Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26891 

1See, e.g., Enhanced Disclosure and New 

Prospectus Delivery Option for Registered OpenEnd Management Investment Companies, Securities 

Act Release No. 8998 (Jan. 13, 2009) [74 FR 4546, 

4558 (Jan. 26, 2009)], available at https://

www.sec.gov/rules/final/2009/33-8998.pdf 

(‘‘Summary Prospectus Adopting Release’’) 

(adopting an improved disclosure framework for 

mutual funds that was intended to address concerns 

that had been raised regarding the length, 

complexity, and usefulness of mutual fund 

prospectuses and to make use of technological 

advances to enhance the provision of information 

to mutual fund investors). 

The Commission staff has also taken steps to 

improve fund disclosures. See, e.g., Letter from 

Barry D. Miller, Associate Director, Division of 

Investment Management, U.S. Securities and 

Exchange Commission, to Karrie McMillan, General 

Counsel, Investment Company Institute (Jul. 30, 

2010), available at https://www.sec.gov/divisions/ 

investment/guidance/ici073010.pdf. 

2We are seeking your input to help inform our 

consideration of whether to, for instance, propose 

future changes to fund disclosures. 

Issued in Seattle, Washington, on June 4, 

2018. 

Shawn M. Kozica, 

Manager, Operations Support Group, Western 

Service Center. 

[FR Doc. 2018–12413 Filed 6–8–18; 8:45 am] 

BILLING CODE 4910–13–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 210, 229, 230, 232, 240, 

270, and 274 

[Release No. 33–10503; 34–83376; IC– 

33113; File No. S7–12–18] 

RIN 3235–AM28 

Request for Comment on Fund Retail 

Investor Experience and Disclosure 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Request for comment. 

SUMMARY: The Securities and Exchange 

Commission (‘‘Commission’’) is seeking 

public comment from individual 

investors and other interested parties on 

enhancing disclosures by mutual funds, 

exchange-traded funds (‘‘ETFs’’), and 

other types of investment funds to 

improve the investor experience and to 

help investors make more informed 

investment decisions. Specifically, we 

are seeking comment to learn how 

investors, like you, use these disclosures 

and how you believe funds can improve 

disclosures to help you make 

investment decisions. We are 

particularly interested in your input on 

the delivery, design, and content of fund 

disclosures. In addition to or in place of 

responses to questions in this release, 

investors seeking to comment on the 

investor experience and improving fund 

disclosure may want to submit a short 

Feedback Flier on Improving Fund 

Disclosure. 

DATES: Comments should be received on 

or before October 31, 2018. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/other.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number S7– 

12–18 on the subject line. 

Paper Comments 

• Send paper comments to Brent J. 

Fields, Secretary, Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number S7–12–18. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method of submission. 

Commenters are encouraged to identify 

the number of the specific question(s) to 

which they are responding. The 

Commission will post all comments on 

the Commission’s website (https://

www.sec.gov/rules/other.shtml). 

Comments are also available for website 

viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Washington, DC 20549, 

on official business days between the 

hours of 10:00 a.m. and 3:00 p.m. All 

comments received will be posted 

without change. Persons submitting 

comments are cautioned that we do not 

redact or edit personal identifying 

information from comment submissions. 

You should submit only information 

that you wish to make available 

publicly. Investors seeking to comment 

on the investor experience and 

improving fund disclosure may want to 

submit a short Feedback Flier on 

Improving Fund Disclosure, available at 

Appendix B. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this request for comment. A 

notification of the inclusion in the 

comment file of any such materials will 

be made available on the Commission’s 

website. To ensure direct electronic 

receipt of such notifications, sign up 

through the ‘‘Stay Connected’’ option at 

www.sec.gov to receive notifications by 

email. 

FOR FURTHER INFORMATION CONTACT: 

Michael Kosoff, Senior Special Counsel; 

or Angela Mokodean, Senior Counsel, at 

(202) 551–6921, Division of Investment 

Management, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–8626. 

SUPPLEMENTARY INFORMATION: The 

Commission is seeking public comment 

from individual investors and other 

interested parties on enhancing 

investment company disclosures to 

improve the investor experience and to 

help investors make more informed 

investment decisions. 

Table of Contents 

I. Introduction 

II. Fund Disclosure 

A. Fund Disclosure and Other Fund 

Information 

B. Delivery of Fund Information 

1. Timing of Disclosure Delivery 

2. Method of Disclosure Delivery 

a. Investors’ Use of the internet 

b. Form and Manner of Delivery 

c. Promoting Electronic Disclosures 

C. Design 

1. Plain Language 

2. Using Technology To Improve the 

Design of Fund Disclosures 

3. Use of Summaries and the Summary 

Prospectus 

4. Location and Order of Information 

5. Structuring Disclosures 

D. Content 

1. Strategies 

2. Risks 

3. Fees and Expenses 

4. Performance 

5. Management Discussion of Fund 

Performance 

6. Fund Advertising 

7. Other Types of Funds 

E. Opportunities for Ongoing Assessment 

of Disclosure Effectiveness 

III. General Request for Comment 

Appendix A: Hypothetical Mutual Fund 

Summary Prospectus 

Appendix B: Feedback Flier on Improving 

Fund Disclosure 

I. Introduction 

Today the Commission is continuing 

its efforts to enhance the information 

that is available to you, the investor, to 

help you make informed investment 

decisions. We have previously taken 

steps to improve the effectiveness of 

mutual fund, exchange-traded fund, and 

other types of public investment fund 

(‘‘fund’’) disclosures.1 We are now 

requesting comment from you and other 

interested parties on ways to enhance 

fund disclosures, including the delivery, 

design, and content of fund disclosures, 

to improve the investor experience and 

help investors make more informed 

investment decisions.2

Our mission is to protect investors; 

maintain fair, orderly, and efficient 

markets; and facilitate capital formation. 

Disclosure is the backbone of the federal 

securities laws and is a principal tool 

we use to fulfill our mission. Disclosure 


daltland on DSKBBV9HB2PROD with PROPOSALS
26892 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

3 Investment Company Institute, 2018 Investment 

Company Fact Book, at ii (2018), available at 

https://www.ici.org/pdf/2018_factbook.pdf. 

4Funds managed 24 percent of household 

financial assets at year-end 2017. Id. at 36. 

5The Commission’s Office of the Investor 

Advocate (‘‘OIAD’’) currently is engaging in 

investor testing through its Policy Oriented 

Stakeholder and Investor Testing for Innovative and 

Effective Regulation (‘‘POSITIER’’) initiative. 

POSITIER seeks to provide the Commission and its 

staff with data regarding investor preferences, 

comprehension, and attitudes about investing. 

Under this initiative, OIAD has launched a specific 

study program to examine the topic of retail 

disclosure effectiveness. This study program seeks 

to identify and test ways to increase investor 

understanding of key investment features and, in 

turn, help improve investment outcomes for 

individual investors. See SEC’s Office of the 

Investor Advocate to Hold Evidence Summit, 

Launch Investor Research Initiative, Securities and 

Exchange Commission Press Release, Mar. 2, 2017, 

available at https://www.sec.gov/news/pressrelease/ 

2017-59.html. 

6The Commission’s Office of Investor Education 

and Advocacy has published guidance on how you 

can write and submit a comment to us. See Investor 

Bulletin: Suggestions for How Individual Investors 

Can Comment on SEC Rulemaking (Dec. 12, 2017), 

available at https://www.investor.gov/additionalresources/news-alerts/alerts-bulletins/investorbulletin-suggestions-how-individual. 

7The Commission determines that using this 

short-form Feedback Flier document to obtain 

information from investors is in the public interest 

and will protect investors and therefore is not 

subject to the requirements of the Paperwork 

Reduction Act of 1995. See Securities Act of 1933 

(‘‘Securities Act’’) section 19(e) and (f). 

Additionally, for the purpose of developing and 

considering any potential rules relating to this 

Request for Comment, the agency may gather 

information from and communicate with investors 

or other members from the public. Id. section 

19(e)(1) and (f). 

can provide you with the information 

you need to evaluate investment choices 

and make informed investment 

decisions. We recognize that investors 

have different levels of knowledge and 

experience, and we seek to promote 

disclosure that is inviting and usable by 

a broad spectrum of investors. 

Fund disclosures are especially 

important because millions of American 

investors invest in funds to help them 

reach important financial goals, such as 

saving for retirement and their 

children’s educations. As of the end of 

2017, more than 100 million individuals 

representing nearly 60 million 

households owned funds.3 Given these 

numbers,4 it is vital that investors 

obtain the information necessary to help 

them decide how to invest their assets. 

Disclosures can take many forms, and 

funds provide disclosure on paper as 

well as through electronic media. 

Regardless of the medium used, an 

effective disclosure system should help 

investors: 

• Find what they need; 

• Understand what they find; and 

• Use what they find to make 

informed investment decisions. 

A modern fund disclosure system 

should provide investors streamlined 

and user-friendly information that is 

material to an investment decision, 

while providing them the ability to 

access additional, more in-depth 

information on-demand. We developed 

our current disclosure requirements at a 

time when investors received 

information primarily on paper. Some 

have criticized fund prospectuses and 

other required disclosure documents for 

containing long narratives; generic, 

redundant, and even at times irrelevant 

disclosures; legalese; and extensive 

disclosure that may serve more to 

protect funds from liability rather than 

to inform investors. 

As technology evolves, the 

Commission seeks to improve the fund 

disclosure system to reflect the way 

investors currently seek, receive, view, 

and digest information. Advances in 

technology have made available new, 

innovative, and effective ways to 

improve the delivery, design, and 

content of fund disclosures. Electronicbased disclosures allow for more 

interactive, user-friendly design features 

tailored to meet individual investors’ 

needs and improve investor 

engagement. Technology could also 

improve the content of fund disclosures 

by, for example, allowing investors to 

customize certain fund disclosures, 

such as fees and expenses, based on an 

investor’s individual circumstances. 

This request for comment, as well as 

investor testing of disclosure 

alternatives,5 are two key initiatives the 

Commission is using to assess our 

current disclosure framework for funds. 

Through modernization of current 

disclosure requirements, the 

Commission can create a disclosure 

system that is better suited to meet the 

needs of 21st century investors. To that 

end, we are seeking your input on a 

wide range of issues relevant to fund 

disclosures. We have tailored our 

request to get information on your 

experience with the delivery, design, 

and content of fund disclosures. In 

addition to the specific issues 

highlighted for comment, we invite 

investors and other members of the 

public to address any other matters you 

believe are relevant to fund disclosure 

requirements.6

We have generally directed questions 

in this request for comment to you, the 

investor. If you seek to comment on the 

investor experience and improving fund 

disclosure, in addition to or in place of 

responses to questions in this release, 

you may want to submit a short 

Feedback Flier on Improving Fund 

Disclosure, available at Appendix B.7

We recognize that others have an 

interest in effective disclosure and can 

provide valuable perspectives. 

Therefore, we welcome input on these 

issues from all interested parties, 

including academics, literacy and 

design experts, market observers, and 

fund advisers and boards of directors, 

particularly comments pertaining to the 

following: 

• How funds currently provide 

information; 

• How investors currently access and 

use this information; and 

• The potential costs and benefits of 

alternative approaches to our current 

fund disclosure framework. 

II. Fund Disclosure 

A. Fund Disclosure and Other Fund 

Information 

There is a wide variety of fund 

information available to investors, 

including disclosure documents we 

require by regulation and materials that 

funds and others prepare at their 

discretion, such as sales materials. 

Together, these materials may be 

available in many forms, such as print 

or electronically (including through 

social media), and they may be static 

(such as a document) or interactive 

(such as a calculator or fund comparison 

tool). 

Required Fund Disclosures. Required 

fund disclosures include the following: 

• Prospectus. A prospectus provides 

key information about a fund to help 

investors make informed investment 

decisions. This document (or a 

summary version known as a ‘‘summary 

prospectus’’) is typically available at the 

time of purchase. Funds typically 

deliver prospectuses or summary 

prospectuses to investors before or at 

the time of confirmation of a purchase 

of fund shares and each year for as long 

as they continue to own fund shares. 

Appendix A to this release contains a 

hypothetical summary prospectus solely 

for illustrative purposes. A summary 

prospectus generally includes a 

description of: 

Æ The fund’s investment objectives or 

goals; 

Æ The fund’s fees and expenses; 

Æ Its principal strategies for achieving 

those investment objectives or goals; 

Æ The principal risks of investing in 

the fund; 

Æ The fund’s and a broad-based 

index’s past performance; 

Æ The fund’s advisers and portfolio 

managers; 

Æ How to purchase and sell fund 

shares; 

Æ Tax information; and 


daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26893 

8An intermediary is an entity (such as a brokerdealer or bank) that you may use to purchase fund 

shares. 

9A fund’s full prospectus includes additional 

information. 

10EDGAR is the SEC’s Electronic Data Gathering 

Analysis and Retrieval System. EDGAR contains the 

filings of all public companies and certain 

individuals who are required to file documents 

with the Commission. Information about paper 

filings since 1986 and complete electronic filings 

since 1996 onward are available. EDGAR may be 

accessed from the Commission’s public website, 

www.sec.gov. 

11See rule 482 under the Securities Act. Rule 482 

is discussed in detail in the section titled Fund 

Advertising, below. 

12See Central Intelligence Agency, The World 

Factbook, available at https://www.cia.gov/library/ 

publications/resources/the-world-factbook/ 

(estimating that as of 2015, approximately 79 

percent of Americans spoke English in the home). 

Æ The compensation paid to 

intermediaries,8 such as your financial 

professional and/or his or her firm.9

• Statement of additional information 

(‘‘SAI’’). The SAI provides additional 

information that some investors may 

find useful, but that we do not consider 

essential information for all investors. 

The SAI largely expands on information 

that is contained in the prospectus. It is 

available online or upon request. 

• Shareholder reports. Shareholder 

reports include both annual and 

semiannual reports, which describe how 

the fund has operated and include the 

fund’s holdings and financial 

statements. The annual report also 

discusses the market conditions and 

investment strategies that significantly 

affected the fund’s performance during 

its last fiscal year. 

• Proxy statements. A proxy 

statement informs investors about when 

and where a shareholder meeting is 

taking place, describes the matters 

shareholders will vote on, and explains 

how to vote shares. Funds send this 

document (or a brief notice describing 

basic details about the meeting and how 

to access the full proxy materials) to 

investors in advance of the shareholder 

meeting. 

• Other information. Funds are 

required to make additional information 

available on EDGAR 10 that is not 

required to be delivered to investors. 

This information includes a fund’s 

holdings for its first and third quarterends and its proxy voting record. 

Other Fund Information 

• A fund may prepare advertising 

materials to inform potential or current 

investors about the fund. Fund 

advertisements may take many forms 

and can include materials in 

newspapers, magazines, radio, 

television, mailings, fact sheets, fund 

commentaries, newsletters, and on 

various web-based platforms (including 

mobile devices, such as smartphones). 

Fund advertisements must comply with 

certain regulatory requirements.11

• Financial professionals, analysts, 

and the media may produce other 

materials that provide information about 

funds, such as research or analyst 

reports, tools or other services for 

researching and comparing funds, fund 

ratings, and news articles. 

• Investor.gov. The SEC’s Office of 

Investor Education and Advocacy 

maintains a website at www.Investor.gov 

that provides a variety of publications to 

help you understand the various 

features and risks of common 

investment products. 

Given the volume and complexity of 

fund information, the delivery, design, 

and content of fund disclosures have 

significant effects on investors’ ability to 

access and use important information. 

One way to assess the effectiveness of 

our disclosure regime is to examine how 

investors use fund disclosures today. 

Request for Comment 

1. How do you select funds for 

investment? What do you look at before 

deciding on an investment? Do you look 

at fund disclosure documents or other 

publications or websites? If so, which 

do you primarily look at? Do you use 

online investment tools or other tools 

before making an investment? 

2. What information do you want to 

know when you make an investment 

and monitor an investment you own? 

What information do you not receive 

that you would like to receive? 

3. Do you rely on any of the 

disclosure documents we describe 

above, such as the fund summary 

prospectus, prospectus, shareholder 

report, or statement of additional 

information to invest or continue to 

hold an investment? If not, why not? If 

you do rely on any of the disclosure 

documents, which parts do you rely on 

and why? 

4. Do you rely on certain disclosure 

when purchasing shares of a fund and 

different disclosures when holding or 

selling shares? If so, why? 

5. How well do current fund 

disclosures assist you in your 

investment decision-making? What 

disclosures could funds improve? How 

does technology help you make 

investment decisions? 

6. When making investment 

decisions, do you rely entirely, partially, 

or not at all on the advice of a financial 

professional? Does the assistance of a 

financial professional affect whether 

and how you use fund disclosures? 

7. Are current fund disclosures 

understandable? Do you have access to 

sufficient information, tools, and 

analysis to help you evaluate potential 

investment choices and your current 

investments? 

8. How do you compare different 

investment choices? Are there types of 

interactive comparison tools that you 

use? Are there other tools that would be 

helpful but do not appear to exist? 

9. If the current tools available for 

comparing investment choices are not 

helpful, have you seen tools or features 

that compare other types of nonfinancial products (such as cars or 

cellphone plans) that are helpful? If so, 

what are they, and why are those tools 

more helpful? 

10. Should we provide prominent 

links on our website to tools you can 

use to compare investment choices or 

products, such as FINRA’s Fund 

Analyzer, which is available at https:// 

tools.finra.org/fund_analyzer/? 

11. Recent data indicates that 

approximately 21 percent of Americans 

do not speak English in their homes.12

Is the current disclosure regime effective 

for Americans whose primary language 

is not English or who have limited 

English proficiency? If not, what 

improvements do you recommend? 

B. Delivery of Fund Information 

When and how investors receive 

information can be as important as the 

content and design of disclosures. 

Today, there is a lot of information 

about funds available online. The 

challenge is whether an investor can 

easily find, access, and compare the 

information at a time when the 

information is useful to the investor. 

Two important considerations to the 

delivery of fund information are the 

following: 

• When investors receive fund 

disclosure relative to their investment 

decisions; and 

• How investors receive fund 

disclosures, including the form of 

disclosure (paper or electronic) and the 

manner of delivery (such as whether an 

investor receives a copy of the 

disclosure or a notice that the disclosure 

is available online or in paper on 

request). 

The Commission is seeking input 

with respect to all aspects of the timing 

and delivery of information to fund 

investors with the goal of improving the 

investor experience and helping 

investors make more informed 

investment decisions. 

1. Timing of Disclosure Delivery 

A well-functioning fund disclosure 

regime should provide material 

information to investors. It should also 


daltland on DSKBBV9HB2PROD with PROPOSALS
26894 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

13We recognized this principle when we adopted 

rule 159 under the Securities Act in 2005. See 

Securities Offering Reform, Securities Act Release 

No. 8591 (Jul. 19, 2005) [70 FR 44722, 44765 (Aug. 

3, 2005)], available at https://www.sec.gov/rules/ 

final/33-8591fr.pdf. 14We have considered other point-of-sale 

disclosure in the past. See Confirmation 

Requirements and Point of Sale Disclosure 

Requirements for Transactions in Certain Mutual 

Funds and Other Securities, and Other 

Confirmation Requirement Amendments, and 

Amendments to the Registration Form for Mutual 

Funds, Investment Company Act Release No. 26341 

(Jan. 29, 2004) [69 FR 6438 (Feb. 10, 2004)]; Point 

of Sale Disclosure Requirements and Confirmation 

Requirements for Transactions in Mutual Funds, 

College Savings Plans, and Certain Other Securities, 

and Amendments to the Registration Form for 

Mutual Funds, Investment Company Act Release 

No. 26778 (Feb. 28, 2005) [70 FR 10521 (Mar. 4, 

2005)]. 

15See Amy Mitchell, Jeffrey Gottfried, Michael 

Barthel and Elisa Shearer, The Modern News 

Consumer: News Attitudes and Practices in the 

Digital Era, Pew Research Center, Jul. 7, 2016, 

available at http://assets.pewresearch.org/wpcontent/uploads/sites/13/2016/07/07104931/PJ_

2016.07.07_Modern-News-Consumer_FINAL.pdf. 

16See ICI Research Perspective: Ownership of 

Mutual Funds, Shareholder Sentiment, and Use of 

the Internet, Investment Company Institute, at 18 

(Oct. 2017), available at https://www.ici.org/pdf/ 

per23-07.pdf. 

provide that information at a time when 

it can be useful to an investor.13

Regulatory documents, such as a 

prospectus, are typically available 

before an investment decision. 

Specifically, any summary prospectus, 

prospectus, or SAI is available upon 

request from the fund and may be 

available on a fund’s website. You also 

can request these documents from your 

financial professional. In addition, 

funds and financial professionals 

typically make other materials available 

that describe the fund, which may also 

help an investor make an investment 

decision. 

The federal securities laws do not 

require delivery of the prospectus at the 

time you make an investment decision 

to purchase fund shares. However, 

investors generally must receive a 

prospectus or summary prospectus 

before or at the time they receive a 

document confirming their purchase of 

fund shares. 

We are seeking input on whether 

investors are able to obtain the 

information they need before investing 

and after investing. 

Request for Comment 

12. What information (such as 

investment objectives, fees and 

expenses, strategies, risks, and 

performance) is important to you before 

you purchase fund shares? What 

information is important to you after 

you have made an investment? If you 

rely on the advice of a financial 

professional, would your conversations 

with him or her be more helpful if you 

received the prospectus before or during 

your discussion? 

13. What information do you receive 

at or before your purchase of fund 

shares? Do you typically receive a 

prospectus (or summary prospectus) at 

the time of or before your purchase of 

fund shares? Is there sufficient 

information about funds available such 

that delivery of a prospectus before you 

purchase fund shares is unnecessary? If 

so, what information do you review? 

14. Fund advertisements must include 

language that tells investors how to 

obtain a fund’s prospectus or summary 

prospectus and that advises investors to 

read the prospectus carefully before 

investing in a fund. Below is an 

example. 

An investor should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. The prospectus 

and summary prospectus contains this and other information about the Fund. You can get a free copy of the prospectus and summary prospectus by calling the Fund at (800) xxx–xxxx, by clicking here, or from your financial professional. You should read the prospectus and 

summary prospectus carefully before investing. 

Does this notice effectively inform you 

about how to obtain a prospectus or 

summary prospectus and of the 

importance of reviewing a prospectus 

before making an investment decision? 

If it is not effective, how could we 

improve it? 

15. Do you ever seek out fund 

information on your own without the 

help of a financial professional? If so, 

were you able to find the information 

easily at the time you were looking for 

it? If not, what were the problems? 

16. Securities regulators in certain 

other jurisdictions require delivery to 

investors of a summary document 

describing the key features of a fund at 

or before the purchase of fund shares. 

This type of document generally is 

known as a ‘‘point-of-sale’’ disclosure. 

Should we consider a similar point-ofsale disclosure requirement? 14

2. Method of Disclosure Delivery 

a. Investors’ Use of the Internet 

Americans’ preference for consuming 

information through electronic media 

has grown substantially as the use of the 

internet has grown.15 By mid-2017, 95 

percent of households owning mutual 

funds had some form of internet access 

(up from 68 percent in 2000).16 While 

much fund information is available in 

an electronic format, many of these 

disclosures are an electronic rendering 

of paper documents (such as a PDF). 

Technology, including email and webbased information, can speed up the 

delivery of information and enhance 

disclosure. 

Because internet access and 

technology enable varied methods for 

providing information and investor 

preferences may be changing in light of 

advancing technology, we are seeking 

information about your current use of 

the internet to communicate about and 

find information on fund investments. 

This information will help us improve 

funds’ ability to get investors the 

information they need. 

Request for Comment 

17. Do you use the internet to access 

your personal financial information 

such as your investment accounts? How 

often do you do so? Do you ever use the 

internet to research funds or to find 

information about your current fund 

investments? If so, do you look for 

information on a fund’s website, on 

your financial professional’s website, or 

elsewhere? For example, do you use 

your brokerage firm’s website for fund 

research? When researching fund 

information online, do you prefer to use 

a computer, tablet, smartphone, or a 

different device? 

18. If you do not use electronic media 

to receive or access information about 

funds, what are your reasons (such as 

lack of access to the internet, privacy 

concerns, preference for reading paper, 

discomfort with technology, or lack of 

time or interest)? 

19. How do you prefer to receive 

communications about fund 

investments (for example, mail delivery, 

email, website availability, mobile 

applications, or a combination)? How do 

you currently receive communications 

about your investments? 

20. Do you maintain an active email 

address on file with a fund in which 

you are invested or with your financial 

professional? Why or why not? Have 

you chosen to have your fund 

documents delivered by email? Why or 

why not? Do you log in to your funds’ 

or financial professionals’ website? If so, 

how often do you log in and what do 

you look at? 


daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26895 

17On June 5, 2018, we adopted amendments that 

will permit funds to deliver to their investors a 

notice alerting them that the fund’s most recent 

annual or semiannual report is available online at 

a specified website instead of delivering them a full 

report in paper. See Optional Internet Availability 

of Investment Company Shareholder Reports, 

Investment Company Act Release No. 33115 (Jun. 

5, 2018). 18See supra note 16 and accompanying text. 

21. Is there particular website content 

that you like to access, such as blogs, 

videos, fund screeners, interactive 

calculators, performance presentations, 

fact sheets, research reports, or social 

media posts? 

b. Form and Manner of Delivery 

Increasingly, investors are relying on 

electronic media to get their news and 

information. We believe this includes 

information about their investments. 

Investors’ increasing use of electronic 

media may change the way they like to 

receive information, including the form 

of disclosure delivery (paper versus 

electronic) and the manner of delivery 

(such as whether they receive full 

disclosure documents or notices that 

disclosure is available online or in 

paper on request). 

Currently investors receive fund 

prospectuses and shareholder reports 

(as well as other documents such as 

account statements and confirmations) 

in paper through the mail unless they 

choose electronic delivery.17 As 

discussed above, a fund typically 

delivers a copy of the paper prospectus 

or summary prospectus to an investor 

before or at the time of confirmation of 

a purchase of fund shares and each year 

after that. A fund also may send 

investors a paper copy of a ‘‘sticker’’— 

that is, a supplement to a previously 

sent prospectus or summary 

prospectus—to reflect certain changes 

that occur during the year. 

Using electronic delivery more 

broadly could benefit funds and their 

investors. For example, funds and their 

shareholders (who ultimately bear the 

costs of sending paper documents) 

could potentially save money if a fund 

has to print and mail fewer paper 

documents. Electronic disclosure also 

could enhance design features that are 

unavailable in paper documents, such 

as improved searchability, easy 

reference to additional detail through 

hyperlinks, and the ability to compare 

multiple funds simultaneously. These 

features could improve the usefulness of 

fund disclosures for investors. 

While there are benefits associated 

with electronic disclosure, there are 

potential concerns as well. Electronic 

delivery may vary in effectiveness 

depending on investor preferences and 

needs. Some investors may not be 

comfortable with using technology to 

access fund disclosures. Further, a small 

subset of investors do not have access to 

the internet, although the percentage of 

investors with internet access continues 

to increase.18 Other investors may 

simply prefer to read information on 

paper and may process that information 

better when read on paper rather than 

electronically. Investors who do not 

want to or who are unable to access 

electronic disclosure may be able to rely 

on a financial professional to provide 

the relevant disclosure in paper. 

However, to the extent these investors 

do not rely on a financial professional 

to assist with their investments, they 

may have difficulty accessing electronic 

fund disclosures. 

Different disclosure documents may 

arrive in different ways. For example, an 

investor may receive a brief notice in 

the mail telling him or her how to get 

proxy materials in paper or online, 

while he or she would receive a full 

copy of a fund’s prospectus or summary 

prospectus. 

In light of the technological advances 

made in recent years and the increased 

reliance by investors on electronic 

media, we are seeking comment on the 

form and manner of disclosure delivery. 

Request for Comment 

22. Do you prefer to access some types 

of information (such as a prospectus (or 

summary prospectus), shareholder 

reports, and proxy statements) 

electronically and to receive other types 

in paper? If so, which types of 

information do you wish to access 

electronically versus receive in paper? 

23. Do you currently receive the right 

amount of fund information in the mail? 

If you receive too much or too little 

information by mail, have you found it 

difficult to tell your broker, investment 

adviser, or fund that you want to receive 

more or less paper? 

24. Should we continue to require 

funds to deliver a paper copy of their 

prospectuses or summary prospectuses 

unless you have chosen to receive these 

documents electronically? Alternatively, 

should we permit funds to email this 

information to you and not send paper 

copies without having to ask you for 

permission first, if the fund has an email 

address on file for you? Are there other 

means such as text messages, 

notification via an app, or social media 

that funds should use to effectively 

communicate information (or the 

availability of information) to investors? 

Under an electronic delivery approach, 

how should investors be able to request 

delivery of paper disclosures? 

25. Do you prefer to receive a 

prospectus or summary prospectus 

directly, or would you prefer to receive 

a brief notice (such as a postcard or an 

email containing a link to the 

document) informing you that new or 

amended fund disclosure is available? 

Are you more likely to read, retain, or 

act on a fund disclosure document if 

you receive it directly by mail or 

electronic communication (such as 

email) rather than simply being notified 

that it is available? If you prefer to 

receive a brief notice, how frequently 

should you receive this notice, and how 

should funds provide the notice (for 

example, paper, email, text, or 

robocall)? Alternatively, would you 

prefer not to receive communication 

from a fund and to find information 

independently about the fund online at 

a time of your choosing? If yes, should 

we permit this approach for all 

information, or should there be an 

exception for certain types of fund 

information, such as tax information 

and proxy materials? Are you more 

likely to read, retain, or act on a fund 

disclosure document if you receive it 

directly by mail or electronic 

communication (such as email)? 

26. Do you have different 

informational needs or interests for new 

fund investments as opposed to your 

existing fund investments? For example, 

would you like a fund to send you a 

copy of its prospectus or summary 

prospectus when you first buy a fund’s 

shares but prefer that the fund not send 

you a copy of the prospectus in 

subsequent years, except upon request? 

For your existing fund investments, 

would you like to receive a copy of the 

prospectus or other notice only if the 

fund has a material change (like a 

material change in its principal 

investment strategy or a material 

increase in fees)? If so, should the fund 

explain or highlight the material 

change(s) for you in some manner? 

c. Promoting Electronic Disclosures 

As discussed above and in section 

II.C.2, electronic delivery of fund 

disclosures could have significant 

benefits for funds and investors, such as 

cost savings and enhanced features 

improving the usefulness of disclosures. 

We are seeking comment on what, if 

anything, the Commission should do to 

encourage funds to deliver documents 

electronically in an investor friendly 

manner, and to encourage investors to 

take advantage of the benefits that 

electronic delivery can provide, while 

minimizing the drawbacks. 


daltland on DSKBBV9HB2PROD with PROPOSALS
26896 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

19See rule 421 under the Securities Act. 

20Other financial regulators have required that 

disclosures describing financial products meet 

minimum readability standards. See, e.g., NAIC 

Suitability in Annuity Transactions Model 

Regulation (Model 275–1) (2003) (requiring that 

certain insurance policies have a minimum score of 

40 on the Flesch Reading Ease Test or equivalent 

comparable test). 

21Commission forms and rules sometimes 

include sample language that a fund must include, 

with modifications as warranted, to introduce a 

subject and explain the relevance of related 

disclosure. As an example, Item 3 of Form N–1A 

provides sample language for a mutual fund to 

explain the relevance of its fee and expense table, 

the example regarding the cost of investing in the 

fund, and the fund’s portfolio turnover. 

22Funds sometimes include Q&As in proxy 

materials to help investors understand the matters 

on which they are voting, and other jurisdictions 

have required Q&A-based fund disclosure. See also 

Canadian Securities Administrators National 

Instrument 81–101F3, Contents of Fund Facts 

Document, available at http://ccmr-ocrmc.ca/wpcontent/uploads/81-101_ni_f3_en.pdf. 

23See, e.g., Mutual Funds and ETFs: A Guide for 

Investors, U.S. Securities and Exchange 

Commission, Office of Investor Education and 

Advocacy, available at https://www.investor.gov/ 

sites/default/files/mutual-funds.pdf. 

Request for Comment 

27. How should funds more 

effectively use technology and 

communication methods to help 

investors focus on important fund 

information? 

28. Should we accommodate changes 

in the ways investors review electronic 

documents, such as the increasing use 

of mobile devices? If so, how? How 

likely are you to read fund disclosures 

on your mobile device? 

29. What features in electronic 

disclosures (such as hyperlinks, 

searchability, and the ability to save on 

your computer) do you find most 

useful? How can more funds be 

encouraged to make these features 

available? Are there any features that 

funds should be required to make 

available? 

30. Are there steps funds could take 

to help overcome barriers to electronic 

delivery in light of various concerns, 

such as privacy or discomfort with 

technology? Are there ways that funds 

can make electronic disclosures more 

user-friendly, especially for those averse 

to using the internet in making 

investment decisions? 

31. Do cybersecurity issues make you 

reluctant to open an attachment, click 

on a link, or log in to a fund website 

based on links embedded in emails? 

How can funds make electronic access 

more secure, and how can they make 

you feel safer when receiving 

documents or other communications 

electronically? Are there protocols that 

the Commission could require to help 

make electronic delivery safer for 

investors? 

32. Would you be more likely to 

access electronic information about 

funds, or access such information more 

frequently, if we required funds to 

disclose certain updated information 

online (for example, updated 

performance)? 

C. Design 

The design of information can 

influence an investment decision. For 

this reason, the Commission has 

established requirements for certain 

disclosure documents to help ensure 

that key information is presented 

clearly, is easy to find, and facilitates 

comparisons between funds. These 

requirements prescribe, for example, the 

order, content, form, and timing of 

certain information. 

Technology can be a powerful tool to 

enhance the design of disclosures and 

the investor experience of consuming 

them. As an example, a glossary of 

terms and definitions may be necessary 

for a paper-based document, but webbased disclosures could take advantage 

of pop-ups, hovers, or other tools to 

provide definitions when the investor 

needs them. 

The Commission is seeking input 

with respect to all aspects of the way 

fund information is presented to 

investors and how to design disclosures 

to improve the investor experience and 

help investors make more informed 

investment decisions. 

1. Plain Language 

Plain language disclosure makes 

information more accessible to investors 

and promotes investor engagement in 

financial decision-making. Currently, 

funds are required to follow a plain 

English rule to make their prospectuses 

clear, concise, and understandable.19

More detailed standards apply to certain 

sections of the prospectus, such as the 

summary section and the description of 

risk factors. Under the rule, funds 

generally must follow these plain 

English principles, among others: 

• Short sentences; 

• Descriptive headings; 

• Understandable language (generally 

avoiding reliance on glossaries, defined 

terms, and legal jargon or highly 

technical business terms); 

• Active voice; and 

• Tabular presentations or bullet lists, 

particularly when presenting complex 

material. 

Plain language plays an important 

role in investors’ ability to use fund 

disclosures. We are seeking comment on 

the effectiveness of our current plain 

English framework and how to improve 

the readability and usefulness of fund 

disclosures for investors. 

Request for Comment 

33. Are required fund disclosures 

(such as a prospectus, shareholder 

report, and proxy statements) easy to 

read? 

34. Should we do more to promote 

less technical writing in fund 

disclosures? For example, should we: 

• Replace technical terms, such as 

‘‘front-end load’’ or ‘‘12b–1 fees’’? 

Alternatively, are these terms so wellestablished that replacing them would 

confuse investors? 

• Require certain fund disclosure 

documents or sections of such 

documents to have specific readability 

scores? 20

• Add more sample language to 

Commission forms that funds can use to 

introduce a given topic in their 

disclosures using basic, understandable 

terms? 21 Which parts of the prospectus 

would benefit from additional 

explanation of the purpose of the 

disclosure? 

• Encourage or require greater use of 

personal pronouns (such as ‘‘you’’) in 

disclosures to speak directly to the 

reader? 

35. Would you prefer more use of 

visual presentations (such as tables, 

charts, and graphs) in fund disclosures? 

Are there particular types of fund 

information that you would prefer to 

receive as visual presentations? Do you 

find the current visuals in fund 

disclosures (such as graphs showing the 

performance history of a fund) useful, or 

can they be too complex? 

36. Should we modify the format of 

prospectuses or other required fund 

disclosures to make them more userfriendly? For example, should certain 

summary or other disclosure be 

presented in a question-and-answer 

(Q&A) format? 22 If a Q&A format is 

used, should we standardize the 

questions, or should funds have the 

flexibility to develop different questions 

based on their facts and circumstances? 

37. A fund’s name is often the first 

piece of information you see about a 

fund. If a fund name includes a 

particular type of investment, industry, 

country, or geographic region, what 

conclusions do you draw about how the 

fund invests? More generally, do you 

believe that a fund’s name conveys 

information about the fund’s 

investments and investment risks? 

38. The SEC’s Office of Investor 

Education and Advocacy maintains a 

website at www.Investor.gov that 

provides a variety of publications to 

help you understand the various 

features and risks of common 

investment products.23 Should we 


daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26897 

24A QR code is a two-dimensional barcode 

capable of encoding information such as a website 

addresses, text information, or contact information. 

These codes are becoming increasingly popular in 

print materials and can be read using the camera 

on a smartphone. These codes can provide an easier 

way for investors to get more information about 

funds. 

25See Summary Prospectus Adopting Release, 

supra note 1. 

26Funds employing leverage typically seek to 

enhance returns by borrowing money to make 

additional investments, or investing in certain 

financial instruments that do not require full 

payment at the time of entering into the trade. 

While leverage can enhance positive returns, it also 

can magnify fund losses. 

require fund disclosure documents to 

include a link to that website or its 

relevant publications to help investors 

make more informed investment 

decisions? In the alternative, should we 

require an investment education section 

within each prospectus that describes 

the basic features and risks of the 

relevant investment type? Are there 

additional ways the Commission could 

promote the overall financial education 

of fund investors? 

2. Using Technology To Improve the 

Design of Fund Disclosures 

Recent technological developments 

could enable more interactive, userfriendly disclosure that funds can tailor 

to individual investors’ needs. Among 

other things, technology could help 

investors do the following: 

• Find information of interest. For 

instance, while the electronic version of 

a paper-based disclosure may currently 

include hyperlinks in the table of 

contents section, funds could use other 

technological tools to help an investor 

better navigate or filter the disclosure to 

find and understand information of 

interest. 

• Understand fund disclosures. 

Potential tools that funds could use to 

make their disclosures more 

understandable include pop-ups or 

hovers to provide plain language 

definitions or background on more 

complex issues. 

• Personalize fund disclosure based 

on individual needs and circumstances. 

Funds or others could use technology to 

generate personalized fund data or 

illustrations based on investor inputs, 

such as fees and expenses on a specific 

investment size. 

• Access more current information 

about funds. Technology could allow a 

fund to make static disclosure more 

useful by continuously updating 

information, such as fund performance. 

Given advances in technology, we are 

seeking comment on ways funds could 

better use technology to make disclosure 

more useful and engaging for individual 

investors. 

Request for Comment 

39. How can we encourage or require 

funds to display fund information in a 

more user-friendly manner? For 

example, are there ways a fund could 

use web-based disclosure to present 

prospectus information to make the 

information more accessible and useful 

to you than an electronic rendering of a 

paper document (such as a PDF)? 

40. Should fund disclosures be more 

personalized to enhance your 

understanding and engagement? If so, 

how? For example, should we 

encourage or require funds to use tools 

in electronic disclosures to help 

investors filter information to align with 

their areas of interest or personalize 

information based on their individual 

circumstances? 

41. We require certain fund 

disclosures to include hyperlinks to 

other pieces of information (such as a 

fund website or another fund 

document). Should we require other 

technologies in addition to or in lieu of 

hyperlinks to connect information (such 

as QR codes 24)? 

42. Should interactive fee calculators 

and performance presentations or other 

interactive tools supplement or replace 

certain required fund disclosures? If so, 

how would these tools integrate into the 

current disclosure regime? 

43. How important are design 

elements—such as larger font sizes, 

greater use of white space, colors, or 

visuals, or the use of audio or video 

disclosures—to investors? 

44. Assuming that more interactive 

and visually appealing disclosures may 

be more costly and that you will 

ultimately pay those costs, would you 

be willing to pay more for these 

enhanced features? 

45. What do investors want to see 

done to give funds the ability to use 

technology creatively to effectively 

convey information to investors? 

3. Use of Summaries and the Summary 

Prospectus 

Concise, user-friendly disclosure 

assists investors in making their 

investment decisions. To promote these 

principles, in January 2009, the 

Commission amended the registration 

form used by mutual funds and ETFs to 

provide investors with streamlined and 

user-friendly information that is key to 

an investment decision.25 Specifically, 

the Commission added a new summary 

section to mutual fund and ETF 

prospectuses and allowed these funds to 

deliver a shorter summary prospectus to 

investors, subject to certain conditions. 

The key information in the summary 

section includes a fund’s investment 

objectives and strategies, risks, costs, 

and performance. Having this 

information in a standardized order in 

all mutual fund and ETF prospectuses 

helps investors compare multiple funds. 

A fund’s summary prospectus 

includes the same key information that 

the fund provides in the summary 

section of its prospectus. Appendix A to 

this release contains a hypothetical 

summary prospectus solely for 

illustrative purposes. A fund that uses a 

summary prospectus must provide its 

prospectus, SAI, and recent shareholder 

reports on a website and deliver these 

documents by paper or email upon an 

investor’s request. Under this layered 

approach to disclosure, investors 

receive key information directly and 

have access to more detailed 

information. 

We generally believe that investors 

benefit from clear and accurate 

summary disclosure of key information. 

Specifically, summary disclosure, along 

with access to more detailed 

information, can assist investors in 

making more informed investment 

decisions. We are seeking comment on 

the effectiveness of the summary 

prospectus for mutual funds and ETFs 

and whether a similar summary 

disclosure framework might improve 

other fund disclosures. 

Request for Comment 

46. Should we do more to encourage 

or require shorter, ‘‘summary’’ 

disclosures, with additional information 

available online or upon request? For 

example, should we require summary 

versions of other required fund 

disclosures, such as shareholder 

reports? 

47. Do you use the summary 

prospectus in making investment 

decisions? Does the summary 

prospectus contain the right amount and 

type of information to assist you in 

making an investment decision? Would 

other information, such as measures of 

leverage 26 or derivative exposure, help 

you make an informed investment 

decision? Are there disclosure items 

currently required in the summary 

prospectus that we should eliminate? 

48. Currently, we only permit funds to 

disclose certain pieces of information in 

their summary prospectuses. Should the 

summary prospectus also alert you to 

important imminent events, such as 

impending liquidations, mergers, or 

large distributions that might have a 

significant impact on your investment 

decisions? 

49. Do you think summary 

prospectuses are too short, too long, or 


daltland on DSKBBV9HB2PROD with PROPOSALS
26898 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

27 Id. at note 14. We have observed summary 

prospectuses of up to 19 pages in length. 

28A sample Canadian Fund Facts document is 

available at http://www.osc.gov.on.ca/documents/ 

en/Securities-Category8/ni_20130613_81-101_

implementation-state-2-pos.pdf#page=51, and a 

sample European KIID is available at https://

www.esma.europa.eu/sites/default/files/library/ 

2015/11/10_794.pdf#page=5. 

29Currently, funds are required to disclose 

intermediary specific sales load variations in the 

prospectus. See Item 12(a) of Form N–1A, Item 7(c) 

of Form N–3, and Item 6(c) of Form N–4. 

an appropriate length? The Commission 

intended each summary prospectus to 

consist of three or four pages, but allows 

funds flexibility to set the length.27

However, many summary prospectuses 

exceed this intended length. Certain 

foreign jurisdictions have adopted 

summary disclosure documents that 

include page limits. For example, 

Canada’s Fund Facts document cannot 

exceed four pages, and the European 

Union’s Key Investor Information 

Document (‘‘KIID’’) cannot exceed two 

pages.28 Should we limit the length of 

summary prospectuses, or should we 

continue to provide funds with 

flexibility in this area? 

50. How can technology enhance the 

usefulness of summary disclosure for 

investors? Should electronic versions of 

summary documents provide the ability 

to more easily access additional, 

detailed information by clicking on a 

piece of information? Should we 

encourage technology that can aggregate 

fund information from multiple funds 

so an investor can see a summary of his 

or her entire portfolio? If so, what is the 

best way to encourage this type of 

technology? Would investors be willing 

to pay for these technological 

enhancements? 

4. Location and Order of Information 

Logical organization of information 

can help investors easily find desired 

information at the appropriate level of 

detail. As previously discussed, the 

current disclosure framework for most 

funds consists of a prospectus (and a 

summary prospectus for most mutual 

funds and ETFs), SAI, and annual and 

semiannual shareholder reports. The 

prospectus and SAI generally describe 

how the fund will operate on an 

ongoing basis, and the shareholder 

reports reflect how the fund operated in 

the past. In addition, funds often make 

additional information available on 

their websites. 

In certain contexts, such as in 

summary prospectuses, we require 

funds to disclose required information 

in a standardized order. We also require 

that certain information appear in a 

fund’s prospectus as opposed to its SAI. 

However, we currently allow funds to 

choose how to order many individual 

items within a required disclosure 

document. 

Fund websites can also be a valuable 

tool for providing information to 

investors in real-time. For example, 

performance information can quickly 

become out-of-date, so referring 

investors to a website for more current 

performance information may be 

preferred. Funds may also have certain 

arrangements in place with financial 

professionals with respect to the amount 

of sales charge imposed.29 Since the list 

of financial professionals and the terms 

of the agreements may change 

frequently, it may be more appropriate 

to disclose this information on a website 

rather than in a fund prospectus. 

Because of the importance of 

providing investors fund information in 

a location where they can reasonably 

expect to find the information they 

want, we are seeking comments on how 

to rationalize and improve the 

requirements associated with the 

location and order of fund information. 

Request for Comment 

51. Does the current disclosure 

framework of a summary prospectus, 

prospectus, SAI, and annual and 

semiannual reports provide you the 

necessary information to make informed 

investment decisions? Should funds 

provide additional information? Would 

a one-page sheet at the beginning of 

each prospectus (or summary 

prospectus with key information such as 

historical performance, fees, portfolio 

managers, date of inception and 

whether the fund employs leverage to a 

significant extent) be helpful to 

investors? If so, should this one-page 

sheet be standardized? 

52. Is there information that is 

currently located in the summary 

prospectus, prospectus, SAI, or annual 

report that would be more appropriate 

in a different regulatory document or 

online? 

53. Are there any disclosure materials 

that you receive separately, for example 

a summary prospectus or annual report, 

that you would prefer to receive in a 

single, combined document? If you 

would prefer to receive these 

disclosures as a single unified 

document, when should it be delivered? 

54. Does the standardized order of 

information in a mutual fund or ETF 

summary prospectus help you more 

easily locate specific information or 

compare multiple funds? If so, would 

you find it helpful if information 

appeared in a set order in any other 

fund disclosure documents? 

55. Currently, a single prospectus, 

SAI, or shareholder report may include 

information about many funds. Do you 

find these documents difficult to 

navigate? Should we limit these 

documents to one fund per document? 

Does your response depend if it imposes 

additional costs on investors? 

Alternatively, should we require that all 

the information about a single fund 

appear in one place in a multi-fund 

document? 

56. Currently, while funds’ regulatory 

documents are freely available through 

the Commission’s EDGAR system, most 

funds include a number of those 

regulatory documents (such as a 

prospectus and shareholder report) on 

their websites. However, they often do 

not post all of them (such as a fund’s 

quarterly holdings and proxy voting 

record). Do you typically obtain fund 

information through EDGAR, through 

the fund’s website, or through a 

different (such as a, third-party) 

source—or some combination of these? 

Would it be useful to you to be able to 

access all required fund disclosures in 

one centralized location on a fund’s 

website? 

5. Structuring Disclosures 

Structuring disclosures can enhance 

investors’ access to information and 

improve the quality of available 

information. Even if investors do not 

know what structured disclosure is, 

they benefit from structured disclosure 

when they research and compare funds 

using various online tools. Structured 

disclosure consists of disclosure items 

that are machine-readable (meaning 

they can be understood by a computer 

or other electronic device) because the 

disclosure text has been labeled 

(sometimes referred to as ‘‘tagged’’) 

using an electronic reporting language, 

such as eXtensible Markup Language 

(‘‘XML’’) or eXtensible Business 

Reporting Language (‘‘XBRL’’). Tagging 

disclosures allows investors and other 

market participants to more easily 

access, share, and analyze fund 

information across different systems or 

platforms. Figure 1 below illustrates the 

difference between disclosure as you 

might see it (left image) and structured 

disclosure as a computer sees it (right 

image). (To be clear, disclosure, to you, 

would appear as the example on the 

left—whether it is structured or 


daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26899 

30See General Instruction C.3.g(i), (iv) to Form N– 

1A. 

31See Investment Company Reporting 

Modernization, Investment Company Act Release 

No. 32314 (Oct. 13, 2016) [81 FR 81870 (Nov. 18, 

2016)]; Investment Company Reporting 

Modernization, Investment Company Act Release 

No. 32936 (Dec. 8, 2017) [82 FR 58731 (Dec. 14, 

2017)]. 

32See https://www.sec.gov/dera/data/mutualfund-prospectus-risk-return-summary-data-sets. 

unstructured. Structured disclosure 

adds the machine-readable information 

in the example on the right—either in a 

separate data file that a fund would 

submit to the Commission, or as a layer 

of information invisibly embedded 

within an electronic document—so that 

the disclosure can be easily read and 

processed by computers as data.) 

Structured disclosure offers many 

benefits to investors and other market 

participants because it enhances their 

ability to use technology to process and 

synthesize information, allowing for 

more timely and in-depth analysis of 

fund information. Structured disclosure 

can help investors and other market 

participants to more easily retrieve, 

aggregate, and analyze information from 

disclosures across funds and time 

periods. For example, investors and 

other market participants can analyze 

data points to observe trends (such as 

changes in fund fees over time), 

examine portfolio data, create ratios, or 

perform other analyses. Narrative 

disclosures also can be structured and 

analyzed to, for example, examine how 

different funds are describing a portfolio 

strategy or conduct comparisons against 

peers. For these reasons, countries 

around the world, including the United 

States, are increasingly using structured 

disclosure for reporting. In addition, 

unlike other data sources, this data 

comes directly from information filed 

with the Commission, which may 

improve the quality of the data. 

Currently, mutual funds and ETFs are 

required to submit interactive data files 

(formatted using XBRL) containing their 

risk/return summary information, which 

includes objectives, fees, principal 

strategies, principal risks, and 

performance disclosures.30 Money 

market funds also electronically file a 

monthly report on Form N–MFP that 

contains detailed information about 

fund holdings in the XML format. Other 

funds will also be required to provide 

portfolio-level data to the Commission 

on a monthly basis and census-type 

information to the Commission on an 

annual basis in the XML format.31

Because of the benefits that 

structuring disclosures can provide, we 

are seeking comment on whether and 

how to improve our current structured 

disclosure reporting regime to increase 

the usefulness of structured disclosure. 

Request for Comment 

57. How are you currently using fund 

data (such as fees, holdings, or 

performance-related data)? Which data, 

in particular, are you using and how do 

you access the data? Do you obtain the 

data from fund or third party websites, 

or directly from the Commission’s 

website? 

58. We currently provide risk/return 

summary information (that is, 

objectives, fees, principal strategies, 

principal risks, and performance 

disclosures) extracted from mutual fund 

XBRL filings on our website for 

download.32 Should we provide other 

fund industry and fund-specific censustype and portfolio information data sets 

on our website for download? If so, 

what additional information should we 

provide, and how would you use that 

information? 

59. Is there additional mutual fund or 

ETF information that we should require 

in a structured disclosure format? If so, 

what information? 

60. Are there other formats for 

structuring disclosures that would make 

disclosures more accessible or useful to 

you and other data users? Are other 

standards, besides XBRL and XML, 

becoming more widely used or 

otherwise superior to these formats in 


daltland on DSKBBV9HB2PROD with PROPOSALSEP11JN18.000</GPH>
26900 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

allowing you and other data users to 

easily retrieve, aggregate, and analyze 

fund data? If so, what are those 

standards? What would be the 

advantages and drawbacks of these 

formats to investors, funds, and other 

data users, compared to XBRL or XML? 

61. To what extent is the information 

currently provided in a structured 

disclosure format readily available 

through other sources, such as thirdparty data aggregators (like Morningstar 

and Lipper)? If you use third parties, do 

you pay for the information? Do you 

access structured disclosure directly 

from EDGAR or from fund websites for 

a significant number of funds without 

using third-party data aggregators? Has 

the availability of structured disclosure 

reduced your dependence on, or the 

costs associated with, using data 

aggregators? 

D. Content 

The content of fund disclosures 

should provide the basis for an 

investment decision. For this reason, the 

Commission has established 

requirements to help ensure that funds’ 

presentations of certain key information 

(such as objectives, fees, strategies, and 

risks) is clear, is not misleading, and 

facilitates comparisons between funds. 

We are seeking input with respect to the 

content of fund disclosures to improve 

the investor experience, which could 

lead to more informed investment 

decisions. 

1. Strategies 

A fund’s investment strategies tell you 

how the fund intends to achieve its 

investment objective. They indicate the 

approach the fund’s adviser takes in 

deciding which investments to buy or 

sell. A fund’s principal investment 

strategies refer to the strategies that the 

fund expects to have the greatest 

anticipated importance in achieving its 

objectives and that the fund anticipates 

will have a significant effect on its risks 

and returns. Principal strategy 

disclosure must also discuss the type(s) 

of investments in which the fund will 

principally invest. For example, a fund 

may employ a strategy to invest in 

multiple asset classes (such as equities 

and bonds), invest a large amount of 

assets in a particular industry, or invest 

in a specific geographic region. 

To effectively select and invest in 

funds to meet their financial objectives, 

it is important for investors to 

understand how a fund is investing. 

However, the staff has observed 

significant variations in funds’ 

approaches to principal strategy 

disclosure that may impact investors’ 

ability to effectively use this 

information. This disclosure sometimes 

includes lengthy and highly technical 

descriptions of fund strategies that can 

make it difficult for investors to identify 

and understand how the fund will 

invest. For example, several mutual 

funds in Morningstar’s Large-Cap Value 

category describe their principal 

strategies in under 100 words in the 

summary section of the prospectus, 

while other funds in the same category 

use more than 1,000 words. Some of the 

longest principal strategies disclosure 

the staff has observed exceed 5,000 

words. While we recognize that some 

principal investment strategies are more 

complex, we believe that streamlined, 

plain English disclosures could enhance 

the investor experience and contribute 

to more informed investment decisions. 

Several factors may be contributing to 

lengthy, complex, and hard to 

understand disclosure regarding 

principal investment strategies. These 

include the following: 

• Disclosing information about 

certain investment types the fund is not 

likely to use. 

• Including an extensive discussion 

of principal strategies and risks in the 

summary prospectus for a mutual fund 

or ETF since there is no page limit or 

limit to the number of strategies or risks 

a fund may disclose in its summary 

prospectus. 

• Discussing both principal and nonprincipal strategies in the same section 

of the prospectus (although this is not 

permitted in the summary section of 

mutual fund and ETF prospectuses or 

the summary prospectuses). 

• The strategy itself is complex. 

In addition, it may be difficult for 

retail investors to understand strategy 

disclosure when such disclosure: (1) 

Involves certain complex financial 

transactions, particularly when 

described using highly technical 

language; or (2) assumes its readers have 

a high degree of financial knowledge. 

We are seeking input on the current 

framework for disclosing principal 

investment strategies and how we could 

improve this framework to help you 

better understand how funds invest. 

Request for Comment 

62. Understanding how a fund will 

invest your money is important to 

making an investment decision. Do fund 

prospectuses and other disclosures 

adequately describe a fund’s strategies? 

How can funds improve these 

disclosures? 

63. Do you learn about a fund’s 

strategies by looking at a fund’s name, 

its fund category, its prospectus (or 

summary prospectus), or other materials 

(such as website disclosure or thirdparty resources)? 

64. Should we address the length and 

complexity of principal strategies 

disclosure, and if so, how? Should we 

establish additional guidelines—such as 

specific thresholds to determine which 

strategies are considered ‘‘principal’’ 

(such as if a stated percentage of the 

fund’s assets are devoted to a strategy, 

it is deemed to be (or presumed to be) 

a principal strategy)—or impose limits 

on the length of principal strategies 

disclosure in a summary section? If so, 

what would be an appropriate 

threshold, or limitation on length? 

Should funds disclose strategies in 

order of importance or in some other 

standardized way to help you better 

understand the key strategies of the 

fund? 

65. Would visual presentations of 

strategies better help you understand a 

fund’s disclosure, and if so, how? Can 

graphs, tables, or other visual tools 

adequately describe strategies? For 

example, would inclusion of a graphic 

representation of a fund’s holdings 

improve a fund’s principal strategies 

disclosure? Would the effectiveness of 

visual presentations depend on the 

medium in which they are viewed (such 

as paper, electronic, or mobile device)? 

66. Some funds employ a ‘‘go 

anywhere’’ strategy. Under this 

approach, a fund’s manager may invest 

in a broad array of asset classes, and can 

target what the manager believes are the 

best investments, rather than be limited 

to a particular investment focus. Are 

there better ways to promote 

understanding of ‘‘go anywhere’’ funds’ 

strategies? Are there ways to highlight 

the distinctions between ‘‘go anywhere’’ 

funds across different fund complexes? 

67. Funds may use leverage to 

magnify returns (both positively and 

negatively). Leverage can come from a 

fund borrowing money to make 

additional investments or through the 

use of certain financial instruments, 

such as derivatives. Some funds try to 

specify their level of leverage (such as 

to produce twice the returns on an 

index), while others reserve more 

discretion with respect to their use of 

leverage. However, many investors do 

not adequately understand the impact of 

leverage on their investments. Do you 

believe that funds adequately explain 

the use and effects of leverage on their 

portfolios? For instance, do funds make 

clear that leverage can result in higher 

returns but also come with the risk of 

more severe losses? If not, how can we 

improve the disclosure? 

68. Are there certain fund types— 

whether defined by structure, by type of 

investment, or by investment strategy 


daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26901 

33A sample Canadian Fund Facts document is 

available at http://www.osc.gov.on.ca/documents/ 

en/Securities-Category8/ni_20130613_81-101_

implementation-state-2-pos.pdf#page=51, and a 

sample European KIID is available at https://

www.esma.europa.eu/sites/default/files/library/ 

2015/11/10_794.pdf#page=5. 

34Although we previously inquired about 

quantitative measures, we are asking for responses 

to similar questions in this area to learn current 

investor preferences in this area. 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)]. 

(such as open-end or closed-end, or 

fixed income or equity)—for which we 

should require more or less detailed 

strategies disclosure? If so, what are 

those types of funds and what 

disclosures should we add or subtract? 

2. Risks 

All investments in funds involve risk 

of financial loss. The reward for taking 

on investment risk is the potential for a 

greater investment return. When 

evaluating funds for investment, it is 

important to determine if the fund 

satisfies your investment objective and 

matches your risk tolerance, as well as 

the risks in your overall portfolio. A 

fund’s risks vary considerably with the 

nature of its investments. 

We require funds to highlight the 

principal risks associated with an 

investment in the fund. Principal risks 

include, for example, those risks that are 

reasonably likely to adversely affect the 

fund’s net asset value, yield, and total 

return. For example, a fund investing in 

stocks of companies with small market 

capitalization would discuss market risk 

as a general risk of holding stocks, as 

well as the specific risks associated with 

investing in small capitalization 

companies (that is, that these stocks 

may be more volatile and have returns 

that vary, sometimes significantly, from 

the overall stock markets). 

However, the sometimes lengthy and 

highly technical descriptions of fund 

risks can make it difficult for investors 

to identify and understand the key risks 

of a fund. For example, as with 

principal investment strategies, 

investors may find it difficult to identify 

and understand the principal risks of 

investing in a fund because 

prospectuses may (1) disclose risks 

associated with strategies the fund has 

yet to undertake, (2) include overly long 

discussions of risks, or (3) discuss both 

principal and non-principal risks in 

certain non-summary sections of the 

prospectus. In addition, some funds 

disclose a wide variety of principal risks 

that have little potential impact on the 

fund. Currently, funds are not required 

to disclose risks in a particular order 

(such as by order of importance) or to 

try to quantify their risks in any way. 

To effectively select and invest in 

funds to meet their financial objectives, 

it is important that investors understand 

the principal risks associated with a 

fund. As with strategy disclosure, 

however, the staff has observed 

significant variations in funds’ 

approaches to principal risk disclosure 

that may impact investors’ ability to 

effectively use this information. For 

example, some mutual funds in 

Morningstar’s Large-Cap Value category 

describe just a few principal risks in less 

than 200 words in the summary section 

of the prospectus, while other funds in 

the same category list 20 or more 

principal risks using more than 2,500 

words in its summary section of the 

prospectus. Some of the longest 

principal risks disclosures the staff has 

observed exceed 7,000 words. While we 

recognize that some principal 

investment strategies give rise to more 

complex or varied risks than others and 

that certain funds or fund complexes 

may present different risks (such as 

risks associated with a new adviser), we 

believe refinements to principal risk 

disclosure would contribute to the 

investor experience and to more 

informed investment decisions. 

We are seeking input on the current 

framework for disclosing risks and how 

we could improve this framework to 

help you better understand the key risks 

associated with your fund investments. 

Request for Comment 

69. Do fund prospectuses and other 

disclosures adequately describe the 

level of risk associated with a fund? 

How can funds improve these 

disclosures? 

70. How do you learn about a fund’s 

risks? What information is most useful 

to you in evaluating a fund’s risks, and 

what do you want to know? Are there 

any metrics (such as standard deviation) 

that you consider? 

71. Should we establish additional 

guidelines—such as specific thresholds 

to determine which risks are considered 

‘‘principal,’’ page limits, or limits on the 

number of principal risks a fund may 

disclose—to further standardize 

principal risk disclosure? If so, what 

would be an appropriate threshold, page 

limit, or numeric limit on the number of 

items disclosed? 

72. Would visual presentations of 

risks better help you understand a 

fund’s risks? Can risks be adequately 

described using graphs, tables, or other 

visual tools? For example, would a 

standardized risk measure or risk rating 

be useful to understand a fund’s risk? 

Both the Fund Facts document required 

by Canadian securities regulators and 

the KIID required by the European 

Union require funds to quantify their 

level of risk.33 The Canadian form 

requires that a fund rank its risk level 

on a 5-point scale (Low, Low to 

Medium, Medium, Medium to High, 

and High). The European form requires 

that a fund rank its risk level on a 7- 

point scale. Should we also require a 

risk rating? If so, what type of scale 

should we use (for instance, a 10-point 

scale or low/medium/high risk)? What 

inputs should determine a fund’s rating 

on the scale? Should the fund’s rating 

on the scale be chosen at the fund 

manager’s discretion, or should a 

standardized metric be used? Are there 

other presentations of risks that you 

think may be useful to investors? 

73. Many funds list their principal 

risks in a way that does not reflect the 

relative importance of each risk to a 

fund, such as listing risks in 

alphabetical order. Would ranking risks 

in order of importance better help you 

understand the key risks of the fund? 

How should a fund determine the 

importance of a particular risk factor? 

For example, how should a fund weigh 

the likelihood and magnitude of a 

particular risk in determining a ranking? 

For instance, which would have a 

higher ranking: A common event that 

can subject a fund to small losses, or 

rare occurrences that could lead to 

significant losses? If we require a 

ranking, how often should funds be 

required to reassess the ranking? 

74. Would it be helpful if funds 

disclosed one or more quantitative 

measures of risk (such as historic 

volatility, standard deviation, Sharpe 

ratio)? 34 If yes, which risk measures 

should be disclosed? 

3. Fees and Expenses 

When considering investing in a fund, 

fees and expenses are an important 

factor investors should consider. Even 

seemingly small differences in fees and 

expenses can significantly affect a 

fund’s investment returns over time. 

Funds must disclose information about 

fees and expenses in a standardized 

format to help investors compare that 

information across funds. Typically, the 

information appears in two sections: A 

fee table, which shows shareholder 

transaction fees and annual fund 

operating expenses, and an expense 

example. 

• Shareholder transaction fees are 

charges that investors pay directly. They 

typically appear as a percentage of the 

amount invested including (1) sales 

charges (also known as ‘‘loads’’), which 

generally pay investment professionals 


daltland on DSKBBV9HB2PROD with PROPOSALS
26902 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

35 If a fund imposes a fee or other charge when 

an investor sells (redeems) his or her shares, the 

fund must disclose two expense examples. The first 

example shows the estimated expenses of investing 

in the fund if the investor continues to hold his or 

her shares throughout the 1, 3, 5, and 10 year 

periods. The second example shows an investor’s 

estimated investment expense if he or she sells 

(redeems) shares at the end of the 1, 3, 5, or 10 year 

periods. 

36The Commission’s Investor Advisory 

Committee (‘‘IAC’’) has recommended that the 

Commission explore ways to improve mutual fund 

cost disclosures, with the goal of enhancing 

investors’ understanding of the actual costs they 

bear when investing in mutual funds and the 

impact of those costs on total accumulations over 

the life of their investment. The IAC has suggested 

that, in the short term, the best way to make 

investors more aware of costs is through 

standardized disclosure of actual dollar amount 

costs on customer account statements. The IAC was 

established to advise the Commission on, among 

other things, regulatory priorities, fee structures, the 

effectiveness of disclosure, and initiatives to protect 

investor interests and to promote investor 

confidence. See Recommendation of the Investor as 

Purchaser Subcommittee Regarding Mutual Fund 

Cost Disclosure (Apr. 14, 2016), available at https:// 

www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-041416-recommendationinvestor-as-purchaser. 

37See, e.g., Concept Release: Request for 

Comments on Measures to Improve Disclosure of 

Mutual Fund Transaction Costs, Investment 

Company Act Release No. 26313 (Dec. 18, 2003) [68 

FR 74819 (Dec. 24, 2003)]. 

38 Item 3 of Form N–1A. 

39We have considered enhancing fund soft dollar 

disclosure requirements in the past. See, e.g., 

Commission Guidance Regarding the Duties and 

Responsibilities of Investment Company Boards of 

Directors With Respect to Investment Adviser 

Portfolio Trading Practices, Investment Company 

Act Release No. 28346 (Jul. 30, 2008) [73 FR 45646 

(Aug. 6, 2008)], available at https://www.sec.gov/ 

rules/proposed/2008/34-58264.pdf. 

compensation for selling a fund to an 

investor; and (2) other applicable fees 

related to redemptions, exchanges, and 

account minimums. Some shareholder 

transaction fees appear as a dollar 

amount in the fee table. 

• Annual fund operating expenses are 

charges that an investor pays indirectly 

because these charges are paid out of 

fund assets. Annual fund operating 

expenses appear as a percentage of net 

assets and generally include (1) 

‘‘management fees,’’ which are paid to 

the fund’s investment adviser for 

deciding which investments the fund 

buys and sells and for providing other 

related services; (2) ‘‘Rule 12b–1 fees,’’ 

which pay for marketing and selling 

fund shares; and (3) ‘‘other expenses,’’ 

which represent various categories, such 

as auditing, legal, custodial, transfer 

agency fees, and interest expense. 

• The expense example is a 

hypothetical calculation that shows the 

estimated expenses that an investor will 

pay for investing in a fund over different 

time periods. The expense example 

appears in dollar amounts, based on a 

hypothetical investment of $10,000, and 

assumes a 5 percent annual return over 

the course of 1, 3, 5, and 10 years.35

We are seeking comment on how to 

improve the disclosure requirements 

associated with fees and expenses to 

promote more informed investment 

decisions. 

Request for Comment 

75. Fund fees and expenses are a key 

consideration in an investment decision 

because fees and expenses can 

significantly affect a fund’s investment 

returns over time. Do funds disclose 

fund fees and expenses in an effective 

manner? How could funds improve the 

disclosure of fund fees and expenses? 

Would fund fees and expenses be more 

readily understandable if they were 

presented as dollar amounts or 

expressed as a percentage? Would it be 

helpful if the actual fees and expenses 

associated with your investment in the 

fund were included in other fund 

documents, such as your account 

statements? 36

76. Investors may make better 

investment decisions if they are alerted 

to the need to focus on certain 

information. Should we require a fund 

to add a statement to its prospectus that 

emphasizes the importance of 

understanding fees and expenses? What 

should this statement be? 

77. Annual fund operating expenses 

currently appear as separate line items, 

such as management fees, rule 12b–1 

fees, and other expenses, that add up to 

a final line item reflecting total annual 

fund operating expenses. Is the current 

format useful, or would you prefer to 

have a simpler presentation that, for 

example, includes only a single line 

item for total annual fund operating 

expenses or a graphical representation 

of fees like a fee meter (which is a 

graphic that shows how a fund’s fees 

compares to other funds)? 

78. Do you believe it would be helpful 

to include a ‘‘fees and expenses 

benchmark’’ that could help you 

compare the fees of the fund to fees of 

similar funds and understand the 

relative size of a fund’s fees? For 

example, would it be helpful to include 

a benchmark or fee meter that would 

rank fees and expenses as low, medium, 

or high? If so, how should we define 

‘‘similar funds’’? 

79. A fund’s transaction costs (such as 

the costs of buying and selling a fund’s 

investments and certain foreign taxes) 

can be significant.37 Such costs may 

exceed a fund’s total annual operating 

expenses and negatively affect a fund’s 

performance. A fund must disclose its 

portfolio turnover rate (that is, the 

percent of the portfolio the fund 

typically trades in one year), which is 

an indication of one type of transaction 

cost (for instance, a high portfolio 

turnover may indicate higher 

transaction costs).38 Do you find the 

current presentation of portfolio 

turnover to be useful to understanding 

transaction costs incurred by the fund? 

Do you want to see additional 

information about these costs? If so, 

which information? Is there a more 

effective format for communicating 

transaction costs to investors? If so, 

which format? 

80. A portion of the transaction costs 

for an equity fund often pays for 

research provided by third-party brokerdealers that is used by the adviser in 

making investment decisions. These 

costs do not appear in the fee table or 

expense example. What disclosure, if 

any, should funds provide about these 

costs (known as ‘‘soft dollars’’)? 39

81. The expense example disclosed in 

a fund’s prospectus should help 

investors quickly compare the cost of 

investing in a fund with the cost of 

investing in other funds. The example 

presents expenses based on certain 

assumptions, such as a fixed investment 

amount and rate of return over specified 

periods. Do you find the expense 

example useful and easy to understand? 

Are the assumptions in the calculation 

appropriate? How could we improve the 

expense example? Are you able to 

determine your own costs of investing 

in a fund based on the expense example, 

or would you prefer to receive a 

customized calculation of your specific 

expenses from the fund? Would you like 

to (or do you currently) use an online 

tool to calculate a personalized expense 

amount based on your actual investment 

in a fund? 

82. A fund’s fee table discloses costs 

charged by the fund but not external 

costs charged by your financial 

professional. Do you currently have 

sufficient information about external 

costs to understand the true cost of your 

investment? Would it be useful for you 

to see the total amount you pay 

annually for investing in a fund, 

including external costs? Because 

external costs are shareholder specific 

and the fund does not have access to 

this information, what would be the 

most effective method of 

communicating this information? 

4. Performance 

When considering whether to invest 

in a fund, investors may consider the 

fund’s investment performance. 

However, consideration of a fund’s 

performance has certain limitations. In 

particular, past performance cannot 


daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26903 

40 Item 4(b)(2)(i) of Form N–1A. 

41 Item 4(b)(2)(iii) of Form N–1A. 

42 Item 4(b)(iii) of Form N–1A. 

43With respect to certain commodity funds, this 

disclosure may be required. See CFTC Regulation 

4.25(c). 

predict future performance. Therefore, 

fund prospectuses are required to state 

that a fund’s past performance is not 

necessarily an indication of how the 

fund will perform in the future. Any top 

performing fund in a given year can 

easily underperform the following year. 

Investors should consider 

performance information in light of a 

number of other factors, including the 

following: 

• The fund’s fees and expenses, 

which reduce the fund’s overall 

investment return; 

• The investor’s age, income, other 

investments, or debt, all of which may 

affect his or her financial situation and 

risk tolerance; 

• The performance of the asset classes 

the fund invests in and its benchmark; 

and 

• Market and economic conditions. 

While a particular investment return 

might be above average during a period 

of economic downturn, that same return 

could be below average during a period 

of generally favorable economic 

conditions. 

Notwithstanding the limitations of 

performance information, it can—if 

used wisely—contribute to a more 

informed investment decision. For 

example, one potential use of 

performance information is that it can 

tell an investor how volatile (or stable) 

a fund has been over a period of time. 

Generally, the more volatile a fund, the 

greater the investment risk. 

In an effort to balance the limitations 

of fund performance information with 

its potential usefulness and investor 

demand for this information, we have 

established standards for how funds 

present their performance in fund 

prospectuses. Under these standards, 

the prospectus is generally required to 

include: 

• A bar chart displaying the fund’s 

performance for each of the past 10 

years (or since the fund’s creation if the 

fund has less than 10 years of 

performance history); 

• A table comparing the fund’s 

performance for the last 1-, 5-, and 10- 

year periods to a broad-based securities 

market index; and 

• The fund’s performance for its best 

and worst calendar quarters. 

We are soliciting comment on how to 

improve the presentation of fund 

performance so investors can make 

more informed investment decisions. 

Request for Comment 

83. How do you consider performance 

information when making an 

investment decision? For example, do 

you use it to evaluate the risk of a fund, 

or do you use it for some other purpose, 

such as to assess the skill of the 

investment manager? How could funds 

improve the presentation of 

performance information? Should past 

performance information be emphasized 

or de-emphasized in fund disclosures? 

Should short-term performance periods 

(such as 1-year) be de-emphasized and 

longer-term performance periods be 

emphasized? 

84. A mutual fund or ETF’s 

performance presentation in the Risk/ 

Return Summary section of its 

prospectus and fund advertisements 

must include a statement to the effect 

that the fund’s past performance is not 

necessarily an indication of how the 

fund will perform in the future.40 Is this 

performance disclaimer sufficiently 

clear to investors, or can it be improved? 

85. A mutual fund or ETF’s 

performance presentation in the Risk/ 

Return Summary section of its 

prospectus and fund advertisements 

must also explain that performance 

information shows how the fund’s 

returns have varied. Is it clear that the 

performance information is included to 

show variability of returns, rather than 

any indication that the fund will 

perform similarly in the future? How 

can we improve this disclosure to reflect 

the risks of relying too heavily on past 

performance? 

86. The performance table in the Risk/ 

Return Summary must show the returns 

of an appropriate broad-based securities 

market index in addition to the 

performance of the fund.41 Should 

funds disclose how they determined 

that their benchmark is an appropriate 

broad-based benchmark? Should we 

require new funds that do not yet have 

past performance to disclose their 

intended benchmark performance 

index? 

87. Beyond the required comparison 

of fund performance to that of an 

appropriate broad-based securities 

market index, are there other 

performance comparisons that you 

would find useful, such as a comparison 

between the fund’s performance and 

that of a peer group of funds? For 

example, should a small-cap fund be 

required to compare its performance to 

an index comprised of small-cap funds 

or to all funds with a similar investment 

strategy? If we take such an approach, 

how should the Commission define 

‘‘peer group’’ to help ensure meaningful 

comparisons? 

88. The Risk/Return Summary 

requires average annual total returns for 

1-, 5-, and 10-year periods before taxes 

as well as after-taxes on distributions 

and after-taxes on distributions and 

redemption.42 Do you find the after-tax 

information helpful? 

89. Under certain circumstances, our 

staff has not objected to a fund 

including in its performance record or 

otherwise disclosing the performance of 

an unregistered predecessor account of 

the fund (such as a hedge fund that 

converted to a mutual fund) or other 

similarly managed accounts of the 

adviser or portfolio manager.43 Is this 

information helpful to investors, or do 

you find it to be of limited relevance or 

confusing? 

90. Should the Commission take steps 

to encourage or require more funds to 

include interactive performance 

presentations on their websites? Which 

of these features or presentations are 

most helpful for you in understanding 

performance information? Are there 

features or presentations that are 

confusing? 

91. The investment decisions and 

trading strategies of a fund’s portfolio 

manager(s) often drive fund 

performance. Is information about the 

identity, experience, and background of 

fund portfolio managers important to 

you when considering an investment? Is 

the current information about fund 

portfolio managers sufficient? If not, 

why not? If a fund is managed by a team 

of managers, should the fund disclose 

information about each of the team 

members? 

5. Management Discussion of Fund 

Performance 

To understand a fund’s performance 

over the prior year, it is useful for an 

investor to receive information about 

relevant factors that affected the fund’s 

performance. Management’s Discussion 

of Fund Performance (‘‘MDFP’’) is a 

section of a mutual fund or ETF’s 

annual report in which fund managers 

discuss the factors, such as market 

conditions and investment strategies, 

that materially affected the fund’s 

performance during its most recently 

completed fiscal year. Unlike the 

prospectus, which focuses on how a 

fund intends to invest, the MDFP 

describes how the fund actually 

invested in the prior year and why it 

performed as it did. 

In this discussion, management 

usually identifies which holdings of the 

fund contributed to or detracted 

significantly from the fund’s 

performance. A required line graph 

compares the fund’s performance during 


daltland on DSKBBV9HB2PROD with PROPOSALS
26904 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

44See Item 27(b)(7)(ii) of Form N–1A. 

45Funds that include performance information in 

their advertisements must make updated 

performance information available and provide a 

toll-free number or web address for obtaining 

updated performance information. See rule 

482(b)(3)(i) under the Securities Act. Further, to the 

extent a fund provides updated performance 

information, it must include in its prospectus 

information about how investors can obtain 

updated performance information. See Item 

4(b)(2)(i) of Form N–1A. 

46See Article 4 of Commission Regulation (EU) 

583/2010, available at http://eur-lex.europa.eu/ 

LexUriServ/LexUriServ.do?uri=OJ:L:2010:176:0001:

0015:en:PDF. 

the last 10 years (or for the life of the 

fund, if shorter) of a hypothetical 

$10,000 initial investment against an 

appropriate broad-based securities 

market index (such as the S&P 500). In 

addition, the fund must include a table 

with the fund’s average annual returns 

for the most recent 1-, 5-, and 10-year 

periods.44 Many funds also voluntarily 

provide additional information, such as 

a fund president’s letter to shareholders, 

interviews with portfolio managers, 

market commentary, and other similar 

information that is intended to assist 

investors in understanding fund 

performance and market conditions. 

Some funds include specific portfolio 

statistics, such as top ten holdings, 

geographic and sector exposures, and 

summary statistics with respect to debt 

yields and maturities. 

The MDFP can be an important 

communications tool that helps 

investors understand fund performance, 

the strategies the fund has used, and the 

risks it has taken on. This can help 

investors make decisions about whether 

to buy, sell, or continue to hold fund 

shares. While most funds meet the basic 

requirements of the MDFP, the staff has 

observed diversity in practice in the 

level of fund-specific detail or insight 

management provides and the degree to 

which funds use generic or boilerplate 

language that does not change much 

from year to year. 

As the MDFP is important to help 

investors understand performance, we 

are seeking comments on how to 

improve the MDFP requirements to 

enhance the investor experience and 

promote more informed investment 

decisions. 

Request for Comment 

92. How do you use the MDFP, and 

what parts of it do you consider helpful? 

Is there any additional information that 

you would like to have to better 

understand your fund’s performance? 

Are there more effective ways to present 

or supplement MDFP, for example, by 

linking the section to an online video 

presentation? 

93. A fund must disclose its MDFP 

over the past year in its annual report. 

Would it be useful to you if funds also 

included MDFP in their semiannual 

reports? 

94. Does MDFP disclosure adequately 

describe how a fund has performed over 

the prior period? Do funds adequately 

explain market conditions and trends 

and how they relate to the fund’s 

performance during the relevant period? 

Do fund MDFP disclosures adequately 

explain the investments and strategies 

that significantly contributed to or 

detracted from the fund’s performance? 

Would additional graphics or narrative 

discussion of fund holdings be helpful 

to investors? If so, what kind of 

information would be useful? If not, 

why not? Are there any best practices in 

MDFP disclosure that we should 

encourage or require? 

95. Should the MDFP requirements 

include a standardized format, such as 

a Q&A format? If so, what standardized 

sections or information should be 

included? What are the advantages and 

disadvantages of including more 

standardized information? 

96. The MDFP requirements are 

currently the same for all mutual funds 

(other than money-market funds) and 

ETFs. Should there be special 

requirements for different types of funds 

(such as a target date fund comparing its 

actual holdings to how it expected to 

invest at a given time))? 

6. Fund Advertising 

Investors often rely on advertising 

materials made available by a fund to 

make investment decisions. This 

information may take many forms and 

can include materials in newspapers, 

magazines, radio, television, direct mail 

advertisements, fact sheets, newsletters, 

and on various web-based platforms. 

The Commission has adopted special 

advertising rules for funds; the most 

important of these is rule 482 under the 

Securities Act. 

Rule 482 contains requirements for 

fund advertisements that are intended to 

provide investors information that is 

balanced and informative, particularly 

in the area of investment performance. 

For example, a fund is required to 

include in its advertisements the 

following: 

• Disclosure advising investors to 

consider the fund’s investment 

objectives, risks, charges and expenses, 

and other information described in the 

fund’s prospectus, and highlighting the 

availability of the fund’s prospectus. 

• If performance data is provided for 

mutual funds, ETFs, or certain variable 

insurance products, certain 

standardized performance information, 

information about any sales loads or 

other nonrecurring fees, and a legend 

warning that past performance does not 

guarantee future results.45

• If the fund is a money market fund, 

a cautionary statement disclosing the 

particular risks associated with 

investing in a money market fund. 

The rule also sets forth specific 

requirements regarding (1) the 

prominence of certain disclosures, (2) 

advertisements that make tax 

representations, (3) advertisements used 

before the effectiveness of the fund’s 

registration statement, and (4) the 

timeliness of performance data. 

Because fund advertisements 

(including information on fund 

websites) are so commonplace and are 

a principal source of information for 

fund investors, we are seeking 

comments on how to improve the 

requirements associated with fund 

advertisements to enhance the investor 

experience and promote more informed 

investment decisions. 

Request for Comment 

97. Have you ever made an 

investment decision or looked more 

closely at a fund based on an 

advertisement? If so, what type of 

advertisement was it (such as radio, TV, 

internet, or print)? What aspects of the 

advertisement motivated you to invest 

in or look more closely at a fund? 

98. In some countries, funds are 

required to state whether you are 

reading an advertisement or a 

prospectus. For example, the European 

Union’s KIID includes standardized 

language explaining that it is not 

marketing material and that it is 

required by law to help you understand 

the nature and the risks of investing in 

the fund.46 Are you able to distinguish 

a fund advertisement from a document 

required by law (such as a summary 

prospectus or shareholder report)? Do 

you think it is necessary for you to 

know the difference? Do you rely more 

on one type of document over another? 

99. Many funds have fund fact sheets, 

which are short documents (typically 

one or two pages) that include select 

information about the fund. Do you 

think fund fact sheets are more readable 

than SEC-required disclosure 

documents, such as summary 

prospectuses? If so, why? Do you think 

that fund fact sheets provide sufficient 

information for you to make an 

investment decision? 

100. Do you think fund 

advertisements provide a clear 

discussion of the potential risks and 

returns of an investment in a fund? 


daltland on DSKBBV9HB2PROD with PROPOSALS
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26905 

47As noted in the Commission’s Spring 2018 

Regulatory Flexibility Act agenda, the Commission 

also may consider a rule proposal designed to 

provide variable annuity investors with more userfriendly disclosure and to improve and streamline 

the delivery of information about variable annuities 

through increased use of the internet and other 

electronic means of delivery. See https://

www.reginfo.gov/public/do/eAgenda

Main?operation=OPERATION_GET_AGENCY_

RULE_LIST¤tPub=true&agencyCd=

3235&Image58.x=58&Image58.y. 

101. Have you observed any fund 

advertisements that you believe are 

misleading or otherwise problematic? If 

so, why do you believe they were 

misleading or otherwise problematic? 

Should certain fund advertisements be 

required to include warnings analogous 

to those in advertisements for 

pharmaceuticals or prescription 

medications? 

102. Do the advertising rules 

effectively operate with respect to newer 

advertising media, such as websites, 

smartphone applications, and email? 

For instance, should there be special 

requirements, such as embedded 

hyperlinks in web-based advertisements 

to the fund prospectus? Are there 

special issues we should consider about 

how you access and view information? 

For example, a printed disclaimer at the 

bottom of a video may be effective on 

a 50-inch TV or on a computer monitor, 

but may be less effective on a 5-inch 

mobile device. In addition to 

performance data, are there other types 

of information that we should 

standardize in advertisements? For 

instance, should we require fee 

information in an advertisement to be 

consistent with the figures shown in the 

fee table section of the fund’s 

prospectus? 

103. Rule 482 includes special 

disclosure requirements for certain 

funds such as money market funds. Are 

there other types of funds for which 

special disclosures should be required 

in fund advertisements? 

7. Other Types of Funds 

In addition to mutual funds and ETFs, 

there are other types of funds available 

to investors to help them achieve their 

investment goals. The most common of 

these funds include the following: 

• Closed-End Funds. Invests the 

money raised in its offering in stocks, 

bonds, and/or other investments. 

Closed-end funds typically sell a fixed 

number of shares in traditional 

underwritten offerings. Closed-end fund 

shares are not redeemable (that is shares 

cannot be returned to the fund for their 

net asset value); instead, investors sell 

closed-end fund shares in secondary 

market transactions, usually on a 

securities exchange, or to the fund if it 

offers to repurchase shares. 

• Business Development Companies. 

Closed-end funds that primarily invests 

in small and developing businesses and 

that generally makes available 

significant managerial assistance to such 

businesses. 

• Unit Investment Trusts. Invests the 

money raised from many investors in its 

one-time public offering in a generally 

fixed portfolio of stocks, bonds, or other 

investments. 

• Variable Insurance Products. Offers 

investors insurance benefits (such as 

protection against outliving your assets) 

coupled with the ability to participate in 

the securities markets (through 

investments in mutual funds) while 

deferring taxes on gains until the assets 

are withdrawn. 

Because of the unique nature of these 

types of funds, they are subject to 

different disclosure requirements. We 

are seeking input on how to 

appropriately tailor disclosure 

requirements to these types of funds. 

Request for Comment 

104. Different types of funds are 

subject to different disclosure 

requirements and file on different 

disclosure forms. Are there disclosure 

requirements that we should 

standardize across the various types of 

funds (such as fees, performance 

presentations, and MDFP)? If so, please 

identify them. 

105. Are the various disclosure forms 

well-tailored to the types of funds that 

must use the forms? If not, how can we 

improve the forms? Should we 

eliminate or consolidate some forms 

that funds no longer use or use 

infrequently? 

106. Should we permit funds other 

than mutual funds and ETFs, such as 

closed-end funds, to use a summary 

prospectus? 47 If so, what information 

should we include in a summary 

prospectus for such funds? 

107. Should we expand the MDFP 

requirement, which currently applies to 

mutual funds and ETFs, to cover other 

types of funds (such as closed-end 

funds)? 

108. Closed-end funds are not 

required to show performance 

information in their prospectuses in the 

same chart and table format required for 

mutual funds and ETFs. Should the 

Commission require that closed-end 

funds present performance information 

in the same format as mutual funds and 

ETFs? Are there other types of 

performance metrics for evaluating 

closed-end fund performance that may 

be useful to investors? 

E. Opportunities for Ongoing 

Assessment of Disclosure Effectiveness 

Capital markets are evolving 

continuously in response to technology 

and innovation. While these 

developments present regulatory 

challenges, they also allow us to explore 

ways to improve fund disclosure 

effectiveness. We are seeking comments 

on opportunities the Commission 

should consider in order for it to assess 

disclosure effectiveness on an ongoing 

basis to improve the investor experience 

and promote more informed investment 

decisions. 

Request for Comment 

109. We seek to engage directly with 

America’s investors on fund disclosure 

matters. Do you have suggestions for 

other ways we can increase our direct 

engagement with investors, like you, on 

key topics? For example, should we 

expand our use of investor testing, focus 

groups, surveys, online chats, and town 

halls? If so, in which forum would you 

be most likely to participate? 

16. Should we conduct pilot programs 

to test potential disclosure alternatives 

suggested by fund professionals and/or 

investor advocacy groups? 

110. Should we consider the use of 

committees or roundtables as formats to 

engage investors and market 

participants on fund disclosure matters? 

For example, should we establish an 

advisory committee on fund disclosure, 

or are there existing committees under 

which the function should be 

performed, such as our Investor 

Advisory Committee? Should we 

sponsor annual roundtables on fund 

disclosure matters with representatives 

from the asset management profession, 

other financial professionals, academics, 

and investor advocacy groups? Where 

should those roundtables be held (in 

Washington, DC, or other locations)? 

111. Are there any other approaches 

we should consider to assess the 

effectiveness of fund disclosure? 

III. General Request for Comment 

In addition to the specific issues 

highlighted for comment, we invite 

investors and other members of the 

public to address any other matters that 

they believe are relevant to improving 

fund disclosure requirements or 

improving the investor experience and 

contributing to more informed 

investment decisions. 

By the Commission. 


daltland on DSKBBV9HB2PROD with PROPOSALS
26906 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

Dated: June 5, 2018. 

Brent J. Fields, 

Secretary. 

BILLING CODE 8011–01–P 


daltland on DSKBBV9HB2PROD with PROPOSALSEP11JN18.001</GPH>

Appendix A: Hypothetical Mutual Fund Summary Prospectus 

The XYZ Growth Fund 

Class A- XYZGA 

XYZ Funds, Inc. 

Class C- XYZGC 

Summary Prospectus 

November 1, 2017 

Before you invest, you may want to review the Fund's prospectus, which contains more information about the Fund 

and its risks. You can find the Fund's prospectus and other information about the Fund, online at 

www.xvzfunds.com/funddocuments. You can also get this information at no cost by calling 1-800-XYZ-FUND or by 

sending an email request to documents@xvzfunds.com. 

Investment Objective: Long-term capital appreciation. 

Fees and expenses of the Fund: This table describes the fees and expenses that you may pay if you buy and hold 

shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in 

the future, at least $25,000 in XYZ Funds. More information about these and other discounts is available from your 

financial professional and in the Purchase and Sale of Fund Shares section on page 33 of the Fund's prospectus. 

Shareholder Fees 

(Fees paid directly from your investment) 

Class A Class C 

Maximum Sales Charge (Load) Imposed on Purchases (as% of offering price) 5.00% None 

Maximum Deferred Sales Charge (Load) (as% of offering price) None None 

Annual Fund Operating Expenses 

(Ongoing expenses that you pay each year based on the value of your investment) 

Class A Class C 

Management Fees 0.50% 0.50% 

Distribution and/or Service (12b-1) Fees 0.25% 0.75% 

Acquired Fund Fees and Expenses 0.03% 0.03% 

Other Expenses 0.18% 0.18% 

Total Annual Fund Operating Expenses 0.96% 1.46% 

Fee Waiver1 (0.06)% (0.06)% 

Total Annual Fund Operating Expenses After Fee Waiver1 0.90% 1.40% 

The Adviser has contractually agreed to waive 0.06% of its management fee from the Fund until November 1, 2018. 

Before that date, the agreement may be terminated only by the Board of Trustees of the XYZ Funds. 
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26907 


daltland on DSKBBV9HB2PROD with PROPOSALSEP11JN18.002</GPH>

Example 

This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other 

mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then 

redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% 

return each year and that the Fund's operating expenses remain the same. Although your actual costs may be 

higher or lower, based on these assumptions your costs would be: 

Class A (if shares are redeemed) 

Class C (if shares are redeemed) 

Portfolio Turnover 

1 year 

$587 

$143 

3 years 

$785 

$456 

5 years 

$998 

$791 

10 years 

$1,612 

$1,740 

The Fund pays transaction costs, such as commissions, when it buys and sells securities (or /{turns over" its 

portfolio). 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. These costs, which are not reflected in annual fund operating 

expenses or in the example, affect the Fund's performance. During the most recent fiscal year, the Fund's 

portfolio turnover rate was 35% of the average value of its portfolio. 

Principal Investment Strategies: The Fund invests mainly in the stocks of mid- and large-capitalization U.S. 

companies whose revenues and/or earnings are expected to grow faster than those of the average company in the 

market. The Fund defines mid- and large-capitalization companies as those with market capitalizations greater 

than $5 billion. 

The Adviser expects that normally the Fund's portfolio will tend to emphasize investments in securities issued by 

U.S. companies, although it may invest in foreign securities. The Fund may also invest in exchange-traded funds 

(ETFs) to gain exposure to a particular portion of the market. 

Principal Risks: You could lose money by investing in the Fund. The Fund is subject to the following risks, which 

could affect the Fund's performance: 

• ETF Risk: ETFs are subject to the risks of investing in the underlying securities. ETF shares may trade at a 

premium or discount to net asset value and are subject to secondary market trading risks. In addition, the 

Fund will bear a pro rata portion of the operating expenses of an ETF in which it invests. 

• Foreign Securities Risk: Investments in securities of non-U.S. issuers may involve more risk than those of U.S. 

issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, 

economic, political, regulatory, or other factors. 

• Investment Style Risk: Under certain market conditions, the returns from mid- and large-capitalization growth 

stocks may trail returns from the overall stock market. Mid- and large-capitalization growth stocks tend to go 

through cycles of doing better- or worse- than other segments of the stock market or the stock market in 

general. These periods have, in the past, lasted for as long as several years. 

• Manager Risk: There is the chance that poor security selection will cause the Fund to underperform relevant 

benchmarks or other funds with a similar investment objective. 

• Stock Market Risk: There is the chance that stock prices overall will decline. Stock markets tend to move in 

cycles, with periods of rising prices and periods of falling prices. 

An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit 

Insurance Corporation or any other government agency. 
26908 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 


daltland on DSKBBV9HB2PROD with PROPOSALSEP11JN18.003</GPH>

Annual Total Return: The following bar chart and table provide some indication of the risks of investing in the 

Fund by showing changes in the Fund's performance from year to year (for its Class A shares in the bar chart) and 

by showing how the Fund's average annual returns for 1, 5, and 10 years compare with those of a broad measure 

of market performance. The Fund's past performance (before and after taxes) is not necessarily an indication of 

how the Fund will perform in the future. 

Visit www.xvzfunds.com for more recent performance information. 

Year-by-Year performance: 

40 

30 

20 

10 

0 

-10 

-20 

-30 

-40 

Best Quarter (ended 12/31/13): 17.15%. Worst Quarter (ended 12/31/08): -23.11. Sales charges are not reflected 

in the bar chart, and if those charges were included, returns would be less than those shown. 

Average Annual Total Returns for Periods Ended December 31, 2016 

1 Year 5 Years 10 Years 

Class A (Return Before Taxes) 4.56% 12.89% 6.19% 

Class A (Return After Taxes on Distributions) 4.18 11.92 5.74 

Class A (Return After Taxes on Distributions and Sale of Fund Shares) 4.03 11.62 5.66 

Class C (Return Before Taxes) 9.09 13.43 6.14 

QRS Total Stock Market Index (reflects no deduction for fees, 

expenses, or taxes) 11.91% 14.56% 6.97% 

The after-tax returns are shown only for Class A shares and are calculated using the historical highest 

individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual 

after-tax returns depend on an investor's tax situation and may differ from those shown. After-tax 

returns are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such 

as 401(k) plans or individual retirement accounts. 

Investment Adviser: XYZ Management Company, LLC 

Portfolio Manager: John E. Smith, CFA, Vice President and Equity Portfolio Manager of XYZ Management. Mr. 

Smith has managed the Fund since 2011. 

Purchase and Sale of Fund Shares: You may purchase or redeem shares of the Fund on any business day online or 

through our website at www.xyzfunds.com, by mail (XYZ Funds, Box 1000, Anytown, USA 10000), or by telephone 

at 800-XYZ-FUND. Shares may be purchased by electronic bank transfer, by check, or by wire. You may receive 

redemption proceeds by electronic bank transfer or by check. You generally buy and redeem shares at the Fund's 

next-determined net asset value (NAV) after XYZ receives your request in good order. NAVs are determined only 

on days when the NYSE is open for regular trading. The minimum initial purchase is $2,500. The minimum 

subsequent investment is $100 (or $50 under an automatic investment plan). 
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26909 


daltland on DSKBBV9HB2PROD with PROPOSALSEP11JN18.004</GPH>

Tax Information: The Fund's distributions may be taxable as ordinary income or capital gain. If you are investing 

through a tax-advantaged account, such as an IRA or an employer-sponsored retirement or savings plan, special 

tax rules apply. 

Payments to Broker-Dealers and Other Financial Intermediaries: If you purchase the Fund through a brokerdealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the 

intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by 

influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another 

investment. Ask your salesperson or visit your financial intermediary's website for more information. 
26910 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 


daltland on DSKBBV9HB2PROD with PROPOSALSEP11JN18.005</GPH>

Appendix B: Feedback Flier on Improving Fund Disclosure 

Does the information you get from mutual funds or other funds really 

work for you? 

We're asking everyday investors like you what you think about how funds disclose important 

information- and how it could be better. 

It's important to us at the SEC to hear from individual investors so we can make it easier for 

you to choose the investments that are right for you. 

Please take a few minutes to answer any or all of these questions- and thank you for your 

feedback! 

Questions 

Overall Investor Experience 

1. How do you pick funds? What information do you want to know when you make an 

investment in a fund? What publications or websites do you review? What tools, online or 

otherwise, do you use? Do you look at the SEC's website? 

2. Do you read current fund disclosure documents? Do you understand them? Is there 

information you do not receive from the fund that you would like to get? 

3. How well do current fund disclosures (such as a summary prospectus, prospectus, or 

shareholder report) help you pick an investment? Is it easy to compare different funds? Are 

there technology-based tools that could make fund comparisons easier? What helpful 

features do those tools have? 

4. Do you use the advice of a financial professional? Does a financial professional's help 

affect whether and how you use fund disclosures? 

Delivery 

5. How do you prefer to receive communications about fund investments? For example, do 

you prefer mail delivery, email, website availability, mobile applications, or a combination? 

6. What types of fund information do you prefer to access electronically? What types of fund 

information do you prefer to receive in paper? Are there other ways- such as by video or 

audio- you would like to receive fund information? 

7. How can the SEC better use technology and communication tools to help investors focus on 

important fund information? 

Design 

8. Is there too much technical writing in fund disclosure? Would you prefer more tables, 

charts, and graphs? Would these graphic displays be in addition to, or in place of, textheavy disclosures? 
Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 26911 


daltland on DSKBBV9HB2PROD with PROPOSALSEP11JN18.006</GPH>

9. Do you prefer to receive shorter "summary" disclosures, with additional information 

available online or upon request? 

10. Should fund disclosures be more personalized? For example, should disclosures show the 

amount of fees you paid or your actual investment returns? If so, how? 

Content 

11. Do fund disclosures make the fund's strategies and the level of risk clear? How can funds 

improve these disclosures? Would a risk rating, such as a numerical or graphical measure of 

risk, be helpful? 

12. Fund fees and expenses can significantly affect a fund's investment returns over time. Do 

you think funds clearly disclose their fees and expenses? How could funds improve the 

disclosure of fees and expenses? Would a comparison of your fund's fees against other 

funds' fees help? 

13. Do you consider the past performance of a fund when making an investment decision? How 

could we improve the presentation of performance information? 

Final Thoughts 

14. Aside from this questionnaire, are there other ways the SEC can engage with investors, like 

you, on key topics? Is there anything else you would like to tell us? 

How to Provide Feedback 

You can send us feedback in the following ways (include the file number S7-12-18 in your 

response): 

Mail Secretary 

Securities and Exchange Commission 

1 00 F Street, NE 

Washington, DC 20549-1090 

Email rule-comments~sec.gov 

SEC Website https://www.sec.gov/rules/other.shtml 

We will post your feedback on our website. Your submission will be posted without 

change; we do not redact or edit personal identifying information from submissions. You 

should only make submissions that you wish to make available publicly. 

Thank you! 

Mutual funds, ETFs, and other funds provide information to investors in different ways, 

including in prospectuses, shareholder reports, and advertisements. If you are interested in 

more information on fund disclosure, or want to provide feedback on additional questions, 

click here (link). Comments should be received on or before October 31, 2018. 
26912 Federal Register / Vol. 83, No. 112 / Monday, June 11, 2018 / Proposed Rules 

1Rule 210 also contains requirements to address 

the CAA title V requirements for operating permit 

programs, but we are not evaluating the rule for title 

V purposes at this time. We will evaluate Rule 210 

for compliance with the requirements of title V of 

the Act and the EPA’s implementing regulations in 

40 CFR part 70 following receipt of an official part 

70 program submittal from Maricopa County 

containing this rule. 

[FR Doc. 2018–12408 Filed 6–8–18; 8:45 am] 

BILLING CODE 8011–01–C 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R09–OAR–2017–0481; FRL–9978– 

82—Region 9] 

Air Quality State Implementation 

Plans: Arizona; Approval and 

Conditional Approval of State 

Implementation Plan Revisions; 

Maricopa County Air Quality 

Department; Stationary Source Permits 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Proposed rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is proposing action on 

revisions to the Maricopa County Air 

Quality Department (MCAQD) portion 

of the state implementation plan (SIP) 

for the State of Arizona. We are 

proposing full approval of three rules 

and conditional approval of three rules 

submitted by the MCAQD. The revisions 

update the MCAQD’s New Source 

Review (NSR) permitting program for 

new and modified sources of air 

pollution. We are taking comments on 

this proposed rule and plan to follow 

with a final action. 

DATES: Any comments must arrive by 

July 11, 2018. 

ADDRESSES: Submit your comments, 

identified by Docket ID No. EPA–R09– 

OAR–2017–0481 at http://

www.regulations.gov, or via email to 

R9AirPermits@epa.gov. For comments 

submitted at Regulations.gov, follow the 

online instructions for submitting 

comments. Once submitted, comments 

cannot be removed or edited from 

Regulations.gov. For either manner of 

submission, the EPA may publish any 

comment received to its public docket. 

Do not submit electronically any 

information you consider to be 

Confidential Business Information (CBI) 

or other information whose disclosure is 

restricted by statute. Multimedia 

submissions (audio, video, etc.) must be 

accompanied by a written comment. 

The written comment is considered the 

official comment and should include 

discussion of all points you wish to 

make. The EPA will generally not 

consider comments or comment 

contents located outside of the primary 

submission (i.e. on the web, cloud, or 

other file sharing system). For 

additional submission methods, please 

contact the person identified in the FOR

FURTHER INFORMATION CONTACT section. 

For the full EPA public comment policy, 

information about CBI or multimedia 

submissions, and general guidance on 

making effective comments, please visit 

https://www.epa.gov/dockets/ 

commenting-epa-dockets. 

FOR FURTHER INFORMATION CONTACT: 

Shaheerah Kelly, EPA Region IX, (415) 

947–4156, kelly.shaheerah@epa.gov. 

SUPPLEMENTARY INFORMATION: 

Throughout this document, ‘‘we,’’ ‘‘us,’’ 

and ‘‘our’’ refer to the EPA. 

Table of Contents 

I. The State’s Submittal 

A. What rules did the State submit? 

B. Are there other versions of these rules? 

C. What is the purpose of the submitted 

rule revisions? 

II. The EPA’s Evaluation 

A. How is the EPA evaluating the rules? 

B. Do the rules meet the evaluation 

criteria? 

III. Proposed Action and Public Comment 

IV. Incorporation by Reference 

V. Statutory and Executive Order Reviews 

Definitions 

For the purpose of this document, we 

are giving meaning to certain words or 

initials as follows: 

(i) The word or initials ADEQ mean or refer 

to the Arizona Department of Environmental 

Quality. 

(ii) The word or initials CAA or Act mean 

or refer to the Clean Air Act, unless the 

context indicates otherwise. 

(iii) The initials CFR mean or refer to Code 

of Federal Regulations. 

(iv) The initials or words EPA, we, us or 

our mean or refer to the United States 

Environmental Protection Agency. 

(v) The word or initials MCAQD or 

Department mean or refer to the Maricopa 

County Air Quality Department, the agency 

with jurisdiction over stationary sources 

within Maricopa County, Arizona. 

(vi) The initials NAAQS mean or refer to 

the National Ambient Air Quality Standards. 

(vii) The initials NSR mean or refer to New 

Source Review. 

(viii) The initials NNSR mean or refer to 

nonattainment New Source Review. 

(ix) The initials PSD mean or refer to 

Prevention of Significant Deterioration. 

(x) The initials SIP mean or refer to State 

Implementation Plan. 

(xi) The word State means or refers to the 

State of Arizona. 

(xii) The word TSD means or refers to the 

Technical Support Document. 

I. The State’s Submittal 

A. What rules did the State submit? 

Table 1 lists the submitted rules 

addressed by this action with the dates 

that the rules were adopted by the 

MCAQD and submitted to EPA by the 

ADEQ, which is the governor’s designee 

for Arizona SIP submittals. These rules 

constitute the MCAQD’s air quality 

preconstruction NSR permit program. 

TABLE 1—MCAQD SUBMITTED RULES

Regulation & Rule No. Rule title 

Adoption or 

amendment 

date 

Submitted 

Regulation I, Rule 100 .................................................. General Provisions; General Provisions and Definitions.2/3/2016 5/18/2016 

Regulation II, Rule 200 ................................................. Permits and Fees; Permit Requirements ..................... 2/3/2016 5/18/2016 

Regulation II, Rule 210 1 .............................................. Permits and Fees; Title V Permit Provisions ............... 2/3/2016 5/18/2016 

Regulation II, Rule 220 ................................................. Permits and Fees; Non-Title V Permit Provisions ....... 2/3/2016 5/18/2016 

Regulation II, Rule 230 ................................................. Permits and Fees; General Permits ............................. 2/3/2016 5/18/2016 

Regulation II, Rule 240 ................................................. Permits and Fees; Federal Major New Source Review 2/3/2016 5/18/2016 

Regulation II, Rule 241 ................................................. Permits and Fees; Minor New Source Review ............ 9/7/2016 11/25/2016 


daltland on DSKBBV9HB2PROD with PROPOSALS