understanding of the required disclosures, and that the default
presentation contents in electronically presented shareholder reports
be based on the same assumptions required by Item 27A)? For instance,
should we permit a fund's expense presentation to include an
explanation that compares a fund's expenses to its peer group?
    119. The federal securities laws generally do not prohibit a fund
from posting a version of its annual or semi-annual shareholder report
translated into a foreign language on its website.\344\ Further, we
understand that funds occasionally will include online tools, such as
translators, on their websites to assist non-English speaking investors
and investors with disabilities to assess information about the fund.
Should the Commission address the translation of a shareholder report
or other documents filed with the Commission (such as a prospectus)
into a foreign language and the transmission of those documents to
shareholders? If so, what factors should the Commission consider?
Should the Commission address foreign language shareholder reports (and
foreign language versions of other fund regulatory materials) not only
for open-end funds, but also other types of funds? If the Commission
were to amend its rules to address the transmission of foreign language
shareholder reports, should it also require foreign language versions
of shareholder reports to be filed with the Commission?
---------------------------------------------------------------------------

    \344\ See supra paragraph accompanying footnotes 339 through 341
and accompanying text (discussing the status under the Federal
securities laws of information that funds include on their
websites).
---------------------------------------------------------------------------

    120. As proposed, any additional information that a fund presents
in connection with an electronic version of its annual report that is
not included in the annual report filed on Form N-CSR would have the
same status under the Federal securities laws as any other website or
electronic content that the fund produces or disseminates. Is this
approach appropriate? Notwithstanding this proposed instruction, should
we require a fund to file this additional information with the
Commission? If so, why, and through what channels should funds be
required to file the additional information (e.g., on Form N-CSR)? Is
it appropriate to provide investors additional information online that
would not have to be provided in paper to investors who request paper
documents? If not, why not?
    121. Is it appropriate to require that any electronic version of an
annual report provide a means of facilitating access (such as a
hyperlink) to any information that is referenced in the annual report
that is available online? If not, why not? Similarly, is it appropriate
to permit an annual report that is delivered in paper to include
website addresses, QR codes, or other

means of facilitating access to such information? Should the use of
website addresses and QR codes be required for annual reports delivered
in paper?
    122. As proposed, the additional explanatory or supplemental
information permitted in an electronic annual report may not, because
of the nature, quantity, or manner of presentation, obscure or impede
understanding of the information that must be included. Are these
restrictions appropriate? If not, why not? Should this instruction also
specify that any explanatory or supplemental information that funds
provide as online tools be responsive to the proposed content
requirements for shareholder reports? Could this additional restriction
prevent funds from providing information that some shareholders might
find useful? Or would it be helpful in furthering the goal of ensuring
that explanatory or supplemental information not obscure understanding
of the required disclosures?
    123. Rather than what we are proposing, should funds be able to
transmit multiple-series annual reports to shareholders but be required
to provide tools for tailoring the online presentation of the
disclosure to an individual series? Should we require multi-class funds
to provide tools for tailoring the online presentation of the
disclosure to an individual class? Why or why not?
    124. When a fund's annual report is available on a website or
otherwise available electronically, should the investor be warned when
he or she leaves the annual report content and moves to other fund
content? If so, why? Should all annual report content (particularly
when shown on multiple pages or tabs), be clearly identified as being
part of the annual report? If not, why not?
    125. Do the proposed general instructions sufficiently encourage
electronic design and delivery of the annual report? Are the general
instructions sufficiently flexible to permit delivery on phones,
tablets, and other devices and to accommodate information conveyed via
videos, interactive graphics, or tools and calculators? How can the
Commission encourage funds to make fuller use of innovative technology
to enable more interactive, user-friendly annual reports?

F. Semi-Annual Shareholder Report

    We are proposing to specify the design and content of funds' semi-
annual reports through new Item 27A of Form N-1A. These design and
content specifications are similar to those we are proposing for funds'
annual reports.\345\
---------------------------------------------------------------------------

    \345\ See supra section II.B.
---------------------------------------------------------------------------

    The table below summarizes the proposed content that funds would
include in their semi-annual reports and compares the proposal to
current semi-annual report disclosure requirements.

                                 Table 3--Outline of Proposed Semi-Annual Report
----------------------------------------------------------------------------------------------------------------
                                                                                Current item of form  N-
                                             Description        Proposed item of form N-  1A containing similar
                                                                           1A                  requirements
----------------------------------------------------------------------------------------------------------------
Cover Page or Beginning of Report....  Fund/Class Name(s).....  Item 27A(b).
                                       Ticker Symbol(s).......  Item 27A(b)............
                                       Principal U.S.           Item 27A(b).
                                        Market(s) for ETFs.
                                       Statement Identifying    Item 27A(b).
                                        as ``Semi-Annual
                                        Shareholder Report''.
                                       Legend.................  Item 27A(b).
Content..............................  Expense Example........  Item 27A(c)............  Item 27(d)(1).
                                       Management's Discussion  Item 27A(d)............  Item 27(b)(7).
                                        of Fund Performance
                                        (optional).
                                       Fund Statistics........  Item 27A(e)............
                                       Graphical                Item 27A(f)............  Item 27(d)(2).
                                        Representation of
                                        Holdings.
                                       Material Fund Changes    Item 27A(g)............
                                        (optional).
                                       Changes in and           Item 27A(h)............  Item 27(b)(4).
                                        Disagreements with
                                        Accountants.
                                       Statement Regarding      Item 27A(i)............  Item 27(d)(6)(ii)
                                        Liquidity Risk
                                        Management Program.
                                       Availability of          Item 27A(j)............  Item 27(d)(3) through
                                        Additional Information.                           (5).
----------------------------------------------------------------------------------------------------------------

1. Scope and Contents of the Proposed Semi-Annual Report
    As with the proposed annual report, we propose to limit the scope
of funds' semi-annual reports in several respects to reduce the overall
length and complexity of these reports. First, we propose to require a
fund registrant to prepare separate semi-annual reports for each series
of the fund.\346\ Second, we propose generally to limit the content a
fund may include in its semi-annual report to the information that Item
27A of Form N-1A specifically permits or requires.\347\ However, if a
fund's particular circumstances may cause the required disclosures to
be misleading, the fund may add additional information that is
necessary to make the required disclosure items not misleading.
Finally, the proposed amendments to Form N-1A would not permit a fund
to incorporate by reference any information into its semi-annual
report.\348\ Collectively, these restrictions parallel our proposed
scope and content limitations for annual reports.\349\ As is the case
today, the proposed semi-annual report would not be subject to page or
word limits. As noted above, we believe a set limit could constrain
appropriate disclosure or lead funds to omit material information.
However, we believe that the proposed limits on the contents of
shareholder reports should nonetheless limit their length in support of
our goal of concise, readable disclosure.\350\
---------------------------------------------------------------------------

    \346\ See Instruction 4 to proposed Item 27A of Form N-1A.
    \347\ See Instruction 3 to proposed Item 27A of Form N-1A.
    \348\ See Instruction 5 to proposed Item 27A of Form N-1A.
    \349\ See supra Section II.B.1.a and II.B.1.b; see also
Instructions 3, 4, and 5 to proposed Item 27A of Form N-1A.
    \350\ Because we estimate that the proposed annual report would
be approximately 3 to 4 pages in length, we similarly estimate that
the proposed semi-annual report (which would include fewer required
disclosure items than the proposed annual report) would be
approximately 3 to 4 pages in length or shorter. In the case of
paper delivery, this may allow funds to deliver semi-annual reports
using a trifold self-mailer (or a similarly concise mailing). See
supra footnote 134 and accompanying text.

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

    The cover page or beginning of the proposed semi-annual report
would essentially contain the same content as the annual report (with
the only difference being references to a ``semi-annual report''
instead of an ``annual report'').\351\
---------------------------------------------------------------------------

    \351\ See proposed Item 27A(b) of Form N-1A; see also supra
Section II.B.2.a.
---------------------------------------------------------------------------

    Semi-annual reports currently include an expense example.\352\ The
proposed semi-annual report would retain an expense example, which
would be subject to the same content requirements as the expense
example in the proposed annual report.\353\
---------------------------------------------------------------------------

    \352\ See Item 27(d)(1) of Form N-1A.
    \353\ See proposed Item 27A(c) of Form N-1A; see also supra
Section II.B.2.b. The expense example in the semi-annual report
would cover a 6-month reporting period.
---------------------------------------------------------------------------

    We do not currently require MDFP in semi-annual reports. Under our
proposal, semi-annual reports similarly would not require MDFP, but
funds could include this disclosure on an optional basis.\354\ We
understand that it is currently common for funds to include MDFP in
their semi-annual reports, and we believe that continuing to allow this
disclosure would enable funds to identify factors that could help
investors better contextualize other information disclosed in the semi-
annual report. However, any such disclosure would have to comply with
the proposed content requirements for MDFP in annual reports.\355\
---------------------------------------------------------------------------

    \354\ See proposed Item 27A(d) of Form N-1A.
    \355\ See supra Section II.B.2.c.
---------------------------------------------------------------------------

    Under our proposal, semi-annual reports, like annual reports, would
have to include certain fund statistics, including the fund's: (1) Net
assets, (2) total number of portfolio holdings, and (3) portfolio
turnover rate.\356\ This new disclosure requirement for semi-annual
reports would parallel proposed required disclosures in annual
reports.\357\ As in annual reports, this proposed disclosure
requirement is intended to provide succinct fund disclosures in a
format that investors may be more likely to review than long
narratives, and is designed to help contextualize other disclosures
required in semi-annual reports.\358\ In addition, a fund could
disclose any additional statistics that it believes would help
shareholders better understand the fund's activities and operation
during its most recent fiscal half-year.\359\
---------------------------------------------------------------------------

    \356\ See proposed Item 27A(e) of Form N-1A.
    \357\ We note, however, that semi-annual reports currently must
disclose net assets and portfolio turnover rate as part of the
requirement to disclose condensed financial information. See Item
27(c)(2) of Form N-1A; see also supra footnotes 243 and 249 and
Section II.B.2.d.
    \358\ See supra text accompanying footnotes 243 through 250.
    \359\ See proposed Item 27A(e) of Form N-1A; see also supra text
accompanying and following footnote 251.
---------------------------------------------------------------------------

    Semi-annual reports currently include a graphical representation of
holdings.\360\ For the same reasons that we propose to retain the
current requirements for the graphical representation of holdings in
the annual report (with revisions designed to improve the
presentation), we propose to retain the current requirements for the
graphical representation of holdings in funds' semi-annual
reports.\361\ The graphical representation of holdings in the proposed
semi-annual report would be subject to the same content requirements as
in the proposed annual report.\362\
---------------------------------------------------------------------------

    \360\ See Item 27(d)(2) of Form N-1A.
    \361\ See supra footnotes 260-262 and accompanying text.
    \362\ See proposed Item 27A(f) of Form N-1A; see also supra
Section II.B.2.e.
---------------------------------------------------------------------------

    We do not currently require a discussion of material changes to the
fund in semi-annual reports. Under our proposal, such disclosure would
still not be required, but funds could include this disclosure on an
optional basis.\363\ We believe that permitting, but not requiring,
this disclosure is appropriate because we anticipate that it would be
common under the proposed rules for fund shareholders to receive
notices of material changes as they occur throughout the year (i.e.,
the notices that proposed rule 498B would require, or as prospectus
``stickers'' for those funds that do not rely on proposed rule
498B).\364\ Requiring a discussion of material changes in the semi-
annual report could be duplicative in light of these other notices.
However, we are permitting funds to include this disclosure in their
semi-annual reports because we anticipate that there could be
circumstances in which discussing material changes could help investors
better contextualize other information in the semi-annual report. Any
such disclosure would have to comply with the proposed content
requirements for the discussion of material changes in annual
reports.\365\
---------------------------------------------------------------------------

    \363\ See proposed Item 27A(g) of Form N-1A.
    \364\ See infra Section II.F.3.b (discussing the notices of
material changes that the proposal would require, for funds relying
on proposed rule 498B); see also infra footnote 870 and accompanying
text (estimating that 90 percent of funds would rely on proposed
rule 498B instead of sending annual prospectus updates to existing
shareholders).
    \365\ See supra Section II.B.2.f.
---------------------------------------------------------------------------

    As discussed above, we are proposing to require funds to include,
under certain conditions, a statement in their semi-annual or annual
reports regarding their liquidity risk management program.\366\ This
statement would include a brief summary of: (1) The key factors or
market events that materially affected the fund's liquidity risk during
the reporting period, (2) the key features of the fund's liquidity risk
management program, and (3) the effectiveness of the fund's liquidity
risk management program over the past year.\367\ Depending on the
timing of the fund's board's review of the fund's liquidity risk
management program, the fund would include the statement in either its
annual or semi-annual report.\368\ If the board were to review the
liquidity risk management program more frequently than annually, a fund
could choose to include the discussion of the program's operation and
effectiveness over the past year in the fund's annual and/or semi-
annual report, but this discussion would not be required to be included
in both reports.\369\
---------------------------------------------------------------------------

    \366\ See supra Section II.B.2.g.
    \367\ See proposed Item 27A(i) of Form N-1A.
    \368\ See supra footnote 307 and accompanying text.
    \369\ See Instruction 3 to proposed Item 27A(i) of Form N-1A.
Current Form N-1A includes the same instruction providing
flexibility for a fund whose board reviews the liquidity risk
management program more frequently than annually to include the
discussion of the program in either the semi-annual report or the
annual report, but not both. See Instruction to Item 27(d)(6)(ii) of
Form N-1A.
---------------------------------------------------------------------------

    Under current shareholder report requirements, funds must include
statements regarding the availability of certain information not
included in the semi-annual report, namely the fund's: (1) Quarterly
portfolio schedule; (2) proxy voting policies and procedures; and (3)
proxy voting record.\370\ Under our proposal, the semi-annual report
would have to similarly include a brief, plain English statement that
certain additional fund information is available on the fund's website,
including, as applicable, the fund's prospectus, financial statements,
quarterly portfolio schedule, and proxy voting record.\371\ The
statement could also reference other information on the fund's website
that the fund reasonably believes shareholders would view as
important.\372\ In addition, if the shareholder report appears on a
fund's website or otherwise is provided electronically, the fund must
provide a means of facilitating access to that additional information
(such as a

hyperlink).\373\ Collectively, these requirements would be the same as
the proposed requirements with regard to the availability of additional
information in annual reports.\374\
---------------------------------------------------------------------------

    \370\ See Items 27(d)(3) through (5) of Form N-1A.
    \371\ See proposed Item 27A(j) of Form N-1A.
    \372\ Id.
    \373\ See Instruction 1 to proposed Item 27A(j) of Form N-1A.
    \374\ See id.; see also supra Section II.B.2.g.
---------------------------------------------------------------------------

    We request comment generally on the proposed scope and content
requirements for funds' semi-annual reports, and specifically on the
following issues:
    126. Is the proposed scope for semi-annual reports appropriate? To
the extent the Commission changes the proposed scope of annual reports,
should the Commission adopt those same changes for semi-annual reports?
In contrast, are there any unique scope considerations for semi-annual
reports, as opposed to annual reports?
    127. Are the proposed content requirements for semi-annual reports
appropriate? To the extent that the Commission adopts changes to the
proposed content requirements for annual reports, should the Commission
adopt those same changes for semi-annual reports? In contrast, are
there any unique content considerations for semi-annual reports, as
opposed to annual reports? For example, are there any amendments we
should make to the proposed MDFP requirement to clarify disclosure
obligations in the context of a semi-annual reporting period, as
opposed to an annual reporting period? As another example, should we
require the statement regarding the fund's liquidity risk management
program in both the annual and the semi-annual reports, instead of
providing the flexibility to include this disclosure in either report
(depending on the timing of the board's review of the program)?
    128. Is it appropriate to permit, but not require, funds to include
MDFP and a discussion of material fund changes in their semi-annual
reports? Why or why not? Would funds include this optional disclosure
in their semi-annual reports, and if so, why? Should we permit any
additional flexibility with regard to the content requirements of semi-
annual reports and, if so, are there any corresponding changes that we
should make to the proposed form amendments to implement such
flexibility?
    129. Should the Commission make any changes to the frequency of
fund shareholder reports? For example, should the Commission require
the transmittal of fund shareholder reports more or less frequently
than on a semi-annual basis? \375\ To what extent would changes in the
frequency of shareholder reports impact investors and their investment
decision-making?
---------------------------------------------------------------------------

    \375\ See infra Section II.C.3.b (seeking comment on, among
other things, an alternative approach in which the requirement to
transmit a semi-annual report could be satisfied instead by updating
certain information that appears on a fund website either semi-
annually or on some more-frequent basis).
---------------------------------------------------------------------------

2. Format and Presentation of Semi-Annual Report
    Under our proposal, as discussed below, the semi-annual report
would be generally subject to the same format and presentation
requirements as the annual report.\376\
---------------------------------------------------------------------------

    \376\ See Section II.B.3.
---------------------------------------------------------------------------

    Information in semi-annual reports would be required to appear in
the same order as the corresponding form items appear in the proposed
amendments to Form N-1A.\377\ Any information that a fund could choose
to include in the semi-annual report would also be subject to this
proposed ordering requirement (that is, it would have to be presented
in the same order as the parallel mandatory disclosures in annual
reports).\378\ Like the parallel requirement for annual reports, this
proposed ordering requirement for semi-annual reports is designed to
ensure that information we believe is most salient to shareholders
would appear first in the report. The proposed ordering requirement
also is designed to promote consistency and comparison across funds and
would place related report contents close together.
---------------------------------------------------------------------------

    \377\ See Instruction 2 to proposed Item 27A(a) of Form N-1A.
This proposed instruction would also include provisions that are
applicable to a semi-annual report that appears on a website or is
otherwise provided electronically. See infra Section II.C.3.
    \378\ Id.
---------------------------------------------------------------------------

    The other proposed instructions for annual reports' format and
presentation discussed above also would apply to semi-annual reports.
These include the proposed ``plain English'' instructions for the
organization, wording, and design of the report.\379\ They also include
the proposed instructions encouraging funds to consider using, as
appropriate, a question-and-answer format, charts, graphs, tables,
bullet lists, and other graphics or text features as a way to help
provide context for the information presented.\380\
---------------------------------------------------------------------------

    \379\ See Instruction 6 to proposed Item 27A(a) of Form N-1A;
see also supra footnote 323 and accompanying paragraph.
    \380\ See Instruction 8 to proposed Item 27A(a) of Form N-1A;
see also supra footnote 324 and accompanying paragraph.
---------------------------------------------------------------------------

    We request comment generally on the proposed format and
presentation requirements for funds' semi-annual reports, and
specifically on the following issues:
    130. Are the proposed format and presentation requirements for
semi-annual reports appropriate? To the extent that the Commission
adopts rules that include changes to these requirements for annual
reports, should the Commission adopt those same changes for semi-annual
reports? In contrast, are there any unique considerations with regard
to the format and presentation requirements for semi-annual reports, as
opposed to annual reports?
    131. Under our proposal, semi-annual reports may optionally include
certain disclosures that would be required to be included in annual
reports.\381\ Is it appropriate to require any such optional
disclosures to be presented in the same order as the information would
be presented in annual reports? To what extent could this cause
confusion for investors reading semi-annual reports, given that some
semi-annual reports might contain additional optional disclosures
interspersed between required disclosures? In contrast, to what extent
would it be confusing to require these optional disclosures to be
presented in a different order (e.g., following all required
disclosures)?
---------------------------------------------------------------------------

    \381\ See supra footnotes 354 and 355 and accompanying text
(discussing the proposal to permit, but not require, MDFP to be
included in semi-annual reports) and supra footnotes 363 through 365
(discussing the proposal to permit, but not require, a discussion of
material fund changes to be included in semi-annual reports).
---------------------------------------------------------------------------

3. Electronic Semi-Annual Reports
a. Proposed Instructions and Requirements
    Our proposed instructions for electronic annual reports, including
those that promote the use of interactive, user-friendly electronic
design features, would also apply to semi-annual reports.\382\ Among
other things, these proposed instructions would (1) provide ordering
and presentation requirements for semi-annual reports that appear on a
website or are otherwise provided electronically, (2) provide
additional flexibility for funds to add additional tools and features
to semi-annual reports that appear on a website or are otherwise
provided electronically, and (3) require a semi-annual report to
include a link or some other means of immediately accessing information
referenced in the report that is available online.\383\
---------------------------------------------------------------------------

    \382\ See supra Section II.B.4.
    \383\ Id.
---------------------------------------------------------------------------

    We request comment generally on the proposed instructions regarding
funds' electronic semi-annual reports, and specifically on the
following issues:

    132. Are the proposed instructions regarding funds' electronic
semi-annual reports appropriate? Should any of those instructions be
modified or should any other revisions be made to the Commission's
proposal with regard to electronic shareholder reports, in order to
better reflect investor preferences or to encourage the use of
electronic shareholder reports by funds?
b. Alternatives Involving Electronic Semi-Annual Reports
    Currently, funds are required to transmit semi-annual reports to
shareholders, and--as with annual reports--they will be able to satisfy
this requirement in certain cases under rule 30e-3 by posting the
report (and certain other required materials) online and providing a
notice of the reports' online availability.\384\ We considered
proposing alternative requirements for transmitting semi-annual
reports. For example, we considered allowing funds to satisfy the
requirement to transmit semi-annual reports by filing certain
information on Form N-CSR. Also, in light of current internet use
trends, we considered allowing funds to satisfy the requirement to
transmit a semi-annual report by updating certain information on a fund
website either semi-annually or on some more-frequent basis.
---------------------------------------------------------------------------

    \384\ See supra footnote 22 and accompanying text. The
Commission has previously interpreted the meaning of ``transmit'' in
this context. See discussion of previous Commission guidance on the
use of electronic media for delivery purposes, supra footnote 21.
---------------------------------------------------------------------------

    For example, we understand that many funds currently publish
monthly or quarterly fact sheets online.\385\ These fact sheets tend to
include much of the information that would appear in the proposed
requirements for funds' semi-annual reports, and often present such
information in a concise format that may be appealing to investors. We
understand that some shareholders or financial professionals may use
fact sheets to monitor fund investments because, among other reasons,
fact sheets include more up-to-date performance information than
shareholder reports or prospectuses. While we are not proposing an
approach in which a fund's obligation to transmit semi-annual reports
would be deemed to be satisfied if the fund were to merely post updated
fact sheets (or similar documents) online on a semi-annual or more-
frequent basis, we are soliciting comment on potential disclosure
alternatives that would leverage information that many funds already
provide on their websites.
---------------------------------------------------------------------------

    \385\ See generally supra text following footnote 23.
---------------------------------------------------------------------------

    An approach that would leverage frequently updated website content,
such as fund fact sheets, raises the consideration of how frequently
required regulatory disclosures should ideally be provided to fund
shareholders. Our proposed semi-annual report requirement parallels
current requirements with regard to the frequency of shareholder
reports, which are statutorily mandated to be transmitted on a semi-
annual basis.\386\ We are currently unaware of any evidence indicating
that fund investors specifically desire shareholder reports to be
provided less frequently.\387\ The proposed approach also reflects our
view that the proposed amendments to the contents of annual and semi-
annual reports represent the information that would be most useful and
salient to investors in assessing and monitoring their fund
investments.
---------------------------------------------------------------------------

    \386\ See section 30(e) of the Investment Company Act.
    \387\ See, e.g., Broadridge Comment Letter II. See also ICI
Comment Letter I (asserting that a streamlined shareholder report
should be required on the same semi-annual frequency as the current
shareholder report). But see supra footnotes 54 to 55 and
accompanying text (discussing some investors' concerns about the
volume and frequency of fund disclosure materials they currently
receive).
---------------------------------------------------------------------------

    More generally, we considered the effects and benefits of a
disclosure framework in which fund shareholders have regulatory
information ``pushed'' to them on a semi-annual basis (e.g., the
required direct transmission of shareholder reports twice a year)
versus a hypothetical disclosure framework in which fund shareholders
would have the onus to periodically ``pull'' regulatory disclosures
from various sources (e.g., information that is periodically updated on
a fund website).\388\ We are concerned that such a hypothetical
disclosure framework would represent a significant change in current
practices. We are also concerned that a ``pull''-only disclosure
framework may not be aligned with investor preferences. Although we
understand that some investors prefer receiving fund disclosure
electronically (e.g., through email, mobile application, or website
availability), we do not have evidence that these investors would
prefer a disclosure approach in which they would receive no
notification that updated disclosures are available.\389\ We recognize
that a hypothetical disclosure framework could require funds to
``push'' to investors a short notice that updated information is
available online, similar to the current approach under rule 30e-3.
However, rule 30e-3 contemplates notices being provided semi-annually.
To the extent that, under the hypothetical disclosure framework, funds
would update their online materials more frequently than semi-annually,
providing notices each time that online materials were updated could be
costly and could dissuade funds from updating these materials.
Moreover, we understand that some investors generally prefer to receive
at least certain fund information in paper format.\390\ We recognize
that there are other possible permutations of these disclosure
approaches (for example, providing a notice of updated online
information only semi-annually or permitting a fund to rely on rule
30e-3 with respect to the requirement to provide semi-annual reports,
while continuing to require funds to provide annual reports directly to
shareholders), and we request comment on these possible approaches
below.
---------------------------------------------------------------------------

    \388\ For example, rule 30e-3 could be understood as a hybrid
``push/pull'' disclosure framework in which notices are pushed out
to investors to notify them that shareholders reports have been
posted online and are available to be pulled down. See rule 30e-
3(c). In addition, rule 30e-3 allows shareholders to elect to remain
in a pure ``push'' disclosure framework in which those shareholders
will continue to have shareholder reports directly delivered to
them. See rule 30e-3(f).
    \389\ See supra footnote 70 and accompanying text.
    \390\ See supra footnotes 71 and 72 and accompanying text.
---------------------------------------------------------------------------

    In addition, potential regulatory challenges and unintended
consequences could result from such a hypothetical disclosure
framework. For example, as discussed below, we seek comment regarding
the extent to which this hypothetical framework could result in a
bifurcated disclosure system. That is, we ask about the effects on fund
investors if certain funds would no longer transmit semi-annual reports
directly and instead would update information posted online, while
other funds would continue to transmit semi-annual reports directly.
    We request comment generally on the alternatives to the proposed
semi-annual report transmission requirement that we considered, and
specifically on the following issues:
    133. Should the Commission require the direct transmission of semi-
annual reports, as proposed? Alternatively, should the Commission adopt
different conditions for satisfying this transmission requirement? For
example, should funds be permitted to satisfy this requirement by
filing certain information on Form N-CSR, pursuant to certain
conditions? If so, what information should be filed, and what
conditions would be appropriate? As another example, under the
proposal, funds registered on Form N-1A would no longer be permitted to
rely on rule 30e-3 to satisfy annual and semi-annual

report transmission requirements.\391\ Should we instead continue to
permit these funds to rely on rule 30e-3 as an alternative method of
transmitting their semi-annual reports (while, as proposed, no longer
permitting them to rely on the rule with respect to annual reports)?
What evidence is there (for example, of investor preferences) to
support different transmission requirements for semi-annual reports
versus annual reports?
---------------------------------------------------------------------------

    \391\ See infra Section II.G.
---------------------------------------------------------------------------

    134. As a further alternative, would it be appropriate for the
Commission to permit funds to satisfy their obligations to transmit
semi-annual reports by updating certain information that appears on
their websites (for example, updating a fund fact sheet), either semi-
annually or on some more frequent basis? If so, what frequency and
which information would be appropriate? Would it be appropriate to
require a fund's website to include all of the information that we are
proposing that funds include in their semi-annual reports, a subset of
this information, or different information? To what extent should the
Commission specify the content, presentation, and/or accessibility
requirements for such information, and what should these requirements
be? How, if at all, should funds be required to inform shareholders
that updated information is available on their websites? Should there
be any other conditions for a fund to be able to satisfy its semi-
annual report transmission obligations in this way, and if so what
should they be? To what extent should the Commission consider or
address the fact that, pursuant to rule 482 under the Securities Act,
fact sheets and other information that funds make available online are
generally considered to be omitting prospectuses, and are thus subject
to prospectus liability that does not apply to shareholder reports?
Should information that funds make available online under this
alternative be required to be filed with the Commission? To what extent
would this alternative approach result in a bifurcated disclosure
system, as described above? What would be the effects on investors and
those who wish to review semi-annual reports, if semi-annual reports
were only prepared by some, but not all, funds? Would this alternative
be aligned with investor preferences for fund shareholder report
disclosure? Would it otherwise raise any investor protection concerns,
and if so, what concerns?
    135. Are there any further alternatives the Commission should
consider with regard to semi-annual reports specifically, or reports
that the fund would transmit on an other-than-annual basis generally?
To what extent should any of these alternatives provide special
consideration for electronic shareholder reports?

G. New Form N-CSR and Website Availability Requirements

    We are proposing to amend Form N-CSR and rule 30e-1 to implement
our proposed layered disclosure framework.
    We are proposing to require funds to continue to file certain
information, which is currently included in fund shareholder reports,
on Form N-CSR.\392\ Section 30 of the Investment Company Act requires
funds to file their shareholder reports, including certain information
that must appear in their reports, with the Commission.\393\ Because we
are proposing a framework in which certain information would no longer
appear in funds' shareholder reports, we are proposing amendments to
Form N-CSR that would create new filing requirements for this
information in order to continue to require funds to file the
information with the Commission.
---------------------------------------------------------------------------

    \392\ See proposed Items 7 through 11 of Form N-CSR.
    \393\ See Investment Company Act sections 30(a), 30(e); see also
infra Table 4.
---------------------------------------------------------------------------

    This Form N-CSR filing requirement would further the proposed
layered disclosure framework by making available a broader set of fund
information than the information that appears in funds' annual and
semi-annual reports. The information that would be filed on Form N-CSR
is less retail-focused than the information that would appear in funds'
annual and semi-annual reports, but as detailed below we believe that
retaining the availability of this information would be important for
investors who desire more in-depth information, financial
professionals, and other market participants. The information included
on Form N-CSR also would continue to provide shareholders and other
market participants with access to historical, immutable data regarding
the fund on EDGAR. This historical information also would facilitate
the Commission's fund monitoring responsibilities and could create
significant efficiencies in the location of information for data
gathering, search, and alert functions used in those monitoring
activities. For example, filing on EDGAR facilitates the financial
statement reviews that section 408 of the Sarbanes-Oxley Act of 2002
mandates. Additionally, because Form N-CSR is filed with the Commission
on EDGAR, a fund can incorporate by reference information that is
disclosed on Form N-CSR, including the fund's financial statements,
into a fund's registration statement, subject to certain
limitations.\394\ Finally, a fund's principal executive and financial
officer(s) are required to certify the financial and other information
included on Form N-CSR, and are subject to liability for material
misstatements or omissions on Form N-CSR.\395\
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    \394\ See 17 CFR 270.0-4 [rule 0-4 under the Investment Company
Act] (additional rules on incorporation by reference for funds); 17
CFR 230.411 [rule 411 under the Securities Act] (general rules on
incorporation by reference in a prospectus); 17 CFR 232.303 [rule
303 of Regulation S-T] (specific requirements for electronically
filed documents); General Instruction D to Form N-1A.
    \395\ See 17 CFR 270.30a-2 [rule 30a-2 under the Investment
Company Act] and Item 13(a)(2) of Form N-CSR; see also Certification
of Disclosure in Companies' Quarterly and Annual Reports, Investment
Company Act Release No. 25722 (Aug. 28, 2002) [67 FR 57275 (Sept.
09, 2002)].
     The Sarbanes-Oxley Act of 2002, Public Law 107-204, 116 Stat.
745 (2002) (the ``Sarbanes-Oxley Act'') requires the principal
executive and principal financial officer of most management
investment companies to provide two different certifications in
their periodic reports. Section 302 of the Sarbanes-Oxley Act
requires a certification that, among other things, relates to the
accuracy of the information included in the N-CSR filing. Section
906 of the Sarbanes-Oxley Act added new Section 1350 to Title 18 of
the United States Code, which requires a certification that, among
other things, represents that the N-CSR filing fairly presents, in
all material respects, the fund's financial condition and results of
operations, and is subject to specific Federal criminal provisions.
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    The amendments that we are proposing to rule 30e-1 would require
funds to make available on their website the information that they
would newly have to file on Form N-CSR, and to deliver such information
upon request, free of charge.\396\ These proposed website availability
requirements are designed to provide ready access to this information
for shareholders who find this information pertinent. The proposed
requirements also would assist those investors who find it most
convenient to locate fund materials on a website that is not EDGAR.
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    \396\ See proposed rule 30e-1(b)(2) (funds would be required to
post online Items 7 through 11 of Form N-CSR as well as the fund's
complete portfolio holdings, if any, as of the close of the
company's most recent first and third fiscal quarters).
---------------------------------------------------------------------------

    The following table outlines the content that we propose to require
funds to include in their Form N-CSR filings and make available online.
This content is currently included in a fund's annual and semi-annual
reports.

                Table 4--Outline of Proposed New Form N-CSR and Website Availability Requirements
----------------------------------------------------------------------------------------------------------------
                                        Current rule and form
 Description (and related statutory       requirement(s) for           Proposed new          Proposed website
            requirement)                  shareholder report       disclosure items for        availability
                                         disclosure  (if any)       filing on SEC forms        requirements
----------------------------------------------------------------------------------------------------------------
Financial statements for funds       Items 27(b)(1) and 27(c)(1)  Proposed Item 7(a) of   Proposed rule 30e-
 (required by section 30(e) of the    of Form N-1A.                Form N-CSR.             1(b)(2)(i).
 Investment Company Act).
Financial highlights for funds.....  Items 27(b)(2) and 27(c)(2)  Proposed Item 7(b) of   Proposed rule 30e-
                                      of Form N-1A.                Form N-CSR.             1(b)(2)(i).
Remuneration paid to directors,      Items 27(b)(3) and 27(c)(3)  Proposed Item 10 of     Proposed rule 30e-
 officers and others of funds         of Form N-1A.                Form N-CSR.             1(b)(2)(i).
 (required by section 30(e) of the
 Investment Company Act).
Changes in and disagreement with     Items 27(b)(4) and 27(c)(4)  Proposed Item 8 of      Proposed rule 30e-
 accountants for funds.               of Form N-1A; Item 304 of    Form N-CSR.             1(b)(2)(i).
                                      Regulation S-K.
Matters submitted to fund            Rule 30e-1(b)..............  Proposed Item 9 of      Proposed rule 30e-
 shareholders for a vote.                                          Form N-CSR.             1(b)(2)(i).
Statement regarding the basis for    Item 27(d)(6) of Form N-1A.  Proposed Item 11 of     Proposed rule 30e-
 the board's approval of investment                                Form N-CSR.             1(b)(2)(i).
 advisory contract.
Complete portfolio holdings as of    Currently required in Part   N/A...................  Proposed rule 30e-
 the close of the fund's most         F of Form N-PORT. Also                               1(b)(2)(ii).
 recent first and third fiscal        website availability of
 quarters.                            this information currently
                                      required for funds relying
                                      on rule 30e-3..
----------------------------------------------------------------------------------------------------------------

1. Proposed Form N-CSR Filing Requirements
a. Financial Statements
    We are proposing to require a fund to file its most recent complete
annual or semi-annual financial statements on Form N-CSR, and provide
certain data points from the financial statements in its annual and
semi-annual reports, in lieu of including the fund's complete financial
statements in its shareholder reports.\397\ Consistent with current
requirements, the fund's annual financial statements would be audited
and accompanied by any associated accountant's report, while the semi-
annual financial statements need not be audited.
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    \397\ See proposed Item 7(a) of Form N-CSR; see also supra
footnotes 198 through 211 and accompanying text (discussing the
proposed requirement to include a graphical representation of a
fund's holdings in the shareholder report).
---------------------------------------------------------------------------

    Currently, funds are required to include audited financial
statements in their annual reports and unaudited financial statements
in their semi-annual reports.\398\ Section 30(e) of the Investment
Company Act provides that funds' annual and semi-annual reports include
the fund's financial statements, which in turn must include a statement
of assets and liabilities, a schedule of investments that shows the
amount and value of each security owned by the fund on that date, a
statement of operations, and a statement of changes in net assets.\399\
The annual report must include audited financial statements accompanied
by a certificate of an independent public accountant.\400\ The
financial statements (including the fund's schedule of portfolio
investments) provide data regarding the values of the fund's portfolio
investments as of the end of the reporting period. This provides a
``snapshot'' of data at a particular point in time, or, for example in
the case of the statement of operations, historical data over a
specified time period.\401\
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    \398\ See Item 27(b)(1) and 27(c)(1) of Form N-1A. A fund's
audited financial statements must include, among other items: (1) An
audited balance sheet, or statement of assets and liabilities, as of
the end of the most recent fiscal year; (2) an audited statement of
operations for the most recent fiscal year; (3) an audited statement
of cash flows for the most recent fiscal year if necessary to comply
with generally accepted accounting principles (``GAAP''); (4)
audited changes in net assets for the two most recent fiscal years;
and (5) a schedule of investments in securities of unaffiliated
issuers. See 17 CFR 210.3-18 and 210.6-10 [rules 3-18 and 6-10 of
Regulation S-X].
    \399\ See sections 30(e)(1) through (4) of the Investment
Company Act [15 U.S.C. 80a-29(e)(1) through (4)], and section
30(e)(6) of the Investment Company Act [15 U.S.C. 80a-29(e)(6)].
    \400\ See section 30(g) of the Investment Company Act [15 U.S.C.
80a-29(g)].
    \401\ See Investment Company Reporting Modernization, Investment
Company Act Release No. 31610 (May 20, 2015) [80 FR 33590 (June 12,
2015)] (``Reporting Modernization Proposing Release''), at text
following n.55.
---------------------------------------------------------------------------

    The rules under Regulation S-X establish general requirements for
portfolio holdings disclosures in fund financial statements.
Information regarding a fund's schedule of portfolio investments is
designed to enable shareholders to make more informed asset allocation
decisions by allowing them to better monitor the extent to which their
investment portfolios overlap. In addition, this information may
provide shareholders--particularly those with facility in analyzing
funds' individual portfolio holdings--with information about how a fund
is complying with its stated investment objective and expose any
deviation from the fund's investment objective (i.e., style
drift).\402\ In lieu of providing a complete schedule of portfolio
investments as part of the financial statements included in its
shareholder report, a fund may provide a summary schedule of portfolio
investments (``summary schedule'').\403\ The summary schedule must
list, separately, the 50 largest issues and any other issue exceeding
one percent of the net asset value of the fund at the close of the
period.\404\
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    \402\ See February 2004 Shareholder Report Adopting Release,
supra footnote 83, at text accompanying n.32.
    \403\ See Instruction 1 to Item 27(b)(1) of Form N-1A
(permitting the inclusion of Schedule VI- summary schedule of
investments in securities of unaffiliated issuers under 17 CFR
210.12-12C [Rule 12-12C of Regulation S-X] in lieu of Schedule 1--
Investments of securities of unaffiliated issuers under 17 CFR
210.12-12 (Rule 12-12 of Regulation S-X)).
    \404\ See rule 12-12C, n.3 of Regulation S-X [17 CFR 210.12-
12C].
---------------------------------------------------------------------------

    Much of the length of funds' current annual and semi-annual reports
is due to the inclusion of the complete financial statements.\405\
Commenters on the Fund Investor Experience RFC, as well as information
from prior investor testing and surveys, suggest that some investors
generally believe the financial statements, or information derived from

financial statements, is important.\406\ However, we understand that
many shareholders may find the current shareholder report financial
statement disclosure to be complex and difficult to understand. For
example, the 2012 Report on Investor Testing of Fund Annual Reports
noted that while about a quarter of investors surveyed expressed the
view that financial statement information is important, the majority of
investors did not find the financial statement section of the
shareholder report easy to understand, and investor comprehension of
the section was low.\407\ Similarly, one commenter on the Fund Investor
Experience RFC stated that much of the information included in
financial statements is of a technical nature with little importance to
the average retail investor, and recommended that this information be
included online.\408\
---------------------------------------------------------------------------

    \405\ See supra footnote 19 and accompanying text (discussing
the typical length of funds' annual reports today).
    \406\ See supra footnotes 51 and 52 and accompanying text
(summarizing research findings regarding the level of investor
interest in financial statement information).
    \407\ See 2012 Report on Investor Testing of Fund Annual
Reports, supra footnote 26, at 15. The results of the 2012 Report on
Investor Testing of Fund Annual Reports found that 24% of
shareholders that were surveyed ranked the financial statements
within the top three items of importance.
    \408\ See ICI Comment Letter I.
---------------------------------------------------------------------------

    We are proposing to require funds to provide the complete financial
statements on Form N-CSR, while retaining the graphical representation
of holdings in the annual and semi-annual reports.\409\ We believe that
this layered approach to disclosure will help shareholders understand
how the fund invests its assets. This approach is also designed to
permit all shareholders, including retail shareholders, to monitor and
assess their ongoing investment in the fund in a concise, easy-to-
understand pictorial format, while preserving access to the more
complete financial statements for shareholders that find this broader
information useful. The graphical representation of holdings in funds'
shareholder reports is also in line with the preferences investors have
expressed for including more tables, charts, and graphs in fund
disclosure to make information more understandable to the average
investor.\410\
---------------------------------------------------------------------------

    \409\ See proposed Item 7 of Form N-CSR (requiring funds to
provide the complete financial statements on Form N-CSR); see also
Item 27A(f) of Form N-1A (requiring shareholder reports to include
the graphical representation of holdings).
    \410\ See Kleimann, supra footnote 324; see also supra footnote
34.
---------------------------------------------------------------------------

    We also are proposing amendments to Form N-1A that would eliminate
a fund's ability to provide a summary schedule in lieu of providing a
complete schedule of portfolio investments as part of the financial
statements. We believe that this is appropriate because the proposed
annual and semi-annual reports would no longer include the complete
financial statements (which includes the schedule of portfolio
investments). Therefore, because a fund's full schedule of investments
would only be included on Form N-CSR and on the fund website, we
believe that allowing funds to use the summary schedule would be
unnecessary and could potentially be confusing to shareholders. This
proposed change would also reduce costs to the extent funds need not
print and mail a complete schedule of portfolio investments as part of
the financial statements unless a shareholder requests this
information.\411\ Furthermore, because the proposed annual and semi-
annual reports are designed to help investors focus on the most salient
features of the fund to better evaluate their investment, we do not
believe it would be useful to shareholders, and may even be confusing,
to allow funds to provide a summary schedule alongside the complete
schedule of portfolio investments online.
---------------------------------------------------------------------------

    \411\ Under the proposal, this information would also appear
online. As part of its proposal and adoption of rule 30e-3, the
Commission similarly proposed to eliminate the ability of a fund
relying on rule 30e-3 to provide a summary schedule in its
shareholder report because the shareholder report would only be
filed online and, therefore, the fund would not bear additional
printing and mailing costs associated with providing the full
schedule of investments. See Reporting Modernization Proposing
Release at Section II.D.
     The Commission ultimately determined to retain the ability for
a fund that relies on rule 30e-3 to provide a summary schedule in
the Rule 30e-3 Adopting Release, and acknowledged that a fund may
choose to use a summary schedule for cost considerations or
otherwise. See Rule 30e-3 Adopting Release, supra footnote 14, at
n.120. We believe the considerations underlying this proposal's
treatment of the summary schedule are different because, unlike
under rule 30e-3, no fund investors would have a shareholder report
that includes the fund's financial statements directly transmitted
to them. Under rule 30e-3, funds would still have to deliver
shareholder reports that include full financial statements to any
shareholder who so requests.
---------------------------------------------------------------------------

    We seek comment on our proposal to require funds to file their
annual and semi-annual financial statements on Form N-CSR and make them
available online rather than in a fund's shareholder reports, and
specifically on the following issues:
    136. Would our proposed layered approach to disclosure of financial
statement information--by providing the graphical representation of
holdings in the annual and semi-annual report and the complete
financial statements on Form N-CSR--help tailor information to
shareholders based on their informational needs? Are there any other
data elements from funds' financial statements that should be included
in funds' annual and semi-annual reports, and if so, what elements and
why would they be useful for retail shareholders?
    137. Is the direct transmission of audited financial statements, or
a portion of them, important to fund investors, and if so, why? If
important, would it be helpful to investors for any information in the
annual report to be replicated verbatim from the audited financial
statements, and for the report to make clear that certain information
was audited? What information and why?
    138. Should we, as proposed, eliminate a fund's ability to provide
a summary schedule in lieu of providing a complete schedule of
portfolio investments as part of the financial statements? Should we
instead either permit funds to continue providing a summary schedule as
part of their financial statements, or require funds to include a
summary schedule in their shareholder reports? Would the latter
alternative provide an appropriate complement to the graphical
representation of holdings, or would including the summary schedule in
funds' shareholder reports be duplicative and/or confusing in light of
the proposed requirement to include the graphical representation of
holdings in funds' annual and semi-annual reports? If we were to
continue to permit funds to provide a summary schedule as part of their
financial statements, should we also require these funds to make their
complete portfolio holdings, as of the close of the fund's most recent
second and fourth fiscal quarters, available on a website (in addition
to the proposed requirement discussed below that funds make their first
and third fiscal quarters' complete portfolio holdings available
online)? \412\ Should we permit a fund to make the summary schedule
available online instead of the complete schedule of portfolio
holdings? Why or why not?
---------------------------------------------------------------------------

    \412\ See infra Section II.D.2.a.
---------------------------------------------------------------------------

    139. Other than complete financial statements, is there any other
financial information that funds should be required to file on N-CSR?
Do investors and other market participants currently use the financial
statement information that appears on EDGAR as part of funds' filed
shareholder reports, and if so, how?
b. Financial Highlights
    We are proposing to require funds to file their financial
highlights

information on Form N-CSR.\413\ This information is identical to the
information currently required in fund shareholder reports. We are
proposing that funds would not include financial highlights information
in their annual or semi-annual reports, with the exception of certain
specific data points as discussed below.
---------------------------------------------------------------------------

    \413\ See proposed Item 7(b) of Form N-CSR.
---------------------------------------------------------------------------

    Currently, funds are required to disclose the condensed financial
information that Item 13(a) of Form N-1A requires (i.e., financial
highlights) in their annual and semi-annual reports.\414\ The financial
highlights include a summary table of financial information covering
the preceding five years (or since the fund's inception, if less than
five years).\415\ Under certain circumstances, a fund may incorporate
by reference its financial highlights from a report to shareholders
into its prospectus.\416\
---------------------------------------------------------------------------

    \414\ See Items 27(b)(2) and 27(c)(2) of Form N-1A. See also
Item 13(a) of Form N-1A.
    \415\ The summary table contains information regarding changes
in a fund's net asset value, total returns, portfolio turnover rate,
and capital distributions, among other things, during the preceding
five years. See Item 13(a) of Form N-1A.
    \416\ See Instruction 4(e) to Item 13 of Form N-1A. A fund
currently may incorporate the financial highlights from a
shareholder report into the prospectus if the fund delivers the
shareholder report simultaneously with the prospectus or if the
shareholder report has been previously delivered to shareholders. A
fund that incorporates the financial highlights by reference must
include a statement in its prospectus explaining that: (1)
Additional information about the fund's investments is available in
the annual and semi-annual reports to shareholders; (2) the fund's
annual report provides a discussion of the market conditions and
investment strategies that significantly affected the fund's
performance during its last fiscal year; and (3) the fund's annual
and semi-annual reports are available, without charge, upon request.
A fund must also explain how shareholders may make inquiries to the
fund, provide a telephone number for shareholders to call to request
the annual or semi-annual report, and state whether the fund makes
available its annual and semi-annual reports, free of charge, on the
fund's website. See Item 1(b)(1) of Form N-1A.
---------------------------------------------------------------------------

    The information contained in a fund's financial highlights is
generally designed to help investors evaluate the fund's historical
performance and fund manager's investment management expertise.\417\
For example, disclosure of changes in a fund's total return over a
five-year period is designed to give a shareholder information
regarding the fund's performance trends over time (i.e., volatile vs.
steady returns).\418\ Similarly, a higher portfolio turnover rate may
indicate higher transaction costs and may result in higher taxes when
fund shares are held in a taxable account.\419\
---------------------------------------------------------------------------

    \417\ See Improving Descriptions of Risk by Mutual Funds and
Other Investment Companies, Investment Company Act Release No. 20974
(Mar. 29, 1995) [60 FR 17172 (Apr. 4, 1995)].
    \418\ See How to Read a Mutual Fund Shareholder Report, supra
footnote 316.
    \419\ Id.
---------------------------------------------------------------------------

    While we would require funds to file the entirety of their
financial highlights on Form N-CSR, we are also proposing to retain
certain elements of the financial highlight information in funds'
annual and semi-annual reports. These retained elements are those that
we understand may be particularly helpful for shareholders to evaluate
a fund's performance. This layered disclosure approach is designed to
retain the financial highlight information that we believe would be
most salient to retail shareholders in funds' shareholder reports,
while preserving the entirety of this information on Form N-CSR for
those shareholders to whom the broader information would be
useful.\420\ While one industry survey found that the average retail
shareholder finds most of the items from the financial highlights
section difficult to understand, this survey also concluded that a
majority of shareholders found the total return and expense ratio
information important for shareholders to monitor and assess their
investments in a fund.\421\ Accordingly, we are proposing that a fund
would have to disclose its expense ratio in the ``Fund Expenses''
section of the proposed annual and semi-annual reports.\422\ Also,
while funds' shareholder reports would no longer include annual total
returns for each of the preceding five years, the MDFP section of the
annual report would continue to include certain information regarding a
fund's annual total returns.\423\ Shareholders also would continue to
be able to assess performance trends over time using the performance
line graph and performance table that would appear in the annual
report.\424\ Finally, we would require annual and semi-annual reports
to include funds' disclosure of their net assets and portfolio turnover
rate (which are also data elements from the fund's financial
highlights) as of the end of the period covered by the report.\425\ We
believe that all of these data elements that would appear in the
proposed annual and semi-annual reports would together serve as a
snapshot--of both period-end data and data over time--that would
provide retail shareholders with the financial highlights data that
they have indicated they find most useful. Investors who want to
continue to have access to all of the information that currently
appears in funds' financial highlights would continue to be able to
access this information on Form N-CSR and online.\426\
---------------------------------------------------------------------------

    \420\ See 2012 Report on Investor Testing of Fund Annual
Reports, supra footnote 26, at 138 (noting that a few of the
investors who were surveyed indicated that they saw value in the
financial highlights information and stated that financial
highlights provided them with a snapshot of the fund and important
fund performance trend data that is easy to digest).
    \421\ See ICI Comment Letter I (noting that shareholders from
all age and income groups supported the inclusion of total return
and expense ratio information in a summary shareholder report and
indicated that it was important to include a graphical
representation of these key measures. The survey also noted that
two-thirds of mutual fund investors who read very little of the
current shareholder report and found it difficult to understand,
still indicated the total return and expense ratio chart was very
important and needed to be kept in the summary shareholder report).
    \422\ See proposed Item 27A(c) of Form N-1A. The expense ratio
would be based on the fund's net expenses under GAAP and would
reflect any interest or dividend expense.
    \423\ See proposed Item 27A(d)(2)(B) of Form N-1A. Our proposal
would require a fund to continue to disclose its average annual
total returns for the 1-, 5-, and 10-year periods as of the end of
the last day of the most recent fiscal year (or for the life of the
fund, if shorter) in its annual report, as funds do today.
    \424\ See supra Sections II.B.2.c.ii, II.B.2.c.iii.
    \425\ See supra Section II.B.2.d.
    \426\ The information that would be available online includes
detailed year-over-year comparisons over the past five years of per-
share information associated with net investment income, net gains
or losses on securities and distributions, as well as expense ratio,
portfolio turnover and return information.
---------------------------------------------------------------------------

    Item 13 of Form N-1A currently requires a fund to include financial
highlights information in its prospectus, and an instruction to this
item permits a fund to incorporate this information from a shareholder
report under rule 30e-1 by reference into its prospectus.\427\ Because,
under the proposal, funds' shareholder reports would no longer include
financial highlights, we are proposing to amend the current instruction
to allow a fund to incorporate by reference into its prospectus its
financial highlights from Form N-CSR.\428\ For existing shareholders
that have received the fund's shareholder report, a fund would be
required to include a legend stating that additional information about
the Fund's annual and semi-annual financial statements is available in
Form N-CSR.\429\ For new investors in the

fund, the fund would be required to provide the fund's most recent
shareholder report along with its prospectus.\430\ This provision
parallels the current provision that allows a fund to incorporate by
reference its financial highlights from the fund's shareholder report.
---------------------------------------------------------------------------

    \427\ A fund may incorporate this information by reference if
the fund delivers the shareholder report with the prospectus or, if
the report has been previously delivered (e.g., to a current
shareholder), the fund includes the statement that Item 1(b)(1) of
Form N-1A requires (i.e., a statement that additional information
about the fund's investments is available in the fund's annual and
semi-annual reports to shareholders). See Instruction (4)(e) to Item
13 of Form N-1A.
    \428\ See proposed amendments to Instruction (4)(e) to Item 13
of Form N-1A.
    \429\ See proposed amendments to Item 1(b)(1) of Form N-1A. The
required statement would state (among other things) that: (1)
Additional information about the fund's investments is available in
the fund's annual report to shareholders and in Form N-CSR; (2) the
fund's annual report and Form N-CSR are available, without charge,
upon request. A fund must also explain how shareholders may make
inquiries to the fund, provide a telephone number for shareholders
to call to request the fund's annual report and Form N-CSR, and
state whether the fund makes available Form N-CSR, free of charge,
on the fund's website. See Item 1(b)(1) of Form N-1A.
    \430\ See proposed amendments to Instruction 4(e) to Item 13 of
Form N-1A, current Instruction 4(e) to Item 13 of Form N-1A
(allowing a fund to incorporate by reference its financial
highlights from its shareholder report into the prospectus so long
as the fund delivers the shareholder report with the prospectus
(i.e., for new shareholders)). If the shareholder report has been
previously delivered (e.g., to a current shareholder), the fund must
include a statement clarifying that the financial highlights are
being incorporated by reference pursuant to the requirements of Item
1(b)(1) of Form N-1A).
---------------------------------------------------------------------------

    Finally, as discussed above, we also are proposing amendments to
Item 13(a) of Form N-1A to require an ETF to disclose its total return
based on the ETF's per share market value return as of the end of the
period.\431\ This would align the information provided in the financial
highlights with the expense information included in the annual and
semi-annual reports.
---------------------------------------------------------------------------

    \431\ See supra footnote 159. We are also proposing amendments
to the instructions pertaining to total return calculations that
would specify how an ETF should calculate its total return based on
its per share market value. See proposed Instruction 3(a)(5) of Item
13(a) of Form N-1A.
---------------------------------------------------------------------------

    We seek comment on our proposal to require financial highlights
information to be disclosed on Form N-CSR, and specifically on the
following issues:
    140. Should we, as proposed, layer the information that appears in
funds' financial highlight information to preserve the most retail-
focused disclosure in funds' shareholder reports, while making the full
financial highlights available on Form N-CSR and online? Would this
proposed layered approach help tailor disclosure to shareholders based
on their informational needs? If not, what changes should we make to
the proposed approach?
    141. Should we, as proposed, revise the Form N-1A instruction to
permit funds to incorporate by reference their financial highlights
from Form N-CSR into their prospectuses? Why or why not? If so, should
we require funds to include a statement explaining that the fund's
financial statements are included on Form N-CSR, that Form N-CSR is
available, without charge, upon request, and how a shareholder may make
inquiries to request Form N-CSR, and whether the fund makes available
Form N-CSR on the fund's website?
    142. Should we, as proposed, require ETFs to disclose market value
return in their financial highlights? Would shareholders find this
information useful? Because we are proposing to require this
information to be included in the fund expenses section of the
shareholder report, is it useful for shareholders to have this
information in both the financial highlights and in the shareholder
report?
    143. Rather than allowing funds to incorporate by reference their
financial highlights from Form N-CSR, should we instead remove the
current Form N-1A instruction permitting funds to incorporate their
financial highlights by reference into their prospectuses (thereby
requiring funds to include their financial highlights in their
prospectuses instead of incorporating this information by reference)?
If we were to require funds to include their financial highlights in
their prospectuses, should it be necessary for them to also file this
information on Form N-CSR? Would shareholders benefit from having
access to this information on Form N-CSR in addition to the prospectus?
How burdensome would it be for a fund to include financial highlights
into their prospectuses and also file that information on Form N-CSR?
\432\
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    \432\ Under section 10(a)(3) of the Securities Act, funds
typically update their prospectuses within 120 days of the end of
fiscal year-end, and, typically, updated prospectuses are delivered
to existing shareholders soon thereafter. See supra footnotes 11 and
20 (discussing the transmittal requirements for fund prospectuses).
---------------------------------------------------------------------------

    144. Rather than requiring the full financial highlights to be
filed on Form N-CSR, should we require funds to file and post only
certain data points from the financial highlights? If so, which ones?
Do investors and other market participants currently use the financial
highlights information that appears on EDGAR as part of funds' filed
shareholder reports, and if so, how?
c. Changes in and Disagreement With Accountants for Funds
    We are proposing to require a fund to file on Form N-CSR the
disclosures that Item 304 of Regulation S-K currently requires,
concerning changes in and disagreements with accountants.\433\ As
discussed above, funds must currently include this information in their
shareholder reports.\434\ The proposed Form N-CSR filing requirement
would complement the proposed requirement for funds to include a high-
level summary of changes in and disagreements with accountants in their
annual reports.
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    \433\ See proposed Item 8 of Form N-CSR.
    \434\ See supra footnote 293 and accompanying text.
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    While the disclosure that we are proposing funds to include in
their shareholder reports would be designed to put shareholders on
notice of the dismissal or resignation of an accountant and the
existence of a material disagreement with that accountant, the
information that funds would report on Form N-CSR would provide
additional, more nuanced and technical disclosure that may be
informative to some shareholders and other market participants. For
example, this disclosure could be meaningful as it indicates that the
fund has especially challenging, subjective, and/or complex accounting
policies and financial statement disclosures or the accountant could
not resolve audit findings. Moreover, we believe that it is appropriate
to retain this disclosure in a location that includes audited financial
information (as proposed, Form N-CSR) to provide those investors,
financial professionals, and other market participants who review and
analyze this disclosure with appropriate contextual information.
    We seek comment on our proposal to require a fund to disclose on
Form N-CSR the information required by Item 304 of Regulation S-K. We
specifically request comment on the following issues:
    145. Should we, as proposed, require a fund to file the information
required by Item 304 of Regulation S-K on Form N-CSR? Why or why not?
    146. Would requiring the Item 304 information to be filed on Form
N-CSR be useful to investors, financial professionals, or other market
participants? If so, what types of audiences would find this
information to be particularly useful, and why? If not, why not?
    147. Is the proposed Form N-CSR disclosure requirement appropriate
and necessary in light of the proposed summary information about
changes in and disagreements with accountants that we propose funds to
include in their shareholder reports? If not, why not?
    148. Rather than the proposed approach, should we instead amend
and/or streamline the requirement to disclose Item 304 information and
retain the amended disclosure in the fund's annual report? Why or why
not? Do investors and other market participants currently use the Item
304 information that appears on EDGAR as part of funds'

filed shareholder reports, and if so, how?
d. Matters Submitted for a Shareholder Vote
    We are proposing to require funds to include information about
matters submitted for a shareholder vote on Form N-CSR, rather than in
their shareholder reports.\435\ This information is identical to the
information currently required in fund shareholder reports. Currently,
when a matter is submitted to a vote of shareholders, funds must
disclose information regarding the substance of these matters, along
with the results of such votes, in several ways. First, shareholders
receive proxy statements that include detailed descriptions of issues
brought before shareholders for their vote.\436\ If a matter is
submitted to a vote of fund shareholders during the period covered by
an annual or semi-annual report, the fund must include certain
information regarding the vote results in that report.\437\
Furthermore, funds are required to disclose on Form N-CEN whether the
fund submitted any matters for a shareholder vote during the reporting
period.\438\ Shareholder voting plays a valuable role in fund
regulation, and providing information regarding shareholder votes keeps
shareholders informed and may operate as a deterrent to self-dealing by
the fund's adviser.\439\
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    \435\ See proposed Item 9 of Form N-CSR (requiring a fund to
file on Form N-CSR the information that the fund currently provides
in its shareholder reports pursuant to rule 30e-1(b)). See also
infra footnote 437 (detailing the disclosure requirements with
respect to matters submitted for a shareholder vote). The
information regarding matters submitted for a shareholder vote that
would be disclosed on Form N-CSR is identical to the information
currently included in fund shareholder reports.
    \436\ See e.g. Schedule 14A [17 CFR 240.14a-101] under the
Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] (providing
the content requirements for investment company proxy statements).
    \437\ See rule 30e-1(b). This disclosure must include: (1) The
date of the meeting and whether it was an annual or special meeting;
(2) if the meeting involved the election of directors, the name of
each director elected at the meeting and the name of each other
director whose term of office as a director continued after the
meeting; and (3) a brief description of each matter voted upon at
the meeting and the number of votes cast for, against or withheld,
as well as the number of abstentions and broker non-votes as to each
such matter, including a separate tabulation with respect to each
matter or nominee for office.
    \438\ See Item B.10 of Form N-CEN.
    \439\ See e.g., Amendments to Proxy Rules for Registered
Investment Companies, Investment Company Act Release No. 19957 (Dec.
16, 1993) [58 FR 67729 (Dec. 22, 1993)] at text following n.6.
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    The proposed amendments to the disclosure requirements for matters
submitted for a shareholder vote are designed to further our proposed
layered approach to shareholder report disclosure. The approach we are
proposing also reflects our understanding that many retail shareholders
tend not to review the information regarding vote results currently
required in the shareholder report.\440\
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    \440\ See 2012 Report on Investor Testing of Fund Annual
Reports, supra footnote 26, at 50 (stating that only 4% of investors
say they review the discussion of the results of shareholder votes
included in their annual and semi-annual reports).
---------------------------------------------------------------------------

    Under our proposal, funds' annual and semi-annual reports would no
longer include information about the results of shareholder votes, but
shareholders would continue to receive information about these matters
through other channels. Shareholders would continue to receive a
detailed description of matters submitted for a shareholder vote in
fund proxy statements. Furthermore, because the proposed annual report
would require funds to describe certain material changes that have
occurred in the fiscal year, shareholders would receive disclosure of
certain material changes that have resulted from shareholder
votes.\441\ If it would be valuable to a shareholder to review
additional information about the outcome of matters submitted for a
shareholder vote, the shareholder would continue to have access to this
more-detailed information, which the fund would file on Form N-CSR. For
example, we anticipate that certain shareholders, particularly
investors who desire more in-depth information, and other market
participants would want to continue to have ready access to information
about shareholder votes, to the extent they express investor
preferences on matters such as changes in the fund's fundamental
policies, investment advisory agreements, board of directors, and
organizational documents.
---------------------------------------------------------------------------

    \441\ See supra Section II.B.2.f.
---------------------------------------------------------------------------

    We seek comment on our proposal to require funds to disclose the
matters submitted to a vote of shareholders on Form N-CSR rather than
the fund's shareholder reports, and specifically on the following
issues:
    149. Should we, as proposed, require funds to file the information
regarding matters submitted for a shareholder vote on Form N-CSR? Why
or why not? Alternatively, should we only require funds to disclose the
information regarding matters submitted for a shareholder vote on the
fund's website, and not also require funds to file this information
with the Commission on Form N-CSR? Why or why not? Do investors and
other market participants currently use the information regarding
matters submitted for a shareholder vote that appears on EDGAR as part
of funds' filed shareholder reports, and if so, how?
    150. Would requiring this information to be filed on Form N-CSR be
useful to investors, financial professionals, or other market
participants? If so what types of audiences would find this information
to be particularly useful, and why? If not, why not? If so, should we
include information regarding matters submitted for a shareholder vote,
or any summary of this information, in the proposed annual report? Why
or why not?
    151. Are there certain types of matters submitted for a shareholder
vote that shareholders find more important than others? If so, what are
they? Should we require funds to include in their annual and semi-
annual reports the results of only certain matters submitted to a
shareholder vote that retail shareholders find most pertinent? What
matters would those be?
    152. Rather than the proposed approach to disclosure regarding
matters submitted for a shareholder vote, should we instead amend and/
or simplify the current shareholder report disclosure requirement? If
so, should we retain the amended disclosure in funds' annual and semi-
annual reports? Why or why not?
e. Remuneration Paid to Directors, Officers, and Others
    We are proposing to require funds to file the aggregate
remuneration the fund paid to its directors, officers, and certain
affiliated persons on Form N-CSR.\442\ This information is identical to
the information currently required in fund shareholder reports. Funds
currently provide this information in their annual reports under
section 30(e) of the Investment Company Act.\443\
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    \442\ See proposed Item 10 of Form N-CSR.
    \443\ See section 30(e)(5) of the Investment Company Act [15
U.S.C. 80a-30(e)(5)] (permitting the Commission to require that
funds transmit to shareholders, at least semi-annually, reports
containing, among other things, a statement of aggregate
remuneration paid by the fund during the period covered by the
report to officers, directors, and certain affiliated persons); see
also Items 27(b)(3) and 27(c)(3) of Form N-1A. Funds are required to
disclose aggregate remuneration paid to: (1) All directors and all
members of any advisory board for regular compensation; (2) each
director and each member of an advisory board for special
compensation; (3) all officers; and (4) each person of whom any
officer or director of the fund is an affiliated person.
---------------------------------------------------------------------------

    As the Commission has noted, because of the substantial influence a
fund's investment adviser has in determining its own remuneration, as
well as the remuneration paid to directors and officers of the fund,

availability of information about remuneration paid to the fund's
directors and officers may help shareholders to analyze the use of
corporate funds and assets, and to assess the value the fund's
directors and officers bring to the fund.\444\ In addition to the
aggregate remuneration disclosure in a fund's shareholder report, a
fund is currently required to provide detailed disclosures regarding
compensation paid to each of the directors, members of any advisory
board, and certain officers and affiliates in the fund's SAI.\445\
---------------------------------------------------------------------------

    \444\ See Disclosure of Management Remuneration, Investment
Company Act Release No. 9900 (Aug. 18, 1977) [42 FR 43058 (Aug. 26,
1977)] at text accompanying nn.15 and 16 (noting that full public
disclosure of remuneration paid to officers, directors and other
persons is necessary for shareholders to make ``informed voting and
investment decisions, regardless of whether the [fund's] board of
directors or its security holders have approved the remuneration
package received by management because of the substantial influence
of management in determining its remuneration'').
    \445\ See Item 17(c) of Form N-1A (requiring a fund to disclose
certain compensation information for each of the fund's directors
and for each member of any advisory board who receives compensation
from the fund, and for each of the three highest paid officers or
any affiliated person of the fund who received aggregate
compensation from the fund for the most recently completed fiscal
year exceeding $60,000).
---------------------------------------------------------------------------

    Based on the comments the Commission received on the Fund Investor
Experience RFC, as well as information from prior investor testing and
surveys, we understand that retail shareholders generally do not find
remuneration information useful in the shareholder report and seldom
review this section of the current shareholder report.\446\ One
commenter also stated that information regarding the remuneration of
directors is technical, and recommended that this information instead
be included online.\447\ Because we believe that this type of
information is not directly pertinent to a retail shareholder's
understanding of the fund's operation and performance, and because
similar information is available in the fund's SAI, we are proposing to
remove the current remuneration disclosure from the shareholder
reports. Investors who desire more in-depth information, financial
professionals, and other market participants who would find
remuneration-related information valuable (for example, in monitoring
fund management) would continue to be able to find it in the fund's SAI
(where compensation information is disclosed for each director), as
well as in Form N-CSR filings (where compensation information is
aggregated, as it is in shareholder reports today).
---------------------------------------------------------------------------

    \446\ See 2012 Report on Investor Testing of Fund Annual
Reports, supra footnote 26, at 50 (stating that only 7% of investors
say they review the discussion regarding fund directors and officers
included in their annual and semi-annual reports); see also
Broadridge Comment Letter I.
    \447\ See ICI Comment Letter I.
---------------------------------------------------------------------------

    We seek comment on our proposal to require funds to disclose
information about remuneration paid to directors, officers and others
on Form N-CSR rather than the fund's annual reports, and specifically
on the following issues:
    153. Should we require funds to include information concerning
remuneration paid to directors, officers and others in the proposed
annual report? If so, why?
    154. Is this remuneration information useful to investors,
financial professionals, or other market participants? If so what types
of audiences would find this information to be particularly useful, and
why? If not, why not?
    155. Rather than removing this disclosure entirely from the annual
report, should we require funds to provide certain data points
regarding remuneration paid to directors, officers and others in their
annual reports? For example, should we require disclosure of
remuneration paid to directors in the fund's shareholder report if it
exceeds a certain threshold? Or, should we require a fund to disclose
in its annual report any changes to director or officer remuneration
during the reporting period?
    156. Because more detailed information regarding compensation paid
to directors and officers already must appear in a fund's SAI, would
the proposed aggregated remuneration information filed on Form N-CSR
meaningfully and usefully supplement this current SAI disclosure? If
so, how? Or would the proposed aggregated remuneration information be
duplicative of existing SAI disclosures? Do investors and other market
participants currently use the information regarding compensation paid
to directors and officers that appears on EDGAR as part of funds' filed
shareholder reports, and if so, how?
f. Statement Regarding Basis for Approval of Investment Advisory
Contract
    Currently, funds are required to provide a statement, in the annual
and semi-annual reports, regarding the basis for the board's approval
of the fund's investment advisory contract.\448\ We are proposing to
require funds to provide this information on Form N-CSR, rather than in
the fund's shareholder reports.\449\ This information is identical to
the information currently required in fund shareholder reports.
---------------------------------------------------------------------------

    \448\ See Item 27(d)(6) of Form N-1A.
    \449\ See proposed Item 11 of Form N-CSR. We are also proposing
to eliminate Item 10(a)(1)(iii) of Form N-1A which requires funds to
include, in the SAI, a statement noting that a discussion regarding
the basis for the board's approval of any investment advisory
contract is available in the fund's annual or semi-annual report, as
applicable, and providing the period covered by the relevant report.
---------------------------------------------------------------------------

    Under current shareholder report disclosure requirements, if the
board of directors approved any investment advisory contract during the
fund's most recent fiscal half-year, the fund is required to discuss in
reasonable detail the material factors and the conclusions with respect
thereto that formed the basis for the board's approval. When the
Commission adopted these requirements in 2004, it stated that the
purpose of this requirement was to ``encourage funds to provide a
meaningful explanation of the board's basis for approving an investment
advisory contract,'' which, in turn, the Commission hoped would
encourage boards to ``consider investment advisory contracts more
carefully and investors to consider more carefully the costs and value
of the services rendered by the fund's investment adviser.'' \450\
---------------------------------------------------------------------------

    \450\ See Disclosure Regarding Approval Of Investment Advisory
Contracts By Directors Of Investment Companies, Investment Company
Act Release No. 26486 (June 23, 2004) [69 FR 39798 (June 30, 2004)]
(``Disclosure Regarding Approval of Advisory Contracts Release''),
at text following n.23.
---------------------------------------------------------------------------

    We continue to believe that requiring funds to provide shareholders
with information regarding the board's review of investment advisory
contracts preserves transparency with respect to those contracts, and
fees paid for advisory services, assists investors in making informed
investment decisions, and encourages fund boards to engage in vigorous
and independent oversight of advisory contracts.\451\ However, we
preliminarily believe that this disclosure is not well suited to the
fund's shareholder report because it pertains less directly to a retail
shareholder's understanding of the operations and performance of the
fund and does not lend itself to the type of focused disclosure that
the proposed annual report is designed to include. Because of the
nature and quantity of information in this disclosure, we therefore
believe that it may be better suited to appear in a different location
that would continue to permit access to fund shareholders and other
market participants who find this information to be particularly useful
and

meaningful.\452\ We believe that providing this information on Form N-
CSR would continue to allow these persons effectively to consider the
costs and value of the services that the fund's investment adviser
renders.\453\
---------------------------------------------------------------------------

    \451\ See id. at n.18.
    \452\ See 2012 Report on Investor Testing of Fund Annual
Reports, supra footnote 26, at 49 (noting that only 5% of investors
surveyed ranked the discussion of board approvals of advisory
contracts within the top three most important areas of information
provided in shareholder reports).
    \453\ Fund shareholders also would receive disclosure about the
factors that form the basis for the board's approval of the advisory
contract if a fund's advisory contract were to require a shareholder
vote. In this case, the fund would be required to include in its
proxy statement a discussion of the material factors the board
considered as part of its decision to approve the fund's investment
advisory contract. See Item 22(c)(11) of Schedule 14A.
---------------------------------------------------------------------------

    We seek comment on our proposal to require funds to disclose the
basis for the board's approval of the fund's investment advisory
contract on Form N-CSR rather than in the fund's shareholder reports,
including the following specific issues:
    157. Should we, as proposed, remove the information regarding the
basis for the board's approval of a fund's advisory contract from
shareholder reports? Should we instead amend and/or simplify this
disclosure requirement and/or retain the amended disclosure in funds'
annual and semi-annual reports? Would this amended disclosure be useful
for retail shareholders to use to monitor and assess their ongoing
investment in a fund?
    158. Should we, as proposed, require funds to file the information
regarding the board's approval of a fund's advisory contract on Form N-
CSR? Why or why not? Do investors and other market participants
currently use the information regarding the board's approval of a
fund's advisory contract that appears on EDGAR as part of funds' filed
shareholder reports, and if so, how?
2. Proposed Website Availability Requirements
a. Website Content Requirements
    We are proposing to require a fund to post online all of the
information that the proposal would newly require on Form N-CSR.\454\
The fund would have to make this information available from 70 days
after the end of the relevant fiscal period until 70 days following the
next respective fiscal period.\455\ Currently, funds are required to
file reports on Form N-CSR not later than 70 days after the close of
the fund's fiscal half-year.\456\ Therefore, our proposal would align
the timing of the availability of the information provided online with
when reports on Form N-CSR are filed.
---------------------------------------------------------------------------

    \454\ See infra sentence accompanying footnote 470 (under our
proposal, funds would have the option to satisfy this website
availability by posting online its most recent report on Form N-
CSR).
    \455\ See proposed rule 30e-1(b)(2)(i) (requiring a fund to
disclose Items 7 through 11 of Form N-CSR on a website no later than
70 days after the end of the fiscal half-year or fiscal year of the
fund until 70 days after the end of the next fiscal half-year or
fiscal year of the fund, respectively).
    \456\ While rule 30e-1(c) requires a shareholder report to be
transmitted to shareholders within 60 days after the close of the
relevant period, we believe it is appropriate to align the
availability of information online with the filing of Form N-CSR,
because the online information would be filed on Form N-CSR.
---------------------------------------------------------------------------

    In addition, we are also proposing to require a fund (other than a
money market fund) to make its complete portfolio holdings, as of the
close of the fund's most recent first and third fiscal quarters,
available on a website.\457\ A fund would have to make this information
available within 70 days after the close of each such quarter.\458\ A
fund's portfolio holdings information for its first and third fiscal
quarters would have to remain publicly accessible online for a full
fiscal year.\459\
---------------------------------------------------------------------------

    \457\ See proposed rule 30e-1(b)(2)(ii).
    \458\ Under this proposed requirement, the portfolio holdings
for each of the first and third fiscal quarters would be required to
appear on a website no later than 70 days after the close of each of
the first and third fiscal quarters, respectively. For example, a
fund with a December 31 fiscal year end would be required to make
its complete portfolio holdings for the first quarter ending March
31 of the next year available within 70 days after the end of the
first quarter.
    \459\ Proposed rule 30e-1(b)(2)(ii).
---------------------------------------------------------------------------

    This portfolio holdings information would complement the second and
fourth fiscal quarter portfolio holdings information that we also are
proposing to require funds to make available on a website (as part of
the proposed requirement to make their financial statements available
online).\460\ The proposed requirement to post first and third quarter
portfolio holdings online is therefore designed to provide investors
and other market participants with easy access to a full year of
complete portfolio holdings information in one location. Funds are
currently required to disclose their holdings as of the end of each
fiscal quarter in reports on Form N-PORT filed with the Commission
(which are available on EDGAR). However, all open-end funds are not
currently required to send holdings information as of the end of the
first- and third-quarters to shareholders or to make that information
accessible on a website other than EDGAR.\461\ The proposed requirement
would provide centralized access to this information, rather than
requiring investors to access the fund's reports on Form N-PORT for
each of those periods separately.\462\ Also, we anticipate that the
portfolio holdings information that funds would make available online
would be available in a more user-friendly presentation than the
information that funds report on N-PORT in structured data format.
---------------------------------------------------------------------------

    \460\ See supra Section II.D.1.a.
     To conform the format and content of the portfolio holdings
schedules for the first and third quarters to those schedules
presented in the fund's financial statements for the second and
fourth quarters, the proposed rule would require the schedules for
the first and third quarters to be presented in accordance with
Sec. Sec.  210.12-12 through 210.12-14 of Regulation S-X, which need
not be audited. See proposed rule 30e-1(b)(2)(ii).
    \461\ But see rule 30e-3(b)(1)(iv) (requiring funds that rely on
rule 30e-3 to make holdings information as of the end of the first
and third quarters available on the fund's website). Our proposal
would ensure that all investors have convenient access to the most
recent four quarters of portfolio holdings in a central location.
    \462\ See Part F of Form N-PORT (requiring N-PORT filers to
provide, as exhibits to Form N-PORT, the fund's complete portfolio
holdings for the end of the first and third quarters of the fund's
fiscal year, as of the close of the period, no later than 60 days
after the end of the reporting period).
---------------------------------------------------------------------------

    We seek comment on the proposed requirements for website content
that funds would have to make available under the proposals, including
the following specific issues:
    159. Should we, as proposed, require a fund to post online all of
the information that would newly be filed on Form N-CSR?
    160. How often should funds be required to update the information
that appears online? For example, should we require a fund to update
its online financial statement information more or less frequently than
semi-annually or its online portfolio holdings information more or less
frequently than quarterly? Should we instead, for example, require
funds to update all information that appears online monthly or as soon
as it becomes available? Why or why not?
    161. What is the appropriate time period for a fund to have to make
the newly required Form N-CSR information available online? Should we,
as proposed, allow funds to delay the availability of materials online
by 70 days after the end of the relevant fiscal period? Because funds
send their annual and semi-annual reports 60 days after the end of the
fiscal period, should we similarly adopt a 60-day delay for the online
accessibility of information that funds would file on Form N-CSR?
    162. How long should each of the newly required Form N-CSR
materials have to remain accessible online? Should we, as proposed,
require funds to maintain the required information on their websites
for a full fiscal year? Is it useful for investors to have this

information available for a full fiscal year? Should we require the
information to be available for a period longer or shorter than a full
fiscal year (such as two years, or six months)?
    163. Should we require only certain Form N-CSR items to be
available for a full fiscal year? If so, which items should we require
funds to make available for a full year and why? For example, how long
should funds be required to maintain the portfolio holdings information
that appears online? Should we, as proposed, require a fund to maintain
its holdings information as of the close of each fiscal quarter for a
full fiscal year? Would shareholders find this useful? As another
example, should we require funds to maintain only their financial
statements and portfolio holdings information for a full fiscal year,
while permitting funds to remove the remainder of Form N-CSR
information from their websites on a semi-annual basis?
    164. Should we, as proposed, require the portfolio holdings
information for the first and third quarters to be presented in
accordance with the schedules set forth in Sec. Sec.  210.12-12 through
210.12-14 of Regulation S-X?
    165. Should we require any additional disclosure on fund websites
to clarify to investors that portfolio holdings information for the
fund's second and fourth quarters is available online as part of the
fund's financial statements?
    166. Should we adopt a specific format for how a fund should
present its first and third fiscal quarter information online? If so,
what should it be? For example, should we require this information be
posted in XML format or a PDF form?
    167. Rather than requiring funds to maintain all four most recent
fiscal quarters of portfolio holdings information on fund websites,
should we instead require funds to only provide portfolio holdings
information for their most recent fiscal quarter (or some other period,
such as the fund's most recent two fiscal quarters)? Alternatively,
should we require funds to maintain additional portfolio holdings
information on their websites, such as the past two or five years of
information?
    168. As funds would be required to file their portfolio holdings
information as of the close of their second and fourth fiscal quarters
on Form N-CSR as part of their financial statements, should we also
require funds to file the portfolio holdings information as of the
close of their first and third fiscal quarters on Form N-CSR? Would it
be useful for investors or any other market participants--for example,
data aggregators--to have historical holdings data for all of a fund's
fiscal quarters filed on a single Commission form (as opposed to having
to aggregate this information either from information filed on Form N-
CSR and the portfolio holdings filed as exhibits to Form N-PORT, or
from information that funds would otherwise be required to make
available online on websites other than EDGAR)? Is it easier for data
aggregators to collect information from a single Commission form? Does
easier access to information by data aggregators increase the flow of
information to investors?
    169. Instead of requiring complete portfolio holdings information,
should we require funds only to disclose a subset of holdings, such as
the top ten largest holdings, for each quarter on their websites and/or
in the proposed annual report?
b. Accessibility and Presentation Requirements
    Under our proposal, funds also would have to comply with certain
conditions designed to ensure the accessibility of information that is
required to appear online.\463\ First, the website address where the
required information appears must be specified on the cover page or
beginning of the shareholder report and could not be the address of the
Commission's electronic filing system.\464\ Second, the materials
required to appear online would have to be presented in a format
convenient for both reading online and printing on paper, and persons
accessing the materials would have to be able to retain permanently
(free of charge) an electronic copy of the materials in this
format.\465\ These conditions are designed to ensure that information
appearing online pursuant to the proposed rule is user-friendly and
allows shareholders the same ease of reference and retention abilities
they would have with paper copies of the information.
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    \463\ Proposed rule 30e-1(b)(2). These requirements are similar
to the accessibility requirements of rule 30e-3 and rule 498 under
the Securities Act (permitting funds to use a summary prospectus to
satisfy prospectus delivery obligations) and rule 14a-16 under the
Securities Exchange Act (requiring issuers and other soliciting
persons to furnish proxy materials by posting these materials on a
public website and notifying shareholders of the availability of
these materials and how to access them).
    \464\ Proposed rule 30e-1(b)(2)(i) through (iii). The
Commission's electronic filing system for fund documents is EDGAR.
Rule 498 under the Securities Act includes a similar requirement.
See 17 CFR 230.498(b)(1)(v)(A).
    \465\ Proposed rules 30e-1(b)(2)(iv) and (v); see also infra
footnote 529 (discussing similar provisions in proposed rule
498B(e)(2)(ii) and parallel provisions in current rule
498(f)(3)(ii)).
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    The rule as proposed also would include a safe harbor provision
providing that a fund shall have satisfied its obligations to transmit
shareholder reports even if it did not meet the posting requirements of
the rule for a temporary period of time.\466\ In order to rely on this
safe harbor, a fund would have to have reasonable procedures in place
to help ensure that the required materials appear on its website in the
manner required by the rule and take prompt action to correct
noncompliance with these website availability requirements.\467\ The
proposed rule would require prompt action as soon as practicable
following the earlier of the time at which the fund knows, or
reasonably should have known, that the required documents are not
available in the manner prescribed by the proposed rule.
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    \466\ See proposed rule 30e-1(b)(2)(vi). The rule provides that
the requirements in paragraphs (b)(2)(i) through (v) of the rule
(i.e., the posting requirements) shall be deemed to be met,
notwithstanding the fact that the materials required by paragraphs
(b)(2)(i) and (ii) of the rule are not available for a period of
time in the manner required by the posting requirements, so long as
certain conditions are met. See id.
    \467\ See proposed rule 30e-1(b)(2)(vi)(A) and (B).
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    We are proposing this safe harbor because we recognize that there
may be times when, due to events beyond a fund's control, such as
system outages or other technological issues or natural disasters, a
fund may temporarily not be in compliance with the web posting
requirements of the proposed rule.\468\ Providing for this safe harbor
by rule may obviate the need to provide exemptive relief from the
proposed rule's conditions under these very limited and extenuating
circumstances, as we have done from time to time.\469\
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    \468\ Compare rule 30e-3 (providing a similar safe harbor
provision for funds that rely on rule 30e-3 for the same reasons)
and rule 498(e)(4) of the Securities Act (providing a similar safe
harbor under the summary prospectus rule for the same reasons) with
proposed rule 30e-1(b)(2)(vi).
    \469\ See, e.g., Exchange Act Release No. 81760 (Sept. 28, 2017)
[82 FR 46335 (Oct. 4, 2017)] (exemptive relief for individuals and
entities affected by Hurricanes Harvey, Irma, or Maria); Securities
Act Release No. 10416 (Sept. 27, 2017) [82 FR 45722 (Oct. 2, 2017)]
(Regulation Crowdfunding and Regulation A relief and assistance for
individuals and entities affected by Hurricanes Harvey, Irma, or
Maria); see also Rule 30e-3 Adopting Release, supra footnote 14, at
n.135.
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    Finally, we are proposing to provide funds with some flexibility on
how online information is presented. Under our proposal, funds would
have the option to satisfy the website availability requirement for the
information that the fund would newly have to file on Form N-CSR by
posting its most recent report

on Form N-CSR, free of charge, on the website specified on the cover
page or beginning of the shareholder report.\470\ The proposed rule
also provides funds flexibility to post the online information
separately for each series of the fund or grouped by types of materials
and/or by series.\471\ If a fund were to group the information on its
website by type of materials and/or by series, the grouped information
would have to meet certain presentation requirements, including that
the grouped information: (1) Is presented in a format designed to
communicate the information effectively, (2) clearly distinguishes the
different types of materials and/or each series (as applicable), and
(3) provides a means of easily locating the relevant information
(including, for example, a table of contents that includes hyperlinks
to the specified materials and series).\472\ This proposed provision is
designed to allow funds to tailor the presentation of information on
their websites to the unique aspects of their funds, while presenting
the information in a manner that facilitates shareholder access. For
example, for a fund complex that includes several funds, each with
multiple classes, the fund complex's website could include a master
table of contents that contains hyperlinks to the specific materials
for each fund and each class.
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    \470\ See proposed rule 30e-1(b)(2)(i).
    \471\ See proposed rule 30e-1(b)(2)(vii).
    \472\ See id.
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    We seek comments on the proposed website availability requirements,
including:
    170. The rule as proposed would require that the materials required
to be accessible online be publicly accessible, free of charge, at the
website specified at the cover page or beginning of the shareholder
report, and does not expressly require that the website be the fund's
website. Should the rule require that the materials be accessible at
the fund's website? Why or why not?
    171. The rule as proposed would require that the website
information be presented in a format or formats that are convenient for
both reading online and printing on paper. Are these proposed format
requirements appropriate? Should we instead require that the materials
be presented in a format or formats that are human-readable and capable
of being printed on paper in human-readable format? Why or why not?
    172. Are there any additional presentation or formatting
requirements that we should adopt to facilitate investor access to the
information that would appear online? For example, should we require
that each item appear separately on the fund's website under a relevant
header instead of permitting, as proposed, a fund to post its Form N-
CSR to satisfy the requirement to make certain information that the
fund would file on Form N-CSR available online?
    173. The proposed rule would contain a safe harbor for instances in
which the online materials are not available for a temporary period of
time. Is the safe harbor as proposed appropriate, or should we modify
it in any way? For example, should the rule be more prescriptive as to
the period of time in which a fund must take action to resolve any
issues?
    174. Should we, as proposed, provide funds the flexibility to
either post the online information separately for each series of the
fund or to group the information by types of materials? Why or why not?
Should we, as proposed, allow funds to group the material by type or by
series? Are there other type of groupings that we should allow? If we
allow funds to group the information posted online, should we require
the grouped information to meet the presentation requirements discussed
above? Are there any additional presentation requirements that we
should consider?
3. Proposed Delivery Upon Request Requirements
    We are proposing to require funds to send, at no cost to the
requestor and by U.S. first class mail or other reasonably prompt
means, a paper copy of any of the materials discussed above to any
person requesting such a copy within three business days \473\ after
receiving a request for a paper copy.\474\ A fund must also send, at no
cost to the requestor by email or other reasonably prompt means, an
electronic copy of any of the materials discussed above within three
business days after receiving a request for an electronic copy.\475\
These requirements would apply also to any financial intermediary
through which shares of the fund may be purchased or sold. We
understand that some investors continue to prefer to receive
information in paper format, and therefore our proposal is designed to
allow shareholders to have ready access to the fund information that
appears online in print format, if they so prefer, or to receive
electronic copies of this same information.\476\
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    \473\ The three-business-day timeframe also appears in similar
existing conditions with respect to requests for copies of other
similar documents. Based on staff experience in these other
contexts, we believe that three business days generally is an
appropriate time frame to send shareholders paper copies of
information. See, e.g., rule 498(f)(1) (parallel delivery upon
request requirements for funds and intermediaries relying on rule
498); see also Instruction 3 to Item 1 of Form N-1A (requiring the
SAI and shareholder reports to be sent within three business days of
receipt of a request).
    \474\ See proposed rule 30e-1(b)(3)(i); see also supra Section
II.C. This information includes: The fund's most recent financial
statements and financial highlights; changes in and disagreements
with fund accountants; matters submitted for a shareholder vote;
remuneration paid to directors, officers, and others; a statement
regarding the basis for the board's approval of the fund's
investment advisory contract; and portfolio holdings information as
of the close of the most recent first and third fiscal quarters.
    \475\ See proposed rule 30e-1(b)(3)(ii). The proposed
requirement to send an electronic copy of materials may be satisfied
by sending a direct link to the online materials; provided that a
current version of the materials is directly accessible through the
link from the time that the email is sent through the date that is
six months after the date that the email is sent and the email
explains both how long the link will remain useable and that, if the
recipient desires to retain a copy of the materials, he or she
should access and save the materials.
    \476\ See supra footnote 71 (discussing the 2012 Report on
Investing Testing of Fund Annual Reports, which stated that there
was a lack of consensus among shareholders who participated in the
survey regarding their preferences for receiving information about
their fund investments in print or electronically).
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    We seek comment on our proposal to require funds to provide
shareholders, upon request, paper or electronic copies of the
information that the proposed rule would require to appear online,
including the following issues:
    175. Are the proposed delivery upon request provisions appropriate?
Is the delivery time frame that the provisions would require
appropriate? For example, would a fund experience challenges sending a
paper copy of the information to a requesting shareholder within three
business days, and if so what would these challenges be? Would other
time frames for sending a paper copy be more appropriate, and if so,
what should these time frames be?
    176. Do funds require additional clarity regarding what would
qualify as a ``reasonably prompt means'' of delivering an electronic
copy of any of the materials discussed above? If so, what type of
guidance should the Commission provide?
    177. Should we incorporate a provision in rule 30e-1 that would
permit investors the option to notify the fund (or the shareholder's
financial intermediary) that the investor wishes to receive paper
copies of reports on a going forward basis? Why or why not?

H. Disclosure Item Proposed To Be Removed From Shareholder Report and
Not Filed on Form N-CSR

    In general, we are proposing that the disclosure items that funds
currently have to include in their annual and

semi-annual reports would either be retained in those reports (some
items in a simplified form, and some items only in the annual report),
or instead filed on Form N-CSR and made available online. However, with
respect to the management information table that currently appears in
funds' annual reports, we are proposing to remove this disclosure item
from the shareholder report without requiring its disclosure
elsewhere.\477\
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    \477\ We are also proposing to remove the requirement that a
fund provide a statement in the annual report that the SAI includes
additional information about fund directors. This requirement would
be replaced by a more general statement on the cover page of the
proposed shareholder report that describes how a shareholder can
obtain additional information about the fund. See supra footnote 137
(discussing this proposed requirement) and proposed Item 27A(b)(4)
of Form N-1A.
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    Currently, a fund is required to disclose certain information about
each of the fund's directors and officers in the annual report
(``management information table'').\478\ This information is also
included in the fund's SAI.\479\ The Commission adopted these
requirements in order to provide shareholders with basic information
about the identity and experience of the fund's directors and to
highlight for shareholders any potential conflicts of interests that
the fund's directors and officers may have that would be relevant to
shareholders.\480\
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    \478\ See Item 27(b)(5) of Form N-1A. For each director and
officer, a fund must disclose: (1) Name, address, and age; (2)
position(s) held with the fund; (3) term of office and length of
time served with the fund; (4) principal occupation(s) during the
past five years; (5) number of portfolios in the fund complex
overseen by the director; and (6) other directorships held by the
director.