to prepare the same general
disclosure for purposes of their shareholder reports. Thus, these
PRA-related estimates may over-estimate the costs of the final
rules' Form N-CSR disclosure items, particularly the transition
costs.
---------------------------------------------------------------------------

    In addition, funds will be required to provide additional
information online under the rule amendments to rule 30e-1, and deliver
the additional information in paper or electronically upon request.
With respect to rule 30e-1, this will include online availability (and
delivery upon request) of the disclosure that the rule amendments will
remove from shareholder reports, including financial statements and
financial highlights, as well as quarterly portfolio holdings.
    For instance, under the adopted amendments to rule 30e-1, funds
will likely incur costs associated with providing online access to the
new Form N-CSR disclosure items (i.e., the information that the adopted
rule amendments will remove from shareholder reports). Funds that do
not currently rely on rule 30e-3 will also incur costs to provide their
quarterly portfolio holdings online. We estimate that the initial costs
of complying with the website availability requirements in rule 30e-1
will be $38.6 million, with ongoing annual costs of $12.9 million.\733\
We also estimate that the ongoing annual cost of the rule's requirement
to deliver these materials in paper or electronically to shareholders
on request will be $5.9 million.\734\
---------------------------------------------------------------------------

    \733\ See infra section V.B. The estimated initial cost of
complying with rule 30e-1's website availability requirements is
based on the following calculations: 12 hours x $272 (wage rate for
webmaster) = $3,264 per fund. 11,840 funds x $3,264 = $38,645,760.
The estimated ongoing annual cost is based on the following
calculations: 4 hours x $272 (wage rate for webmaster) = $1,088 per
fund. 11,840 funds x $1,088 = $12,881,920.
    \734\ See id. The estimated ongoing annual cost of complying
with rule 30e-1's delivery upon request requirements is based on the
following calculation: $500 per fund x 11,840 funds = $5,920,000.
---------------------------------------------------------------------------

    Finally, to the extent that affected funds, including UITs that
rely on rule 30e-3 to satisfy shareholder report transmission
requirements under rule 30e-2, have changed their operations for the
purpose of relying on rule 30e-3, those funds would bear the costs
associated with the adopted rule amendment's prohibition on open-end
funds relying on rule 30e-3. These costs could include, among others,
changes to internal systems and adjustments to agreements with third-
party vendors contracted to provide relevant services.\735\ Moreover,
funds may choose to take additional steps to inform their shareholders
about the modified approach to delivering shareholder reports under the
adopted rule amendment, and these funds would

likely incur additional transition costs. We lack data to quantify
these costs because we do not have information about how many funds
would choose to provide discretionary notices or other information to
their shareholders to explain the required changes to shareholder
report transmission.
---------------------------------------------------------------------------

    \735\ See supra footnotes 483-484 and accompanying text; see
also supra footnote 625 and accompanying text.
---------------------------------------------------------------------------

3. Advertising Rule Amendments
a. Benefits
    The rule amendments that require standardized fee and expense
figures \736\ will benefit investors by providing more consistent fee
and expense presentations across investment company advertisements
relative to the baseline and thereby facilitate investor comparisons of
those fee and expense figures across advertisements.\737\ The benefits
to investors will depend on the extent to which funds' advertisements
already reflect the requirements of FINRA for the presentation of fee
and expense information in member communications with the public.\738\
---------------------------------------------------------------------------

    \736\ See supra section II.G.1.
    \737\ Several commenters indicated that the proposed advertising
rule amendments would enable investors to make more informed
investment decisions by more easily comparing costs across various
funds in response to the proposed rule. See, e.g., Better Markets
Comment Letter; Consumer Federation of America II Comment Letter;
John Hancock Comment Letter (all as discussed in section II.G.1.a,
supra).
    \738\ See supra text following footnote 666.
---------------------------------------------------------------------------

    By reducing the chance of misleading information being presented to
investors--e.g., so that useful information faces less competition for
investor attention from other information--the rule amendments may
increase the salience of relevant fee and expense figures to investors
and reduce the chance of a mismatch between the investors' preferences
and their choices of investment products among the various
alternatives, thereby increasing the efficiency of investors'
investment decisions. The extent to which increasing the salience of
fee and expense information in advertisements benefits an investor
considering an investment in a fund depends on the importance of the
information contained in fund advertising materials relative to the
other information that is available to the investor for the purpose of
monitoring fund investments and choosing between the fund and other
financial products.
    The rule amendments may reduce the likelihood of investors
misinterpreting investment company advertisements. For example, the
recent experience of the Commission is that funds sometimes market
themselves as ``zero expense'' or ``no expense'' funds based solely on
information in their prospectus fee tables.\739\ In some cases a fund's
prospectus fee table may show no transaction costs and no ongoing
charges only because the fund adviser, the adviser's affiliates, or
others are collecting fees elsewhere from these investors. An
advertisement for such a ``zero expense'' fund that shows only fund
costs, based on the prospectus fee table, could be materially
misleading if it omitted material facts regarding other costs that
investor would incur when investing in the fund.\740\ Absent
appropriate explanations or limitations, referring to such a fund as a
``zero expense'' fund can materially mislead investors and cause them
to believe incorrectly that there are no expenses associated with
investing in the fund.\741\
---------------------------------------------------------------------------

    \739\ The Commission received comments on the trend for some
funds to market their investment products based on claims of low
costs or no fees. See, e.g., CFA Institute Comment Letter; see also
Consumer Federation of America II Comment Letter.
    \740\ See section I.A.4 for discussion of the Commission's
experience and related concerns regarding practices in which
investors may believe incorrectly that there are no expenses
associated with investing in the fund.
    \741\ See id.
---------------------------------------------------------------------------

    To the extent that the advertising rule amendments reduce fund
incentives to understate or obscure their fees, the rule amendments may
enable investors more easily to distinguish funds according to their
actual fees, enabling some investors to obtain lower fees, such as by
altering their choices among available investment alternatives.\742\ In
addition, funds may respond to the greater ability of investors to
distinguish among funds according to their actual fees by lowering
their fees, thereby further benefiting investors. We also discuss this
effect on the incentives of funds to compete based on fees and
implications for capital formation in section IV.D below.
---------------------------------------------------------------------------

    \742\ Some comments on the Proposing Release stated that the
proposed investment company advertising rule amendments would help
investors make more informed investment decisions by more easily
comparing costs among various funds. See Better Markets Comment
Letter; Consumer Federation of America II Comment Letter; John
Hancock Comment Letter.
---------------------------------------------------------------------------

b. Costs
    Investment companies and third parties involved in preparing or
disseminating investment company advertisements will incur costs to
comply with the final advertising rule amendments. The expenses that
funds incur to implement the rule amendments will be a cost to
investors. We discuss those expenses below.
i. Modifying Advertising Materials
    The cost of our amendments to the advertising rules will include
the direct cost of modifying advertising materials to bring them into
compliance with the final advertising rule amendments. This may require
internal review and approval of advertisements beyond what occurs under
the current rule, particularly where an advertisement is not already
required to present certain fee and expense figures under existing
FINRA rules (for example, advertisements by funds other than open-end
funds, advertisements intended for non-retail audiences, or
advertisements where a broker-dealer is not involved in disseminating
the particular communication).\743\ For example, while many investment
company advertisements are subject to timeliness requirements related
to the presentation of performance information, they currently are not
subject to similar timeliness requirements for fee and expense
information. With respect to advertisements that are currently subject
to FINRA requirements addressing the presentation of fee and expense
information, funds and their intermediaries may incur costs to assess
compliance with, and any overlap between, the requirements we are
adopting and existing FINRA rules. We expect some of these costs to be
borne in the first year after the rule amendments go into effect. That
is, they will be transition costs and not sustained beyond the first
year. We estimate that the initial costs associated with the final
advertising rule amendments will be $274.3 million.\744\ These costs
will be borne by funds and thus by their shareholders.
---------------------------------------------------------------------------

    \743\ See supra sections I.A.4, II.G.
    \744\ See infra sections V.D through V.F. We estimate that
approximately 48,000 investment company advertisements (including
supplemental sales literature) each year would be subject to the
final amendments to rules 482, 34b-1, and 433. This includes 36,492
communications that are advertisements subject to rule 482, 7,209
communications that are supplemental sales literature subject to
rule 34b-1, and 4,300 communications that are registered closed-end
fund or BDC free writing prospectuses under rule 433. We estimate an
initial burden of 15 hours per communication associated with the
amendments to each of these rules. The estimated initial costs of
the final advertising rule amendments is based on the following
calculation: 15 hours x $381 (blended wage rate for compliance
attorney and senior programmer) x 48,000 communications =
$274,320,000.
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    The ongoing costs of the advertising rule amendments will be
greater for some types of fund advertisements than others. For example,
the amendments will require the fee and expense figures in
advertisements to be calculated in the

manner the registrant's Investment Company Act or Securities Act
registration form prescribes for a prospectus. This requirement could
make it more burdensome to prepare advertisements for some types of
registrants, such as closed-end funds that do not maintain updated
prospectuses and, thus, may not calculate current fees and expenses in
the manner the amendments will require. It will be more costly to
prepare these advertisements (if they include fee and expense
information) because of the need to develop new procedures for annually
calculating these registrants' fees and expenses in accordance with
prospectus fee table requirements. In addition, the cost of compliance
will be relatively greater for funds that react to the advertising rule
amendments by initiating or enhancing a compliance program after
previously having no such program or only a very limited program in
place. We estimate that the ongoing annual costs of the advertising
rule amendments will be $91.4 million.\745\ The costs of the
advertising rule amendments will be smaller for some types of fund
advertisements than others. For example, the advertising rule
amendments requiring standardized fee and expense figures will affect
only those fund advertisements that include fee and expense figures. As
another example, if an investment company does not present total annual
expense figures in its prospectus, the final amendments addressing the
required fee and expense figures would be inapplicable.
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    \745\ See infra sections V.D through V.F; see also supra
footnote 744. We estimate an annual burden of 5 hours per
communication associated with the final amendments to rules 482,
34b-1, and 433. The estimated annual costs of the final advertising
rule amendments is based on the following calculation: 5 hours x
$381 (blended wage rate for compliance attorney and senior
programmer) x 48,000 communications = $91,440,000.
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ii. Potential for Loss of Information
    Finally, some investors could experience the loss of information
about fees and expenses as a cost of the advertising rule amendments.
Specifically, some funds might cease advertising (or cease including
fee and expense figures or total annual expense figures in their
advertising) rather than incur the extra compliance costs. In such
instance, investors who rely on the advertisements to make investment
decisions or to compare funds might have less complete information for
these purposes under the rule amendments than they do currently.
Anticipating that investors have less complete information, funds might
then have weaker incentives to differentiate themselves from other
funds in ways that are designed to attract and benefit informed
investors. However, we believe this is unlikely because we do not
anticipate that the compliance costs will be great enough to cause
funds to cease advertising (or to cease including fee and expense
figures or total annual expense figures in their advertising).
Moreover, such loss of information would be mitigated to the extent
that the information that investors receive is more accurate and
salient than they would receive in the absence of the rule, and because
other avenues exist for investors to obtain information about funds
(for example, fund prospectuses or information provided by third
parties that analyze fund information).

D. Effects on Efficiency, Competition, and Capital Formation

    This section describes the effects we expect the rule amendments to
have on efficiency, competition, and capital formation.
    Efficiency. Key to this analysis are the concepts of efficiency in
the use of investor time and attention and in the use of fund resources
from the real economy to meet shareholder report transmission
obligations. We regard changes and amendments that reduce these costs
as increasing economic efficiency, with changes and amendments that
increase these costs having the opposite effect. Also key is the
concept of ``information asymmetry''--in this case, the lack of
information that investors may have about funds and other investment
products and the related difficulties that some investors may face in
understanding and using the information that is available to them.
    The rule amendments will enable investors to use their time and
attention more efficiently. To investors, the costs of investing in a
fund are more than just the dollar cost, and include the value of an
individual's time and attention that is spent gaining an understanding
of the fund. Further, for those investors who do not gain a full
understanding of the fund, there could be a cost stemming from a
potential mismatch between the investor's goals and the fund risk
profile and fee structure. Depending on the size of an individual's
position in a fund, certain of these additional costs could be
considerable in comparison to the monetary costs associated with the
investment and could discourage investors from gathering information
about different investment alternatives and evaluating existing
investments even in circumstances where reviewing available shareholder
reports could be beneficial.
    The overall efficiency gains from the effect of the rule amendments
on how investors allocate their time and attention will depend on the
ease with which investors are able to transition to the new approach to
fund shareholder reports and find the disclosures and other materials
of that new approach easier to use. Some individuals may prefer the
current approach. Their time and attention may be used less efficiently
under the rule amendments, which will require them to go to the trouble
of requesting their preferred materials rather than receiving them
automatically as will occur in the current approach. However, despite
these potential limitations, we expect the efficiency gain and cost
reduction from changes in the use of investor time and attention
resulting from the rule amendments will tend to be positive, because
the new approach under the amendments is specifically designed to make
the disclosures easier for retail investors to use while continuing to
provide access to more detailed information for the market
professionals and other investors who wish to access them.\746\
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    \746\ These provisions would thus not have efficiency effects
for financial professionals and other investors who currently rely
on more detailed information online that will continue to be
accessible.
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    In addition, the rule amendments may affect economic efficiency
through changes in disclosure and advertising content. The rule
amendments to the content of shareholder report disclosure and the
presentation of advertising materials will increase the consistency of
the presentation of their contents across funds (and, in the
advertising rule amendment, across a wider range of investment
opportunities) and thereby promote their comparability. This may make
it easier for investors to make comparisons across funds, and between
funds and other investment products. As a result, investors may face
lower search costs in choosing among funds, and among investment
opportunities more generally. In addition, investors and other market
participants may be more easily able to monitor their fund and other
investments.
    Some of the rule amendments would unbundle the provision of
information on funds and across classes and series of a fund. Apart
from other effects of those rule amendments, the effect of unbundling
could increase the cost to some investors of accessing information or
of using information to compare their current fund investments with
alternatives. Under rule 30e-1, funds

would make information available online that is currently provided in
the shareholder report. To the extent that some investors who would
have used this information under the current rules respond to the rule
amendment by no longer using this information, the effect may be to
reduce the efficiency of their search across investments. Under the
rule amendment requiring separate transmission of information about
fund series and reports, funds would no longer make information about
fund series and funds available on a single transmission. Investors who
would have relied on that information to make comparisons between their
current investment and investments in other classes and series of the
fund will likely face greater difficulty accessing this information
under the rule amendments than currently. In each instance, the effect
would be to reduce the efficiency of search across alternative
investments on the part of those investors.
    The rule amendments that reduce information asymmetry and search
costs may reduce barriers that funds and intermediaries face in
supplying investment opportunities to investors, and that investors may
face in comparing and evaluating the suitability of the investments
initially and, as fund shareholders, over the period of the
investment.\747\ These effects of the rule amendments may be reduced to
the extent that shareholders currently rely on the bundled transmission
of reports on fund series and classes that would be transmitted
separately under the rule amendments.
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    \747\ As noted above, there may be investors who would prefer
the approach to disclosure that is now in place and who would under
the approach under the final rule amendments need to take extra
steps to continue to use the disclosures that they use in making
investment decisions currently. To the extent this occurs, the final
rule amendments could lead to additional costs and reduced
efficiency for such investors in their evaluation of fund
investments.
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    These increases in efficiency and related cost reductions could
manifest as a higher likelihood that investors make use of the
disclosures that funds provide through their shareholder reports and
advertising materials, and thus lead to investment decisions that are
more informationally efficient. First, these efficiencies may increase
the likelihood that investors choose a mix and level of fund
investments that are consistent with their overall financial
preferences and objectives--a level that may be higher or lower than
will occur presently. Second, making it easier for investors to use the
information that is disclosed under the rule amendments that require
concise, tailored shareholder report disclosures and more consistent
fee and expense presentations across investment company advertisements
relative to the baseline could facilitate more efficient investor
allocation of assets across funds. These effects on efficiency will be
limited, however, to the extent that investors rely on third parties
for advice in selecting among financial products and those third
parties use more information than what shareholders receive under the
rule amendments.\748\
    Competition. The rule amendments that affect information asymmetry
between investors and funds may, by reducing investor search costs,
affect competition. Specifically, the rule amendments that require
changes to shareholder reports (including the newly required tagging of
shareholder reports in Inline XBRL) and fund advertising will enable
investors to compare fees and expenses and other information more
easily across funds, and between funds and other financial products,
and could therefore affect competition among funds by making it easier
for lower-fee funds to distinguish themselves from other funds.\749\
This could lead investors to shift their assets from higher-fee funds
to lower-fee funds. It also could lead funds, in anticipation of this,
to lower their fees or otherwise take steps to draw investor flows away
from competing funds or avoid outflows to competing funds under the new
approach to funds' shareholder reports. It could lead funds to exit
that are not as easily able to compete on the basis of fees and
expenses as a result of the new approach, and other funds to enter and
compete for investor assets more efficiently than is currently
occurring. The effect on competition among funds may be limited,
however, to the extent that investors rely on third parties who are not
affected by the rule amendments for advice in selecting among financial
products.\750\
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    \749\ With respect to Inline XBRL tagging, this anticipated
effect would be analogous to the observed effect whereby XBRL
requirements for public operating company financial statements have
infused company-specific financial characteristics into competitive
public markets. See Yu Cong, et al., The Impact of XBRL Reporting on
Market Efficiency, 28 J. Info Sys. 181 (2014) (finding ``XBRL
reporting facilitates the generation and infusion of idiosyncratic
information into the market'').
    \750\ For example, one investor survey found that 24% of
surveyed mutual fund investors agreed with the statement, ``I rely
on a financial adviser or broker to look at these sorts of [fund]
documents.'' See Inv. Co. Inst., Mutual Fund Investors' Views on
Shareholder Reports: Reactions to a Summary Shareholder Report
Prototype (Oct. 2018), available at https://www.ici.org/pdf/ppr_18_summary_shareholder.pdf, at 20. Within subsets of the
surveyed investors, 57% of mutual fund investors aged 65 and older,
and 58% of mutual fund investors with household incomes less than
$50,000, agreed with this statement. See id. at nn.19 and 20. A
third party adviser, for example, may prefer to access all
information that is available about a fund online rather than rely
solely on the information in the prospectus and shareholder report
that is the subject of the proposal. Such an adviser would not
change its information or advice under the proposal. Funds would not